The Best Innovation Comes From Inside

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In her third part talking about the 5 Myths of Innovation, the writer says that the days of an organization thinking it has all the solutions to its business challenges are over. It is now all about open collaboration.

Gartner Innovation Chart1

When enterprises pursue innovation, they should consider how and why firms conduct their own research and develop their own products, processes or services. According to economist and author Edith Penrose, there are two reasons firms develop their own R&D organizations.

  • To ensure someone is focused on options for future growth.
  • To ensure someone is focused on competitors and market trends as an insurance policy against adverse changes in the firm’s environment.

Historians peg the genesis of the modern industrial research laboratory to 1856 when English chemist Sir William Perkin discovered how to synthesize mauve dye from aniline. By 1890, the German firm Bayer had constructed a modern lab that contained books, lab equipment and a dedicated team of researchers. Bayer’s model lab was soon copied by other chemical manufacturers seeking a steady stream of innovation. While a dedicated R&D team ensures that the organization will keep its focus on innovating products and services, it is a mistake to think that this should be the only source of new development ideas.

Another issue is that an organization’s success in R&D — which is meant to foster growth through new products, services or markets — often ends up stifling innovation. This happens when the firm becomes unwilling to fund projects — even small projects — that have uncertain outcomes, preferring instead to underwrite only projects that have a higher probability of a successful, marketable outcome. For example, enterprises tend to assess the potential of a technology through the lens of their current business model. Therefore, there is a negative bias against projects that fall outside of the current operating paradigm which might be an existing product set or customer segment or geography.

Organizations that suffer from this bias can take several approaches to overcome it with open innovation methods. Two approaches are collaborative open innovation and idea marketplaces.

Collaborative Open Innovation

The bias against working outside the current operating paradigm is described by Harvard Business School Professor Clayton Christensen in “The Innovator’s Dilemma.” He suggests a better approach is to define the reason a business or organization exists is to produce products and services that help a customer get a job done. So organizations should continually ask themselves, “What is the job my customers need to get done with my product?”

Enterprises that succeed in the practice of “we exist to help a customer” face three imperatives:

Address the basic conflict between organization-based design and user-based design.

The developer of an innovation has to acquire information from the user to feed

into product or service design and must imagine how a solution might perform. Users, on the other hand, know what problems need to be solved but are unlikely to be able to create the solution themselves. Thus, engaging the user customer or partner in a meaningful way early in the process leads the innovator to better needs identification and solution development.

Creating a business or partner development function that is connected, properly staffed and uses technology to enable and support the business processes.

Rather than limiting the use of suppliers and other business partners to a specific deliverable, innovators should view them as a strategic source of innovation. Examine how an innovation could lead the organization to a new market or how existing intellectual assets can be out-licensed to another firm that can bring the product to market.

Developing the capability to manage a portfolio of risks.

To ensure that higher-risk projects are not consistently turned away, organizations need to improve their capacity to manage those projects within a portfolio whose overall risk is still acceptable.

The figure I have included here illustrates an example of how organizations (in this case, a manufacturer) and their users can collaborate to enhance the innovation process. The internal-only process confines projects within the dashed lines, while processes that allow collaboration and new business models or the collective can open up other avenues for innovation. This open innovation model was described by Henry Chesbrough in his books “Open Innovation” and “Open Business Models.”

Idea Marketplaces

In 2010, the workforce is highly mobile and capital is not flowing freely so companies need to look outside their own organization to seek innovation expertise. InnoCentive is an interesting example of a business built on the marketplace model that facilitates the flow of “solutions” generated by scientists in response to specific challenges to an organization or business.

Here is an example of how it works:

  • An idea seeker posts a challenge on InnoCentive.com (such as, “Please provide data and evidence to support the identity and common efficacy of three compounds.”). Challenge solvers vet solutions and respond to InnoCentive, which then forwards solutions to the idea seeker.
  • The idea seeker reviews submissions and selects the solution that best meets the requirements.
  • InnoCentive issues an award to the solver.

InnoCentive launched in 2001 and quickly signed up more than 70,000 scientists (challenge solvers) from around the world that get paid bounties for solutions to challenges posted on the site by idea seeker companies. Today, 200,000 engineers, scientists, inventors, business people, and research organizations in more than 200 countries are invited to solve problems. Challenge solvers may be paid up to US$1 million for their solutions based on the value assigned by the idea seeker.

Action item: Identify innovation projects that are not meeting their project milestones. Evaluate when they are candidates for an idea marketplace challenge.

Action item: Organizations that decide to open up the innovation process will need to rethink the intellectual property (IP) governance model so it balances the need to protect the organization from “IP leakage” with the need to reveal information in order to engage external participants.

Next week: The bottom line of innovation

Carol Rozwell

Carol Rozwell is an analyst at Gartner Inc.

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