Tom Venable, Executive Vice President, InnoCentive, Inc

The Answer is Often Where You Least Expect It

AgendaAgenda

• Introduction to Open InnovationIntroduction to Open Innovation• Introduction Prize Based Introduction Prize Based

InnovationInnovation• Case StudiesCase Studies• Characteristics of an Open Characteristics of an Open

Innovation LeaderInnovation Leader• Organizational Implementation Organizational Implementation

GuidelinesGuidelines• Q & AQ & A

“I not only use all the brains that I have,

but also all that I can borrow”

Woodrow Wilson

An Early Open Innovation Leader

Closed vs. Open Innovation

Closed innovation Principles Open innovation Principles

The smart people in our field work for us.Not all the smart people work for us. We need to work with smart people inside and outside our company.

To profit from R&D, we must discover it, develop it and ship it ourselves.

External R&D can create significant value; internal R&D is needed to claim some portion of that value.

If we discover it ourselves, we will get it to market first. We don't have to originate the research to profit from it.

The company that gets an innovation to market first will win. Building a better business model is better than getting to market first.

If we create the most and the best ideas in the industry, we will win. If we make the best use of internal and external ideas, we will win.

We should control our innovation process, so that our competitors don't profit from our ideas.

We should profit from others' use of our innovation project, and we should buy others' IP whenever it advances our own business model.

Source: www.wikipedia.org

Innovation Inside and Outside

The Solution

P&G realized that whilst it had 9,000 really great scientists, the speed to discover new formulations and molecules would not be sufficient maintain a lead in innovation and demands for growth. Relying on internal resources would not be enough. P&G estimated that for everyone of their scientists in house, there would be approximately another 200 outside who were just as good. That meant that there could be a pool of over 1.8 million scientists who might be able to meet some of their R&D needs. To this end, P&G have tapped into InnoCentive where cash rewards are offered to scientists who come up with solutions for some of their R&D needs. This has meant that P&G are able to stay ahead in innovation, be faster to market and engage a significantly larger pool of talent.

Adventures in Knowledge

Coming to the Edge: The future of knowledge in a network centric world

“The R&D Model that most companies are following is broken. There is a drive to increase innovation budgets BEYOND the revenue growth of the firm. That’s not a sustainable business model.”

Larry HustonVP for Research & Development (retired)

Procter & Gamble

Prize Based Innovation has a Long HistoryPrize Based Innovation has a Long History

Longitude PrizeLongitude Prize

• Offered by the British government through an Act of Parliament in 1714 for a simple and practical method for the precise determination of a ship's longitude.

• In total, over ₤100,000 was given in the form of encouragements and awards, the significant winner was John Harrison who received ₤14,315 for his work on chronometers from 1737 to 1764.

Orteig PrizeOrteig Prize

• $25,000 reward offered in 1919 by hotel owner Raymond Orteig to the first allied aviator(s) to fly non-stop from New York City to Paris or vice-versa. By1924, aviation technology had advanced to the point that numerous competitors vied for the prize.

• Relative-unknown Charles Lindbergh won the prize in 1927 in his aircraft Spirit of St. Louis.

• Lindbergh was both the first solo pilot and the first American to cross the Atlantic non-stop in a fixed-wing aircraft (rather than an airship), and he promptly became a national hero. Charles Lindbergh and

Raymond Orteig

John Harrison’s Chronometer H5

Source: Wikipedia

Ansari X PrizeAnsari X Prize

• X PRIZE was a space competition in which the X PRIZE Foundation offered a US$10,000,000 prize for the first non-government organization to launch a reusable manned spacecraft into space twice within two weeks.

• The prize was won on October 4, 2004, by the Tier One project designed by Burt Rutan and financed by Microsoft co-founder Paul Allen, using the experimental spaceplane SpaceShipOne.

• $10 million was awarded to the winner, but more than $100 million was invested in new technologies in pursuit of the prize.

DARPA Grand Challenge DARPA Grand Challenge

• The DARPA Grand Challenge is a prize competition for driverless cars, sponsored by the Defense Advanced Research Projects Agency.

• Congress has authorized DARPA to award cash prizes to further DARPA’s mission to sponsor revolutionary, high-payoff research that bridges the gap between fundamental discoveries and their use for national security.

• The first, second and third places in the 2007 Urban Challenge received US$2 million, US$1 million, and US$500,000, respectively.

Vehicle in development for 2007 challenge

X Prize Award Ceremony

Source: Wikipedia

Prize Based Innovation has a Long HistoryPrize Based Innovation has a Long History

The “Long Tail” of InnovationThe “Long Tail” of Innovation

Prize Based Innovation gets Market RecognitionPrize Based Innovation gets Market Recognition

Prize Based Innovation taps the worlds vast pool of intellectual capacity, creativity, and ingenuity

A networked army of creative minds

The Best Solution is Awarded a Cash Prize

You Only Pay if Someone Provides a Solution

Internal R&D Staff

Prize Based Approach to Open InnovationPrize Based Approach to Open Innovation

Prize Based Open Innovation MarketplacePrize Based Open Innovation Marketplace

InnoCentive is the global innovation marketplace where creative minds solve important challenges in commercial,

governmental, and humanitarian organizations.

InnoCentive is the global innovation marketplace where creative minds solve important challenges in commercial,

governmental, and humanitarian organizations.

Companies or “Seekers” anonymously post problems on the InnoCentive.com, while “Solvers” submit their solutions in a bid to capture a cash prize ranging from $5,000 to $1,000,000!

Companies or “Seekers” anonymously post problems on the InnoCentive.com, while “Solvers” submit their solutions in a bid to capture a cash prize ranging from $5,000 to $1,000,000!

Internal Sources

Employees

Databases

External Sources

Customers

Partners

Internet

Patent Searches

Competitive Info

Product Development Life Cycle & InnoCentive

Front-End of Innovation New Product Development

Launch to End of Life

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Ideation

Theoretical

Who’s Doing it? (Sampling)Who’s Doing it? (Sampling)

Website Tour – Multiple Paths to Challenge

Examples of Use

Prize Based Innovation Case Studies Prize Based Innovation Case Studies

The Answer is in Left Field – a case study

• Ocean Spill Recovery Institute (OSRI)

• Focused on recovery of oil and reduction of environmental damage related to Exxon Valdez Oil Spill

• Problem – Could not separate frozen oil from water in collection barges. (aka - Breaking Viscous Shear of Crude Oil)

• Solution – An Illinois Chemist from the Concrete Industry wrote the award winning abstract based on a technique that has been used for years to move liquid concrete.

• Result – The chemist won $20,000 and the oil industry solved a 30+ year problem within 2 months after posting in on the Web

“If this Challenge were easily solved by the people within the industry, it would have been solved earlier. The InnoCentive process allows us to step outside the

box and look at more creative solutions” – Scott Pegau, OSRI

Drew Buschhorn, InnoCentive Solver• Industry Problem

– New substance to replace an art restoration chemical that is being phased out by Environmental Protection Agency

• Not an Industry Insider– 20-year-old chemistry student at

University of Indiana, Bloomington

• Solution Existed with a Hobbyist

– A substance he had found years ago to help his mother preserve colors in dyed cloth

Source: Business Week, June 20, 2005

The Answer is in Left Field – a case study

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Construction Materials

FoodProcessing

AlternativeEnergy

The Answer is in Left Field – a case study

Open Innovation LeadershipOpen Innovation Leadership

Traits of an Open Innovation Leader• Clarity of Vision

• Boldness – willing to take risks – challenge the status quo

• Intellectual Humility

• “No one is as smart as everyone” – Ronald Reagan

• Follows a Network Approach to Innovation

• Leverage today’s user content generation models

• Obtain access to as many minds as possible

• Not necessarily a problem solver

• A Solution FINDER

• The solution does exist – SOMEWHERE

• Role is not to develop the correct answer…

• But to ask the right questions and collate the answers

The Role of the Open Innovator• Define the Problem in terms outsiders can understand

• Break the Problem up into Intelligent Questions

• This is the CRITICAL step

• Don’t use your industry “jargon”

• Pose the Questions to a DIVERSE Group of Creative People

• The answer IS in left field

• 80% of Innocentive solutions are found outside of client industry

• Collect, assemble and combine the answers

• Deliver Results at a Higher ROI than Typical R&D Model

Open Innovation – Implementation StrategyOpen Innovation – Implementation Strategy

Plan with realistic expectations and time horizons

This is a transformation, not an implementation! (remember eMail, ERP and business process outsourcing)

1-2 years

3-10 years?

OPEN INNOVATION CAMPAIGN

Key Learnings and RecommendationsKey Learnings and Recommendations

C-level Commitment and Messaging– Commitment from the top (C-level mandate)

– E.g., “30% of innovation will from outside within 5 years.”

– Appoint corporate champions (“evangelists”)

– Earmark corporate resources for Trial and Learning

– Challenge organizations to identify opportunities

– Set-aside funds to enable units to “test and learn”

– Design internal messaging to drive buy in and excitement

– Internal staff must feel empowered, not threatened

– TTM and competitive advantage, not cost reduction!

– Solution finders as well as problem solvers

– Make heroes of early adopters and big wins

– Open Innovation as a corporate strategy, advertise it!

Key Learnings and RecommendationsKey Learnings and Recommendations

Early Trial and Adoption to Demonstrate Success– Select “Test beds” and choose test applications strategically

– Select domains relevant to business mission– Focus on “solvable” problems in sufficient numbers (n>1)– Start in “friendly” territory

– Create test environments encourage internal support– Enroll and incent managers to “own” individual tests– Enroll internal partners– Critical Skill: framing the question

– Assess results and broadly hail successes– Evaluate results and estimate/calculate ROIs (Rev,

Costs, Time to market and competitive advantages)– Generate excitement that both engages and permissions

others to follow suit (C-level recognition)

Key Learnings and RecommendationsKey Learnings and Recommendations

Change Management – Open Innovation is a Paradigm shift

– Encourage “open” behaviors and risk taking– Must be solution finders as well as problem solvers– Empower Scientists/Engineers act independently– Redefine roles and reward/recognition systems

– Identify “change makers” across key functions– Buy in critical to successfully changing the “not

invented here” culture to an “open innovation” culture

– Address structural barriers to adoption– Legal, Finance, Alliances, etc.– Middle Management can make reality or doom to

failure

Key Learnings and RecommendationsKey Learnings and Recommendations

Corporate Rollout and Use– Leverage successful internal successes as beachheads– Repurpose evangelists and “owners” to spread open

innovation through out the organization– Cull the “passive aggressive”s and the naysayers – this

is fundamental cultural change– Build, buy, and certify “solution finders” and brand within

organization as key positions – Cross unit and cross border cultural change is difficult

– Engage local evangelists and planners early– Often necessary retrial locally and re-structure/ re-

implement change mgmt approach

Key Learnings and RecommendationsKey Learnings and Recommendations