Just this past week, I had the opportunity to update my retirement account contribution through my employer’s plan. Included in the glossy brochure that explained all the new features and investment products available to me was a quiz. You probably know the one- it has a series of questions that assess your tolerance for riskiness in your retirement investment portfolio. I bring this up because in the 3 years that I’ve been a Program Manager at NineSigma, I’ve seen many clients and potential clients with a broad range of risk tolerances when it comes to Open Innovation (OI). Yes, many of our clients are Fortune 500 companies, and Wikipedia defines middle market companies as “those with revenues generally between USD$100 million and USD$1 billion per year.” Some of you might assume that a big company with annual revenue of $1 billion plus might have higher tolerance than a smaller company for spending money on OI, for opening up to new suppliers and development partners, or simply for participating in a process that can sometimes bring in completely unexpected results.  Do the Fortune 500 have more resources to wade through and vet potential solutions, and to engage with and fund new solution providers? Maybe, but my experience has been that it’s really a matter of comfort with the unknown that drives “success” in the application of OI in any organization- no matter what the annual revenue is.

Big companies and small can face challenges and road blocks as they try to improve processes, reduce costs, enter new markets, and drive products to market faster than their competitors.  Addressing these issues might mean that a company asks an OI intermediary like NineSigma to conduct a search for a partner with a very specific set of design/development/manufacturing capabilities, for an experts group to act as an advisory panel for a new market, for technical and business intelligence in a clearly defined technology arena, for co-development partners for a new product, for a novel technology that will improve an internal process, or for a toll manufacturer or material supplier. Bottom line is that we see needs of all types across companies of various sizes. Open Innovation intermediaries can give you access to people, technologies, and geographies that you might not be able to reach on your own, even if you do have the internal resources for an extensive scouting group. The Fortune 500 may run multiple NineSigma projects and a smaller company might run one or two a year, but the process we use, and the support we provide, is the same and applies equally well. Depending on your openness to new ways of looking at and solving challenges, OI could be a nice addition to your middle market company’s  “investment” portfolio.

Once upon a time, a long, long time ago, before anyone had heard of “crowd sourcing”, (coined in 2006) NineSigma clients were fascinated by the opportunity to reach into every corner of the globe for answers to their biggest challenges.  The focus was on “how” and “where” to get the solution.  NineSigma solved the “how” by providing the answer to “where”.

Fast forward to 2010…companies have more information than they can process.  Chat rooms, company-sponsored websites, OI intermediaries like NineSigma…Open Innovation can feel like the suggestion box on steroids.  The real challenge today is how to manage and optimize Open Innovation.

The companies that will be the Open Innovation leaders tomorrow are those that are successful in creating their Open Innovation Office – the structure that broadcasts the right information outside to the best external resources, and then funnels the value back inside to act on it efficiently.

We believe that three pillars are essential to building a successful, sustainable Open Innovation Office. 

Framework –Vision, Process and Organizational Design, and underlying Software

Support – People and resources to:

• Develop OI best practices and build OI adoption
• Manage the Needs Funnel, relationships with external partners and integration of OI projects into the product development cycle

OI Toolbox –Partners and tools to engage internally and externally

Framed by executive commitment to your OI Strategy and program management and accountability, these three pillars build an integrated, managed and optimized Open Innovation program.

An Israeli investor in the medical devices industry recently complained “Israel has too many start-ups. Israeli companies are great at taking an innovative idea through the alpha stage, but then the start-up goes under because we lack companies with the expertise to fund through beta and scale to manufacturing”.  “Aagh”, as my Jewish grandmother would say, “we should only have such problems”.

With the jobless rate for newly minted college graduates at historical highs of 7.5%, Thomas Friedman bemoans policy makers’ lack of focus on what the U.S. needs to create good jobs for the future.  “We need three things: start-ups, start-ups and more start-ups,” recommends Mr. Friedman.  

To create a dynamic economy, I question if a country needs to excel at every link in the innovation value chain.  If Adam Smith could speak to me from my Economics 101 textbook, he would ask, “Why can’t my economic theory of the “invisible hand “be applied to create a free trade approach to global innovation?”  

Here’s a free trade innovation model to consider: American industry jointly funds technology incubators that sponsor foreign-grown start-ups.  By nurturing and co-investing in early stage technologies, American companies gain two advantages.  First, they share the risk of failure (which should be high! That’s what makes these start-ups), and second, they nurture technologies that match their applications and needs.

Adam Smith could not have known in 1776 how “innovative” his theory could be in 2010…

Here we are in 2010, some seven years after Henry Chesbrough published the book Open Innovation and we are still seeing a wide disparity in results from open innovation initiatives. In addition, there are many companies that are still trying to determine if they should even try or pilot an open innovation program. What does organizational culture have to do with the success of open innovation?

Hill and Jones defined organization culture in their book Strategic Management (Houghton Mifflin, 2001) as “the specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization.”

If we break this definition down (at a very high level) and apply it to open innovation can we glean any insights?

First, let’s explore the phrase “collection of values and norms that are shared by people and groups in an organization.” If an organization has always relied on internal resources for innovation and all of the major successes have originated internally, then it will by default be hard to convince this group of people to suddenly change the way they have innovated in the past to look broadly outside of the organization for co-development partners. On the other hand, if there have been innovation successes that have originated through supplier or university partnerships in the past, then this group of people will be much more receptive to changing to be more open to new innovations that originate from outside the firm.

The phrase “control the way they interact with each other and with stakeholders outside the organization” lends insight as well. Here “interact with stakeholders outside the organization” is insightful. Many times we have seen an organization overcome the hurdle of reaching broadly outside the organization to search for new co-development partners only to hit a wall when having to assess what they find from outside the organization and build agreements for co-development and sharing of intellectual property.

One of the lessons I have learned over the years is that you cannot directly change culture. You can change individual behaviors and through this process slowly change culture. In looking at organizations that have benefited from open innovation, what I have seen is an emphasis on changing behaviors through training, rewards, recognition and managers that constantly ask – Have you looked outside? What did you find? How did you use what you found?

Over the past month the headlines have been dominated by the BP oil-spill crisis.  Unfortunately, much of this noise is filled with individuals and organizations that are leveraging the crisis as a cheap PR opportunity.  They try to force half-baked solutions on BP, and when BP does not adopt these solutions, they are accused of “coming up empty,” and “ignoring help” that is being presented to them.  The reality of this type of situation is typically more complicated than it appears, and players in the open innovation space should have the experience to recognize this. 

One of our Program Managers brought to my attention a similar story that occurred back in the early days of WWI where the English tried to use a pre-Internet form of “crowdsourcing” to quickly remedy the unexpected sinking of many ships in the English Channel by German U-Boots.  This was a new phenomenon that was causing great losses to the British fleet, yet nobody knew how to deal with the situation when it began.  So they placed ads in all major newspapers asking the public to send in ideas on how to defend against these unexpected stealth intruders, and within a short period of time they were flooded with proposals ranging from human swimmers to trained seals.  Despite the massive response, none of the outside ideas provided a viable solution to the crisis.  The practical solution ended up coming from those scientists working directly with the military, who understood all of the details and parameters of the situation.

The lesson that we can take from this story is clear.  Unsolicited solutions do not work without first coordinating with those directly responsible for the crisis.  Without a full understanding of the situation, the resources already allocated, and the actual environment of the crisis, unsolicited responses are as effective as an armchair quarterback. 

I would be interested to hear the opinions and insights of others who are involved in the open innovation space.

When we talk about culture in Open Innovation, we are usually referring to the openness and receptivity of the organization to collaborative development with external parties.  But what about the old-fashioned culture issues of overcoming country and language barriers?  You might be thinking “That is so last century!  With the internet, there are no global boundaries.”

The speed and ease of today’s communication technology – email, video conferencing, and cell phones –create an efficient global communication infrastructure that was barely imaginable even 30 years ago.   But if we could erase the human element of business collaboration, why are airplanes still full of business travelers?

While your meetings may look like a United Nations convention, your Open Innovation partner might be more firmly rooted in their national culture.  I won’t bore you with all the standard business advice based on cultural stereotypes.  However, if you are aware of cultural tendencies that impact the dynamics of your Open Innovation partnerships, you can avoid pitfalls and surprises.

Each of these cultural partnership dynamics impact the success of Open Innovation collaborations

How the group makes decisions

·        Does your partner share their decision making process

·        Does the group require consensus before a decision can be made

·        Is there a designated “speaker”

·        Do participants defer to a senior figure

·        Are decisions made in the conference room or at dinner

·        Do individuals say one thing in the “official” meetings and something different in casual settings

How the partnership is structured

·        Long term commitment with open outcomes demonstrates value in relationship-based collaborations

·        Short timeframe with multiple “escape” performance clauses reflects a transactional preference

·        Is the partner offering a team or an individual

·        Are payments requested in advance of delivery or after performance

·        Are IP issues of high importance and handled formally through lawyers or are they loosely defined, with a “wait and see” attitude

Borders and Language: An issue or non-issue?

·        How is travel and on-site visitation viewed

·        Is the delivery or collaboration structured to be “virtual” or on-site

·        Is communication primarily written or verbal

·        Is there a team member who is acting as “speaker” who may also be the translator

·        Are emails in eloquent English while verbal communication is challenging

In our last post we discussed identifying and selecting Needs for an open innovation pilot program. In this post we will discuss the next step of engaging with potential solution providers that may have an answer to the Need.

Many organizations refer to this step as a "make versus buy" decision. This implies that there are only two options for solving the Need - either develop internally or find and use an external partner. In reality, there are three options - internal, internal/external and external. By external, I mean either license technology that exists or co-develop. We see many of our clients pursue the internal/external path where they are working on the issue internally at the same time they are searching externally for someone who has either solved the problem or is farther along or on a different, more compelling solution path.

The other process that is undertaken at this point is determining the solution network. For large, global organizations the first step may be to communicate the Need broadly within the organization to see if there is a solution available internally. We are currently working with a large multi-national chemical industry client to create a structure / process to communicate needs internally in order to leverage their globally distributed R&D resources. Once the internal search for a solution is exhausted then the search becomes focused on external resources. Now the decision becomes one of "do I use my existing networks or do I use a firm like NineSigma to communicate the Need broadly?" Again, here the answer is not yes / no, but what factors such as timing, cost, degree of technical challenge and others may play in the decision making. Many times for incremental technology development an existing supplier may be the obvious choice. Or there may be considerations for funding university work such as "community relations" that drive the decision.

Looking broadly, across industries to the global innovation community has one significant advantage and that is the opportunity to find an "unobvious" solution to the problem. In our work in over 1,600 open innovation projects, we have seen many unobvious solutions. Semiconductor research applied to fabric care, candy dispensing applied to appliances, agriculture sensor systems applied to automobiles and many others. In addition to the opportunity to find an unobvious solution, reaching broadly to the global innovation community will bring back considerable information that the project team can use. This external information combined with internal knowledge will help with decision making and ultimately reduce project risk.

Back to getting started with open innovation. We would recommend evaluating the Needs that were the highest priority and selecting some of these to communicate to the global innovation community. There are a number of firms today that can help with this. Evaluate them and select a partner. When looking for a potential partner a couple of key points to evaluate are:
- level of support provided to the OI project team
- breadth of network and is it a passive or pro-active approach to finding solution providers
- how is IP handled
- experience and references
- others

In the next post we will discuss what happens once you have connected with the global innovation community and have initial the results back.

Open Innovation (OI), a well proven strategy for CTOs, marketing and R&D, is now gaining advocates amongst the CIOs, strategic business planning teams and CFO level financial management inside Global 500 companies.

Changing culture and the way organizations have always done things is a leader’s greatest challenge and I’m anxious to assess how well corporations can adopt OI across the customer facing operations side of the business.

I believe that the opportunity to quickly acquire new knowledge for services, business process, CRM (Customer Relationship Management) and new business models can exceed the value or competitive market share gain from OI for a new product.  Costco can adopt a Bank’s branch office customer service ideas or automobile manufacturers can adopt a new business process model from Starbucks for the automobile dealerships service department.  And the software to support the processes and assess business metrics for the CFO can be acquired as well and implemented by the CIO.

In some cases a business offering services is competing against a business providing products.  John Deere and other equipment manufacturers could begin losing lawn care product sales as the lawn care service provider sells lifestyle choices and long term cash flow as a reason to not buy the new mower.  John Deere needs to look outside the manufacturing industry for the next innovation to win market share from the lifestyle choices available to their customers.  And, what industry would John Deere look to for managing the financial risk issues in the transition process?  Perhaps the automobile manufacturing industry that adopted Starbucks business process model for auto services.

     Attending the WBT conference in Dallas last week reminded me of roaming a traditional outdoor marketplace or Middle Eastern bazaar.  Unlike other conferences where deal making occurs in the shadows of learning and under the guise of “networking”, the focus of WBT is to bring together buyers and sellers.  

     The sellers are ambitious and creative inventors of intriguing technologies.  Although some are wizened pros and others are as “green” as the technologies they hawk, they all promote feverishly, convinced that the perfect investor is just one elevator pitch away. 

     The buyers look the part of the moneyed elite, surveying the marketplace with feigned disinterest.  Circles of VC guys boast about companies in their portfolios like cards in a winning poker hand.  Corporate types swagger down the aisles knowing that the Fortune 500 employer on their nametags tantalizes the inventors like designer labels to a crowd of teens.

     In our high tech world of virtual marketplaces, nothing can replace the energy of the marketplace, where buyers and sellers face-off, live and in real-time. 

In the last post we discussed defining the scope of the open innovation program. In this post we will discuss selecting open innovation projects or Needs. If you are familiar with the Want, Find, Get, Manage model for open innovation, Needs equals Wants.

What exactly are Needs? Needs are more defined than ideas. They are aligned with the firm’s strategy and help meet a customer value proposition. They have a direct impact on the firm’s business through either revenue generation or cost reduction justified by a simple business case. They should have a sponsor within the organization. The Need may be already being worked on or it may be something that has been identified, but resources have not yet been assigned.

This often brings up the make versus buy question. In reality the question that should be asked is make, buy or pursue in parallel? By parallel, I mean work the Need internally while scouting or searching for a solution or co-development partner through open innovation.

We typically see Needs falling into the following categories:

·         Breakthrough: The big, bold bets that significantly change the industry competitive landscape

·         Strategic: Platform projects that support multiple product initiatives

·         Tactical: Project specific “gaps” that keep a project from reaching its end point

·         Speed, Cost, Quality: Process improvements that impact a company’s cost position through improvements to cycle time, product quality or cost reduction

The process for selecting Needs for the open innovation program can take many forms. The one I find the most interesting is a two step process. The first step is to solicit key Needs from the organization. This step is focused on indentifying the Need and providing some level of detail around the desired outcome, the customer (internal/external) value proposition, the magnitude of the challenge to achieve the desired outcome and any other relevant information that is specific to the organization.

The second step involves getting the key stakeholders together to “hash” out a ranking of the Needs. Once this ranking is accomplished, the group then selects the Needs that will be worked on in the open innovation program. This stakeholder meeting is interesting to observe as the various people represent why their Need should have priority and others in attendance propose approaches to solving or identify existing internal expertise or IP that can be applied to the Need.

The goal is to pick a manageable number of Needs for the open innovation program.