The Tao of Innovation

Insights for the modern business samurai

How “Open” Should Innovation Be?

The enabling factors that can transform open innovation at your company

The latest entry for corporate buzzword bingo is the term “open innovation”. So let’s ask the question… what the heck is open innovation, anyway? Also, is open innovation really an obviously good thing, like having an open heart, or maybe a more complicated thing, like asking your spouse for an open marriage?

Open innovation is a powerful term. Apparently, combining two buzzwords, sort of like cold fusion, produces more buzz than if you just used the terms separately. Its opposite – closed innovation – evokes images of silos, cowardly decision making, and not leveraging the power of open networks. How could anyone question the wisdom of opening up innovation?

But you have to admit, the intellectual property system has been pretty useful to companies for the last couple of hundred years… is it really time to retire the patent process and live the open source dream? Let's start by looking at a couple of examples...

One early example of open innovation is Procter & Gamble’s innovation platform C+D (ie, Connect and Develop), which allows customers and partners to co-create products at P&G. Their position is that not all the smart people work for P&G, so the quickest way to grow was to leverage outside talent and move from knowledge generation to knowledge brokering. Currently, they’ve increased their share of external innovation from 10% in 2000 to 35% today.

Another example is DVD rental powerhouse, Netflix, which recently invited outsiders to help them improve an important algorithm for their movie recommendation system. The kicker was offering a $1 million prize to whoever improves the accuracy of their current film recommendation system at least 10%, in a publicity move reminiscent of the Clay Institute’s  million dollar prize for solving unsolved math problems like the Poincaré Conjecture and the Riemann Hypothesis.

But do these models really work, or are they possibly aiding and abetting your competitors to beat you to your own best ideas? The key to understanding open innovation is to dig beneath the buzzwords to truly understand the meaning of openness and to deconstruct the structure of the collaborative process.

A terrific example of understanding openness can come by studying the goal of digitizing medical records, which is part of the Obama economic stimulus package.  At first, something like digitizing musty old boxes of yellowing health records doesn’t sound like a particularly exciting or innovative idea. But it’s exactly what’s needed to build out the “last mile” of an information highway for medicine.

Therefore, open health isn’t at all about making private health records more open, and hence less private. It’s about creating standards that allow medical systems used by doctors, hospitals, patients, and others to easily "talk" with one another. It’s about enabling the system to proactively search for drug interactions that cause hard to detect complications. It’s about eliminating the bureaucratic paperwork via automated claim submission. Finally, it’s about creating a more intelligent and secure system for health records.

Therefore, openness in innovation isn’t about opening the kimono to potential competitors or about irrevocably committing to the open source model… it’s really about three enabling factors that can transform the collaborative process at your company, especially around innovation. First, it’s about increasing the diffusion of innovation by making both internal and external corporate boundaries more porous. Second, it’s about developing more refined non-binary trust models that let you digitize the paperwork of innovation. And third, it’s about creating open standards for automating the innovation process just like Obama hopes to do with health records.

The diffusivity of innovation isn’t measured only in terms of letting external innovation in, but also in allowing innovation to move from the top down, from peer to peer, from the bottom up, and from the inside out. We call this 360˚ innovation, and if ideas aren’t flowing smoothly in any of these directions, your collaboration systems need an oil change.  Finally, the flow of IP from within the organization to outside should always be subject to great vigilance and strategic forethought.

Non-binary trust models really have to do with simplifying the management of intellectual property, in order to build a win-win culture where everyone benefits in equal measure – management, employees, partners, customers and shareholders. The key to digitizing innovation, is actually to design an electronic IP policy server and the key to enabling openness, is to deploy an enterprise social extranet. This is actually the most compelling part of the open innovation promise – to fundamentally change the nature of social networks to allow you to more reliably locate partners you can trust and who won’t let you down.

Open standards for automating the innovation process don’t mean anything unless you actually have one. A formal and automated process, that is. For example, has your company bought one of those fancy idea catching applications? If so, can you get your data back out of it? Was it off the shelf or custom fitted to your culture? Here’s a tough one – can it enable an enterprise social extranet that hot deploys new innovation applications via a Web 2.0 infrastructure? And are these capabilities even on your roadmap?

Open innovation holds great promise for re-invigorating the enterprise, but it requires great vision in its design, deployment and management. This is one of the areas I think about a lot these days, so please feel free to contact me if you’d like to create a dialogue around this fascinating arena!

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Moses Ma, a partner at Next Gen Ventures, is co-author of the forthcoming book Agile Innovation.

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