Consider a slightly different version of the same phenomenon – the InnovationXChange. I had the pleasure of meeting John Wolpert, who developed the BRIDGE methodology, which instructs professional intermediaries on how to help companies share intent and find mutually beneficial collaborations without exposing secrets to each other directly.
Less than four weeks later I serendipitously bumped into InnovationXChange CEO Grant Kearney boarding a plane to Sydney. IXC is a not-for-profit company which helps companies, universities and research institutions collaborate and share information in the midst of highly complex international intellectual property laws, while still maintaining strict confidentiality. In their own words, they 'make it safe for organisations to "talk".' They have dealt with everyone from food makers to pharmaceutical companies, in one case linking a pharmaceutical company working on a partially finished drug with a nanotechnology company on the other side of the world that revolutionised the drug's delivery mechanism. IXC is a fascinating organisation, adding real value to Australian businesses.
This trend is global. For instance, the website Global Ideas Bank (www.globalideasbank.org) is a public forum where people can post ideas at any level of development (from a small inkling of an idea to a well-progressed idea that is hitting stumbling blocks) and people can comment and contribute.
SOME THINGS ARE WORTH PAYING FOR
Innovation contests and prize challenges are another means of open-source, lead-user product development. The pharmaceutical giant Eli Lilly recently incubated and spun-off a new enterprise called InnoCentive, which acts as a middleman between companies ('seekers') and a worldwide community of self-selected scientists and engineers ('solvers'). Seeker companies post challenges with cash awards for the development of new products and processes, and scientist solvers post their suggested solutions by a specified deadline.
In early 2007, InnoCentive's open challenges included an award of US$140,000 for new pressure-sensitive adhesives and US$1,000,000 for a biomarker for the disease ALS (amyotrophic lateral sclerosis), as well as US$15,000 each for a novel method of dust control and packaging to limit the breakage of snack chips. Successful solutions to past challenges include a new method for assessing the risk of breast cancer, UV-resistant coatings and a next-generation paper binder, among several dozen others for companies such as Procter & Gamble, Du Pont, Dow and Boeing.
Contests to spark innovation have a long history. In the eighteenth century the British government offered £20,000, an enormous sum of money back then, for the solution to finding an accurate longitude on the open sea. Instead of any of the highly credentialed astronomers of the day, it was a clockmaker who found the solution. His name was John Harrison. After four different incarnations of his longitudinal chronometers he finally built one that worked extremely accurately. For petty political reasons he was initially refused his reward! He fought it and fought it, and finally – years after building a properly working device that could measure longitude at sea – he was granted his reward.He was eighty by then, and lived only three more years. Thankfully, today such contests are known for paying up more reliably. Can you imagine the PR and word-of-mouse frenzy that would follow if they did not?
The American DVDs-by-mail service Netflix, which operates on a lending library subscription model, asks customers to rate the movies they watch and then uses an algorithm to make recommendations of new movies based on over 1.6 billion total customer ratings. As with similar algorithms that lie behind Amazon.com's customer recommendations and Google's search-tailored advertising, the more accurate Netflix can make its 'Cinematch' algorithm the more customer satisfaction and loyalty it will engender and the better positioned it will be against competitors, including coming digital download services.
In October 2006, Netflix announced a US$1 million prize and a five-year submission deadline for an algorithm that would increase the accuracy of Cinematch in predicting customer responses to movies by at least 10 per cent. According to The New York Times, the company, which did not expect quick results, 'underestimated the power of an open competition'. Less than six months after the start of the competition, the model submitted by the leading contenders, a team of Hungarian scientists, was 'already 6.75 per cent better than Cinematch'.
Incidentally, showing that it knows how to 'Think AND, Not OR', in January of 2007 Netflix introduced a new feature to its DVD rental subscription plans. For no additional charge, Netflix customers got the capability to watch streaming movies from Netflix on their computers, as well as continue to receive and return DVDs through the mail.
On a side note, Netflix sounds a little bit like a nascent kind of web 3.0, but it probably falls a bit short. It is certainly an example of organising information. But to truly be a part of the semantic web, the data would have to be ordered and stored in such a way that machines could understand what the data meant so they could parse it for useful information. It would need what information specialists call a meta-language.
Netflix really is just a good database with a good search algorithm. If it was really web 3.0, you should be able to ask the database, 'I want to see a funny film, but I want it to be a dark humour, not slapstick, and I want it to have a serious edge.' The only way of doing that with Netflix would be to wade through all the user comments. In web 3.0, the computer could understand qualitative judgements and comments.
Summing up the benefits of innovation contests, The New York Times noted the 'two essential features of prizes. They pay for nothing but performance, and they ensure that anyone with a good idea – not just the usual experts – can take a crack at a tough problem.'
Procter & Gamble adopted a strategy called Connect and Develop as part of its fight-back following its market slump in 2001. It employed a network of scouts to look for (connect) new ideas and then to develop them. Procter & Gamble have an internal R&D operation with a nearly US$2 billion a year budget, but they are smart enough to still 'Think AND, Not OR' and look outside too by using InnoCentive's 80,000 independent, self-selected 'solvers'. It's like an R&D version of e-lance.com, where the company posts R&D projects and people can contribute. Procter & Gamble's decision to move away from just traditional inhouse R&D and combine it with this new outsourced variety has led to a 60 per cent increase in R&D productivity and the launch of more than one hundred successful products, including the hit Olay Regenerist.
Cisco Systems have an outstanding internal culture and empowered staff, but another vital factor in their longstanding success is an 'acquire and develop' strategy: they buy up small, innovative companies and use their resources and market clout to realise their potential. Rather than create an open competition, Cisco will let fringe entities develop an idea on their own time and with their own money until that innovation looks ready to be integrated into existing technologies or commercialised in its own right. Cisco will then buy the company, ideas and talent both, and take it to market.
Or for another favourite, Intel have built 'lablets' in strategic universities to work closely with researchers and graduate students to publish research that Intel will not own. The goal is to build the amount of innovative activity that is being engaged in the areas that Intel works. In the future they could adopt a connect-and-develop or even an acquire-anddevelop approach to some of the innovations created from these relationships.
These strategies make more sense when you consider data published by the National Science Foundation in the US showing that between 1981 and 2001 the percentage of total R&D expenditure that can be attributed to large businesses has shrunk from 70.6 per cent to 39.4 per cent. This is especially telling because the percentage that can be attributed to businesses with fewer than one thousand people has grown from 4.4 per cent to 24.7 per cent. It makes sense to connect, acquire and develop when smaller firms are where a significant chunk of the action is.
The other advantage of these approaches by companies such as Procter & Gamble, Cisco and Intel is that these smaller entrepreneurial ventures are putting ever
ything on the line and have already taken the risk. They are generally more nimble organisations, able to move quickly when the market changes, and in reality their success depends on getting it right. If a large company fails to innovate in one product area, there are a few thousand others to absorb the loss. If one of these smaller companies fails to stay on trend it will find itself out of business fast.
As a side note, of the four forces of change, compression of time is the most likely to prevent you from embracing the opportunities that open-source and leaduser development present. As you try to keep up with change, you are forced to move more quickly. The faster you move the less likely you are to take the time to find and evaluate external options. You need to get over this natural focus, and get out and see what is happening.
The whole idea of open source, like rewards for ideas, is not a new one. Although the term 'open source' is alleged to have come out of a strategy session held at Palo Alto in response to Netscape's decision in January 1998 to release its source code (think 'open' source code), its origins are older, and the concept as it is being presented here is far broader in application than simply source code.
Let me give you a great Australian example. CAMBIA is a not-for-profit research centre founded in 1992 by Richard Jefferson in Canberra. Focusing on plants and biotechnology, CAMBIA was an acronym for the Centre for the Application of Molecular Biology to International Agriculture.
These days CAMBIA has evolved into broader life science applications but retains the name CAMBIA, which in Italian and Spanish means 'change'. CAMBIA develops new metho-dologies and technologies for plant improvement and then provides that information to the wider market. In effect CAMBIA is an opensource biotechnology research centre and a driver for much innovation.
The key goal of CAMBIA is to promote open-source innovation in the wider arena of bio-technology. They see open source as an enabler of innovation, and have developed a suite of tech-nologies, patents and licences that in their view will give innovators greater freedom to develop and market new biotechnologies. CAMBIA makes specific reference to helping smaller businesses and ventures, who without assistance in what can be both a scientifically and legally complex space would not gain sufficient access to the market. In a way, CAMBIA helps to create and spread innovation by removing control from the hands of the wealthiest companies.
To close out this section, let me say that I am not suggesting you give everything away for free, nor am I suggesting you expose your sources of competitive advantage to your competition. This would make no sense unless it made your business more profitable. You should however tap into the brilliance that individuals who don't work for you have,whether they be customers, bored scientists in academia or teenage kids with an idea about how to advertise your product better.
INVISIBLE PROFITS: SUCCESS THROUGH 'CO-OPETITION' AND PARTNERSHIP
I had the pleasure of sitting next to a senior engineer from Maunsell Australia on a flight from Perth to Brisbane. His name was Richard Jackson. Richard now claims that one of his great achievements in life is to sit next to me for more than four hours in a confined space and survive. It was the start of a relationship with Maunsell, and now AECOM globally, a company that ranks among the most exciting I have ever worked with. In that conversation one thing stood out and has influenced my thinking greatly.
In the development of huge infrastructure projects, competing firms are often engaged simultaneously to get the project finished on spec and on time. Apparently these 'partnerships' have traditionally been hostile ones.When I asked Richard what the biggest change facing his industry was, he said it was a move away from competition and towards co-operation: the development of win–win relationships with suppliers and traditional competitors, or what I like to call 'co-opetition'.
Only today I was listening to a podcast of a presentation by Bill Clinton, at the annual TED conference in Monterey, California, in which he used the word 'interdependen?' repeatedly. This idea of teaming and partnership even with traditional competitors seems to be gathering real momentum.
A 2000 Booz Allen Hamilton Consulting report notes that more than 50 per cent of business alliances in the 'new wave' of business collaborations (which refers to the massive increase of business partnerships since around the year 2000, facilitated by technology and spurred on by an increasingly crowded market) are between competitors, and lead on average to a 7 per cent higher return than traditional collaborations.
Toyota realise that sharing their hybrid technology has real benefits for them. They already have technology-sharing agreements with Nissan and Ford (who use Toyota technology in the popular Ford Escape). Toyota not only enjoy licensing fees and royalties from other companies using their technology, but the more people that use their technology the higher their output volume, so the lower their per-unit production costs become. It's win–win.
Apple recognised that the best way to achieve their goals lay in cooperating with other established companies in partnerships where they could ride each other's innovations. In 2006 they partnered with Intel to deliver Mac computers running off Intel chips. The companies' faith in the power of collaboration is clear when you look at the way they describe the joint venture.
Apple CEO Steve Jobs said, 'Our goal is to provide our customers with the best personal computers in the world, and looking ahead Intel has the strongest processor roadmap by far . . . we think Intel's technology will help us create the best personal computers for the next ten years.'
Intel CEO Paul Otellini said, 'We are thrilled to have the world's most innovative personal computer company as a customer. Apple helped found the PC industry and throughout the years has been known for fresh ideas and new approaches.We look forward to providing advanced chip technologies, and to collaborating on new initiatives, to help Apple continue to deliver innovative products for years to come.'
Just because you haven't figured out a way to make an idea work, it does not mean someone else can't. Sell it, license it, partner on it. Stop keeping it hidden, especially if you are getting no return on the asset. You wouldn't leave a huge piece of real estate or a factory doing nothing. You would work that and your other physical assets as much as possible. It is time we started thinking of our intellectual assets the same way.
According to Ron Sampson, secretary of the not-for-profit National Institute for Strategic Technology Acquisition and Commercialization in Manhattan, 90 to 95 per cent of all patents are idle. Procter & Gamble only use about 7000 of their 36,000 patents according to company spokesman Jeff LeRoy.
Companies will patent any meaningful advance but only work on the ones that fit into their immediate R&D. The worst are the pharmaceutical companies. The phenomenon is called 'the tragedy of the anticommons' – that is, patents keep knowledge in the hands of just a few people (monopoly on knowledge), which is bad for innovation. In fact, in the European Union, a report by a group of Italian academics found that as many as 18 per cent of patents were 'blocking' patents, which are patents taken out not so you can develop them into something but to make sure someone else doesn't. That's not cool and that is not progressive enough for the flip world.
THE ULTIMATE POWER TRIP: LEVERAGING POWER BY SHARING IT
The antiquated 1950s view of business is the boss walking around trying to squeeze every last bit of work out of employees, worried they are ordering Christmas presents online. I actually worry about the opposite, getting my people to take all their vacation time. We have a system that notifies me when someone is about to lose vacation days because they haven't taken them in time. Every one of my direct reports is in danger.
Jonathan Schwartz,
President/COO Sun Microsystems
Some smart people do work for you. Use them! One of the biggest complaints that my own research and that of companies such as Gallup has found is that one of the most frustrating things about work is when your company doesn't fully utilise your skills.
TECHNOLOGY CAN HELP
The same technol
ogy that is putting the power back in the hands of the consumer can also help you to generate collaboration and knowledge sharing within your own workforce. Considering the following examples which appeared in an Australian Financial Review article in 2007.
Geek Squad, the computer repair company started by University of Minnesota IT graduate Robert Stephens, uses a whole suite of electronic collaborative software to keep teams all across the US working in sync with each other. Geek Squad wikis are accessible and editable by all of their almost 12,000 employees, so they provide useful and up-todate information all the time. Some evidence suggested that appropriately deployed in-house wikis could cut company meeting times 'in half ' and decrease email traffic volume by 75 per cent.
While some are sceptical about those figures, the direction is right. It's interesting to note that the AFR's source for the Geek Squad story, a book called Wikinomics: How Mass Collaboration Changes Everything, by Don Tapscott and Anthony D. Williams, is supplemented by a wiki that readers can contribute to and edit online. Recognising that their book's information could quickly become obsolete, the authors say a wiki is the only way to keep it relevant.
I feel in a strange way that a book is the wrong medium to be communicating flips. Editing was a nightmare because the changing marketplace meant that some of my examples were 'old' within a month of writing them. But I decided a book was still the way to go because the principle of flipping will live on even as the examples lose relevance.
The AFR article also cited Xerox, where CTO Sophie Vandebroek flipped the whole R&D strategy on its head: instead of the strategy emanating from the boardroom and filtering downwards, she started a company wiki where researchers in the R&D teams could collaboratively define the entire R&D strategy.
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