The Outsider Effect

Posted on July 3, 2014 by Eugene Ivanov

Better decisions come from teams that include a “socially distinct newcomer”…someone who is different enough to bump other team member out of their comfort zones (From Kellog School of Management News, Embracing the “socially distinct outsider”)

There are many things that can impede innovation or even drive the innovation train completely off-track. The lack of corporate innovation strategy and executive leadership, the notorious “not invented here” syndrome–those are the usual suspects that are routinely invoked in this context. Recently, I came across of what looked like, quite surprisingly, yet another addition to the list of innovation impediments: innovation consultants. I said “surprisingly” because the item was added by Hutch Carpenter, a Senior Consultant for HYPE Innovation, an innovation consultancy.

Truth be told, Carpenter’s beef with consultants comes from a noble—and in fact quite rational—angle: he argues that when launching innovation programs, many organizations underutilize their most valuable innovation asset, namely, their employees. Instead, outside consultants are hired and put in charge. The result is often a double whammy: innovation programs don’t live up to their high expectations; worse, overpowered with “outsiders,” the employees feel demotivated and demoralized.

While consultants do provide valuable cognitive diversity, argues Carpenter, employees are vastly superior to any outsider in knowing their company’s business: its products, customers, markets and competitors. Besides, they have a strong vested interest in the company’s future, networks of informal relations helping things happen and a pool of pre-existing ideas that can be acted upon. That’s why innovation must be employee-driven, rather than “consultant-led,” as Carpenter calls it.

I do agree with Carpenter’s major point: like revolutions, innovation can’t be imported; any innovation initiative is doomed without active participation of the company’s employees. (This is one of the reasons of why so many organizations fail with Open Innovation: they go outside without establishing first an internal innovation structure.) Yet, if I were to split the proverbial hairs, I’d argue that consultants might be actually better than employees in knowing the company’s competition—just by way of prior work with other players in the field, including the competitors.

Outsiders may have one more advantage over insiders: they’re not exposed, at least initially, to the fumes of internal politics. Having preserved their neutral status, consultants might be better at dealing with internal ideas, judging them on their merits, rather than authorship.

And then, yes, there is this ability to be “socially distinct:” not knowing the ways things “have always been done here” and being “naïve” enough to keep asking stubborn “whys?” when everyone else in the room knows the right way.

I appreciated the magic power of a “naïve” question a few years ago after meeting with a client, a pharmaceutical company. The client wanted to switch from phosphorus-containing detergents they used to clean production vessels to detergents based on organic acids. (Phosphorus-containing compounds, considered environmentally-unfriendly, were increasingly under the regulatory scrutiny. The client knew that sooner or later, the FDA would ban using them; so they wanted to act preventively.) As it often happens, the meeting was organized in haste, and I wasn’t told what exactly the client wanted to discuss. Having assumed that they were planning to brainstorm an optimal composition of a phosphorus-free cleaning solution, I spent flight time reading articles on the topic that I managed to print out before rushing to the airport.

Early next morning, I was sitting in a room with five managers responsible for cleaning manufacturing equipment. Nice breakfast was served, and, judging from my prior experience with this client, exquisite lunch was to follow by noon. After a few-minute small talk, I got down to business:

“So guys, do you want to identify effective phosphorus-free cleaners?”

“No,” responded the gentleman in charge of the meeting on the client side, “there are plenty of commercially available cleaners based on citric acid. We know precisely what we want to use.”

I felt a bit puzzled:

“So, what is the problem?”

“The problem is that there is a strong resistance inside the manufacturing to switching from one cleaner to another. We tried, but it didn’t work.”

Feeling even more puzzled, I asked:

“Who in the company has the authority to make this decision? Have you talked to this person?”

By the deafening silence that followed, I immediately realized that I said something incredibly stupid, inappropriate, offensive, wrong, awful, terrible. My interlocutors exchanged uneasy glances, and the one in charge uttered:

“Well, we don’t actually know…”

Another manager ventured to help his colleague:

“We’ll find out and bring this issue to the table. Perhaps, the situation isn’t as bad as it appears…”

Barely in its 15th minute, the four-hour meeting was over. We chatted for a few more moments, discussing possible next steps, but I knew that this team would not contact me again. (I was correct.) Apparently mindful of the fact that I was deprived of lunch, my hosts paid my cab fare to the airport.

In an hour, I was there doing what professional “outsiders” are so accustomed of doing: waiting for my flight back home.

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The Game of Definitions

Posted on June 19, 2014 by Eugene Ivanov

There are different opinions on the value of proper definition of terms. Some people consider definitions a prerequisite for any meaningful discussion, and I often agree with them; others view definitions as a barrier to creative thinking, and I often agree with them too. However, after reading hundreds of articles, blog posts and comments on the topic of innovation, I believe that the term “innovation” does need to be coherently defined. Innovation has become a buzzword, with inevitable dilution of its original meaning and unfortunate attempts, sometimes intentional, to use it to describe something innovation is not. A friend of mine, a Russian entrepreneur, for example, offered me this definition of innovation:

“Innovation is anything I can get funding for”

That’s why it was with great interest that I read a recent post by Eric Shaver, “The many definitions of innovation,” in which he presented 15 definitions of innovation collected from different sources. I strongly recommend to everyone to read Eric’s piece, but here, I’d like to give my rundown of his collection.

As it almost inevitably happens in any game of definitions, there will be attempts to reduce them to a short and memorable punchline. There are a couple of such punchlines in Eric’s piece:

“Innovation is creativity with a job to do”

and

“Innovation is change that creates a new dimension of performance”

One might argue that both lines were taken out of context (from speeches by John Emmerling and Peter Drucker, respectively), yet both seem to somewhat sacrifice clarity for the sake of brevity.

Then, there are definitions that reflect a popular trend, especially in the media, to equate innovation with ideation. Here is a classic example of such definition from Eric’s collection:

“Innovation…[is]…the development and intentional introduction of new and useful ideas by individuals, teams, and organizations…”

(from a 2009 article by Bledow et al. in Industrial and Organizational Psychology).

There is no question that ideation and innovation are related things, yet they’re not identical: ideation is a process of generating new ideas, while innovation is a process of generating new ideas and commercializing them. Consequently, when speaking about innovation, innovation practitioners always include a value component. Here is a definition of innovation from Eric’s collection characteristic of this approach:

“Innovation is the process that turns an idea into value for the customer and results in sustainable profit for the enterprise”

(from a 2006 book by Curt Carlson and Bill Wilmot “Innovation: The Five Discipliners for Creating What Customers Want”).

In a 2008 book “The Game-Changer,” A.G. Lafley and Ram Charan put the value component to the forefront of their definition:

“An innovation is the conversion of a new idea into revenues and profits”

Revenue and profits. You can’t be more explicit than that!

In the same category belongs my definition of innovation (also quoted by Eric):

“Innovation is an invention that has demonstrated its ability to create value”

Braden Kelley, a co-founder of Innovation Excellence, makes a great point by adding that innovation should not only create value; it should do it in a way that is superior to any other existing way of creating value. Here is Kelley’s definition of innovation:

“Innovation transforms the useful seeds of invention into widely adopted solutions valued above every existing alternative”

So, to summarize, I’d like to offer the following “composite” definition of innovation:

“Innovation is a novelty that has demonstrated its ability to create value in a way that is superior to every existing alternative”

And if this definition sounds too long, here is my punchline:

“Innovation=Novelty+Value”

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The Strength Within

Posted on June 10, 2014 by Eugene Ivanov

(This post originally appeared on Forward Metrics)

Back in 2005, on a trip to Germany, I was having a dinner with a business partner of mine, an innovation manager for a large German chemical company. Chatting about this and that, I argued that while open innovation was making good inroads into business practices in the United States, its progress was much less spectacular in Europe, in particular, Germany. “I can easily explain that to you,” told me my dinner counterpart, “the reason is our labor laws.”

I was surprised. “What do your labor laws have to do with open innovation?” “Well,” was the response, “when you guys in the U.S. want to lay off people, you’re free to do so. But here in Germany, you can’t fire people at will. So, before launching an open innovation initiative, our management wants to make sure that all our own people are fully employed.”

Notwithstanding the peculiar choice of words of my German friend, the perception back then (and, I have to say, not only in Germany) was that open innovation was taking away R&D jobs. Needless to say, such a perception wasn’t making the advancement of open innovation as a corporate innovation tool any easier.

Today, a few years later, we know that open innovation doesn’t take away R&D jobs. Internal R&D still remains the foundation of corporate innovation strategy; yet its role in the era of open innovation is changing in some profound way.  Within the “closed innovation” paradigm, internal R&D is solely responsible for producing of all the knowledge an organization needs to stay competitive. In contrast, within the open innovation paradigm, internal R&D produces only part of this knowledge and then leads the effort to acquire the rest of this knowledge elsewhere. In other words, there is a shift from internal R&D being exclusively a “bench scientist” to internal R&D becoming a bona fide “knowledge manager.”

In practical terms, this shift is being manifested by companies establishing internal innovation networks, which play two important roles. Firstly, they foster the very culture of collaboration, bringing together corporate units (R&D, business development, marketing, etc.) that in many organizations often have no institutional platform to communicate on strategic issues. Secondly, internal innovation networks provide intellectual and operational support for the company’s open innovation programs. Initially, they serve to select and define R&D problems that are most suitable for open innovation approaches; later, they help assessing incoming external solutions and facilitate their implementation.

Unfortunately, some organizations ignore this new logic and begin open innovation programs before establishing functional internal innovation networks. The result is often disappointing: lacking internal support, external innovations meet with a stiff resistance inside the company, most likely at the middle management level. The innovations get stalled, then tacitly boycotted and eventually rejected. To add insult to the injury, such an outcome gives additional ammunition to the company’s naysayers, who would jump at the opportunity to claim that “open innovation doesn’t work for us.”

There are additional benefits for organizations in having internal innovation networks. One of them is the ability to identify the company’s emerging thought leaders who—especially if in junior positions–would otherwise remain unnoticed in “remote” labs and cubes. Another is the opportunity to use internal networks to find solutions to the problems that individual units have failed to solve by themselves. Such internal brainstorming is especially productive in multinational corporations with numerous units spread over countries and continents. People in different units—often created as a result of M&A—rarely communicate with each other and almost never meet face to face. Yet, people in one unit may possess specific knowledge that is desperately needed—and can be immediately used–in another. Connecting these “dots” through internal innovation networks will result in significant savings of time and money for internal R&D.

Internal innovation networks exist in different forms, and there is no “correct” one; each company will have to find a format that would suit its specific needs. One of the best known examples of internal innovation programs is Qualcomm’s FLUX (Forward Looking User Experience), an employee-driven, cross-departmental network that brainstorms novel solutions to the company’s technical and operational problems. Launched by just eight people, this program now includes 28,000 Qualcomm’s employees, yet exists on very limited budget and employs no single FTE. Other companies utilize various innovation management software and web-based platforms. Coming in different shapes and shades, these tools seek to capitalize on modern trends in social media.

This is not to say that companies should postpone experimenting with open innovation until they build internal innovation networks first (which may take years).  My point is that the full potential of open innovation can only be realized by the concerted effort of properly connected people within organizations capable of identifying and properly defining their own needs. Or, saying this differently, the power of open innovation comes from the strength within.

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Has Crowdsourcing Become A Mainstream Innovation Tool?

Posted on June 8, 2014 by Eugene Ivanov

(This post originally appeared on Innovation Excellence)

Given the level of excitement the concept of Open Innovation has caused in the media in recent years, one would assume that this approach has become a common tool used by organizations to achieve their innovation goals.

Indeed, last year’s study by Henry Chesbrough and Sabine Brunswicker showed that large companies in Europe and the U.S. were increasingly using open innovation in their business practices. However, when asked which specific open innovation tools they employed the most, the respondents chose customer co-creation, informal networking and university grants. At the same time, crowdsourcing and working with open innovation services providers (OISP) were rated lowest in importance.

This is somewhat sobering news. Although undeniably “open” in their nature, co-creation, informal networking and academic collaborations are not exactly new approaches: companies have been using them for years. It is crowdsourcing that has been hailed as a hallmark, almost a new normal, of the Open Innovation era.

The Chesbrough and Brunswicker study echoes an earlier report by Robert Cooper and Scott Edgett published in 2008. Cooper and Edgett looked at techniques that 160 companies used for product innovation, more specifically, at the front (“ideation”) end of the product innovation process. They found that the most popular techniques were voice-of-customer (VOC) methods, such as customer visits and focus groups. In contrast, open innovation approaches were unpopular and perceived ineffective. In particular, using external innovation portals and idea contests, vintage crowdsourcing techniques, were considered the least popular and the least effective. Both studies, when taken together, seem to contradict the popular belief that crowdsourcing has become a mainstream open innovation tool.

One of the reasons for the apparently slow acceptance of crowdsourcing as innovation approach is that using this technique requires special expertise. Take, for example, OISP. Some pundits put the worldwide number of OISP at around 200. Just navigating this crowded marketplace isn’t an easy job, and choosing “wrong” OISP may well become a reason for the failure of any crowdsourcing project. Besides, as many open innovation practitioners would vehemently argue, effective use of crowdsourcing requires careful definition of the problem to be crowdsourced, something that many companies aren’t good at. A lot of work is therefore needed in the future to help companies understand how to use crowdsourcing approaches in the most productive way.

Another thing that has to be kept in mind is that the bulk of our knowledge about open innovation practices comes from studying consumer good companies, such as P&G, Kraft Foods or General Mills. It looks quite natural that the VOC methods would be very effective in customer-oriented innovation process. But does one size fit all? What about high-tech companies producing more complex products? Will VOC approaches be equally useful, for example, in the highly regulated and burdened with IP issues pharmaceutical industry? Or pharmaceutical companies would preferentially benefit from using crowdsourcing? We need further studies to answer these important questions.

 

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The Terminator Effect

Posted on June 6, 2014 by Eugene Ivanov

terminator-images1(This post originally appeared on Innovation Excellence)

I’d like to touch upon a subject that doesn’t come up often in innovation discussions: I’d like to talk about how we kill projects.

Everyone would agree that killing projects is a key to maintaining healthy product development pipeline. By terminating projects that are going nowhere, companies free up resources to introduce new, potentially more successful initiatives. When I hear someone saying “We’ve got a lot of great ideas, but have no resources,” I’m always tempted to ask: “When was the last time that you killed a stalled project?”

But killing projects is tough. However good we might be at celebrating failure (remember this “fail fast, fail often” hoopla?), we are actually quite bad at admitting failure. Failed projects negatively affect the company’s reputation and bottom line and they definitely don’t make our career ladder easier to climb (to say the very least). Besides, almost every project is someone’s brainchild, and who likes killing their brainchildren? The great Leo Tolstoy was reportedly crying when writing the scene in which Anna Karenina threw herself under the train.

The way in which companies make their kill/continue decisions largely depends on which of the two schools of thought they belong to: the “pick the winners” or the “kill the losers.” The “pick the winners” approach relies on selecting relatively few projects that supposedly have the greatest chance to succeed–and then investing heavily in these projects. Once the “winning” project has been selected and advanced into the project pipeline, killing it becomes progressively difficult. In contrast, the “kill the losers” strategy is based on launching a larger number of projects, carefully monitoring them, identifying those that aren’t going to succeed and then killing them as rapidly as possible.

At first glance, the “pick the winners” strategy makes more sense. Indeed, if we have established a solid theoretical framework, developed advanced proprietary technology and secured some proof-of-concept data, is it that difficult to identify an eventual winner? Isn’t it where our prior experience in product development really pays off? Besides, isn’t it a proper way to raise (brain)children: to have just a few of them and then invest heavily in each one?

Yet, a recent study on efficiency of drug development, arguably one of the most expensive kinds of projects in the history of humankind, shows that in real life it’s the “kill the losers” strategy that turns to be a true winner. A group of authors at The Boston Consulting Group analyzed 824 individual drug candidates with a known full development outcome coming out of 419 companies. Of these 842 molecules, 637 failed in Phase II clinical trial or later and 205 were approved. For each candidate, 18 attributes were assessed for correlation with success or failure. What the authors have found was that the strongest single factor correlating with success was a high termination rate in preclinical/Phase I stages. In other words, companies making hard decisions about which project to terminate earlier in the project lifecycle do better than companies postponing these decisions for later (and often doing this not of their own volition).

Shall we call it The Terminator Effect?

There are encouraging signs that drug developers warm up to the “kill the losers” strategy: AstraZeneca, the world’s seventh-largest pharmaceutical company, has recently announced termination of 15 therapeutic programs and said that from now on, it’ll be reviewing its pipeline quarterly rather than every 6 months.

“Anna Karenina” would have been completely different book if Tolstoy decided to “kill” Anna at another point in the epic story. But various literature genres demand different rules. Take, for example, crime thrillers where the first dead body is expected to show up on the very first pages of the book. And I would argue that drug development and crime thrillers have something in common: you don’t know the outcome until the very end.

image credit: orionpictures.com

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What Can Dancing Teach Us About Innovation?

Posted on June 5, 2014 by Eugene Ivanov

download(This post originally appeared on Innovation Excellence)

It’s remarkable how many different things can teach us about innovation: historic figures, such as Thomas Edison; outdoor activities, such as skateboarding; sports events, such as sailing competition The America’s Cup; consumer products, such as iPhone 5s and Spanx. And then, there is Hollywood, The Karate Kid, and (my favorite) “a parking lot full of meat lovers.”

In fact, one shouldn’t be surprised, for innovation comes in so many different shapes, shades, angles and facets that it can originate from almost any source, not just as a neat package delivered by a college or business school professor.

Inspired by the above examples, I decided to contribute my fair share to the list. As a competing amateur ballroom dancer, I’d like to argue that dancing too can teach us about innovation. To prove my point, I’ll share with you some wisdoms that I’ve learned from my dancing teacher.

Make every move your move

In a sense, there is no “correct” way to dance. True, textbooks and competition guidelines would describe recommended sequences of steps that every basic dancing move is composed of. Yet, every dancer knows that it’s his or her body—its structure, flexibility and responsiveness to music—that ultimately defines the choice of dancing moves and the way they’re performed. You succeed in dancing only when your every move fits your physical and spiritual abilities; you become a dancer only if every move becomes your move.

When launching innovation initiatives, organizations—especially those with a shorter innovation history—often look for “best practices,” a set of supposedly proven approaches that can guarantee a successful outcome of any given innovation project. The truth is that there are no “best practices” in innovation management practice (remember Steve Shapiro’s “Best Practices Are Stupid”?). Instead of chasing the elusive silver bullets, the organizations should try a number of different approaches and identify those that best fit its corporate strategy, organizational structure, the level of innovation maturity, resources and culture.  Only after finding the moves that are its moves, can the organization successfully conduct an innovation dance.

You move with your feet, but you dance with your whole body

When I was taking my very first dancing lessons, I was absolutely sure that once I memorized the sequence of required steps (“slow-slow-quick-quick-slow”), the art of dancing will be mastered. But then, I was told that my arms mattered too. Later, I realized that without moving hips (not something taken for granted for a man of my age), my dance will look bland. Finally, I understood that it’s my brain (or guts?) that ultimately drives my dance, bringing together my feet, arms, hips, shoulders and, yes, my face expression. In fact, the more experienced I become in dancing, the less I think about steps as such.

Usually, organizations begin experimenting with innovation by creating a dedicated innovation team—be it within R&D, business development or IT unit—whose responsibility is to learn and conduct first “steps” of innovation journey. It’s crucially important for this group not to stay indefinitely focused on the pure technicalities of the innovation management process. To begin with, the innovation group should rapidly reach out to the marketing to make sure that all planned innovation initiatives incorporate customer feedback. Then it should talk to human resources to ensure that employees who made significant contributions to innovation projects are properly recognized and rewarded.

And don’t forget corporate communication whose help with celebrating success stories may play a crucial role in changing the very way the organization views innovation. Finally, little will come out even of the most brilliantly conceived innovation initiative, if the senior management team, the company’s brain and face, would fail to support the innovation group. It’s for a reason that innovation is called a team sports.

Motion creates an emotion

I’d lie if I told you that I’m always in a dancing mood; no, quite often I don’t feel like dancing. But sometimes, I simply have to, for example, to get prepared for my next lesson. So I get up, turn on the music and take my first step. Then another. Then one more. And, all of sudden, a magic happens: my body sheds the rust and gets filled with life, and the rhythm of the music begins pulsing in my blood vessels. My dancing motion is creating a dancing emotion, and, fueled with this new emotion, my next step is better than the previous.

There are so many excuses for organizations to place innovation at the bottom of the priority list. “We don’t have time,” “We don’t have resources,” “Our CEO doesn’t care”—have we all not heard this before? The only way to shake off the innovation lethargy is to leave the proverbial couch and take the first step. Then another. Then one more. Trust me, sooner or later, the motion of repeated innovation “steps” will change the spirit of the innovation group and then gradually start taking hold of the emotional state of the whole organization. Repeated acts of innovation will become the habit of it.

It’s likely that one of your innovation initiatives will eventually succeed. And there is going to be a celebration, perhaps, even party. And, who knows, there may be even a band in the room playing music. Enter the floor and make a few dancing moves.

image credit: learntodance.com

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Can Money Buy Innovation?

Posted on June 4, 2014 by Eugene Ivanov

(This post originally appeared on Innovation Excellence)

Even in our money-driven society, the power of money has limits: there are certain things money can’t buy. Love and happiness come to mind first, but a popular list of things that can’t be supposedly bought with money is much longer and includes such items as “25-hour day,” “clear conscience” and (my favorite) “an honest politician.”

Some would add one more item to this list: innovation. Innovation, they’d argue, is a thing based on creativity, and creativity feeds on intrinsic motivators: natural curiosity, joy of learning, thrill of solving a difficult problem. Extrinsic motivators, such as money, can do little to make a person more creative. Hence, the argument goes, money can’t buy innovation. Many companies have reduced this concept to practice: they launch innovation initiatives and then expect employees to participate in their spare time, for free.

Unfortunately, academic research on incentivizing innovation is still in its infancy and doesn’t provide much help. In a 2013 article in Strategic Management Journal, Oliver Baumann and Nils Stieglitz showed that companies could increase the efficiency of idea-generating process by offering rewards to their employees. Yet there was a caveat: offering moderate rewards provided “a sufficient stream of good ideas, but few exceptional ones.” Moreover, increasing the size of the reward did nothing to boost the number of exceptional ideas. In other words, monetary rewards did stimulate innovation, but only incremental innovation, not radical.

The fact that money can boost innovation in principle makes this glass at least half-full; the fact that money failed to improve the quality of ideation process leaves it half-empty (if not even emptier, given our obsession with radical innovation and disdain for incremental).

Hopefully, future research will bring more clarity to the topic. In the meantime, I see at least two reasons why incentivizing innovation with money makes practical sense. First, incremental innovation, notwithstanding our feeling about it as intrinsically inferior, still forms the basis of any rationally designed corporate innovation portfolio. None other than Google’s Larry Page, hardly an enemy of radical innovation, told Forbes a few years ago that about 70% of his company’s innovation portfolio was composed of incremental improvements of core products. Now, let’s see: if you can increase the efficiency of two-thirds of your company’s innovation projects with money, would you not consider this money well spent?

Second, some companies (Google and 3M are routinely mentioned in this context) have introduced the so-called 20% time rule, a corporate policy that allows employees to use a fraction of their regular time, usually 15-20%, to pursue “side” projects. Should the employees be paid additional money for generating “side” ideas? Of course, not. The problem, though, is that the vast majority of companies don’t have such a 20% time rule; employees in these companies are expected to innovate in addition to their everyday job responsibilities. In practice, that means that extra work is expected from them outside their regular working hours. In plain business language, this is called overtime. As far as I know, when it comes to “routine” business activities, companies aren’t allergic to paying cash for overtime. Why should innovation be an exception?

We should stop practicing innovation snobbery: to believe that innovation isn’t for everyone, but for a few privileged (a.k.a creative) souls; to insist that only radical innovation matters, while incremental one is for losers; to argue that innovation is fundamentally different from other business processes, and therefore normal performance evaluation metrics don’t apply to innovation activities.

Instead, we should become more assertive in our approach to corporate innovation: to firmly align it with the company’s strategic goals; to define what kind of innovation involvement is expected (or not) from each position within the company; to establish metrics by which this involvement will be assessed at each level, from top to bottom. With this in place, innovation will be rewarded as any other top performance would: with promotions, stock-option grants and, yes, cash bonuses.

We also should stop arguing whether we can or can’t buy innovation; we should simply pay for it.

 

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A Multiple Choice Test

Posted on June 3, 2014 by Eugene Ivanov

(This post originally appeared on Innovation Excellence)

Everyone has his or her sense of order. My daughter, for example, arranges her clothes in the alphabetical order of brand names.

The growing adoption of open innovation tools in corporate innovation practices has resulted in a rapid proliferation of firms providing open innovation platforms and services. Often called open innovation services providers (or vendors or intermediaries), these new entities are rushing to fill the new and potentially lucrative niche; some experts put the worldwide number of OISP at around 200 and counting.

The multiplicity of OISP is good news for organizations trying to incorporate open innovation approaches into their internal R&D processes: with a plenty of available options, they can select a platform that would best fit their particular need. The bad news, though, is that just navigating this complex, still very immature, marketplace is a challenging job by itself.

This is why a report by Forrester Research, “Innovation Management Tools, Q3 2013,” comes so timely. Aimed at bringing some order into the fragmented world of OISP, the report analyzed and ranked 14 most significant players in the open innovation management field. The 17-criteria analytic tool used by Forrester can obviously be applied to evaluate the performance of OISP not covered in the present study.

While representing a significant step in the right direction, the Forrester report is not without certain limitations. In particular, the report did not pay enough attention to the differences in specific business models employed by the OISP it analyzed. As a result, the same metrics were applied to companies as diverse as designers of collaborative innovation management software (Brightidea and Spigit), innovation consultants (Imaginatik) and providers of crowdsourcing-based solutions (InnoCentive).

In order to help companies extract more value from existing and emerging OISP, some classification needs be established to help potential users better understand what kind of specific services could be expected from each OISP. It would seem reasonable to divide OISP in at least two large categories. The first category would include providers of innovation management software, such as Brightidea and Spigit. Recently, Spigit has merged with Mindjet, the designer of project management software. The combined company may well become a “Swiss army knife” in the field of innovation management support.

The second category would include the so-called crowdsourcing companies, i.e. companies employing large numbers of external experts (or solvers) to address specific client needs. A great variety of business models exists within this category. Some companies provide an “expert-on-demand” service, allowing their clients to rapidly find a qualified expert in a particular field for an on-line or telephone consulting session. U.S.-based YourEncore and Maven and French Presans fall into this sub-category.  Another flavor of the crowdsourcing approach is provided by the U.S.-based Yet2.com, the creator of an on-line marketplace where companies could buy and sell promising technologies, licenses and know-how. Finally, a number of providers use large crowds of highly diverse “solvers” to crack specific R&D problems posted by their clients. American InnoCentive and NineSigma and Canadian IdeaConnection represent this brand of the crowdsourcing approach.

One might argue that because many OISP offer more than one specific platform or service, such a classification would be difficult to create. True, providers of innovation management software always combine their products with some sort of consulting, and crowdsourcing companies routinely develop stand-alone software products that could be sold separately. Yet, the note of the multifunctionality of OISP does not negate the need for their classification. Rather, it calls for this classification being more sophisticated and purpose-oriented.

Every single morning, a myriad of women around the world, including my daughter and wife, face a difficult choice: what to wear for the day. No one can help them in this daunting endeavor. But we can make the process by which global companies choose their innovation service providers less stressful and more efficient.

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On Cash and Praise: How We Reward Innovation

Posted on June 2, 2014 by Eugene Ivanov

(This post originally appeared on Forward Metrics)

A good friend of mine works for a high-tech company in Massachusetts. Recently, the company’s new CEO, an avid fitness buff, has introduced an initiative: every employee who’d spend certain number of hours per week in the company’s gym becomes eligible to a cash bonus. My friend, a frequent visitor of the gym himself, complains that the exercising space, largely deserted just a month ago, is now jammed with jogging, yogging and cycling people, sweating and determined. I suspect that many of these folks took advantage of the new initiative to rejuvenate their otherwise moribund New Year’s resolutions.

No, I’m not against commercial entities enforcing good behavior of their employees with cash. My point is different. I wonder why so many companies, while rewarding people for something they should be doing anyway, like exercising, don’t reward them for participating in innovation activities. Does innovation not have at least as strong an impact on the company’s future as the physical and mental health of its employees? Is adding innovation to one’s daily routine, already cramped with multiple responsibilities and looming deadlines, not as difficult as finding time to exercise? And yet, we see it time and again: with a great fanfare, a company launches an innovation contest and then expects employees to submit their ideas for free—or for a vague promise of future recognition if the winning idea is eventually implemented, something that in many high-tech companies may takes years.

Granted, there are companies that do recognize and reward their employees for innovation. Predictably enough, even some “best practices” have already emerged. We’re told, for example, that a balanced mix of monetary (e.g., cash or stock-option awards) and non-monetary (e.g., formal and informal recognition within the organization) rewards is needed to incentivize innovation. We’re further told that monetary awards can encourage incremental, but not radical innovation; the latter is better advanced by a formal recognition of the innovator. While sensing certain logic in these claims, I still wonder if any of them is supported by solid field research data.

It appears to me that such a convoluted approach to rewarding innovation—compare it to the simple “you exercise, we pay you cash” scheme—reflects the fact that in the majority of companies, some notable exceptions notwithstanding, innovation is still not organically embedded in the routine business operations. It is still considered a process that is conceptually different from other major business processes, such as marketing, business development or quality control. Consequently, established performance evaluation metrics aren’t used to assess innovation activities, and as a result, companies either invent ad hocrewarding tools or, worse, choose not to reward innovation at all.

Hopefully, this will change over time. As companies get more mature in their approaches to innovation, as they align innovation with corporate strategic goals, as they define what kind of innovation involvement is expected (or not) from each position within the company and then establish metrics by which this involvement will be assessed at each level, from top to bottom, innovation will eventually be “rewarded” as any other top performance would be: with cash bonuses, stock-option grants, promotions, etc.

And if a company has some money to spare, the opportunities to reward good behavior of its employees are endless. Exercising is great. But what about reading? You read one book per month, we pay you cash.

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Customer Service

Posted on June 1, 2014 by Eugene Ivanov

(This post originally appeared on Forward Metrics)

A new buzzword is coming into vogue in the media: the consumerization of healthcare. Pundits define this term as a shift in the way the healthcare industry operates: from the traditional B2B mode to the one that focuses primarily on B2C interactions. Consumer advocates, in turn, point out that consumers are taking a more active role in important healthcare decisions. As a result of this trend, they argue, every healthcare company will have to become more consumer-centric, leading to what some enthusiasts have already dubbed “consumer-centric healthcare.”

In real life, so far the consumerization of healthcare has meant two major things. First, providers of healthcare products and services have begun paying closer attention to consumers’ behavior. Some pharmaceutical companies, for example, are adopting the “beyond-the-pill” approach: using web-based engagement tools, they show consumers how their lifestyles can maximize (or weaken) the effectiveness of provided therapies. Other companies take into account consumer and doctor feedback when designing protocols for clinical trials of new drugs.

Second, the consumerization of healthcare is manifested by the rapid proliferation of activist groups calling for a greater patient involvement in personal healthcare decisions. One of the most prominent players on this field, PatientsLikeMe, defines its mission as changing “the way patients manage their own conditions…the way [healthcare] industry conducts research and improves patient care.”

While any attempts to listen to the proverbial voice of the customer can’t be but welcomed—be it healthcare or any other customer-oriented industry—one ought to remember that the history of patient group involvement in healthcare decision-making process is not without controversy.

Back in the 1980s, the outbreak of AIDS brought to life a voiceful and influential advocacy on behalf of AIDS patients. Having launched an unprecedented in its magnitude public campaign, the AIDS patient advocates succeeded in persuading the U.S. policymakers to shift substantial amounts of NIH funds to HIV/AIDS research. The powerful infusion of taxpayers’ money helped rapidly identify the origin of the HIV/AIDS epidemics and then develop the life-saving treatments. Yet many critics bitterly complained that by receiving the amount of NIH funds that wasn’t commensurate with the number of HIV/AIDS patients, the program had siphoned much needed resources away from other, more important, public health needs.

Similar, albeit more muted, criticism has been voiced against generous NIH funding for breast cancer: critics argued that the amount of public money spent on this disease—as a result of active lobbying by dedicated patient groups– was vastly excessive, given the relatively low number of breast cancer patients.

It appears that the AIDS and breast cancer cases are not exceptional. In fact, they are part of a general trend: patient groups—often called disease advocacy organizations—actively influence federal funding in favor of “their” diseases. A 2012 study conducted by Rachel Kahn Best from University of Michigan follows how disease advocacy organizations lobbied Congress for a greater share of NIH funding. Using data on 53 diseases over 19 years, Kahn Best showed that for each $1,000 spent on lobbying for a specific disease, there was an associated $25,000 increase in research funds for this disease the following year.

What is wrong with that, one might ask? Well, the problem is that the amount of NIH funds allocated for any particular disease is now determined not by some objective parameters associated with this disease—for example, by the so-called burden of disease–but rather by the strength of a corresponding patient advocacy group and the amount of money it spends on lobbying members of Congress.

And when you have winners, you have losers too. In particular, Kahn Best points out that diseases affecting primarily women (except for breast cancer) and African Americans tend to receive lower levels of funding because of weaker lobbying. Besides, adequate funding isn’t provided to the so-called stigmatized diseases, such as lung and liver cancer, associated with patients’ “bad behavior” (smoking for lung cancer and alcohol consumption for liver cancer). Year after year, both diseases received smaller funding than would have been predicted based solely on patient mortality.

While welcoming public involvement in healthcare decisions, we as a society at large need to find ways restricting the influence of special interests—and money they bring along—on the healthcare decision-making process. There is so much at stake here.

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