How Ad Agencies Can Make the Shift to Open Innovation

Harvard Business Review

With another new season of Mad Men fast approaching, the changing nature of advertising, and along with it the role of ad agencies in the creation of ads, is once again in the spotlight. Digital disruption has clearly been one of the major catalysts for this change, but less has been said about how the transformation is a prime example of open innovation, a focus of my research for many years. This topic has been at the forefront of my mind because, this week, ninety leaders from all over the world have come to HBS to take part in our Leading Change and Organizational Renewal executive education program. What it takes to make the successful shift to open innovation is always an important theme in our discussions. The transformation of advertising reflects this shift in several important ways:

First consider identity. Back in the Don Draper days, the creative agency would pitch storylines, mock them up, test them with market segments, go back to the drawing board, and produce the one that got the most positive feedback and fit best with the brand. Now, however, digital media has disrupted this process, and the roles and identities of the players have significantly changed. The audience plays a more active part in both generating content and filtering the ideas. The overarching role of the ad agency has shifted from content generator to a combination of strategist, curator, and brand manager. To remain successful, ad agencies must acknowledge and address this question of identity head-on, otherwise the internal experts may become threatened and find ways to undermine the effort.

Some ad agencies are adapting fairly well. Take Doritos, a Frito-Lay brand. They increased the innovation pipeline (the next important shift) by inviting thousands of fans to create a commercial for the Super Bowl. Of the approximately 3,500 submissions, five were chosen as finalists by the brand's experts. These were uploaded on YouTube and shared via Facebook. The general Doritos fan base (and their friends and friends-of-friends), then chose the best two videos from the five finalists, which were then aired during the Super Bowl.

The process Doritos used here illustrates my next key to harnessing open innovation: filtering. Once they increased the content pipeline, the internal branding and creative teams became the first filtering agents, using their knowledge of the brand and of FCC guidelines to narrow down the 3,500 submissions to five. Choosing the top five videos out of the thousands of submissions allowed the business leaders to maintain a certain amount of control — they don't run the risk of an offensive, inappropriate, or off-brand video getting through to the final stages — while giving the final decision-making power to those who would ultimately purchase the product.

This user-centered process also highlights the "test and learn" approach to new content. Rather than repeatedly pitching storylines, mocking them up, testing them, and going back to the drawing board in serial fashion, brands have hundreds of fully executed videos that show them which approaches work best. Do people respond to humor or heartstrings? They can learn this in real time, and it gives them a good idea of which videos will perform well within the larger audience. It also allows them to save some money on production and redirect the budget to market a proven product. Meanwhile, the winning producers get money, exposure, and a beefed up portfolio.

The last key shift I'd like to address is incentivization. Each of the top five Doritos entrants got $25,000 and a ticket to the Super Bowl. If a video made it to the top three of USA Today's Ad Watch list, the producer then got a bonus (incidentally, the producer of the #4 video was later hired to work with the director of the next Transformers movie). Everybody won — Doritos was able to redirect its money towards buying every type of Facebook ad to increase the brand's exposure exponentially, generated its content for a fraction of the cost, and received measurable feedback from its fans to gauge popularity, while the producers earned cash and exposure.

Not all attempts at open innovation go this smoothly, however — in advertising or in any other domain. Clearly there are many other examples of organizations trying to increase their idea/content pipelines using outside-in mechanisms. How is your company changing its identity, testing and learning, and incentivizing its stakeholders to try something new?

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