Dear Clients, Solution Providers, Partners, and Colleagues,

2012 has arrived, and there is a feeling of optimism in the air. We are seeing that many of the innovators we work with are investing heavily in innovation right now. Organizations of all sizes are looking towards the future, and the many opportunities that beckon.

We finished a record quarter in Q4 2011, and we have NEVER had as good of a start to the new year as we have right now. In all of 2011 we were up significantly in terms of sales orders and revenues, and we added some world class talent to the teams in all the different regions.

We thank all of you for making this possible. It is your trust in our ability to add significant value to your businesses, as well as the confidence you have in the NineSigma team including Partner Organizations, that make us the trusted innovation partner to organizations globally.

Some of the Highlights in 2011 were:

·         A successful capital raise in March that allowed us to invest in further rapid growth

·         A highly praised OI Leadership Summit in Washington DC in May that drew 100 Innovation Executives (and please note that the next one is October 1-3, 2012 in Philadelphia – reserve your place at http://www.ninesigma.com/summit2012.aspx)

·         New services such as

o   QuickScan (a VERY fast and pointed mini-landscape on a Client Need),

o   Technology Landscaping and Monitoring (an in depth analysis of technologies and their respective maturity, as well as recommendation for the most suitable one’s for a Client as a “one off” or ongoing on a repetitive basis),

o   The world’s first Collaborative Innovation Psychometric Assessment that allows companies to measure an individual’s and team’s propensity to being good collaborators

·         The opening of a NineSigma office in Melbourne, Australia, bringing the total regional headquarters count to four

As we look to 2012, we are excited about the many new initiatives we will bring to market for you. Especially of interest is a ground-breaking program aimed at increasing value for clients and solution providers through an open exchange that will provide more opportunity for co-development and collaboration.  With these new initiatives, we are focusing our efforts on helping you to de-risk your innovation portfolio, and to accelerate your speed to market. In other words, we are going to help create a world where FEARLESS INNOVATION is the new reality.

Best wishes from all of us here at NineSigma,

Andy Zynga, CEO

Thrice in two weeks I have been asked about general and open innovation trends in the medical devices sector.  If I was a suspicious person, I might think there must be something brewing in the medical devices sector.  Apparently there is.  Coming out of a recession, the growing talk around healthcare reform and the cost of providing healthcare appears to be forcing established medical device companies to think about new products while having  to cut costs or provide better performance. Economic pressures will no doubt become a major force driving innovation in the medical devices industry, a sector where higher cost, higher quality products have traditionally been more accepted.  Competitive pressure from lower cost operations overseas are exerting pressure on the industry as consumers demand more value for their healthcare spend and companies seek more value for their product development investments. A recent PricewaterhouseCoopers Medical Technology Innovation Scorecard report effectively compares and contrasts industry influence factors in 9 important markets and highlights that innovators are likely now going to market first in Europe and begin moving to emerging markets by 2020. In recent years, the FDA’s Medical Device Innovation Initiative aims to expedite innovative product approval.  This and the very recent repeal of the medical device tax may slow the tide and help the medical technology industry in America maintain some innovation dominance. 

Beyond the need to provide high quality devices at lower price or providing products with more features or improved designs that will reduce procedure times, provide better outcomes and shorter recovery times, the area of diagnostics and self monitoring continues to be increasingly popular as new product targets.  Home or self-care health systems will no doubt become more important as people desire or are forced to take more control of their own care. In fact, the FDA’s Center for Devices and Radiological Health (CDRH), which regulates medical devices, calls home-care systems and Integrated patient medical information systems so called e-health technologies "the fastest growing segments of the medical device industry."  One simply has to consider the incredible growth of smart phone medical apps offerings (nearly 80% increase in the second half of 2010). Smartphones are definitely changing healthcare for both consumers and providers alike and even creating a new crowd based medical services marketplace.  A recent California Healthcare report highlights many of these new innovative products and services and developing trends.  For hospitals, IT and wireless capabilities will continue to be a big needs focus.

Medical device companies must innovate faster and cheaper. Reaching outside and adapting the collective ideas and technologies from the crowd is a great way to achieve this.  Consider that roughly 2/3 of new medical technologies come from small entities such as physicians, start-ups/SMEs and university spin offs. Adding to that the collective technology and braintrust from other technical areas that could be tapped into to help accelerate medical device innovation and a great case for open innovation can be made.  The medical device industry expects the rate of open innovation adoption to begin to increase.  This is indeed a trend that NineSigma has witnessed as it continues to identify new diagnostic systems, new materials, new manufacturing approaches, coatings, sensors, IT and other enabling technologies to help provide new or improved medical device products for clients. No question, OI is a growing trend in the medical devices sector.   

What will the next iteration of open innovation look like in the medical sector?  Will it be open innovation platforms and services that can effectively integrate companies, small innovators, health care providers, patients and regulators? Will all who have a stake, or participate to advance innovation, gain or be rewarded by the experience? We will have to wait and see.

One of the challenges I still see in open innovation is when it is tried in a highly conservative environment, typically an ‘old school’ engineering company.  By ‘old school’  I mean a company  that is used to doing everything the same way they have for years and years. They use external development partners such as universities and suppliers but they always first try to solve problems internally and then only if that fails will they go to a network of external partners. But typically this external network is the same groups they have relied on in the past which results in the same answers they’ve already received.

We recently wrapped up an open innovation pilot at a client who readily admits they are conservative. They were very impressed with the breadth of the potential partners we presented to them on the different projects we ran. They talked about how we “opened their eyes” on one particular project and uncovered work on the topic they were not aware of. They talked about how open innovation is an excellent way to connect with thought leaders from around the world. Another researcher talked about how the process of creating the NineSigma RFP really made them sharpen their thinking around the problem definition.

However, when the discussion turned to whether they saw open innovation as a fit to their current innovation strategy, they felt that it would be quite a while before they could adopt open innovation beyond the few projects in the pilot.

The challenge was culture. Even though they clearly saw the benefits of open innovation, they could not see how to change the culture. It is interesting that some seven years after the book “Open Innovation” was published that companies will still revert back to their old ways.

I would be interested in your thoughts and observations on the cultural aspect of open innovation adoption?

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?

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.

The technical and popular press have devoted a great deal of attention to open innovation, and the concept of being "open", in recent years. It is undoubtedly the way all companies are headed, to varying degrees. I wanted to touch on the concept of Openness, and how I have come to view it.

Prior to launching an open innovation program, the leadership team should do a quick check of the organization’s degree of openness. Here I define openness within the context of open innovation across two dimensions. The first is the organization’s willingness to openly share information externally.  The second dimension is being open to embracing and acting on new, innovative ideas that are presented to the organization from the global innovation community.

For open innovation to be successful, organizations must be open to sharing their innovation needs with the global innovation community. It is hard for an external group to determine how they can offer effective help to an organization that will not share what it is seeking. Clearly, this does not mean sharing competitive or confidential information with the global innovation community. But, we see many organizations struggling with what they can share, when they can share it and how best to share. NineSigma’s Program Managers have worked with many organizations to help them answer these questions and to develop Briefs describing innovation needs that can be broadly shared with the global innovation community.

The second aspect of openness is the willingness of the organization to embrace and act on new, innovative ideas from outside the organization. Many times we see firms overcome the challenge of sharing what they seek - only to not follow up on what they find. Here the challenge is being open to ideas that did not originate within the firm. Some may refer to this as NIH, but many times it is more a matter of the firm’s reward systems and culture.

As the leadership team considers an open innovation program or initiative, they should take some time to assess the organization’s openness. The degree of openness will play a pivotal role in the overall success of the open innovation program. If the leadership team is concerned about openness then they should consider including a change management workstream in the open innovation program.

Contact us today to launch your open innovation program with NineSigma.