Point: Getting maximum benefit from innovation requires new organizational practices

Story: In their book Wired for Innovation, Erik Brynjolfsson and Adam Saunders show how innovation and IT drive productivity growth. Productivity growth explains how cars, for  example, went from costing an average of three years of salary a century ago to costing only seven months of salary today. Nor is this gain unique to high-tech products. Even eggs plummeted in their effective price in the last century, dropping from 149 minutes of salary to a mere 5 minutes of salary per dozen eggs. What brought about the productivity improvement? Technology has helped, but it’s not the only factor.

Analyzing both company IT investments and company practices,  Brynjolfsson and Saunders found that high IT spending, by itself, didn’t explain high productivity.  Some companies spent large sums on IT but seemed to have little to show for it.  Highly productive firms, it turns out, also made a set of complementary investments in people and processes.  Brynjolfsson and Saunders identified seven key practices:

1. Move from analog to digital processes: Don’t just automate paper-based practices.  Invest in new ways of doing business enabled by IT (e.g., daily tracking of key performance indicators, enhanced alerts on exceptional events, global collaboration on innovation, etc.)
2. Open information access: Give employees all the information they need to accomplish and accelerate their jobs; in contrast, restrictive access impedes information flow and slows down work.
3. Empowerment: Give employees the authority to make decisions. Information has no economic value if it doesn’t change a decision. The sooner the information can affect a decision and the sooner the decision gets implemented (i.e., by the frontline employee), the better.
4. Performance-based incentives: Reward individuals for their now-measurable contribution to the firm, not just for their years of service, as with traditional seniority-based pay.
5. Cohesive corporate culture: Create cultural cohesion and strategic focus so that employees work toward shared goals that matter.
6. Recruit the right people: The productivity boost provided by technology depends on the quality of the people who use it, particularly when giving employees more information and authority to make decisions.
7. Training: Invest in people by training them to use digital processes, find the right information, make good decisions, and reach their incentive goals.

Action

• Don’t just invest in technology; invest in new processes
• Broaden information access and decision rights
• Invest in training, merit pay, and recruiting

Point: Use open innovation challenges and prizes to inspire solutions, participation and collaboration from employees, partners and customers

Story: In 1919, New York hotel owner Raymond Orteig offered a $25,000 reward to the first person who could fly nonstop from NYC to Paris. Although various people tried, no one won the prize until Charles Lindbergh in 1927. Orteig’s prize, in turn inspired the X PRIZE foundation to offer the Ansari X Prize: a $10 million award in 2004 to the first team from private industry to devise a spacecraft capable of carrying three people 100 kilometers above the earth twice within two weeks. The goal of the prize was to spur private investment and develop a commercial space industry.

Erika Wagner, executive director of the X PRIZE Lab at the Massachusetts Institute of Technology, spoke about how prizes like the X PRIZE are useful to embolden entrepreneurs to take big risks. And, the fact of the substantial prize means that funders and financiers take notice. Ultimately, 26 teams competed for the Ansari X PRIZE and in the six years since the prize was awarded, more than $1.5 billion dollars in public and private funding has gone to support the private spaceflight industry.

Companies from Toyota to Eli Lilly to SAP have run challenges and offered prizes as part of their open innovation efforts through partners like InnoCentive. SCA, for example, a large, international consumer products organization, achieved a return on investment of 74%, with a payback period of less than three months as a result of using InnoCentive Challenges for open innovation in a major R&D division of the organization.

Some of the benefits of prizes are:
• Increasing the number and diversity of the individuals, organizations, and teams that are addressing a particular problem
• Paying only for results
• Attracting more interest and attention to a defined program, activity, or issue of concern (1)

I’ll be sharing more insights about prizes and ideas from the Innovation3 Summit in Orlando Dec 8-10, 2010 in the next post.  For now, here are some action strategies.

Action:

• Word your challenge precisely, around a well-defined problem, to get focused, on-target participation
• Think through all phases of the prize: how will you announce it? How will you determine the winner? How will you follow up to implement the idea?
• Be transparent throughout the process, explaining the criteria for selection of the winners, who will be selecting the winners, announcing and awarding the prize(s), etc.
• Acknowledge all participants, thanking them for their contributions and giving feedback to those who did not win, providing them with information that may help them in future challenges.

Point: Capture, share and reuse knowledge to make R&D engineers more productive

Story:

At Power to Innovate 2009, Boston Scientific’s Randy Schiestl (VP of R&D) and Jude Currier (Cardiovascular Knowledge Management & Innovation Practices Lead) described how Boston Scientific is redesigning its innovation processes. The goal: to accelerate time to market, increase the productivity of innovators, and reduce costs and risks.

Boston Scientific is an $8 billion company committed to delivering innovative medical technologies that improve the quality of patient care as well as healthcare productivity. The company has a broad portfolio of 13,000 products. The new products in its pipeline include drug coated stents, bare metal stents, catheter and bio-absorbable technology.

In the past, Boston Scientific drove innovation from business strategy to technology development to product development. In this staged approach, engineers created technology-driven products that were then shown to business units and customers at the prototype stage. The trouble with this process was that the later groups often found gaps or risks in the proposed product late in the product development process. As a result, the company had to spend more money than expected putting out fires while trying to hold to a launch schedule.  Boston Scientific decided to change its innovation process to bring more knowledge and resources into the earlier stages of innovation.

As part of the new innovation process, Boston Scientific began bringing in key “voices” into the innovation process earlier. By getting these voices — the voice of the customer, the voice of the business unit, and the voice of regulatory bodies — earlier, the company uncovered its knowledge gaps and risks much sooner. The second part of Boston Scientific’s innovation process redesign gave employees access and pointers to relevant information, whether that information resided in a document or in the tacit knowledge of an expert. The goal here was to reduce the amount of time engineers spend looking for knowledge. Schiestl said engineers spend 30% of their time looking for relavant knowledge. To improve upon that, Boston Scientific used Goldfire (innovation software from Invention Machine) to capture, share and reuse knowledge.  Goldfire’s semantic technology automatically categorizes concepts can and ties relevant intelligence to specific innovation initiatives. For example, engineers used Goldfire to identify past research and then validate whether that research could be repurposed. The result: Boston Scientific engineers who used Goldfire spent only 10 percent of their time researching intelligence, compared to 20-30 percent by non-Goldfire users.

Boston Scientific’s new innovation process illustrates what Mark Atkins, CEO of Invention Machine, called an innovation intelligence ecosystem.  This ecosystem represents the aggregate of information, communities, and processes that collectively contribute to innovation. Here’s how it works: using innovation software like Invention Machine’s Goldfire, companies capture and reuse information and intellectual capital created by employees as well as by external sources. Goldfire further enables collaboration by accurately reconstructing a user’s past thinking and research process, making it visible and explicit to other users. Employees avoid reinventing or duplicating research already done, thus saving time and improving innovation productivity.

Boston Scientific shared two examples of its success using Goldfire and the company’s new innovation processes. First, the company improved the design of cardiac stents to reduce a patient’s injury-response to the device. By combining knowledge from across the innovation ecosystem, the company mapped key clinical knowledge about heart disease and how different heart artery conditions affect the patient outcomes with different stent designs.

In the second example, Boston Scientific used Goldfire to solve a technical problem in manufacturing that was reducing product yields.  Using Goldfire, Boston Scientific found that previously undocumented thermocapillary effects were leading to clogged spray nozzles. By understanding the physics of the cause, Boston Scientific was able to make a simple change to the manufacturing line to eliminate the clogging and thereby improve yields.

Action:

• Uncover all the “voices” that have a say in the success of innovations (the voice of the customer, voice of technologists, voice of manufacturing, voice of regulatory compliance, etc.).  Connect key people and communities in a more collaborative, sharing-oriented environment
• Identify, organize, and access information (internal and external) needed by these communities to do their innovation-related work.
• Develop knowledge and innovation processes that find and resolve knowledge gaps or risks early in the innovation process.