Examining Open Innovation Models
Teamigachi – Jay Lu, Lee Erickson, Ryan , Mallett, James Corne, Ruel Fernandes
Exploring open innovation
» Experimenting with innovation and creativity
» Open vs. closed innovation
» Changing innovation landscape
» New open innovation models
» Take aways
“ same thinking we used when we created
We cannot solve our problems with the
them.
”
Albert Einstein
Class Exercise on Open Innovation
Business Problem: A security expert for a large
multinational corporation needs to know the following
information for a new software encryption tool:
How many randomly generated 8-digit sequences (created by
taking 4 randomly generated numbers X,X,X,X and repeating
them) between the values of 0 and 100,000,000 are wholly
divisible by the prime number 137?
Solvers: You each have two pieces of candy. You may
forfeit one piece of candy to get private information
that may help you solve this problem. If you have a
solution, please submit it on a scrap of paper. The most
complete answer wins the bag of candy.
An Innovation Problem
This same problem was given to an
audience of software engineers,
mathematicians, and computer
scientists at a computer software
industry conference.
What do you think happened?
They did what software engineers
do…they created algorithms and
complicated formulas to try and
solve the problem.
Meanwhile….
A small group of administrative
assistants were sitting at a table in the
back and watched as the engineers
worked themselves into a frenzy.
And then one of them had an idea…
She pulled out her pocket calculator and
plugged in 1234 and then 1234 again
and then divided by 137…
She had her friends try 10 different
sequences with the same result and then
stood up and shouted…ALL OF THEM!!!
Survey Says….
The Correct answer is ALL OF THEM. Every 8 digit
sequence that is comprised of 4 digits that repeat is wholly
divisible by the prime number 137.
137 is known as an Einstein Prime.
Since the early 1900's, physicists
have thought that this number
might be at the heart of a Grand
Unified Theory
So a group of administrative assistants came up
with the solution in a room full of math geeks…
Key Challenges faced by Intermediaries
» Defining the problem that needs to be solved
» Managing the identity of each party
» Demonstrating value of service to clients
» Creating or accessing a two-sided market
» Establishing a positive reputation
» Maintaining a diverse range of solvers with
different work experience and life stages
Types of Innovation Intermediaries
Online
Exchange
Portal
Agent
• NineSigma
• InnoCentive
Concept
Developer
Brokers /
Market Makers
• Big Idea Group
• InnovationXchange
• Shanghai IP
Exchange
• Ocean Tomo
InnovationXchange Model
1
2
3
8
7
Member Company
4
6
5
Trusted intermediary assigned to
member company
How each type deals with Intermediary Challenges
Intermediary
Identity
Contamination
Sources
InnoCentive
Public & Private
rooms
Seeker sees only
valid solutions
> 80,000 solvers
NineSigma
Buffers via email lists
Qualified Responses
to Client
Diverse email lists
Big Idea Group
Agent for inventor
Bypasses internal
R&D
Idea Hunts
InnovationXchange
Uses trusted
intermediaries
Members see only
valid matches
Unused ideas
unlocked for new
users
Shanghai IP
Exchange
Serves as IP broker
No source code until
license
Western IP and
smaller Chinese
firms
Ocean Tomo
IP merchant bank
Merchant bank
protections
Unutilized IP
“ have lots of ideas.
The best way to have a good idea is to
Linus Pauling
”
Open vs closed innovation
Open Innovation
Closed Innovation
Not open source
Self-sufficient “Castles”
Process of matching "Seekers" and
"Solvers”
Little or no communication with
external parties. Isolation.
Controlled communication with
outside parties, usually through
online arenas or a mediator.
More secure
Open to ad hoc teams, small and
midsize businesses, anyone with an
answer.
Some believe is faster because it
would never happen otherwise.
Control ideas, production, marketing,
distribution, servicing, financing, and
support.
Some believe to be faster because of
lack of consensus and collaboration.
Sometimes lead by a false belief that
local R&D team can handle it.
Open innovation Model
Source: Open Innovation: Renewing Growth from Industrial R&D, UC Berkley
Innovation Intermediaries
“ innovation was more important than cost
73% of senior managers reported that
reductions for long-term company
success.
Bain & Company
”
Shift happens: The new innovation marketplace
We are in the midst of a
“radically and
irrevocably” changing
global competitive
landscape.
(U.S. Council on Competitiveness, 2008)
Shift happens: The new innovation landscape
» Internal R&D not producing
enough innovation fast enough
despite millions in investment.
» Kraft spent $388M in 2004 and
determined R&D efforts were not
effective in fueling required
growth.
» More and more companies
realizing they have an
“innovation gap” (Ketchen)
Shift happens: The new innovation landscape
» What’s driving this change?
Shift happens: The new innovation landscape
» Shift from industrial economy to
knowledge economy
» Increased global competitive
pressures
» Mobile workforce
» Speed and costs of innovation
increasing
» Nature of innovation changing –
from individual to collective
» Impact of new technologies
Shift happens: The new innovation landscape
What barriers are impeding
opening up the innovation
process?
Shift happens: The new innovation landscape
» IP issues (managing and
protecting)
» Relinquishing potential value
» Identifying the proper sources
and the right ideas
» Overcoming organizational
inertia and “not invented here”
syndrome
“ smartest people work for someone else.
No matter who you are, most of the
Bill Joy, Sun Microsystems
”
Case Example: Getty Images and iStock Photo
» Expensive for consumer
» $250 - $1000+ per image
» Monopolized the business
» Open to anyone with a
camera. iStock filters for
quality.
» Contributors incentive is
20% - 40% of the purchase
price.
New open innovation models
» Launched 2000
» Online apparel store started by
students after winning a t-shirt
design contest
» No creative employees instead
“crowdsources” design
» Community votes up designs,
indicates willingness to buy
» Threadless manufactures most
popular ideas, pays designer
$1500
New open innovation models
» Launched 2009
» Social product production
» Submit ideas, crowd votes
» Collaborative specs, design,
prototyping, logo, marketing,
etc.
» Company manufactures best
ideas, shares profits with
crowd based on input
New open innovation models
» Launched 2005
» SaaS customer-relationship
marketing application
» Individuals and partners
create add-ons
» Salesforce.com markets
add-ons via AppStore and
shares proceeds with
developer
“ Innovation is doing new things.
Creativity is thinking up new things.
Theodore Levitt
”
Take aways
What an innovation intermediary does:
» Helps innovative parties to seek markets where their
ideas can be best put to use for others
… as well as …
» Helps to find external technologies for use (finding
new ideas that are complementary to existing R&D)
» Agents that represent a particular side of the
transaction (advice on how to approach the market
and provide a realistic outlook of results)
» Brokers / market makers that bring parties together
to conduct transactions
Take aways
How does intermediaries in open innovation relate to
previous class topics?
»Disruptive Innovation
We take disruptive innovation and now find ways to harness
them rather than be blind-sighted by them.
»Inspiration vs. Purposeful Innovation
Inspiration is a solution seeking purpose
Purposeful innovation is having a purpose, but looking for a
solution
Open innovation allows for rapid connection of these two
poles and innovation intermediaries can better facilitate the
process
Take aways
Why we use open innovation?
» To learn (mutually)
» Create social efficiency
» Spurs even greater innovation
» Stay competitive (competitors are now looking for new
opportunities in places others do not)
» The world is no longer bounded by the “not invented here
syndrome” – where if we don’t invent it, it’s not important.
(It’s important regardless of where it comes from).
» Global pressure, emphasis on speed, and the increasing
value of information is driving the need for new forms of
innovation
Take aways
When accessing external information, effective
open innovation intermediaries must address:
1. Managing and protecting identity
2. Managing contamination risk
3. Identifying useful, non-obvious sources
4. Fostering a two-sided market
5. Scaling efficiently with volume
The End
The End