Professional Documents
Culture Documents
ISOM1380 2017S pt6
ISOM1380 2017S pt6
2
Open Innovation
However, the world is changing
Information now flows cheaply and instantaneously
over the Internet; smart people are more widely
dispersed and mobile but more closely connected
Ideas bubble up in all kinds of organizations
Isolationism stifles innovation
Many companies suffer from “Not-invented-here”
syndrome: not realizing the full potential in tapping
outside ideas
3
Open Innovation
In this world of abundant knowledge,
companies must be nimble at “open innovation”
Accessing and exploiting outside knowledge while
liberating their own internal expertise for others
Not only can they benefit from ideas they harvest
from outside, but also they can profit from sharing
their ideas with others, even competitors
Lucent vs. Cisco: Lucent inherited the wealth of Bell
Lab expertise, but Cisco is not doing much internal
research of its own (open innovation)
4
Open Innovation
Not all smart people work for you
Companies are opening their innovation borders to
vendors, customers and even competitors
Businesses are increasing the import and export of
novel ideas
5
Open Innovation
Lego (Mindstorms)
XC2V (Local Motors)
Open Source Software
Work Closely with Customers to
Develop New Solutions (LEGO)
Companies do more to involve customers in their
innovation processes
LEGO had great success in letting customers create
designs (LEGO Ambassadors): allowed customers to build
various LEGO designs (LEGO factory, modular buildings)
LEGO Mindstorms: LEGO opened up its software so that
anyone could modify it and watched what customers
decided to create radically open approach
An entire middle school curriculum was developed in the U.S. to
teach children robotics, using LEGOs LEGO products have given
rise to a services industry focused on middle school science
education
7
Open Innovation
Importing ideas
Internal idea sourcing
Exporting ideas
8
Benefits of Open Innovation
Improves the pace, cost, and quality of innovation
Importing new ideas multiplies innovation building
blocks (i.e. ideas and expertise)
Exporting ideas is a good way to raise cash and to
reveal an innovation’s true worth
Exporting and importing ideas clarifies what you
can do best
Open innovation lets companies set realistic market
values for their own ideas, helping them to better define
their core competencies
9
Importing New Ideas:
Multiplying Innovation Ideas
Companies can have more ideas to choose
from and different kinds of expertise available
to them, then the cost, quality, and speed of
innovation improve
Companies that collaborate with outsiders on their
R&D reap a higher percentage of total sales from
new products than those that don’t
Innocentive.com, Threadless.com,…
10
Innocentive.com:
The Innovation Broker
11
Example: InnoCentive.com
An innovation marketplace founded in 2001
Connects “Seeker” firms posting scientific problems
(“Challenges”) with external “Solvers” who
submitted solutions “eBay of innovations”
Broadcast search problem-solving approach
Seekers that judged solutions acceptable reward the
Solvers with cash prizes (up to USD 1 million) and
assume the associated intellectual property rights
Seekers include commercial, government, and non-
profit organizations such as P&G, Eli Lilly, Janssen,
and the Rockefeller Foundation
12
Example: InnoCentive.com
Provides a consultancy (brokering) service to
both its clients (seekers) and solvers
Helps clients identify challenges appropriate for
posting on its network of solvers, estimate the reward
fee based on the complexity of the challenge
Handles legal issues (e.g. intellectual property rights)
Helps its network of solvers by providing, feedback,
legal frameworks, a variety of tools for group work,
community functionality, discussion groups, joint-
authoring tools,…
Assures confidentiality/anonymity
Example: InnoCentive.com
So far, more than over 2,000 challenges in many
scientific domains were posted
More than 62,000 solutions were submitted
Had attracted more than 380,000 solvers from nearly
200 countries
More than USD 50 million of rewards
Anyone can register as a potential solver
Many solvers hold PhDs, representing diverse fields,
including academics, students, consultants, retirees,…
14
Customer Production: Threadless
A Chicago-based fashion company established in 2000
Selling T-shirts with colorful graphics
T-shirts: typically hit or miss; need to successfully identify fast-
changing trends
None of Threadless’ hundreds of products has ever failed:
How? relies on community of customers (hobbyists,
professional graphic designers,…)
Customers design, inspect and approve all designs
Threadless can exploit a pool of talent and ideas
Threadless manufacture only those designs that earn the
necessary number of preorders from customers ensuring
each product’s success
Threadless (2)
Each week on the Threadless website, customers can
evaluate approx. 1,000 new submissions on a 5-point
scale
On the average, each design is rated by 1,500 people
Customers show their intentions to buy a submission so that
Threadless can decide which products should be developed and
manufactured
The company produces about 10 new designs each week, and
creators of those submissions receive financial rewards
The community is thriving with more than 2 million members
Extended its biz model to other items (ties, polo shirts, wall
graphics, etc.)
Threadless.com
Limitations of
Conventional Market Research
Companies typically rely on focus group studies that have
severe limitations
Results from focus groups are not reliable indicators of the
reactions of the broader population
Lack realism because consumers are often given only verbal
descriptions of concepts of a product
Do not measure people’s real purchasing behavior (only attitudes
or intentions), thus do not provide quantitative estimates of sales
and profitability
Test marketing can provide a more reliable measure, but it is
extremely expensive, time consuming and subject to a high
level of noise from competitors’ activities and other sources
Limitations of
Conventional Market Research
Conventional market research does not often
provide reliable, complete, and timely
information
As a result, companies develop new products
basically by revising their existing offerings
Places companies in the persistent danger of missing
important trend changes
Prevents companies from developing products that
are truly innovative
Benefits of Threadless Model
Provides access to ideas for new product designs
Particularly effective for companies targeting either
specialized customer segments or volatile markets with
fast-changing trends
No need to identify the segment: Helps convert market
research expenditures directly into sales
Helps firms avoid product failures
Can determine the volume necessary to produce an item
for a given sales price (through preorders)
If not enough preorders: can scrap the design before the
company makes any major investments in final
development, manufacturing, marketing, and sales
LOCAL MOTORS
Open Source, Crowdsourcing Automobile Company
21
Peer (or Customer) Production
The growing accessibility of information
technologies
Tools required to collaborate, create value, and
compete are available at everybody’s fingertips
Liberate people to participate in innovation and
wealth creation
Peer production: when masses of people and
firms collaborate openly to drive innovation
YouTube, Linux, Twitter, App Store, …
22
The Key Impacts of
Peer Production for Business
Harnessing external talents
Today, the speed and complexity of change is too
fast for a company to create all the innovations
needed
More people and partners develop solutions faster,
cheaper and better than ever
Boosting demand for complementary offerings
Services, support, applications,…
Building a new ecosystem
23
Implementing
Collective Customer Production
All collective peer production practices must
share:
Full disclosure of the entire process, from initial
customer inputs to final product commercialization
However, companies must make important
decision about tradeoffs (what-to-do and what-
not-to-do)
Companies must always combine the collective input
of their customers with their internal knowledge of
the market
24
Implementing
Collective Customer Production
Companies should be able to discard some
customers’ ideas
The quality of the design
Technical constraints, manufacturing costs
Legal considerations
Contribution to the existing assortment of products
25
Crowd Funding: Kickstarter
26
What is Kickstarter?
Sell creative ideas
Ask for funding from pledgers
The seller maintains complete control of his/her
project’s direction
After a designated amount has been raised, the
money is sent out and the project is launched!
27
Tiered Incentives
Examples of Kickstarter Projects
Pebble e-paper watch
(https://www.kickstarter.com/projects/597507018/pebble-e-paper-watch-for-iphone-and-android)
Oculus
Hover Board (https://www.kickstarter.com/projects/142464853/hendo-hoverboards-
worlds-first-real-hoverboard)
LUMO back
Internal Idea Sourcing
Organizations will need to institutionalize
innovation as a deep value to get a steady flow
of rule-changing ideas (Gary Hamel)
Many companies still waste a substantial share of
their employees’ imagination
The cheapest way to get more ideas into the
innovation is to ask for them
Raise the ratio of innovators to the total number of
employees: make many employees regard
themselves as innovators
30
Example: W.L. Gore
Signature product: Gore-Tex
A single core belief: Innovation can come from
anyone, anywhere
Every employee (“associate”) can allocate 10% of
his/her time to dreaming up new applications for the
company’s materials
W.L. Gore’s innovation democracy has propelled the
company into areas as diverse as fuel cells, medical
devices, sealants, dental floss, and guitar strings
31
IT-Driven Innovation:
IBM’s Innovation Jam
IBM research labs are pumping out brilliant
technologies ranging from weather forecasting
technology to real time translation technology
IBM wants to find some novel ways to commercialize
these ideas successfully, a challenge that IBM hadn’t
always efficiently met
Using more than 300,000 capable employees, IBM
wants to find faster ways to move products based
on new technology to market
The idea of a “Jam” to promote innovation
32
IBM’s Innovation Jam
Innovation Jam took place in two three-day
sessions in 2006
More than 150,000 participants (employees, family
members, biz partners, clients from 67 companies,
university teachers) from 104 countries
The largest online brainstorming ever
The Jam was successful: it discovered new ways of using
IBM innovative technologies
Biz created from the Jam: smart health care payment
system, intelligent utility networks, “Big Green”
innovations, electronic health record system, 3-D
Internet,...
33
IBM’s Innovation Jam
IBM suffered from many difficulties too
Ideas didn’t get refined through continual, respectful
dialogue (e.g., body language skills don’t apply, inevitably
had to leave the conversation for long time)
Many ideas were completely impractical (lots of garbage)
Guiding the conversations toward a focus on a few
thoughts was even more difficult
The Jam is fundamentally a collecting ideas that will later
be evaluated slowly rarely generates rapid answers
and thrills that some online experiences can produce
However, the Jam’s value was in bringing many ideas
together
34
Exporting Ideas: Raising Cash and
Keeping Talent
Royalties from patents cash $$$
Schlumberger sells innovative ideas pertaining to oil field
services (e.g., oil drilling, data collection) to both
customers and competitors
Exporting ideas adds urgency to the innovative
enterprise (act fast on promising ideas, otherwise
risk seeing them offered to outsiders)
35
Exporting ideas: Revealing an
innovation’s true worth
Companies can look at their innovation through
market-hardened eyes
Eli Lilly routinely offers licenses for some compounds
under development and finds out whether anyone
wants it: if none, no further investment is warranted
Especially when the therapeutic and business value
of the drugs is still unclear
36
Exporting and Importing Ideas
Helps companies clarify what they do best
Companies often delude themselves into thinking
that their core capability is broader than it really is
Boeing found that their true competitive advantage
was not in manufacturing but in systems integration
37
Open Innovation Risks
Some companies lose opportunities by sharing
their innovations with current or potential
competitors
Xerox virtually gave away a stream of innovations
(computer mouse, GUI, laser printer,…)
38
Although the Dangers of Sharing
Innovations are Real
The greatest danger lies not in the transfer of
the innovation but in the structure of the deal
At the right price, an innovator can make big
money and build mutually beneficial
relationships by sharing an innovation to other
players
39
Although the Dangers of Sharing
Innovations are Real
Selling or renting innovations poses fewer
competitive risks than most people think
Innovation transfers take time: the original innovator
continues to go ahead while the buyers need to
understand and customize the innovations
Buyers may never capture the full value of the
innovation transfers
Managers tend to underestimate the strengths of
suitable substitutes (IBM vs. Compaq)
40
IBM and the Attack of the Clones
In 1980, IBM was in a hurry to introduce a personal
computer (PC). It used off-the-shelf components such
as Intel microprocessors and MS DOS
IBM believed that its proprietary basic input/output
system (BIOS) would protect the computer from being
copied by competitors, because the BIOS was
copyrighted
However, Compaq reverse engineered the BIOS in a
matter of months without violating the copyright, and
quickly introduced a computer that behaved like an IBM
computer in every way. And other clones were quick to
follow
Copyright protected the written lines of code, not the functions
those codes produced
41
The Myths of Innovation
44
45
Myth#1: The Eureka Myth
Companies underestimate the amount of work
needed after the workshops (Example: IBM’s
innovation Jam)
preliminary sorting, scoring and giving back
feedback take a huge amount of effort/time; many
experts and category owners have to be involved
46
Myth#1: The Eureka Myth
What should you do?
Clearly understand what problem you’re facing
If you think it is a lack of ideas, use an ideation
workshop; but be ready to invest a lot of time and effort
into the follow-up work
Find the weakest links in the innovation value chain and
correct them!
Successful innovation programs typically take many years
to bear fruit (P&G’s Connect + Develop initiative took
over 10 years)
Unfortunately, many companies lack the continuity in
leadership needed to make a long-term commitment
47
Myth#2: Open Innovation Is
the Future
Many companies believe a more open approach to
innovation is necessary, however
There is no free lunch or offer
The costs of open innovation are considerable, including
practical challenges in resolving intellectual property
ownership issues, lack of trust on both sides of the fence
and the operational costs involved in building an open
innovation capability
Sometimes the insights provided by external sources may
not be useful for company-specific problems
The time and effort involved into building external
networks should be significant
48
Myth#3: Rewards for Ideas
How to structure rewards for ideas?
Myth: We have to offer incentives (extrinsic
incentives such as money) so people put in extra
effort It may not always necessarily true
49
Myth#3: Rewards for Ideas
Extrinsic rewards are usually secondary
The more powerful motivators are typically “social”
factors, such as the recognition and status that is
conferred on those who do well
“Personal” factors such as the intrinsic pleasure from
generating ideas
Individuals even view the offer of reward for an
enjoyable task as an attempt to control their behavior,
which hence undermines their intrinsic interest and
creative performance
Intrinsic motivation is especially likely to suffer when the
incentives are large
50
Myth#4: Innovation is Risky
Yes, some innovations are radical and risky
(e.g. fusion power), but it’s not necessarily
always true
Seoul Milk
Simply added manufacturing date (sales revenue
increased by 25%)
Liberation Wrapper
51