In ambitious new book, Henry Chesbrough shows how to get results from open innovation

Adj. Prof. Henry ChesbroughWhen Adj. Prof. Henry Chesbrough, PhD 97, was researching open innovation in the pharmaceutical industry, he found one pharma that had 7,000 scientists working on tens of thousands of compounds. But the company only licensed out less than one a year, shelving the others.

Although some of those shelved compounds may have succeeded in the marketplace, companies may fear they’ll look bad if a product they passed on thrives externally—a phenomenon he calls “Fear of Looking Foolish” or FOLF. “Our interview subjects admitted to us that FOLF was a major constraint to overcoming this,” Chesbrough writes.

It’s been 16 years since the publication of Chesbrough’s Open Innovation launched a new paradigm for bringing new technologies to market, spurring companies to embrace the power of collaborative business models.

Open Innovation Results book coverChesbrough is back to close the loop with his most ambitious work to date. Open Innovation Results: Going Beyond the Hype and Getting Down to Business (Nov. 2019, Oxford University Press) offers a clear-eyed view of the challenges that limit organizations’ ability to create and profit from innovation and practical tools for overcoming those challenges.

The book also provides a roadmap to restore productivity and economic growth for society as a whole—in the U.S. and globally.

David Teece, the Thomas W. Tusher Professor in Global Business, says Open Innovation Results breaks new ground. “It links open innovation not only to enterprise performance but to national economic growth as well,” he says. “There are important insights into the difference between ‘open’ and ‘free’ innovation, along with insightful characterizations of China’s use of open innovation practices and policies.”

Open innovation centers on the idea that companies stand more to gain from making use of external ideas and sharing their own innovations through licensing, sales, partnerships, and spinoffs than from trying to do it all themselves. A famous example: IBM’s development of the PC.

“We wanted to do something small and fast…so it was critical to IBM’s success that we partnered with Intel and Microsoft and created the PC industry together,” said Jim Spohrer, Director of Cognitive OpenTech at IBM and a member of the Berkeley Innovation Forum, a group created by Chesbrough to help corporate managers involved in innovation.

Has the promise of innovation been overhyped?

Chesbrough opens the book with an “exponential paradox” that’s at the heart of our current global economic situation: While new technologies are emerging faster and faster—some say exponentially—economic productivity is slowing. Has the promise of innovation been overhyped?

The real problem, Chesbrough argues, is that promoters of innovation too often chase after “bright and shiny objects,” focusing on the initial stage of development and neglecting the rest of the process. Innovation results depend on what you finish, not on what you start, he says.

“In order to advance prosperity, we must not only create new technologies, but we must also disseminate them broadly and absorb them, which means having the knowledge and skills to put them to work in our business,” Chesbrough says. “Only then do we really see the social benefit of these new technologies, and only then will these measures of economic productivity catch up again.”

Chesbrough shapes these three facets of innovation—generation, dissemination, and absorption—into a new paradigm for managing R&D and bringing new technologies to market. Rooted in two decades of extensive field research, the book is packed with real examples of successes and failures from companies such as Procter & Gamble, IBM, Intel, General Electric, Bayer, and Huawei.

Carlos Moedas, the European Union’s Commissioner for Research, Science, and Innovation, says the book’s complex concepts are easily relatable. “[It’s] a must-read for politicians, policy-makers, and business leaders who want to make a difference by designing the right policies that drive not only the generation of new ideas, but…their broad dissemination and adoption by society,” he says.

About Henry Chesbrough

Henry Chesbrough is widely known as “the father of open innovation”. He has built an international reputation for his insights into the innovation process. The author of six books (translated into 12 languages) and numerous articles, he has received 70,000 citations to his work on Google Scholar. He has appointments at both UC Berkeley’s Haas School of Business and at Esade Business School in Barcelona.

Prof. Chesbrough founded and organizes two external groups of companies that each meet twice a year to discuss challenges in managing innovation: the Berkeley Innovation Forum (32 member companies) and the European Innovation Forum (20 member companies). He has taught at the Haas School of Business for the past 14 years, at Esade Business School for the past 7 years, and taught previously at Harvard Business School for 6 years. He also serves as the Faculty Director of the Garwood Center for Corporate Innovation at Berkeley Haas.

Open Innovation Results is available for pre-order on Amazon.

Should the U.S. “decouple” from China? International experts debate at Haas

Nearly 40 years after President Richard Nixon’s historic visit to Beijing, should the U.S. disengage from its deeply entwined economic relationship with China?  

That was the topic for a panel of international experts and journalists at “The Great Decoupling and Sino-US Race for Technological Supremacy” held at Berkeley Haas on Oct. 17. Co-hosted by the Financial Times, the Asia Society, and Haas’ Institute for Business Innovation, the event included a panel discussion followed by a spirited Oxford-style debate. 

“This is the most important topic of our day. It flows into not just economics, not just technology, but into national security, and into the long-run performance and survival of liberal democracies,” said Prof. David Teece, faculty director Tusher Initiative for Management of Intellectual Capital, in introducing the event. “While the debate tonight is framed as ‘should there be a decoupling?’ it’s already starting to happen. Whether it’s the appropriate course or not is something we’ll need to think about.”

UC Berkeley Chancellor Carol Christ pointed out the important role universities play in this complex landscape.

The Chinese government has made investment in higher education an essential element of its competitive edge, even as the objective is complicated by state policies aimed at controlling inquiry and expression. Our university, meanwhile, long a proponent of international engagement and with deep, numerous, and varied academic collaborations in China, is now grappling with how we show support for Chinese students, scholars, and institutional partners suddenly cast as objects of suspicion.” 

The panelists included:

  • Robert Atkinson, President, Information Technology and Innovation Foundation
  • Professor Li Chenjian, Neuroscientist, Peking University
  • Dan Wang, Tech Analyst, Gavekal
  • Orville Schell, Director of the Center on U.S.-China Relations at the Asia Society and former dean of the Graduate School of Journalism

“It’s fair to say the world is at an important moment,” Schell said in his introduction. “When the two largest economies are in a state of changed grace, everything that goes on between us—whether it’s business and trade, but also things like scientific research, academic life, and cultural exchange—is under reconsideration, and that’s what’s known as decoupling.”

Li, who lived in the U.S. for 25 years as a neuroscientist at Cornell and Mt. Sinai before taking a post at Peking University, brought a different perspective, pointing out that China is 20% of humanity. “When we talk about decoupling, we are too much into the zero sum game between the U.S. and China…Instead of decoupling, I am more on the side of principled engagement,” he said. “I question the notion that after 40 years engagement has failed. My experience…is I that liberal democracy is winning in Chinese society, quietly, irreversibly, at the grassroots level.

Were the results of that experiment really so predictable? These researchers aim to find out.

Research prediction platform
Researchers have launched a beta version a new platform to predict research study results.

They say that hindsight is 20-20, and perhaps nowhere is that more true than in academic research.

“We’ve all had the experience of standing up to present a novel set of findings, often building on years of work, and having someone in the audience blurt out ‘But we knew this already!,’” says Prof. Stefano DellaVigna, a behavioral economist with joint appointments in the Department of Economics and Berkeley Haas. “But in most of these cases, someone would have said the same thing had we found the opposite result. We’re all 20-20, after the fact.”

Prof. Stefano DellaVigna
Prof. Stefano DellaVigna

DellaVigna has a cure for this type of academic Monday morning quarterbacking: a prediction platform to capture the conventional wisdom before studies are run.

Along with colleagues Devin Pope of the University of Chicago’s Booth School of Business and Eva Vivalt of the Research School of Economics at Australian National University, he’s launched a beta website that will allow researchers, PhD students, and even members of the general public to review proposed research projects and make predictions on the outcome. 

Making research more transparent

Their proposal, laid out in a new article in Science’s Policy Forum, is part of a wave of efforts to improve the rigor and credibility of social science research. These reforms were sparked by the  replication crisis—the failure of reproduce the results of many published studies—and include mass efforts to replicate studies as well as platforms for pre-registering research designs and hypotheses. 

“We thought there was something important to be gained by having a record of what people believed before the results were known, and social scientists have never done that in a systematic way,” says DellaVigna, who co-directs the Berkeley Initiative for Behavioral Economics and Finance. “This will not only help us better identify results that are truly surprising, but will also help improve experimental design and the accuracy of forecasts.”

Identifying truly surprising results

Because science builds on itself, people interpret new results based on what they already know. An advantage of the prediction platform is that it would help better identify truly surprising results, even in cases where there’s a null finding—which rarely get published because they typically aren’t seen as significant, the researchers argue. 

“The collection of advance forecasts of research results could combat this bias by making null results more interesting, as they may indicate a departure from accepted wisdom,” Vivalt wrote in an article on the proposal in The Conversation.

A research prediction platform will also help gauge how accurate experts actually are in certain areas. For example, DellaVigna and Pope gathered predictions from academic experts on 18 different experiments to determine the effectiveness of “nudges” versus monetary incentives in motivating workers to do an online task. They found the experts were fairly accurate, but there was no difference between highly cited faculty and other faculty, and that PhD students did the best.

Understanding where there is a general consensus can also help researchers design better research questions, to get at less-well-understood phenomena, the authors point out. Collecting a critical mass of predictions will also open up a new potential research area on whether people update their beliefs after new results are known. 

Making a prediction on the platform would require a simple 5-to-15-minute survey, DellaVigna says. The forecasts would be distributed to the researcher after data are gathered, and the study results would be sent to the forecasters at the end of the study.

Berkeley Haas Prof. Don Moore, who has been a leader in advocating for more transparent, rigorous research methods and training the next generation of researchers, says the prediction platform “could bring powerful and constructive change to the way we think about research results. One of its great strengths is that it capitalizes on the wisdom of the crowd, potentially tapping the collective knowledge of a field to help establish a scientific consensus on which new research results can build.”  

Haas energy experts weigh in on PG&E power shutoffs

Are mass power shutdowns the new normal for California, and what does this mean for the state’s businesses and the economy? What is the path forward for the state’s aging grid, and the thousands of miles of power lines strung across fire-prone wildlands?

Professors Severin Borenstein and Catherine Wolfram of the Energy Institute at Haas (See Q&A below) have been fielding a stream of questions from journalists all week after Pacific Gas & Electric determined it could not guarantee the safety of its lines and shut down power to hundreds of thousands of people, including the entire UC Berkeley campus. SoCal Edison also cut power Thursday.

Photo of Severin Borenstein
Severin Borenstein

Borenstein on Tuesday banged out a blog post with pro tips for getting through a power shutoff and then spent the day getting ready himself, packing the freezer with ice to add thermal mass. “This is why we live in a modern economy, so we don’t have to spend most of our lives doing these things,” Borenstein, the E.T. Grether Chair in Business Administration and faculty director for the Energy Institute at Haas, told the Los Angeles Times.

Wolfram, whose research centers on energy in the developing world, pointed out that in places with unreliable power such as sub-Saharan Africa, businesses have no choice but to incorporate the cost of backup power into their budgets. Commercial generators can run upwards of $10,000, she told NPR’s Marketplace.

“That becomes essentially like a tax on the economy,” said Wolfram, Cora Jane Flood Professor of Business Administration who also serves as Associate Dean for Academic Affairs and Chair of the Faculty.

catherine Wolfram
Catherine Wolfram

For California’s energy economy, the effects of climate change are throwing things off balance to the point where some things will have to change. Concrete poles may be necessary in windy areas; another possibility is that the state require batteries in new developments that are in high-risk fire areas so power shutoffs to them aren’t so disruptive, Borenstein suggested in another Los Angeles Times story.

Utilities have long sought to balance the cost of preventing wildfires with the need to sell cheap power, said Borenstein, who serves on the board of governors for the California Independent System Operator, which oversees the state grid. “It used to be that balance was viewed as pretty reasonable. With climate change, I think it’s not any more.”

We asked a few more questions of both professors.

Is it possible to gauge the economic impact of this week’s power shutoffs?

Catherine Wolfram: Yes and no. I’ve seen estimates that run all the way from $65M to $2.6B. That’s a pretty wide range, but even the high side is less than 1/1000th of the state’s annual GDP. So, while the outages are troubling, there shouldn’t be any concern that this will set us into a recession. (Update 10/14: Read Wolfram’s blog post estimating economic loss to be about $1B).

I’ve been pointing out, though, that these outages are very unusual because they’re a really long duration—not your typical two-minute to two-hour outage—but they’re not associated with a natural disaster. So, if we try to extrapolate from other multi-day outages, we’re likely conflating the effects of the thing that led to that outage, like Superstorm Sandy, say. With a hurricane, it’s likely that the economic losses reflect both the costs of the natural disaster and the costs of the lost power.

At the same time, there are likely going to be losses that are hard to measure. For instance, I got an email from a colleague who was worried that months of work on an experiment could be lost. Electricity is used for many, many different purposes in modern economies, so it’s really hard to put a precise number on the losses.

People were already angry with PG&E before this shutdown, and now they’re even angrier. Do you think the shutoffs were justified? 

CW: It’s really hard to know. The fires last year were devastating, so no one wants to repeat that experience. PG&E has pretty strong incentives right now to be extremely cautious.

Severin Borenstein: Effectively PG&E has a huge financial liability if their equipment starts a fire. On the other hand, the large financial and other costs of shutting off power are not borne by PG&E, but by customers. They do take a reputation hit, but don’t face the same sort of financial downside that would fall on them if their equipment started another fire.

In balance, were they effective?

CW: This involves proving a negative, which is practically impossible. We’ll never really know whether the outages prevented a fire from starting.

As we begin to feel the effects of climate change, what is the path forward for the state’s aging grid?

CW: I’d say that other utilities have been better than PG&E at investing in modern technologies that help prevent fires and give them more visibility into their electricity systems. For example, I’ve heard that San Diego Gas & Electric has technologies that de-energize lines when they sense that they’re falling. Hopefully, PG&E will start investing in things like this.

Study shows the social benefits of political incorrectness

New Berkeley Haas research sheds light on the psychology of politically incorrect speech—and why it’s so effective

A microphone at a political rally

When Rep. Alexandria Ocasio-Cortez refers to immigrant detention centers as “concentration camps,” or President Trump calls immigrants “illegals,” they may take some heat for being politically incorrect. But using politically incorrect speech brings some benefits: It’s a powerful way to appear authentic.

Researchers at UC Berkeley’s Haas School of Business found that adding even a single politically incorrect word or phrase in place of a politically correct one—”illegal” versus “undocumented” immigrants, for example—makes people view a speaker as more authentic and less likely to be swayed by others.

“The cost of political incorrectness is that the speaker seems less warm, but they also appear less strategic and more ‘real,’” says Asst. Prof. Juliana Schroeder, co-author of the paper, which includes nine experiments with almost 5,000 people and is forthcoming in The Journal of Personality and Social Psychology. “The result may be that people may feel less hesitant in following politically incorrect leaders because they appear more committed to their beliefs.”

Cuts across party lines

Although politically correct speech is more often defended by liberals and derided by conservatives, the researchers also found there’s nothing inherently partisan about the concept. In fact, conservatives are just as likely to be offended by politically incorrect speech when it’s used to describe groups they care about, such as evangelicals or poor whites.

“Political incorrectness is frequently applied toward groups that liberals tend to feel more sympathy towards, such as immigrants or LGBTQ individuals, so liberals tend to view it negatively and conservatives tend to think it’s authentic,” says Berkeley Haas PhD candidate Michael Rosenblum, the lead author of the paper (the third co-author is Francesca Gino of Harvard Business School). “But we found that the opposite can be true when such language is applied to groups that conservatives feel sympathy for—like using words such as ‘bible thumper’ or ‘redneck’.”

The researchers asked participants of all ideological backgrounds how they would define political correctness. The definition that emerged was “using language or behavior to seem sensitive to others’ feelings, especially those others who seem disadvantaged.” In order to study the phenomenon across the political spectrum, they focused on politically incorrect labels, such as “illegal immigrants,” rather than political opinions, such as “illegal immigrants are destroying America.”

That allowed them to gauge people’s reactions when just a single word or phrase was changed in otherwise identical statements. They found that most people, whether they identified as moderate liberals or conservatives, viewed politically incorrect statements as more authentic. They also thought they could better predict politically incorrect speakers’ other opinions, believing in their conviction.

The illusion of being easily influenced

In one field experiment, the researchers found that using politically correct language gives the illusion that the speaker can be more easily influenced. They asked 500 pre-screened pairs of people to have an online debate on a topic they disagreed on: funding for historically black churches. (The topic was selected because it had a roughly 50/50 split for and against in a pilot survey; no significant difference in support and opposition across political ideology; and involved both a racial minority and religious beliefs.) Before the conversation, one partner was instructed to either use politically correct or incorrect language in making their points.

Afterwards, people believed they had better persuaded the politically correct partners than the politically incorrect partners. Their partners, however, reported being equally persuaded, whether they were using PC or politically incorrect language. “There was a perception that PC speakers were more persuadable, though in reality they weren’t,” Rosenblum said.

Although President Trump’s wildly politically incorrect statements seem to make him more popular in certain circles, copycat politicians should take heed. The researchers found that politically incorrect statements make a person appear significantly colder, and because they appear more convinced of their beliefs, they may also appear less willing to engage in crucial political dialogue.

View the full study:

Tell it like it is: When politically incorrect language promotes authenticity

(forthcoming in The Journal of Personality and Social Psychology)

 

 

Asst. Prof. Jose Guajardo’s Chilean pride

In honor of Latinx Heritage Month, we’re featuring interviews with members of our Latinx community.

Assoc. Prof. Jose Guajardo
Assoc. Prof. Jose Guajardo (photo: Noah Berger)

Asst. Prof. Jose Guajardo joined the Haas Operations and IT Management Group in 2012 after earning his PhD from the Wharton School. He’s focused his research on business model innovation and business analytics in operations, carving out a niche focused specifically on service business models. He’s delved into the sharing economy and found that peer-to-peer rental services can actually help manufacturers, rather than hurting sales. More recently, he’s found that businesses going solar may be better off leasing rather than buying, and also studied how rent-to-own businesses can best operate in the developing world.

We spoke with Guajardo about his Chilean heritage and how it influences his work.

What are the roots of your heritage?

I was born in Chile. I grew up in the south and went to college in Santiago. I moved to the U.S. together with my wife to do our PhDs at Penn, and stayed in the U.S. since then. This is also how I became the father of three Chilean-Americans, all of them born in Berkeley.

How does your heritage shape your career, your cultural values, or the way that you go about your research and/or teaching? 

It has had a significant impact in my research and teaching. Several of my research projects benefit from my connection with Chile (co-authors at the University of Chile, data from companies operating in Chile and Latin America, etc.). Recently, I taught in Spanish at Haas in a management program for executives visiting Berkeley from a wide range of Latin American countries. And frequently in my regular teaching I make reference to the business reality in Latin America. 

Video: Fans of Guajardo’s favorite soccer team, Club Universidad de Chile, show their “pasion azul” (passion for blue, or the team’s color) in a game against rivals Universidad Católica.

Is there an aspect of your cultural heritage that you enjoy sharing with others?

Latin America is about passion. Passion with a sense of urgency. Attending a football match or a music event anywhere in Latin America can be an experience. Spending September 18 in Chile can be a good example too, as the whole country celebrates the national independence in quite a unique way. Hard to explain in words, but easy to recognize when you experience it.