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

We cannot solve our problems with the same thinking we used when we created 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 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 InnoCentive Agent NineSigma Concept Developer Big Idea Group Brokers / Market Makers InnovationXchange Shanghai IP Exchange Ocean Tomo

InnovationXchange Model Member CompanyTrusted intermediary assigned to member company

How each type deals with Intermediary Challenges IntermediaryIdentityContaminationSources InnoCentivePublic & Private rooms Seeker sees only valid solutions > 80,000 solvers NineSigmaBuffers via listsQualified Responses to Client Diverse lists Big Idea GroupAgent for inventorBypasses internal R&D Idea Hunts InnovationXchangeUses trusted intermediaries Members see only valid matches Unused ideas unlocked for new users Shanghai IP Exchange Serves as IP brokerNo source code until license Western IP and smaller Chinese firms Ocean TomoIP merchant bankMerchant bank protections Unutilized IP

The best way to have a good idea is to have lots of ideas. Linus Pauling

Open vs closed innovation Open InnovationClosed Innovation Not open source Process of matching "Seekers" and "Solvers Controlled communication with outside parties, usually through online arenas or a mediator. Open to ad hoc teams, small and midsize businesses, anyone with an answer. Some believe is faster because it would never happen otherwise. Self-sufficient Castles Little or no communication with external parties. Isolation. More secure 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

73% of senior managers reported that innovation was more important than cost reductions for long-term company success. Bain & Company

Shift happens: The new innovation marketplace We are in the midst of aradically 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 aninnovation gap (Ketchen)

Shift happens: The new innovation landscape » Whats 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

No matter who you are, most of the smartest people work for someone else. 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 insteadcrowdsources 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

Creativity is thinking up new things. Innovation is doing 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 dont invent it, its not important. (Its 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

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