The Next Wave of Open Innovation

How InnoCentive aims to exploit sophisticated technology and networking capabilities to connect problems with their potential solvers

Open innovation has become an important management trend over the past decade. Yet, despite great initial success, some of the most prominent examples of open innovation have had serious limitations. We are now on the brink of a major evolution of open innovation.

Henry Chesbrough, a professor at the University of California at Berkeley, coined the term "open innovation" to describe a growing number of initiatives by companies to reach beyond their own walls to use talent and ideas from others. Perhaps the poster child of open innovation, inevitably mentioned in any discussion of the topic, is InnoCentive, a Waltham (Mass.) company spun out from Eli Lilly (LLY) in 2001.

InnoCentive was the brainchild of two Lilly executives, Alpheus Bingham and Aaron Schacht, who were seeking to exploit the power of the Internet in discovering solutions to challenging research problems. InnoCentive, which now has 32 employees, became the first global Internet-based platform designed to help connect Seekers, those who had difficult research problems, with Solvers, those who came up with creative solutions to these problems.

Matching Questions to Answers

There were many keys to the early success of InnoCentive. First, it carefully defined a governance structure designed to protect intellectual property from both the Seeker and the Solver perspective. Second, it reduced barriers to participation so that it could scale quickly. Third, it reached out to a very diverse group of Solvers, increasing the likelihood of solutions coming from very unexpected directions.

At the outset, InnoCentive was designed to connect individual Solvers with Seekers in short-term, standalone transactions. Seekers would post a high-level problem statement. Individual Solvers would volunteer to explore the problem and they would be provided additional information under a non-disclosure agreement to help them search for a solution. Solvers would then submit a proposed solution to be evaluated by the Seeker. If the Seeker was satisfied that the solution worked, a pre-specified monetary award ranging from $5,000 to $1 million would be awarded to the Solver, and the intellectual property associated with the solution would be transferred exclusively to the Seeker.

Since 2001, more than 170,000 participants from over 175 different countries have registered as Solvers. More than 800 problems have been posted, and almost 400 solutions have been found. This represents almost a 50% success rate on problems that had stumped internal research and development staffs. Almost $20 million in awards have been posted, while almost $4 million in awards have been paid out to successful Solvers. Given this success rate, InnoCentive has attracted a large and diverse set of organizations as Seekers, including Eli Lilly, Procter & Gamble (PG), Avery Dennison (AVY), Janssen, and the Rockefeller Foundation.

Assuring the Reward

InnoCentive basically acts as a facilitator, providing a platform that helps Seekers and Solvers to connect and defining a set of protocols for how the relationships will be built. It remains entirely at the discretion of the Seekers whether they select a solution, or what criteria they might use in making that decision. At the same time, InnoCentive does protect Solvers against the possibility that a Seeker might use a proposed solution without offering the stated reward to the Solver. Intellectual property protection is clearly defined for both Seeker and Solver from the outset.

InnoCentive itself, meanwhile, neither generates nor vouches for solutions. The firm is paid by Seekers, who pay a posting fee of $35,000 per Challenge (though they can purchase bundles of Challenges for a lower fee). Seekers can also purchase a set of training and technology services called Open innovation Rapid Adoption Methods & Practices (ONRAMP) to help them adopt innovation more quickly within their organization. There is no cost to be a Solver.

Karim Lakhani, a professor at Harvard Business School, has documented that many of the awards went to Solvers outside the discipline of the problem. Lakhani's research report observed that, "The further the focal problem was from the solvers' field of expertise, the more likely they were to solve it."

For instance, the Ocean Spill Recovery Institute posted a problem in 2007 regarding the challenge of separating frozen oil from water on oil recovery barges. The successful Solver of this problem was a nanotechnology expert with no background in the oil industry. He used a tool from the cement industry that was originally designed to vibrate the cement to keep it in liquid form during massive cement pours.

Shared Work Spaces

InnoCentive developed another insight about problem-solving when it sought to identify key figures within its network. It discovered that its most productive Solver, a researcher based in India, had actually taken the initiative to organize a team of a dozen engineers who worked together to scan and select challenges to pursue on InnoCentive. Subsets of the broader team would then pursue a solution that would be posted on InnoCentive's platform. Upon further investigation, it turned out that about 10% of the Solvers were actually relying on academic labs or broader research teams to address the problems.

This led InnoCentive's management team to launch a major new initiative last year to develop the capability to support and encourage the formation of teams to solve problems posted on InnoCentive. By the end of April, InnoCentive will launch these new enhancements to its platform to create shared work spaces for teams and to create governance structures that can effectively manage their intellectual property issues. Later this year, InnoCentive plans to create mechanisms for individual Solvers to more effectively find each other to dynamically form teams to address specific problems. Yet later, a third phase will offer recommendations of potential team members with diverse experiences and skills.

What can executives learn from InnoCentive's efforts to harness innovation?

• Diversity enhances problem-solving Research on problem-solving success rates clearly indicates that diversity increases the probability of coming up with a solution to challenging research problems. A surprisingly large portion of the solutions come from Solvers in very different disciplines.

• Scale mattersSerendipity is most likely to occur when a large number of diverse participants are aggregated in ways that expose them to a broad range of challenging problems.

• Governance is criticalContrary to the popular view that open innovation is self-organizing and emergent, problem-solving platforms like InnoCentive's are carefully structured to protect intellectual property and specify decision rights and reward distribution in advance.

• Teams amplify the power of individualsEven on a platform initially designed to support individual problem-solvers, teams began to form to increase the probability of success in challenging big problems.

• Relationships trump transactions in successfully tackling a broader range of problemsAs InnoCentive has begun to specify more explicitly the four levels of problem-solving, it realized that short-term transactions are effective in addressing only a limited set of well-defined problems. The broader and more diffuse a problem becomes, the more important it is to foster longer-term relationships among aspiring problem-solvers.

• Learn from others in building open innovation platformsEven though InnoCentive is a pioneer in deploying an open innovation platform, it is carefully studying efforts by other groups to support collaboration and learning from their efforts. Recent initiatives at InnoCentive have been inspired by social networking platforms, shared workspace providers, online discussion forum sponsors and even online gaming.

• Open innovation has value within companiesWhile the practices and platforms designed to support open innovation initially were focused on reaching beyond the enterprise, these same practices and platforms have application within the enterprise as well. The company has developed a specific offering known as InnoCentive@Work that allows companies to post challenging research problems solely to its own employees. Again, it is difficult to specify in advance which individuals, teams or even disciplines are likely to generate successful solutions, so executives are finding that solutions often arise from unanticipated parts of the firm.

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