KARL MOORE: This is Karl Moore of the Desautels Faculty of Management of McGill University, Talking Management for The Globe and Mail. Today I am speaking to Henry Chesbrough who is a professor at the Hass School of Business, UC Berkeley.
HENRY CHESBROUGH: Good morning.
KM: Henry, one of the things that we have been thinking about in academy today is business model innovation. I know that you have been researching that. What are some of the things that you have come to?
HC: Thank you Karl, it is great to talk with you. One of the things that has prompted my research on business model innovation is studying how companies who do extensive research in development in their laboratories and develop wonderful new technologies, typically limit the commercialization of those technologies to the business model that they already have.
To put it another way, the same companies that invest many millions of dollars and develop extensive processes for creating new technologies have no process for exploring alternative ways to commercialize those technologies. In my research at Xerox, they created wonderful technologies out of the Palo Alto Research Center, or PARC, that gave rise to much of the computer technology that we use today.
Most of those technologies got commercialized not through PARC but through startups and spinoffs that left the lab, went out on their own, raised venture money, found different business models. Some of them actually then became quite valuable companies, creating great value for society, less value for Xerox's shareholders. The moral of the story, my interest in this business model innovation is that if we are going to sustain research and development in our society, we have to take seriously the task of how to innovate not only new technologies but how to innovate business models to commercialize those technologies.
KM: You are saying that Xerox should have learned how to do this within the Xerox world. If they had been more flexible they could have made a lot more profit over time.
HC: That is exactly what I am saying. Xerox is far from alone in this. I would say that very few companies that I have encountered have any real process for exploring other business models than the one that they already have. The few exceptions would be some of the conglomerate firms that are large enough that each of their business units perhaps has its own business model. Think of GE for example. Those companies excepted, most companies that we know of are typically one business model companies, as big and as successful as they are. They really have one and only one way that they find value and convert their ideas and technologies into value.
KM: This could be pretty radical because you are talking about corporate culture and how we do things around here. How does a company, a CEO or a senior team say, how do we break the mould? What is your suggestion on how to practically do this?
HC: What does become a really important problem when you take this seriously, is that there are enormous organizational change costs to doing this. It introduces new tensions inside of companies that have to be carefully managed if you are going to have any chance of success. I have essentially a four step process for thinking about how to introduce this. The first step is one of experimentation: that it is not enough to simply say that we ought to try a new way to commercialize our technologies; you have to start collecting data that demonstrate that not only it is different from what you are doing right now but that it actually works. There are a lot of bad ways to commercialize technologies too, so it takes an experimental attitude at the beginning. The second stage is you then need to begin to understand and analyze the results of the data that you are getting and then build upon those experiments that seem to be most successful. That begins to start to shape what might be the beginning of a new business model, in the second stage.