InnoCentive hosted a webinar featuring our very own Dwayne Spradlin and Alph Bingham, co-authors of the recently published book, The Open Innovation Marketplace: Creating Value in the Challenge Driven Enterprise.
During this live event, which gathered hundreds of participants from Fortune 500 enterprises, government agencies, and nonprofit organizations, Dwayne and Alph discussed what motivated them to write the book, the importance of Challenge Driven Innovation (CDI) and other key open innovation principles, real-world case studies of CDI in action, and how companies can evolve into true Challenge Driven Enterprises.
Audience Polling Results
We asked several polling questions of the audience during the event. Here’s a snapshot of the questions and the participants’ answers:
What are the biggest innovation challenges you face today? (check all)
43% - Measuring the success of your innovation efforts
41% - Time-to-market with new products
33% - Lack of funding and resources
30% - Balancing risk and reward
15% - Increasing cost with diminishing returns
Analysis: Unsurprisingly, time-to-market was a top answer. Yet innovation measurement trumped time-to-market, which is indicative of the difficulty companies face in measuring the success of their various initiatives. Alph dives deeper into this topic in his blog post.
Which of the following benefits of open innovation are most important to your company in the next two years? (check all)
71% - Accelerated innovation
54% - A greater diversity of approaches to innovation
29% - More cost effective problem solving
17% - Ability to pay for results, not just efforts
6% - Better Risk Management
Analysis: Clearly, accelerating innovation outcomes is a key benefit companies expect from OI. Diversity too is important, and Dwayne and Alph spend considerable time in their book articulating how diversity brings fresh perspectives to problem solving and actually accelerates innovation. Surprisingly, better risk management was only cited by 6% of respondents as a key benefit of OI. Yet InnoCentive’s experience with customers reveals that a balanced innovation portfolio – one that leverages traditional internal innovation channels as well as external channels – actually reduces risk (the proverbial ‘all eggs in one basket’ argument).
By 2015, what percentage of your total innovation portfolio will be sourced externally? (check one)
6% - > 50%
13% - 26-50%
31% - 11-25%
38% - 5-10%
12% - <5%
Analysis: These results look about right. Today, according to National Science Foundation reports, the number is roughly 10-12%, and we can expect this to as much as double or more over the next several years as OI processes and principles become commonplace among organizations serious about out-innovating their competitors.
How has your organization embraced open innovation (OI) to date? (check one)
24% - We have not started
49% - Just getting started with pilot or grassroots programs
20% - Committed to OI but implementing on a divisional or geographical basis
7% - Enterprise-wide commitment to open innovation
Analysis: More than 75% of respondents indicated that they are at the very least dipping their toes into OI, and more than 25% have made more serious commitments to OI. Similar to the previous question, expect these numbers to rise as organizations achieve early OI successes and build the organizational confidence to dive deeper into OI.
Webinar Audience Q&A
Dozens of questions were asked by the audience which we weren’t able to get to during the live event given timing constraints. Below, we’ve attempted to answer most of these questions:
Question: Marc asked, “What higher education actions (e.g., curricula, skills) are needed to be taken to support open innovation in firms?”
Answer: The education system is deliberately and probably rightfully designed to teach specialization and problem solving skills. This system often creates doers, not finders. In open innovation, the focus is as much on the questions as it is on answers. Some advanced educational courses instruct in hypothesis generation, which is a start. Yet it comes fairly late in an educational career. Also, the skills which straddle technology and business are often neglected. Thus, the overall approach to R&D is sometimes taught only in business programs and practicing scientists have had little exposure. In CDI, the skill to dissect a larger problem into portable modules (Challenges) is crucial and little addressed, if at all, in academic settings.
Question: Ellen asked, “Can you talk about the costs of OI? We've heard a lot about the benefits, but what about the risks, potential downsides, etc.?”
Answer: First, recall that open innovation is not one monolithic practice or term of engagement. Each channel (e.g., CRO, university grant, joint venture, crowdsourcing, offshoring) represents different risks, downsides, and offsets. With that context, here are some generalizations:
- There is going to be some risk of IP leakage, a you will disclose more publicly than in a closed system.
- The use of another organization may drive direct costs higher as “middleman overheads” are covered.
- Local needs may be poorly addressed (e.g., specific equipment concerns).
Yet other channel selections may obviate each of these drawbacks. OI needs to be practiced holistically. Chapters 3 and 5 provide some grounding in this.
Question: Luis asked, “What is your insight on having a Challenge Driven Innovation program that is internal vs. external?”
Answer: Challenge Driven Innovation is channel agnostic, meaning that the methodology recognizes that both internal and external channels are valid for distributing Challenges. In the CDI model, large projects are decomposed into discrete modules which can be packaged as Challenges. These Challenges are then distributed to innovation channels – internal, external, or even both. Chapter 5 of the book, The Selection of Appropriate Innovation Channels, dives into the criteria and reasoning for selecting one channel over another. Once solved, individual Challenges are reassembled into a functional whole that is ready for market.
Question: Stephen asked, “Who are the innovators that are waiting to solve problems…who is on the solution side?”
Answer: We refer to these innovators as Solvers. In the InnoCentive model, we’ve developed a diverse global community of millions of potential Solvers. These creative and passionate people come from all walks of life and backgrounds, and it’s this very diversity that makes the community so instrumental in solving Challenges. The primary motivation to become a Solver is to work on interesting problems and contribute in a meaningful way to society. Certainly the potential to receive a monetary award is important as well, but in many cases it’s not the primary motivator.
Question: Paul asked, “What criteria/guidance would you use for deciding how large a monetary prize should be to obtain results?”
Answer: There are no hard and fast rules with respect to Challenge award amounts. For the 1,200 or so external Challenges that InnoCentive has developed and executed, we’ve seen award amounts ranging from $5,000 to $1 million. As you start getting into the big numbers, we dub these ‘Grand Challenges.’ Average award amounts are in the ballpark of $25,000 for a typical Challenge. Not surprisingly, Challenges with higher awards generate more interest among Solvers and also tend to present opportunities for marketing and branding. When running internal Challenges, awards tend not to be monetary but rather paid out in points, credits, or hard goods (e.g., iPads).
However, a way to zero in on an estimate is to first ask, “if the stars were to align and we were to achieve complete success on the first internal attempt, it would require $x resources.” This is a lower bound. Then ask, “if we were to eventually succeed, this project would be worth $y to the organization.” This is the upper bound (you should never pay more than it’s worth). These delta between x and y will typically be large. So estimating the failure rate – i.e., asking, “how many times am I likely to try and fail” – gives you a way of bumping up from the lower bound while staying below the upper bound. So in setting the bounty price this way, it provides a good return; it is cheaper than the serial internal trial and error process and the monetary award is strong for someone who has the “AHA!” and executes quickly to the desired result.
Question: Jain and others asked, “How do you manage intellectual property (IP)?”
Answer: In the InnoCentive model, we have what’s called a Solver agreement, which is required to be accepted by the Solvers prior to viewing confidential information and opening a project room (a workspace for Solvers). This agreement conveys the IP from the Solver to the Seeker, the latter being the organization sponsoring the Challenge. Throughout its history, InnoCentive has a 99%+ success rate in transferring IP in and out of roughly 60 countries. I know this answer is short, but a fuller answer would likely turn into a dissertation!
Again, if you’d like to view a replay of the webinar, please click here.
For all of you that were able to attend the event, we hope that you found it enlightening. And for those that didn’t, we hope you can join us for the next event!