Saturday, May 30, 2009

ECONOMICS of open innovation

What ROI at what RISK? – every investor’s top question! With respect to open innovation, the same question gets rephrased as below …

a) What is the cost of doing ‘open innovation’ vis-à-vis strictly ‘in-house innovation’?
b) Opening up for innovation is new for me, and new things carry more risk, can I predict my return-on-investment?
c) How can I have a control over people not on my payroll? Will I loose money?
d) We already have an internal R&D, will opening up be an additional cost?

So how are the various aspects of collaborative innovation fair when it comes to the all important, COST?

COST FACTOR 1: By far the most favorable advantage open innovation carries is ‘Pay for real outcome not for trial and error.

This is a huge cost saving, and a simple logic. Assuming there is a 20% chance of an average innovation effort to succeed, in open innovation you pay only for the favorable outcome and not for the effort which does not yield desired results.

A must ask question is “Then who pays for the effort which does not yield desired results”? The rule of averages comes into play, the so called huge cost of yielding no result is distributed among many people, making it most of the times insignificant for an individual. Broad talent pool increases the chances of finding the right fit for you and at the same time increases individual’s chances of finding an opportunity where her talent can fit. As you see it’s a solid win-win situation.

COST FACTOR 2: Benefit from what is yours, in-house.

Opening up to outside of your group but within your organization can also be treated as a type of open innovation.
Leveraging what you have – by connecting the exiting talent of your organization (part time, full time or even coffee time) with the existing challenge of your organization.
Utilizing what you anyway paid for is a cost saving. Garage sales never hurt.

COST FACTOR 3: Avoid risk of not completing the first, fifth or the last mile of your idea just because you do not have a person who can travel that mile for you.

Some great innovative ideas don’t see the light of the day during the execution resulting in financial losses. Fill in the gaps by bringing just-in-time talent. Just as there is a cost of innovating, there is a cost of not innovating, more so when you abandon a worthy idea.

Cost of doing collaborative innovation, internal and/or external, is not more compared to strictly in-house innovation. Though relatively new phenomenon, open innovation provides more control and is less risky. While you won’t have control over the people, you will have a control over paying only for what you get. Open innovation does not need to be a either /or with in-house innovation, nor does it need to make an addition or reduction in your innovation budget – considering open innovation as ‘just another means’ is by far the best way to avoid any cost related roadblocks.

Saturday, May 23, 2009

Learning from the collaborative innovation cases

While most of us are trying to understand and incorporate the collaborative innovation in our organizations, there are some people and organizations that have experienced it already, it makes lot of sense to understand these cases and learn from it.

I am starting a sister blog which will act as a repository of the success and failures in open innovation, collaborative innovation, co-creation from across the world.

Though the information going in these case studies is already available at various places on the internet, I am trying to achieve following.

1) Single point for reference.
2) Classify the case study information in a predefined format. (E.g. Industry, extent of openness etc.)
3) Uncover the finer and otherwise hidden aspects of these success or failure cases.

The format for the case study along with the first case study is posted at

Please feel free to suggest any changes or additions in the format.

You can also suggest a case study or point me to the case study.

Saturday, May 16, 2009

Metrics for Open Innovation – “what’s my open innovation quotient”

[One slightly disconnected thought! – Can percentage of people quitting from a particular organization and becoming an entrepreneur provide any kind of metric? More the better or less the better?]

Metrics have always amazed me, be it for how different people perceive it differently or for the conviction with which it can drive one away from facts! It has amazed me equally for its subtle power to steer one to the goals at hand..

This post is for you and me to come up with measurement criteria for an open innovation effort in an organization.

Thinking aloud for the pointers … a) Is my organization doing enough to promote open innovation, b) Where and how much to invest, c) Am I utilizing all possible resources, d) Metric can’t help me remove any mental blocks, but how can I keep the open innovation in say top 5 priorities e) What is the Return on investment, f) How much is the open innovation productivity, g) How much Risk I can take for how much return?

With this laundry list, let’s create the metrics, in no particular order.

Metric A: Open innovation budget allocation proportionate to the profitability hotspots.

First I need to track and arrive at the hotspots which have potential for open innovation. Then rank them according to the profitability per unit and volume it can fetch. Allocate the open innovation budget in the similar proportion while maintaining the hotspot diversity.

Overly simplified example - For a consumer durable product, the hotspots could be the pricing or psychology of a first time buyer, the yield per unit could be low and volume high. For a new techno yacht, yield per unit could be high and volume low.

Metric B: Extent of talent utilization from outside the core team.
Measure how much non core team individuals contributed from rest of the organization and/or from outside the organization.

Example / Pointers - How many idea-bar-camps my organization organized this quarter. Someone should be telling - we received 30 ideas from the core team, 70 from rest of the organization and another 50 from outside the organization for a given hotspot. In 2006, P&G’s 50% of the product and process ideas came from outside of P&G.

Metric C: Extent of Leadership involvement.
This one is bit difficult, but open innovation won’t take roots without it.
How much effort the leaders putting to leverage the opportunity of open innovation?

Example / Questions - How many times employees hear about the genuine support for open innovation from leadership? How much time does the leadership spend on open innovation vis-à-vis overall routine work. How recently your leaders heard and discussed the idea which came from outside the core team or from outside the organization.

Metric D: Percentage of skin
% of risk taken with respect to the investment in last one year. A conscious strategy to analyze and make Proactive + Reactive investment in future.

Example/ Questions – Was my TV ad budget for the existing service line far bigger than the innovation budget? Does my organization invest for short, medium and long term innovation outcomes or is there an imbalance?

Metric E: Percentage of fresh footprint
% of number of product, service, process or business model launched in last one, two, three year(s) which were not similar to the existing ones and had an open flavor.

Example/ Pointers – The ones where we changed the color and packaging may not be counted here, repurposing the same product for a new user group might. Still better is the one where you incorporated the end user feedback.

(A fair process to decide what is genuinely ‘open’ i.e. if the contribution came from outside the core group or not, and how much, is a different topic altogether and we will discuss this in subsequent posts.)

Metric F: Percentage of fresh dollars
% of revenue generated from NEW product, services, and processes launched in last one, two and three year(s)

Example / Pointers – Revenue from a really innovative product launched 5 years back be better kept off, and if it takes effort to associate the dollars as fresh dollars, its probably a wrong association!

Metrics are a very personal thing, each organization need to derive the ones which suites them. But as a rule of thumb, the metrics which resemble the simplicity of GPS, gives you the X, Y and Z coordinates of your current open innovation state, are more likely to take you where you intend to go.

Saturday, May 9, 2009

Best Time, Team and Technique for Innovation …

... do they exist?

Time …

I get some of my best ideas when I am not trying to get one, while not at my desk, during a casual walk. One probably does not innovate on 25th Avenue, at 3:00 p.m. Sometimes, the harder one tries to sleep, more difficult it becomes, same with ideas.

However, on a broader level, if one does not have an innovation agenda, innovation probably doesn’t happen. So it is a good idea to create a placeholder for innovation, meet to take stock; meet to elaborate the ideas.

Time boxing does not help in innovating; however the other extreme - time pressure gets amazing output, sometimes!

Team …

Focus groups, Innovation councils, R&D teams, Centre of Excellences, apart from doing innovation are better suited for doing equally important tasks of managing innovation. They are better equipped to provide the anchor for an organization’s innovation agenda, anchor for ideas from across the organization and optionally from outside the organization.

There is no such thing as idea team, there shouldn’t be.

Techniques …

Six Thinking Hats, or TRIZ are great techniques to ideate and innovate, however I believe that if one has a Six Thinking Hats or TRIZ mindset then it is far more productive than having a round table discussion for innovation using these techniques.

I read that some people are successful in submitting their problems to their mind, sleeping over it, and the subconscious mind coming up with clues, if not the solution the next morning.
I believe in something similar – our minds have an incredible capability in parallel imagination for the problems we have at hand. Leverage this, submit the problem to yourself, don’t start working on it.

Organizations should have capability to manage ideas and innovations just like an ERP manages inventory or General Ledger.

Don’t ignore non-techniques like gut feeling and intuition.

One old fashioned thing, record your ideas, however stupid or great. Instead of remembering idea, sometimes I only remember that I had a good one!

In a nutshell … ideas during after hours, at a lab, in the bathroom or on a treadmill … Innovation teams more as an anchor across and beyond organization … Innovation techniques with processes diluted … is probably the best time, team and technique for the innovation.