It was somewhat ironic that I was having dim sum with Chinese friends of our family’s when I learned of Adam Davidson’s opinion piece "Will China Outsmart the U.S." in the New York Times. I was amused by the idea that something dire might happen if China caught up with the US.  I was amused for two reasons- First, historically we’ve been through this scare with Russia and Japan and the European Union and even South Korea. Second, having consulted for a Chinese company 6 years ago including time on the ground in Nanjing, I’m pretty sure that the Chinese have already caught up and surpassed the US in innovation in a number of areas. Many of us, including perhaps Mr. Davidson are blind to what they’re doing or pretend those gains don’t matter.

My clients would buy Western Agrochemical technology and improve on it.  They didn’t just run the plant according to the manual…they studied it, worked to improve on it, took some risks and they succeeded.  In the West, we’ve mostly stopped working on improving these things; the incremental profit wasn’t big enough compared to the phony profits reported by the Enrons and Worldcoms.  Anyhow, this kind of continuous, incremental improvement adds up over time.   We like to focus on something that looks like a big jump, say an iPhone, only to forget the hundreds of little technical advances it takes to make an iPhone work, to be manufacturable, to be affordable.  But innovation isn’t just about flashy iPhones…those incremental improvements in the manufacture of agchems matter too, and those iPhones are dependent on incremental advances elsewhere.   Abandoning the basics of manufacturing, insisting on unobtainable returns on investment based on comparisons with bad data leads to its own punishment.

It was also somewhat amusing, but also depressing reading the comments on Mr. Davidson’s article.  The racist denigration of the Chinese was something I would have hoped no American citizen would engage in.  Obviously it was a false hope.  On the other side of the coin was a masochistic delight in the decline of the US.  As someone in the trenches on the subject of innovation, I have a different point of view.  Note that my Chinese clients were buying the best technology they could find.  They would develop their own when there was no other choice, but contrary to the historic notion of insular, inward turning Chinese, they were looking outside their 4-walls and outside their country’s borders.

And that’s what we do here at NineSigma.  We make looking outside a company’s 4 walls an efficient process.  I like to call it manufacturing serendipity.  No matter how much research funding we have, talent is always a scarce resource, and even the Chinese with their huge population cannot have every smart person in the world working for them.  Embedding a systematic approach to accessing outside creativity is a way not to replace but extend innovation dollars, reduce risk and decrease time to market.  Right now, working with NineSigma is an unfair advantage for early adopters.  In the future it will be a necessity to keep pace technically.  So never mind China…which position would you rather have your company in, early adopter or late to the party?

In my last blog post I described my checkered past, and how from graduate school to present what we now call Open Innovation has been a constant presence in my career.  I reached outside many times, and can document millions of annual profits because of it.  I ended with this comment:

 “I’ve worked as they say, both sides of the street, and now I work in the in middle, part traffic cop, part coach, part target.”

Open Innovation is something I think is very much worthwhile even if I’m constitutionally allergic to the business jargon and buzzwords that surround it these days.  I have a privileged position now, applying my experience to helping other people do this.  I get to see a lot of what goes on inside a great many companies both in the US and now from my seat in the NineSigma office in Europe.

My first observation is that in general people are not as successful at open innovation as I was or current leaders like Procter and Gamble are.  I’m not unique in making this observation. Sieg et al ( J.H. Sieg, M.W. Wallin and G. von Krogh, R&D Management 40, 3, 2010) have looked at the use of intermediaries and come to similar conclusions examining the activities of another OI intermediary.  One of the striking observations is that 7 of 8 of the clients had abandoned their relationships with that intermediary.

Investigating the causes of these failed relationships it becomes clear that project expectations were not met. But is that the whole story?  Were the project expectations reasonable?  Were in fact the project choices reasonable?  In short the answer is mostly not.  This quote is all too familiar to me-

“If I said our scientists were not very enthusiastic, you can imagine what kind of problems the scientists put up and now I exaggerate a bit [ …] they […] didn’t come up with things they think might have a good chance of being solved.”

How is it that the corporate leadership that buys these services doesn’t see this coming?  Consider the possibility that the leadership has either been oversold or all on their own ‘over bought’.  OI is surrounded by hype about easy successes due to scooping up readily waiting technology and making big immediate impacts on bottom lines, promoting growth etc.  The very projects that don’t have a good chance of being solved above are also those that are likely to have hung around gathering dust precisely because if they were solved a great benefit would come.  So a skeptical or threatened scientist puts forward these unsolvable problems as a way to get this culturally new means doing things off their plate and senior management approves them because they fit the big score expectations that they have for OI.  A winning combination. 

The expectation of easy success going outside is one of many mistaken ideas we see.  Another is the false belief that the problems chosen are uniquely recognized.  The idea that the major problems in your market and/or technology space are not recognized by your competitors has no basis in reality.  Our team may be smart, but generally so is theirs.  But following this line of thinking leads to poorly specified requests being created in an effort to hide the real purpose.

A belief that is equally perplexing, but well known to researchers is the idea that our own team isn’t smart, so we need to look outside.  Generally, this attitude develops when scientists point out to management that their pet idea has a problem.  For years consultants have made comfortable livings providing second opinions in cases like these.  Now OI is used as well when internal scientists proffer an unwanted answer.  This in turns leads to projects where the chance of finding something is low.

So what makes a good OI project?  One clue can be found in the Seig article.  In describing progress towards a goal, the authors note that while the main objective is well documented and planned “…when problems occur on the way, they are discussed with colleagues in the group or in the hallway but rarely formulated in an explicit problem statement.  The problems are ‘in the heads of the scientists’…  My experience in delivering results with OI is that those little intermediate problems are precisely where big impacts on time to delivery of the overall project can be made.  Need to blend a mixture of dissimilar size and shape pellets? Need to separate misblended mixtures?  Sure we could have done it in house…eventually.  But going outside was so much faster.  Need to understand how a competitor achieved a longer shelf life?  Sure, we could have collected samples and tried one analysis after another, but finding the right expert got the job done in days to weeks.

What doesn’t get recognized also is that many of those ‘little’ problems are already solved by the use of outside resources.  We needed to reduce coking in a reactor preheater section.  A sales rep provided us with the right feed atomization technology.  This sort of problem solving is routine and because it isn’t a big problem, isn’t captured generally when people speak of OI success.  But without that atomizer or a hundred little things like it, we couldn’t have delivered the reactor model, and without the reactor model we couldn’t have built the pilot plant and without the pilot plant we couldn’t have validated the reactor simulator, and without the reactor simulator we couldn’t have designed the new system that put the millions on the bottom line.  For the want of a nail..the kingdom was lost.  These days, when working with clients, I tell this story and I ask them, “What are YOUR nails”?

NineSigma is, in contemporary parlance an “Open Innovation Intermediary”.  I like to keep it simpler.  We help people with problems make connections with people who might help them solve the problem.  It doesn’t sound as glamorous or hip when presented that way does it?  Or if you look at all the buzz around open innovation, you see a lot of repackaging of old wine in new bottles.  Since I am some of the older wine, I thought I’d share my experience in implementing OI in a SME and what I’ve learned that applies to today’s environment.

Of course, long before someone (Chesbrough, 2003) got the idea of calling getting something from outside your own fences “Open Innovation”,  people were doing just that.  We tend to overlook the roles of suppliers, academic consultants, and consulting firms and technology vendors, development alliances, organized networking and government programs that have been a constant feature of our global industrial civilization.  This means we also overlook the roles of the purchasing departments and corporate policies that engaged these traditional means of obtaining solutions from outside the fences.  The focus on web-centric communication mechanisms, the popularity of terms like “crowd-sourcing” and “innovation ecosystems” tend to promote unrealistic expectations of effortless and cost-free profitability and diminish the perceived value of established innovation infrastructures.  An unfortunate side effect of this kind of promotional language is that it can inspire resistance to OI mechanisms from the very people they can help the most:  The people responsible for delivering new technologies, products and business methods.  People who actually do the hard work of making innovation happen may well regard stories of great, effortless success with raised eyebrows.  The skepticism of working innovators to the management theory du jour or as a colleague puts it “Management by Bestseller” is something acquired easily in an industrial career.  When skepticism is replaced by cynicism, then the game is truly lost.

Before I started my industrial career, I, like all the other NineSigma program managers, was in graduate school.  My graduate advisor had a number of industrial research projects going on his group.  Ziegler-Natta catalyst studies is one such project that a friend of mine worked on.  One alumnus of the group brought in projects dealing with the applications of brassylic acid for macrocycle synthesis.  These are just two, never mind the spinoffs and ventures coming out of the group’s research that led to numerous successful companies and profits.

When I took my first industrial job at Air Products,  it seemed rather natural to cast around for academic groups that would be better places to park some of my research ideas than working on them myself, and I was encouraged to do so.  Air Products was no novice at building alliances and acquiring technology from the outside.  My first assignment (as part of a team) was to evaluate a technology proposal that was coming in from the outside.  Closely attached to the corporate R&D group was a commercial development fellow whose job was technology scouting.   He would visit universities and startup companies around the world, looking at the latest developments that might fit our business objectives.  I remember wanting his job someday.  I like to think my work with NineSigma gives me some of the best parts, seeing the innovations needs of our clients and the amazing range of solution components offered by people around the world.

My second industrial job was with a much smaller firm, Nepera Inc.  At the time we were owned by Schering AG.  What I discovered on arriving was a catalyst development program working together with Union Carbide, a consulting Professor in Munich and  Sude Chemie.  Clearly, this historic German firm was open to outside innovations.  I had a role in taking that project to commercialization 9 months after I started.   As a successor project, I initiated an outside effort for gas phase reaction modeling.  I learned some of the downsides of outside contracting when the supplier turned out to have significantly over-promised and then held out his hand for more money.

Looking outside however really went into high gear when Cambrex acquired Nepera. Cy Baldwin and the late Art Mendolia were old veterans of chemical industry.  Cy had lead marketing efforts at ARCO and Oxirane while Art lead research at Dupont and was later an Undersecretary of Defense.  When they set out on their own, they brought this experience in front of us and dropped it on the table during our first quarterly R&D review meeting. “Don’t think we’re going to spend a lot of money on R&D here,” they said. “We spent lots of money at DuPont and didn’t get a lot to show for it”.  This was rapidly followed with “Why are you doing that?  Couldn’t someone outside do it better/faster/cheaper?”

At our next review meeting we proudly described where we had engaged outside resources only to be questioned again, “What about the intellectual property here; shouldn’t you be doing this yourself?”  We got it right the third meeting, and thereafter, described a carefully thought through balance of internal and externally focused efforts.  Cy and Art did a significant part of their management of Nepera through those R&D review meetings, holding us accountable for all aspects of the project in relationship to our business objectives.  If we didn’t know something about another department’s activities we were chastised with the rhetorical question, “You’re a small company; don’t you guys talk to each other?” 

In between then and now, I worked for other small companies, as a technology consultant and as an entrepreneur trying to sell innovation into large companies.  I’ve worked as they say, both sides of the street, and now I work in the in middle, part traffic cop, part coach, part target.