Point: Open innovation is much more cost-effective than internal R&D

Story: Larry Huston, formerly Innovation Officer at Procter & Gamble, spoke at the World Innovation Forum on June 8, 2011. Huston praised open innovation as a way for big companies to speed their innovation and time to market.  Huston said that open innovation efforts give companies a 2x return compared to developing the innovation in-house because of risk reduction.  The reason, Huston said, is simple: the technology is already proven to work; it just needs to be scaled or adapted. In short, with open innovation a new technology has a much lower risk of failure than starting internal R&D from scratch. Also, given the realities of corporate life, internal R&D people aren’t just doing innovation all the time — they have administrative work and meetings — which means that internal innovation is much less efficient than open innovation.

Huston related the story of an internal P&G employee who had the idea of printing text and designs on Pringles potato chips — designs like Disney characters or trivia questions. The employee made a very thin potato dough and ran it through an HP printer to demonstrate the idea.  But P&G needed edible food dyes that wouldn’t clog the printer or a printing technology that could handle edible food dyes.

So P&G approached a big printer manufacturer to work together with P&G to come up with a way to print on potato chips. The two big companies spent a year in meetings trying to hammer out the intellectual property (IP) rights issue. The printer company wanted all the IP, even though the two companies would be developing it together. P&G even offered to give the partner the patents if P&G could own only the one application of printing on potato chips. If the partner company then wanted to sell the technology to McDonald’s to print on hamburgers, they could. But still the other company did not agree to those IP terms.

Exasperated by the slow pace of the negotiations, P&G wrote a public brief describing the technical problem to be solved and sent it out worldwide. An innovation network in Europe picked it up, and the brief landed on the desk of a professor in Bologna. The professor, as it turns out, had inherited a bakery. He had dabbled with the equipment and created and edible food dye that could be printed on cakes and cookies.  P&G licensed the IP from him and launched Pringles Prints in eight months, compared to spending one year just discussing IP with the large company.  Within one year, the new product grew P&G’s revenues 14% — a very impressive result given the size of P&G.

Publicizing its R&D needs was a big change for P&G.  In the past, P&G kept its R&D efforts closely guarded. “We were afraid to share our technology needs,” Huston said.  “We thought competitors would read our briefs and launch their product first. But not once did that happen, out of hundreds of briefs”  The reality, Huston said, was “Companies work on what they think the problems are.  Reading a brief, they don’t see the end product, and they’re not likely to reorient their efforts as a result.  Once they see the product in the market, then they’ll respond.” Instead, Huston advocated, “let the world know what you want and that your door is open to ideas from the outside.” In response to a question from the audience, Huston elaborated: “Half of our briefs have our name on them, and those get many more responses.  Other briefs do not have our name.” Those briefs couch the request in more scientific terms, solving the underlying problem rather than explaining the consumer product application.

Action:

• Don’t be afraid to advertise your R&D needs in order to attract outside innovators. Competitors are unlikely to reorient their own thinking to follow you.
• If you’re still concerned about competitors taking your nascent idea, don’t put your company name on the brief, and phrase it in terms of the underlying science to be solved
• Look for smaller, nimble open innovation partners with early-stage prototype technologies.
• Innovate faster by leveraging proven technologies created by third parties.
• Focus on lower-risk adaptation and scaling of existing external technologies rather than high-risk creation and scaling of unknown internal technologies.

For more information: World Innovation Forum

Point: Innovation may be less about technical specs and more about emotional connections.

Story:
When we think of innovation, we often think of intelligence, brilliance, and genius. Yet two speakers at the World Innovation Forum highlighted the large and less-rational depths of the human mind. Inside us all is an inner animal that significantly influences the path of innovation.

First, Seth Godin (author of Purple Cow, Tribes and, most recently, Linchpin) referred to the “lizard brain” — the primitive beast that lurks deep inside our heads. Humans may have evolved a nice primate brain full of intelligence, rational analysis, and dispassionate logic, but when the lizard feels threatened, s/he takes over. Second, Chip Health (author of Made to Stick and, most recently, Switch) introduced Jonathan Haidt’s notion of the rider and the elephant. The rider represents the rational, logical mind of humans. The elephant represents the more primitive, lumbering forces of emotion. In essence, the elephant is just a larger metaphor for the lizard. Godin and Heath are not the first to have noticed the inner animal. Even Plato talked of the steady charioteer vs. the surging war horse when explaining the perpetual tussle we experience between our rational and emotional sides.

What does this inner animal have to do with innovation? The inner animal explains some of the patterns of failure and success of innovations. Godin spoke of the “resistance” — that overwhelming force of fear that makes the lizard react to changes as threats. Moreover, the threatened lizard actually co-opts the more rational rider into making rationalizations — all the “yes, buts” that impede innovation. This resistance gives us the inertia of the elephant and forestalls innovation.

Yet the inner animal isn’t only about resistance to change. Heath noted that people do willingly make massive changes in their lives, such as when they get married or have kids. Clearly, affairs of the heart can bypass change resistance. This gives an avenue of advancement for innovation. Robert Brunner (former director of Industrial Design at Apple) spoke of brand as being a gut feeling and of products being more that just physical objects. Innovation and design can and should connect to people’s hearts.

Certainly our world needs innovations that deliver quantitative performance improvements, such as 20% more fuel economy or 50% less cycle time. Yet it’s the innovations that deliver oodles of more fun, excitement, and inspiration that grab public consciousness. Innovation may be less about the world of PowerPoint slides, feature checklists, and action-items. Instead, innovation that overcomes change resistance and gains large market share may be much more about the world of emotional resonance, heart, and social connection.

Action:

• Motivate the elephant with visceral/emotional stories and images — make change exciting and compelling rather than merely rational
• Direct the rider by using the emotion of the elephant to avoid paralysis by analysis
• Shape the path to make it easier for both rider and elephant (for example, Amazon’s 1-click makes purchasing efficient for the rider as well as impulsive for the elephant).

Point:
Monetize non-core innovation rather than pruning it.

Story:
Ursula Burns, CEO of Xerox, discussed innovation at her company in an interview at the World Innovation Forum June 9, 2010. She described initiatives to improve the return on innovation at Xerox’s  research centers such as PARC (Palo Alto Research Center). PARC’s ground-breaking inventions like the graphical user interface, ethernet, and postscript as inventions  had a large impact on the world but didn’t contribute enough to Xerox’s bottom line.  Let’s look at why that happened and what Xerox is doing now.

Unpredictability lies at the core of the innovation process.  Not only do innovators not know if an early-stage innovation will succeed or fail, they also can’t know all the possible applications or value latent in that innovation.  Thus, it’s far too easy for an exciting innovation to stray outside the bounds of the company’s core competence.

At some level, reaping the greatest value from a research organization means allowing researchers the freedom to explore.  Burns noted that innovators love working on interesting projects — it’s hard to stop them from doing it.  Rather than fetter its folk, Xerox found three ways to give them freedom while still reaping the value of innovations that fall outside the company’s core.

First, Xerox expanded its definition of what is core to the company.  Previously, Xerox defined itself as a copier company, looking for innovations in how to “reproduce images on paper.” That narrow definition meant that many of the early PARC inventions were not pursued. Since then, Xerox expanded to document management and is moving toward being a more general office information process company.  Rather than fear the paperless office, Xerox wants to help customers implement the paperless office.  Xerox’s recent acquisition of ACS positions Xerox in business process outsourcing — managing the non-paperless back office functions of customers and clients.  The expanding vision of Xerox brings more innovations within the scope of the company’s core. For example, the company now has a use for its smart document innovations that can automate some of the labor-intensive discovery process in legal proceedings.

Second, rather than discarding innovations that don’t fit inside the company, Xerox now looks for partners or buyers for whom the innovation does provide value.  For example, some of Xerox’s innovations in precision printing can apply to the low-cost manufacturing of solar panels.  Xerox isn’t going to become a solar panel manufacturer — that’s too far outside its core. But rather than dismissing the innovation, Xerox partnered with a West Coast firm to incubate a new company that can leverage the value of those innovations.

Third, outside companies can now hire PARC and its portfolio of specialists to tackle tough R&D problems.  CEO Burns said that most PARC’s activities remain focused on Xerox, but the option to sell non-core innovations lets the company maintain the innovative culture of PARC while monetizing its researchers’ outputs.  In short, Xerox is expanding how it leverages the fruits of innovation rather than pruning the innovation funnel.

Action

• When evaluating innovation projects, don’t immediately rule out ideas outside the company’s current strategies, customers, or core
• Instead, also ask if an innovation might be more valuable to a non-competing outsider
• Find complementary partners who can license or buy non-core innovations or innovation expertise to reap the greatest total value from the innovation process.
• Allow innovators enough freedom to enable breakthroughs.
• Expand or reenvision the core of the company to leverage innovation.