Point: Rule-breaking products may require business model innovations.

Story: At BIF7, Alex Osterwalder told his story of breaking the rules when creating his book, Business Model Generation, now an international bestseller. Creating this book meant taking a lot of risks.

The current business model for business books is broken, Osterwalder said. There are too many books and too few readers. Every year, another 11,000 new business books pile on top the 250,000-space of competing titles. The average book sells only 250 copies per year. Worse, book sales are declining: a 12% drop from 2007 to 2009. If Osterwalder wanted to create a book on business models that people would love to buy,  he would need to innovate the business model for business book production and sales.

From the start, Osterwalder asked people what they hated about current business books. People said existing books were too fat with turgid prose but at the same time too light on substance. Second, people found the books impractical because they lacked useful “Monday morning” actions items. Finally, the books were too text-heavy, missing the richer, reinforcing learning experience of a text-and-graphics combination.

To address these problems, Osterwalder envisioned something more like a coffee-table book akin to architecture books, being simultaneously informative and beautiful.

Osterwalder also faced a business problem: no book publisher wanted to break the rules of traditional business books to publish his book. At the time, Osterwalder was an unknown author from Switzerland wanting to create a book with high production values, expensive color printing, and a very un-business-book approach. The only solution was self-publishing.

But, self-publishing wouldn’t be easy because Osterwalder had neither the cash, book production resources (editors, designers, etc.), marketing department, nor  distribution assets of a publishing house.

To solve the problem, Osterwalder recruited peers to co-create the book. Ultimately, 470 people contributed to the book in a wide variety of ways. People joined Osterwalder for early access to the ideas, to be part of something bigger, and for the stimulating collaborative process of working on the topic. Not only did this community of contributors help make the book, but they were also its best sales force.

To raise money, Osterwalder offered advanced sales under a “pay me now to reserve a copy” philosophy. Demand for the book proved higher than expected, so he raised the price from $24 to $36 to $54 to $81. And, just before publication, he offered a last-minute premium deal: for $250, the buyer would be listed in the book as a contributor who helped make it happen. For distribution, Osterwalder ultimately chose Fulfillment by Amazon.

The book quickly became a bestseller in business and in the top 100 of all books selling on Amazon. Osterwalder’s success in self-publishing attracted the attention of Wiley and other traditional publishers, who would never have taken a risk on Osterwalder’s book. “Once you’re successful, everyone wants in,” Osterwalder said. After tough negotiations, he signed with Wiley. To date, over 200,000 copies have sold and the book has been translated into 22 languages.

Action

• Listen to customers and partners to uncover why competitors fail.
• Look for lateral inspiration; that is, look for out-of-category products that evidence desirable characteristics.
• Pre-build customers through a co-creation community in advance of the product release.
• Play with the pricing and offering to maximize revenues and volume.
• Find service partners and community members to handle or support the critical secondary tasks of the business.

Point:  Use roving cross-functional teams to hunt for promising new product and service ideas.

Story:
In a world of large organizations and diverse global hotspots for R&D, innovation occurs everywhere.  Companies can tap those innovations through search processes, which may be cheaper and more effective than only using traditional “start from square one” R&D efforts.  The rationale: there may be no need to re-invent the wheel if the wheel already exists somewhere inside (or outside) your organization.

Here’s how multinationals General Mills and Whirlpool approached the search for innovations. General Mills formed two “innovation squads” consisting of six-to-eight employees selected from multiple functions. The squads are tasked with hunting for ideas from inside and outside the organization – one squad focuses on finding ideas internally, the other focuses on looking outside the organization.  The squads present the best ideas they’ve found to division heads. Once a quarter, the squads give their top 10 ideas to the company chairman.

For example, one squad found a patent for a new method of encapsulating calcium. The patent had been donated to a university. The squad converted it into a very successful new line of orange juice with added calcium that doesn’t taste chalky.

Similarly, Whirlpool designates some employees as innovation mentors – “i-mentors” – training them in innovation and tasking them with identifying promising new product ideas from across the organization. Whirlpool has 1000 i-mentors globally.  Most of the individuals self-identified and asked for the training, which consists of a formal training program that creates a common language for innovation and embeds innovation into an organizational competency the way Six Sigma training does. Whirlpool developed “how-to” guides for its innovators, including analysis of who has contact with whom [network analysis].

Action:

• Explicitly designate individuals or teams to look for innovations
• Provide innovation training to these cross-functional teams
• Cast a wide net when searching for good ideas
• Filter, refine, and present the best ideas for funding/implementation decisions

Sources:

“Unleashing Innovation,” Research-Technology Management, http://findarticles.com/p/articles/mi_6714/is_1_52/ai_n31337091/

Mason Carpenter and Sanjyot P. Dunung, “Harnessing the Engine of Global Innovation” in International Business, Flatworld Knowledge, August 2011 http://www.flatworldknowledge.com/pub/international-business/524265#web-524265

Jessie Scanlon, “How Whirlpool Puts New Ideas Through the Wringer,” http://www.businessweek.com/innovate/content/aug2009/id2009083_452757.ht

Peter Erickson, “Innovating on Innovation” Keynote Presentation at the Front End of Innovation Conference, Boston, MA, May 2009

Point:  Budget constraints demand frugal innovation.

Story:  In 2005, NASA’s Constellation program – tasked with designing a way to get humans to the moon and eventually to Mars – suffered a 45% reduction in R&D budgets during the process of getting Constellation running.   “We knew those resources weren’t coming back,” said Jeff Davis, Director of the Space Life Sciences Directorate at NASA’s Johnson Space Center. “We thought to ourselves, we can’t get this done just doing 45% less. We need to approach this whole program in a new way.”

Davis’ team looked for new ways to work and began exploring alliances and external innovation platforms. The team hit upon the idea of using open innovation challenges at about the same time that President Obama’s Open Government Initiative encouraged public participation and the Office of Management and Budget issued guidelines on using prizes to spur public participation to solve innovation challenges.

Using the InnoCentive platform, Davis’ team issued an open innovation challenge entitled, “Data Driven Forecasting of Solar Events,” seeking solutions for how to predict particle storms that would pose a hazard to the Constellation spacecraft above the earth’s atmosphere. An engineer from rural New Hampshire provided the winning solution. White House Chief Technology Officer Aneesh Chopra described the results:

“I share with you the results of NASA’s early experience with Innocentive’s scientific expert network platform, a platform of 200,000 scientists, where NASA said it would pose a few difficult scientific challenges.  One of the challenges was, ‘how can we forecast solar activity to better predict when to release our rockets into space?’” This was a vexing problem that NASA had been grappling with for more than 30 years.  By putting the challenge out to the public, a semi-retired radio frequency engineer living in rural New Hampshire had the opportunity to share his idea on how to address the problem. [All the engineer needed] was a simple Internet connection.  No complicated RFP, the need for a lobbyist, some convoluted process – just a smart person in our country who could help solve a difficult scientific challenge and was paid a modest $30,000 for that insight.”

Action:

• Consider open innovation methods such as external challenges as a cost-efficient way to spur innovation.
• Subdivide large R&D efforts into smaller R&D challenges that members of an open innovation crowd are more likely to be able to address
• Use a pre-existing platform to quickly reach a critical mass of solvers

Sources:
Open Innovation Marketplace, by Alpheus Bingham and Dwayne Spradlin, Financial Times Press, 2011.

Aneesh Chopra, “Rethinking Government” address to the Personal Democracy Forum 2010, posted June 12, 2010

NASA Innovation Pavilion on InnoCentive.com