New Survey: Incentivizing Employees to Innovate

(This post originally appeared on Innovation Excellence)

More and moreto-be-or-not-to-be-thats-the-question-257x300 businesses view innovation as a new paradigm for achieving competitive advantage. Now businesses must focus on how to make the innovation process more effective. Experts and innovation practitioners agree that innovation programs thrive in organizations that have established a culture of innovation. They also agree that a culture of innovation is first and foremost a culture of employee engagement: for innovation programs to succeed, organizations must ensure employee participation in these programs.

A question then arises: should organizations incentivize employee participation in innovation programs? Opinions diverge on this issue. Some argue that innovation is based on creativity, and creativity relies mostly on intrinsic motivators, such as natural curiosity or thrill of solving a difficult problem. Extrinsic motivators, including financial incentives, can therefore do little to make a person more innovative. Others insist that innovation is not different from other business processes; consequently, established corporate incentives (formal and informal, monetary and non-monetary) should be used to reward and recognize innovation activities.

To gain more insight into this issue, Doug Williams of IX Research and I are conducting a study to evaluate whether and how employee engagement increases the efficiency of innovation programs. The research aims to answer the following key questions:

  • Does employee engagement have a positive impact on the success of innovation programs?
  • Do organizations provide incentive to employees to encourage participation in
    innovation programs?
  • What specific forms of recognition or reward do organizations use to encourage employee participation in innovation programs?

Whether you’re a seasoned innovation practitioner or just thinking about establishing innovation programs in your organization, we want to know your opinion. You can participate in the study by using the following link.  Those who complete the survey will receive a copy of the aggregate survey results. The data we gather will be used to develop an IX Research report that provides guidance and recommendations to corporate innovation teams, human resources departments, and C-suite executives about how best to engage employees in the innovation process.

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All Innovation Is Local

Picture1I like this phrase: all politics is local. Ascribed to the late Speaker of the U.S. House of Representatives Tip O’Neill this phrase means that all political decisions, regardless of their purpose and scale, must take into account the interests of local constituents, the folks who’re sending politicians into the offices.

In a sense, innovation is local too. What I mean by this is that no matter how many “general rules” of innovation we might invent, every industry and every field would modify these rules to fit its specific needs and circumstances. Take, for example, rapid prototyping. Everyone would agree that the efficiency of the innovation process can be dramatically improved by creating of a quick-and-dirty version of new product or service, allowing immediate assessment of their feasibility, scale-up potentials and, mostly important, attractiveness to end-users. Such a rapid prototyping not only speeds up the innovation pace; it also saves a lot of money by the timely weeding out failed options (remember the “fail fast, fail cheap” mantra?). Rapid prototyping has proven its worth in many cases, most notably, in software and consumer goods markets.

But is rapid prototyping feasible in every field? Unfortunately, not. Consider drug development. There are a number of research tools– in vitro and in vivo systems, animal models of human diseases, etc.–that could conceivably serve as “quick-and dirty” prototypes for testing the efficiency of candidate drugs. However, in such a tightly regulated business as drug development, this isn’t enough. The proof that a candidate drug works–and this is the only proof that matters to the FDA–comes as late as in the Phase III clinical trial. As I pointed out in my previous post, there are two extremely troubling aspects of Phase III clinical trials: first, they are shamefully expensive, costing up to a billion dollars, and, second, horribly failure-prone, with roughly 30-40% of Phase III clinical trials ending up in failures. Is it then surprising that while investment in pharmaceutical R&D has doubled since 1997, the number of approved drugs for the same period has been largely stagnant? Any approach that would allow reliable estimate of drug efficiency before Phase III clinical trial (rapid prototyping of sorts) would have dramatic positive effect on the whole process of drug development.

Or take the celebrated Voice of the Customer (VOC) approach. It’s a common place now to say that any successful innovation must start with identifying unmet customer needs. Or, wording this in more practical ways, when starting to design a new product or service, one must make sure that in the end, there will be consumers and customers willing to pay for this product/service. Consequently, a great number of techniques aimed at identifying what customers do or may want have been developed: market surveys, focus groups and ethnographic methods, to name just a few most popular.

The pharmaceutical industry uses the VOC approach too, but in a very specific way. In a sense, there is no need to identify unmet medical needs in drug development: diseases for which there is no cure are well known, and their list is, unfortunately, depressingly long. And, of course, there is no need to ask sick people whether they want to be cured. So the decision which specific disease should be attacked by a new drug development campaign isn’t made based on the customer wish. Instead, other factors are considered: the presence of a suitable (“druggable”) molecular target, available technology to reach this target, the size of the patient population expected to respond to the proposed drug, the anticipated willingness of the insurers to pay for the future treatment, etc. (Often, such decisions are clouded with interferences by external forces, such as patient advocacy groups; I wrote about this earlier.)

This is not to say that pharmaceutical companies completely refuse to listen to their customers. Over the past few years, companies have begun actively soliciting patient input into design of clinical trials–to make sure that the treatment protocols are patient-friendly enough to ensure high patient complacency. Transparency Life Sciences, which calls itself “the world’s first drug development company based on open innovation,” went a step further: it uses crowdsourcing to design clinical trial protocols for a number of indications.

So what is my point? My point is that as innovation management gets more matured, we should start creating customized sets of innovation tools appropriate for specific industries, disciplines and business functions. In other words, for innovation to realize its global appeal, it must go local.

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Should We Celebrate Failure Worth A Billion?

As every popular topic, innovation is a powerful magnet for clichés. Some of them obliterate more than illuminate. For example, I’m not sure that mixing innovation with DNA is a good idea. Though I kind of understand what Clayton Christensen and his co-authors had in mind when writing about “the innovator’s DNA” (“…each individual…ha[s] a unique innovator’s DNA for generating breakthrough business ideas”), I involuntarily cringe when reading that “successful innovation programs have a DNA consisting of seven elements.” Ouch, these days even kindergarteners know that DNA consists of only four elements!

Another innovation cliché that really rubs me is “celebrating failure.” Sure, we all know that innovation requires a lot of experimentation, and experimentation results in failures more often that it ends up in success. Absolutely, we must accept failures, learn from them and try again and again, until we succeed. But why do we need celebrate failures?

In every language, in every culture, the word “failure” carries distinct negative connotation, and placing it in the same sentence with “innovation” makes no difference. By calling to celebrate innovation failures, we might be announcing our belonging to the Sacred Society of Innovators (i.e. those with a unique innovator’s DNA), but do very little to advance innovation in places, still depressingly numerous, where the fear of failure keeps nipping innovation in the bud.

Besides, some innovation failures are so expensive that they give more reasons to mourn rather than to celebrate. Take, for instance, drug development. Even empowered with recent scientific breakthroughs, modern drug development still remains highly unpredictable business. The ultimate proof that a candidate drug does have clinical benefits (meaning that it may be approved by the FDA for therapeutic treatment) comes as late as in the Phase III clinical trial. It was calculated that it costs about $1.3 billion to develop a new drug and that 90% of these expenses represent the cost of Phase III clinical trials. Do we have any reason to celebrate a failure worth a billion dollars, given the fact that the failure rate of Phase III clinical trials reaches the mind-boggling 30-40% (and even higher in some therapeutic areas, such as cancer)?

We shouldn’t treat innovation as it’s any different from other activities. We live in a success-driven society. We should strive for success, and success only, be it innovation project, manufacturing process or safety of our borders. We should work very hard on decreasing the rate of failures in any of these endeavors–and, sure, it’s time to address the question of why drug development has become so inefficient and expensive. And we should reserve celebration for those occasions, however rare, when we succeed.

I’m even ready to consider this attitude an element of our innovator’s DNA.

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No Change On The Top Of Innovation Olympus

gii_2014_140

Recently, I wrote about the annual 2013 Global Innovation Index (GII 2013), composed by Cornell University, European Institute of Business Administration and World Intellectual Property Organization, that ranked 142 world countries’ innovation capabilities and achievements. I made a curious observation that the top of the GII 2013 list was almost identical to the top of the 2013 Freedom of the World Report ranking democratic credentials of the world’s countries. That means that the ability of a country to innovate strongly correlates with the presence in this country of developed democratic institutions. Or, putting this differently: to be innovative, you have to live in a free country.

Time flies, and the 2014 Global Innovation Index is out. This year, it profiles 143 countries using 81 indicators gauging elements of the national economies related to innovation activities (institutions, human capital and research, infrastructure, etc.).

So, what has changed on the Innovation Olympus since last year? Not much. Like a year before, Switzerland tops the list of the world’s innovation leaders, a position that this country of only eight million people has been holding since 2011. Four countries that were in the top six last year–the United Kingdom, Sweden, Finland and Netherland–are still there, just having swapped places with each other a bit.

The United States occupies the 6th position, dropping from the 5th in 2013. Does this support the often expressed opinion that the U.S. is losing its innovation edge? Not yet, at least as the GII is concerned: in 2011 the U.S. was in the 7th place and in 2012 even in the 10th.

Let’s wait and see, and not only for the GII 2015, but for other indexes and indicators as well. But for now, it seems that the state of our innovation is strong.

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Show Me The Money!

(Thdownloadis post originally appeared on Danish Crowdsourcing Association website)

I strongly believe that as an open innovation tool, crowdsourcing has a bright future, but only if it proves its economic worth. In other words, when properly designed and executed, a crowdsourcing campaign should be able to solve a problem in a more cost-effective way than other tools.

This proof, however, doesn’t come easy, as economic analyses of crowdsourcing campaigns, whether successful or not, usually aren’t publicly available. Yet, fortunately, such data do appear in the open time to time–and they’re nothing short of spectacular.

In 2010, Forrester Consulting published a case study describing open innovation program at a large multinational agricultural company Syngenta. The study analyzed the total economic impact and return on investment (ROI) Syngenta had realized by using a crowdsourcing platform provided by InnoCentive, an open innovation intermediary. The Forrester’s analysis identified a number of benefits gained by Syngenta from this cooperation, including cost savings from finding solutions to difficult R&D problems, productivity savings for Syngenta’s researchers and reduction in intellectual property transfer time. The total value of these benefits was estimated at $11,861,688 over three years. Given that the total cost of using InnoCentive services over the same period amounted to $4,200,567, Forrester calculated that a three-year, risk-adjusted ROI for Syngenta was 182%, with a payback period of fewer than two months. Isn’t it cool?

More recently, a piece of data that would make crowdsourcing fans really happy came out of Harvard Medical School. In one of their research projects, HMS scientists employed the  DNA sequencing algorithm with a capacity of processing 100,000 sequences in 260 minutes. This was way too slow, and in order to improve the efficiency of the algorithm, HMS hired a full-time developer with the annual salary of $120,000. The developer did lower the processing time to 47 minutes, a 5.5-fold improvement, but this was still not fast enough. HMS then launched an open innovation contest that ran for two weeks and offered $6,000 in prize money. 733 participants took part in the competition, and 122 of them (representing 69 countries) submitted algorithms. The winning solution was capable of doing the desired job in 16(!) seconds, a 1,000-fold improvement over the MegaBLAST algorithm and a 180-fold improvement over the internal solution. Given a 20-fold difference in costs ($120,000 vs. $6,000), the HMS crowdsourcing campaign was overall 3,600-fold more cost-effective than the internal solution. Let me repeat: 3,600-fold more cost-effective!

However, as I said in the beginning, good things could happen only when a crowdsourcing campaign is well designed and skillfully executed. And here is where the problem with crowdsourcing seems to reside: many organizations simply lack an appropriate expertise. But this is a topic for another conversation.

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A silver bullet that was not

imagesThere are lies, damned lies and statistics

Alzheimer’s disease (AD) is a horrible illness. A progressive neurodegenerative disorder that destroys memory, abstract thinking and cognitive function, it’s the most common cause of dementia in humans, affecting as many as five million Americans every year and being the sixth leading cause of death. The risk of getting affected by AD doubles every five years after the age of 65, meaning that with 10,000 baby boomers turning 65 every day, the number of Americans with AD may reach 14 million by 2050. The havoc AD wreaks on the life of affected people is enormous, and because AD patients require 24/7 care, it also profoundly changes the lives of their families. More to that, AD is damned expensive, adding more than $220 billion to the U.S. healthcare bill in 2013 alone.

There is no real cure for AD. Five drugs that were approved in the U.S. for AD treatment (the last in 2004) can only offer a brief respite from some symptoms in some people. Even more worrisome, the development of new AD therapies has so far been a total disaster: over the period of 2002-2012, 244 drug candidates have been assessed in 413 clinical trials, but only one has been approved by the FDA. This is a 0.4% success rate or, if you prefer, a 99.6% failure.

The main problem is AD diagnosis: similar to cancer, AD is often detected only after it has already done an irreparable damage to the patient. For this reason, many experts believe that the key to finding effective AD cure is in identifying reliable biomarkers, molecules that could signal the imminent onset of the disease before the pathological symptoms of it became evident. Obviously, to be useful in clinical setting, such molecules should be present in easily available body fluids, such as blood. Not surprisingly therefore, the quest for a “blood test for Alzheimer’s disease” has become one of the holy grails of the medical field.

This explains the close attention to a recent article published in the journal “Alzheimer’s & Dementia.” A team of 27 researchers claim having identified 10 plasma proteins that could predict the disease progression from a pre-AD condition to a full-blown AD within a year of blood sampling. Promptly, BBC jumped in and declared the study a “major step” towards AD blood test.

It now appears that the jubilation has been somewhat premature. DrugBaron, an influential blog covering biopharmaceutical industry, has posted a piece that tears the above study apart. Having pointed out to some minor deficiencies in the study design, DrugBaron focuses its criticism on the statistical treatment of the study results, arguing that the authors’ use of multivariate statistical analysis is questionable at best and outright wrong at worst. The piece’s conclusion is that the proposed cohort of protein biomarkers has no predictive power whatsoever.

Given the complexity of multivariate statistics, DrugBaron doesn’t blame the BBC or other news organizations for running “breakthrough” stories based on shaky science. But it reserves harsh words for the authors of the study, “Alzheimer’s & Dementia” reviewers and “AD experts” interviewed by the BBC, who should have known better and yet chose to ignore obvious deficiencies of the study.

As for those waiting for a “blood test for Alzheimer’s disease,” the wait still continues. And the wait for AD cure continues too.

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The Outsider Effect

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

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

(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?

(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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