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: 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: Admitting ignorance is a crucial first step to building strong knowledge that leads to innovation.

Story: Many of the 2010 World Business Forum presenters spoke authoritatively about what we know about business and economies.  But Steven Levitt (author of Freakonomics and Super-freakonomics) highlighted a systemic blindside in what businesses and leaders know.  In his discussions with companies, Levitt found that business people fear saying, “I don’t know.”  Such an admission seems to them like a reputation-damaging weakness in the eyes of their coworkers, bosses, shareholders, and customers.

Yet being unwilling to admit ignorance carries at least three types of stiff penalties.  First, the arrogance of presumed omniscience leads to hubris, which is the first stage of downfall, according to research by Jim Collins, author of bestsellers Good To Great and How the Mighty Fall.

Second, by not admitting ignorance, companies underinvest in gathering and creating knowledge. If we claim to already know something (e.g., “we know our customers”), then why invest in gathering more knowledge about them?  Third, and ultimately, willful ignorance are leads to mistaken decisions and failed innovation.  No wonder 90% of new product launches fail, according to data cited by Martin Lindstrom (author of Buyology).

Admitting ignorance need not signal weakness.  Saying “I don’t know” isn’t the same as saying “I can’t know.” A number of the presenters described four concrete ways of reducing ignorance.

First, A.G. Lafley (former CEO of P&G) stressed the value of reducing ignorance about customers simply by listening to them and watching them as they naturally interact with the company’s products.  P&G spends a lot of time and money trying to understand the two moments of truth — when the customer chooses products in the store and when the customer uses products in the home.  Even as CEO, Lafley made a point to visiting ordinary consumers and stores when he traveled.  These visits demonstrated to all P&G employees the importance of learning more about customers from the customers themselves.  The point is the listen more and go out in the real world — admitting (and resolving) ignorance about how customers really use products and services.  Charlene Li, author of Open Leadership and Groundswell, likewise stressed this point and cited the new-found power of social media to let companies hear what real people are saying about the company (see previous post: Getting CEOs on Board with Social Media).

Second, Martin Lindstrom showed exciting new tools such as fMRI (functional Magnetic Resonance Imaging) and SST (Steady State Topography) that can trace the activity of the subconscious parts of the brain.  With these tools, innovators and other business researchers can answer previously unanswerable questions about people’s innermost reactions to brands, products, and sensory cues associated with new or existing ideas.  With these tools, Buyology researchers can show how just the red color of a Marlboro cigarettes pack or the angular shape of a McDonald’s restaurant roof triggers a reaction in consumers.  These new technologies help business resolve age-old ignorances about why people really buy.

Al Gore (former Vice President of the US and Nobel Peace Prize-winning creator of An Inconvenient Truth) gave an impassioned plea for responding to global warming before more dire effects take hold of the planet.  His presentation illustrates a third tool for reducing ignorance: developing deep models to estimate the direct and indirect effects of various phenomena.  For example, climate models help predict the ongoing rise of humidity and the concomitant rise in the severity of storms such as those that caused this year’s floods in places like Nashville and Pakistan.

Modeling does come with risks.  Levitt criticized prevailing economic models for focusing too much on what was mathematically easy rather than what was relevant to real economies.  People need to validate the model by showing, for example, that the last 60 years of temperature increases track the increase predicted by climate models.  Good modeling helps people reduce ignorance about what might happen without the full costs of making it happen.

Finally, testing represents the natural culmination of the other ignorance-reducing tools:  will an innovation or new idea really work? Levitt recommended doing more experiments — testing the effects of changing the price, changing the advertising, changing the product features, and so on. Levitt also suggested leveraging accidental tests.  For example, when an intern at a consumer electronics company forgot to submit newspaper ads for three months in one local market, the company discovered that the lack of newspaper advertising had caused no corresponding drop on sales.  Lafley likewise encouraged managers to test new ideas, even if they couldn’t get permission beforehand. Resolving ignorance is too important to be stymied by bureaucracy. Moreover, testing need not be expensive these days. A.G. Lafley noted how much easier it is to test new packaging and merchandising innovations in a computer-based virtual 3-D simulation. P&G can create an accurate 3-D model of a consumer’s favorite retailer and graphically add and test new designs. Changing the color, shape, size, graphics, etc., only takes the click of button. Cost is no longer an excuse for ignorance.

Action:

• Admit ignorance and document what you don’t know but would like to know.
• Watch and listen by going out to customers and the world to glean potential insights and innovations.
• Use new data collection technologies to answer previously unanswerable questions.
• Build models to predict the impact of innovations and other changes in products, processes, and business.
• Test innovation hypotheses via various methods such as virtually, in test labs, or in select markets.