Open innovation, why bother?

The last few years has seen the rise of numerous open innovation initiatives such as Ideastorm and TopCoder. These have undoubtably been successful in part due to their novelty in approach, but if open innovation is to deliver sustainable business advantage then we need a better understanding of what motivates contributors to these initiatives, else there is a risk of a backlash against them if it is perceived that big brands are getting ‘something for nothing’. Our experience has shown us that the following steps should be, but often aren’t, observed when embarking upon an open innovation programme or strategy:

1. Start new conversations
2. Ask more engaging questions
3. Address unmet needs
4. Make it easy to contribute
5. Share risk and reward
6. Build mutual value

Start new conversations

Firstly, most large organizations are extremely difficult to talk to. The official communications channels are rigid and restrictive and it often feels that they are trying to prevent communication rather than encourage it. What would happen if the customer service strategy and the innovation strategy were more closely integrated? For instance Frank Eliason of Comcast has been described in Business Week as the most famous customer service manager in the world. His strategic use twitter intelligently to search for people talking about their products, often negatively, and engage them proactively to try to solve their problem or deliver a service.

Ask more engaging questions

Secondly, it’s never hard to get people to help you out if you ask them a really great question which forces them to tap their knowledge and creativity. However most open innovation programmes start with a vague question (ie. Bring me your good ideas) or a very specific question. The art to writing a good brief is to find the sweet spot between the two. For example Karim Lakhani and Robert Wolf conducted a web -based survey of 684 software developers to seek to understand what motivates contributions to open source projects. They found that the only significant determinants of hours per week dedicated to projects were in order of magnitude of impact: a) enjoyment, b) meaningful rewards (such as payments or prizes) and c) a sense of community.

Address unmet needs

Thirdly, nothing sparks innovation more than an acute need. One of my favourite examples of user need triggering a significant new innovation comes via Eric Von Hippel who describes that diabetics used to have to go to a doctor every day to be injected with insulin. This was so in convenient to one ‘lead user’ that he trained to become a medical doctor for seven years so that he could inject himself. Hence, self injection of insulin was borne. So it goes with open innovation, don’t reserve it for frivolous activities that arn’t business critical, it is most important and useful when addressing a pressing and unmet need.

Make it easy to contribute

One indisputable trait of innovative people and organizations is that they have lots of ideas, many of which are mediocre, but a few that – with a whole lot of iteration, socialization and combination – can have real impact. Therefore it is crucial in any open innovation project or process to encourange quantity of ideas before quality. If incentives are aligned around quality first, this will inhibit contributions and generally trip up the whole process. Therefore make sure that it is easy to enage and that all contributions are at a minimum recognized and preferably rewarded. The consumer focused Mystarbucksidea platform does this rather well even if the vast majority of the ideas do appear to be about Frappacinos!

Share risk and reward

Penultimately, this is so easy to say but so much harder to do. For open innovation to truly succeed it can’t just be a one way flow of ideas and value from individuals or small companies to larger companies. However, figuring out a formula for how to recognize and reward contributions is very difficult, yet essential. One example is Procter and Gamble who are famous for open innovation and yet still find it challenging to communicate with smaller companies around ideas which aren’t protected. We worked with them on an open innovation competition which had a crucial difference, and innovation airlock. We were one of three intermediary organizations – that we call trusted agents – who were able to search for big new ideas, and develop them in response to a specific brief from P&G. The airlock creates a safe space for both P&G and the small innovative companies to communicate and collaborate. This Discover process is described in detail in this article.

Build mutual value

Finally, a key difference of open innovation from business as usual is that there are multiple sets of partners and so measuring success needs to encompass at least two sets of benefits and two sets of costs that need to be accounted for. This is crucial to be able to determine your position as ‘Partner of Choice’ which is the ultimate objective of any open innovation strategy. It is crucial to understand how open innovation differs from business as usual and have measures and KPIs that reflect the behaviours and activities you are seeking to promote. For a detailed review of open innovation metrics have a look at this article. One example of a company that is building mutual value is GiffGaff, a new UK based community mobile phone network backed by 02. It gives free calls or cash to their customers if they recruit new members and market their products.

Summary

In summary, open innovation is a term which describes a much wider trend towards distributed business models where networks are used to create new revenue streams. Large companies in particular need to be very careful about how they are positioned and perceived as credible and reliable partners and are not simply just getting ‘something for nothing’. There is already some skepticism amongst small innovative companies about ‘just another co-creation website’ and it is essential to understand their motivations and set the incentives and metrics accordingly.

One of our partners, Face, describe the incentives of contributors to open innovation initiatives to be driven by one of four things: love, fame, glory and money. I like this list as it makes explicit the non-financial incentives that drive participation, though would probably add Unmet Needs to that list too. In this article, we have tried to describe some very simple lessons based on our experience of running open innovation with many large organizations over the past four years. As ever we would appreciate your thoughts and feedback.