Point: Use open innovation and modularity to identify new product/service needs and accelerate your pace of innovation

Story: Rugged handheld computers are used every day byretailers,warehouse operators, service technicians, parcel companies, and transportation operators to log customer purchases, track inventory, monitor shipments, and scan tickets.  Half a dozen manufacturers compete in the crowded market for these devices to serve customers who want everything — devices that are hardy, high-tech, compact, inexpensive, and suited to their particular needs.

PsionTeklogix needed to differentiate itself from competitors like Motorola, Intermec, Datalogic, Honeywell, and LXE.  The company created a modular platform strategy called Omnii with interchangeable keyboards, scanners, communications modules, screens, grips and optional features like a camera and GPS.  Rather than build small volumes of unique devices for each application or new technology, Psion created a modular platform to build components in cost-effective volumes and then mix-and-match the parts to create a custom-built assembly.

For example, Psion or one of its partners can create a new RF communications module (e.g., for a new cellular data standard) and then plug that module into many of the pre-existing Omnii products. This strategy accelerates innovation because it’s faster and cheaper to design a new module than to redesign an entire product.  This strategy also accelerates adoption of innovation by customers because customers don’t have to replace all their handheld computers, only swap in the new modules.

Then, Psion went a step further, introducing its Open Source Mobility initiative.  Psion created IngenuityWorking.com, an open, collaborative online community for Psion employees, developers, partners and customers.  The goals are twofold:

1. to leverage Psion’s large IP portfolio with a wide range of vendors and component suppliers
2. to give customers and resellers the ability to voice needs and identify micro-niches in the market.

In summary:

• PSION uses its IngenuityWorking.com site with customers, developers and partners to drive product developments
• Psion leverages its strengths (modularity & customization) to reduce waste, improve time to market and gain new commercial options

Action:

• Create product/service architectures than enable fast insertion of new technologies. In Psion’s case, interchangeable displays, user interfaces, scanners, radios, etc. all combine to provide a myriad of combinations of functionality inside the rugged case.
• Create an online community among your partners and customers to learn their needs and identify new product/service opportunities.
• Populate the OI site with technical information that helps partners contribute practical and compatible innovations
• Allow customer complaints on the site (valid complaints, not offensive vitriolic rants). This transparency builds trust over time as customers and partners see how you address problems.

For more information, see Todd Boone of PsionTeklogix’s chapter in A Guide to Open Innovation and Crowdsourcing, edited by Paul Sloane, published by Kogan Page 2011.

Point:  Innovators can use various tactics to evaluate (Manitowoc), protect (J&J), bridge (Whirlpool), and ferry (J&J) innovations across inevitable organizational gaps.

Story: Innovation in large organizations often faces obstacles due to the natural divisions within the firm.  Gaps can occur between risk-taking vs. risk-avoiding groups, diverse business units, and functional silos.  Open innovation adds a fourth type of division: that between the investor/buyer of an innovation and the inventor/seller of an innovation.  Presenters at the 2nd Annual Open Innovation Summit discussed these four different types of gaps and some methods for carrying innovation across the gap.

Johnson & Johnson highlighted the first gap, which occurs between groups involved in long-term innovation versus those responsible for short-term operations.  On one hand, the near-term viability of a firm depends on minimizing risk and costs while consistently delivering value to the customer.  On the other hand, the long-term viability of the firm depends on spending money to finding new, more competitive and more productive ways of delivering value to the customer.  Whereas failure might be essential to innovation, failure can be fatal to operations.

To help handle this very natural and necessary gap, J&J created COSAT (Corporate Office of Science and Technology) to provide a sanctuary or sandbox for new innovations (including external ideas).  This sanctuary protects the innovation from the rightfully risk-averse operations side of the organization; it also protects operations from the rightfully risk-taking innovation side.  In addition, COSAT provides low levels of funding (about $50k to $250k of angel-style capital) to help keep projects alive until the organization is ready for them.

A second kind of gap occurs in large, diversified companies.  For example, J&J has more than 250 divisions that make everything from over-the-counter painkillers to in-the-body artificial hips. The diversity of regulations (consumer products, pharmaceuticals, medical devices), markets (consumers, retailers, physicians, surgeons), and technologies (consumer products, drug chemistry, high-tech materials, and electronics) means that innovations in one part of the organization — even innovations that failed — might be useful in a different part of the organization.

To address this second gap, J&J’s COSAT helps ferry ideas from their source (from both inside and outside the company) to potential applications at the different divisions of J&J.  This ferrying process includes:

• aggregating good ideas from across the J&J portfolio of companies and outside sources
• validating ideas with key opinion leaders inside J&J
• providing low levels of funding to keep good ideas alive
• brokering ideas to different divisions.

Whirlpool described a third kind of gap, one that’s caused by functional silos.  Each functional department (engineering, manufacturing, marketing, HR, IT, legal, etc.) has its own metrics, goals, and performance pressures that drive that department’s tactics.  But these finely-tuned local optimizations can cause different departments to operate at cross-purposes to each other.  The result is problems such as local protectionist tendencies within silos, barriers to coordination between silos, and money-wasting misalignment in the organization.

Whirlpool’s solution is to bridge the gap between silos through aligned strategy and common processes in combination with communications and training that engage the organization. Whirlpool uses strategy reviews to help the silos see the bigger, shared picture of the organization’s future and the role of innovation in that future.  Whirlpool cascades its overarching goals down to local goals so that the silos support rather than hinder the overarching goal.  A combination of common processes and flexible teams helps create broad organizational engagement.  Communication and web-based training called Whirlpool Foundations (see Communication in Open Innovation post) help everyone in all departments understand the key role of innovation.

Finally, crane and food service company Manitowoc describes a special type of gap that is felt most keenly in open innovation: the expectations gap between the investor/buyer of the innovation and the inventor/seller of an innovation.  Whereas  inventors often see their precious inventions in terms of the millions in revenues it might reap, the investor or buyer of the innovation sees the potential of millions in costs that the innovation will almost certainly incur.  Not only does the situation create a valuation gap, but inventors may feel a parental instinct toward their invention and expect the buyer to not modify the invention.  This gap can create ill-will, broken negotiations, or stall an open innovation implementation.

To deal with this gap, Manitowoc evaluates potential open innovations on five dimensions:

1. the current level of development of the idea
2. the status of intellectual property
3. the potential for competitor workarounds of the idea
4. the degree of technical competitiveness offered by the innovation
5. the expected business impact.

Manitowoc also looks at the technical and business experience of the inventor when deciding whether and how to craft a deal (e.g., patent assignment, acquisition, or joint venture) with the inventor.

Overall, these four gaps reflect the world’s natural diversities in a complex business and technical environment.  Different people in different divisions, departments, and roles really are different.  Rather than homogenize everyone, these four companies found ways to evaluate (Manitowoc), protect (J&J), bridge (Whirlpool), and ferry (J&J) innovations within a gap-filled context.  These gap-handling tactics increase the effectiveness of innovation processes.

Action

• Determine if the innovation is ready to cross the gap (and worth bringing across the gap)
• Use a sanctuary to protect the innovation from hostile forces on the other side of the gap (and to protect the people on the other side of the gap from disruption by the innovation)
• Use communications to bridge the gaps: explain to both sides the respective benefits of bridging the gap (e.g., why the operational side needs the innovation, and why the innovation needs to be operationalized)
• Create a ferrying process or group to help develop, broker, and transition innovations across the gap.

Point: If you’re looking for a new business opportunity, look for individually-fragmented but collectively large areas of economic activity, such as where individuals or small business own a large segment of the market

Story: A business model that connects small businesses and individuals to markets and automates tedious tasks was common to three of 11 new start-ups seeking  funding at Techstars Demo Day August 5, 2010. Here are their stories, followed by six action steps you can take to tap such markets.

Rentmonitor.com helps small-scale landlords. These landlords collectively own 30 million rental units in the US.  Rentmonitor offers an online service that automates many elements of the five key tasks that every landlord faces: 1) advertising available properties; 2) screening renter applications; 3) managing maintenance requests; 4) tracking rental payments; and 5) record-keeping for taxes. In exchange for a monthly fee of only $5-$50 (depending on the number of units), Rentmonitor gives the landlord a suite of online tools to manage their properties. Renters also have access to Rentmonitor to submit a maintenance request or make an online rent payments.

VacationRentalPartner.com addresses the needs of vacation homeowners who rent out their properties when they are not using them. Currently, many vacation homeowners pay a 30% to 50% cut out of their rental revenues to property managers. VacationRentalPartner.com replaces that high-cost property manager with low-cost online services to handle advertising, booking, and housekeeping and maintenance contractors. Although VacationRentalPartner seems similar to Rentmonitor, the two start-ups differ significantly because the needs of ultra-short-term vacation property owners differ significantly from the needs of long-term lease-based landlords. For example, VactionRentalPartner has tools to help fill-in unrented days, such as by promoting off-season rentals to prior guests or with special deals to already-booked renters if they extend their stay to covered the unrented days. VacationRentalPartner also emphasizes the benefits of fast automated responses to booking inquiries. Would-be vacationers expect instant replies from property holders — a less-than-30 second response time to an availability inquiry increases bookings by 200%.

AdStruc.com targets outdoor advertisers with an auction and listing-based marketplace for the buyers and sellers of billboard space. Adstruc address the fragmentation of national, regional, and local billboard site owners that make it hard for advertisers, especially national advertisers, to find and buy the best billboard sites for a large campaign. AdStruc aggregates billboard sites and provides searchable data on available inventory.  AdStruc gives buyers virtual visits to billboard sites through Google Streetview. AdStruc also partnered with Circle Graphics on the printing and shipping of the extremely large format. AdStruc supports the sellers, too, in managing their inventory. “This-space-available” and obsolete signs represent $750 million a year in lost revenue. With AdStruc, sellers can upload their available spaces, automate sales to approve buyers, and auction off space. AdStruc makes money on a share of the transaction fees as well as monthly service fees for managing billboard inventories.

Action

1. Look for individually-fragmented but collectively large areas of economic activity, such as where individuals or small business own a large segment of the market
2. Find the “pain points” in the lifecycle activities of these market participants (e.g., advertising vacant space, vetting renters, researching an opportunity, handling tax records)
3. Automate these processes and offer an online, software-as-a-service tool suite
4. Monetize the service with a low monthly fee, nominal share of transaction price, or through ad sales
5. Connect these small businesses or individuals to large markets (or create them) with automated advertising, inquiry support, booking, vetting, etc.
6. Help people on the other side of the transaction, too, such as with online booking, online payment, and online management of requests.