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Crowd-Sourcing the Innovator’s Solution

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by Evan Shore

In a previous blog post, I highlighted three challenges that corporations face in managing innovation. These include:

  1. Strategic Myopia: Corporations often do not see opportunities outside their immediate field of vision.
  2. Structural Inertia: If they do spot opportunities, they are not set up to execute them internally.
  3. Inefficient Relationships with Outside Innovators: Corporations take a reactive approach to buying external innovations. Ideally, corporations would be involved at the problem identification stage, rather than at the solution selection stage.

Companies should take a more proactive approach to engaging with the external innovation community

Crowd-sourcing / contests are cost-effective and fast ways to source solutions to specific problems companies can define upfront. Innocentive crowd-sources solutions to very specific technical problems using its solver network. Through this contest platform, solvers are compensated for their IP, which is then transferred to the corporations. Using TRIZ methodology, Gen3 Partners discovers technical solutions to problems using its cross-industry expert network. A high reject rate in the semiconductor industry becomes a “bubbling problem,” and the champagne industry knows how to “control bubbles.” IDEO and other design firms generate out-of-the-box ideas for new products and businesses. Even McKinsey is good at solving problems – albeit the executives I interviewed recognize that these traditional consultants operate more “inside the box.”

While these firms offer inspiration, ideas, and knowledge of the pain points that both companies and your customers face, any solutions generated must be executed by the client firm. IP from Innocentive transfers ownership to the client. IDEO may provide a prototype of a product, but the client must adopt it for full scale manufacturing. McKinsey provides a PowerPoint deck with implementation recommendations.

In this way, solutions are constrained by the imperative to be implemented by the corporate client.

From a resource-based view, this approach makes sense. These firms find new uses for existing capabilities and products. However, once product features are refined, the flexibility to transfer these functional attributes to other contexts is limited.

Companies that adopt a more customer-centric approach and engage with the external innovation community in a proactive manner would be faced with even greater growth opportunities. Customers have a limitless and changing array of problems. A company that owns a customer relationship can turn itself into a platform and invite other firms to plug into it. The company (or its customers) could then decide which products are best suited to addressing customer pain points.

Contests may be run not only for discovering ideas or IP, but also for the execution of these ideas

Companies can use a contest mechanism to discover and filter external innovations. As with Innocentive, companies would post “challenges” based on specific pain points they would like to address (the pain points could be their own or those of their customers). Unlike Innocentive, however, the output of these challenges would be full-fledged businesses or products, not just IP or a PowerPoint deck.

The benefits of this proactive contest approach (rather than the reactive approach that most companies take in buying external innovations through M&A and Corporate Venture Capital) include:

  1. Reduced information asymmetries and search costs for business development professionals. Business development executives may not be aware of all developments outside their companies. The contest method sources and organizes inbound requests from startups in a more exhaustive manner.
  2. Reduced information asymmetries for entrepreneurs. Entrepreneurs are searching for pain points to solve and default to what they see in their field of vision. Communicating pain points would enable more entrepreneurial activity in specific areas of interest for corporations and their customers. Additionally, entrepreneurs may want to sell to or partner with corporations, but they may not know which companies are receptive to or in need of their services.
  3. A better filter. Business development executives complain that they receive ad-hoc requests for partnership from startups. A filter would be helpful, as would a translation service that helps startups understand the appropriate way to plug into the corporation.
  4. Less costly development with higher quality outcomes vs. building internally with a separate unit or outsourcing to a single firm. Prof. Christensen suggests that firms could solve the Innovator’s Dilemma by utilizing a separate business unit. This works for large, strategically-important initiatives that need to be integrated to some degree with the rest of the business. Crowd-sourcing the execution of innovation would be appropriate for building complements (Apple – App developers), second sources of supply (Pepsi using Holland Sweetener against Nutrasweet), specialty service providers at points of modularity (a gas station asking for a private label fuel distributor  against Exxon), non-core or non-strategic initiatives (Target asking for a mobile app that will replace its loyalty program), andsmaller ideas that will not move the needle (Microsoft asking entrepreneurs to develop a mobile check-in service at office buildings to replace front desks). Crowd-sourcing enables work to be done in parallel, with a reward for the “best” solutions at the end of the competition.
  5. Better ideas. Solutions would not be constrained by the sponsoring firm’s strategic lens.
  6. Unique solutions. These are likely not initiatives that IDEO, Gen3 Partners, Innocentive, or McKinsey would suggest because they are not designed to be implemented internally by the client.

A problem Nike is facing is that people are becoming increasingly sedentary, exercising less, and therefore buying fewer Nike shoes. All of the solutions prepared by our class were designed for Nike to implement themselves. If Nike’s dual goal is to encourage couch potatoes (non-consumers) to start exercising and also start buying Nike gear, why not issue a contest to external innovators? Nike could communicate this problem, accept applications from entrepreneurs and other corporations that believe they can solve the problem, and co-brand with the “winners.” As more couch potatoes begin exercising, Nike will sell more shoes. Nike could maintain an arms-length relationship with these complements, take a minority stake, or acquire them.

NASA already runs a marketplace, calling on researchers to utilize its zero gravity international space station. Its problem is a thin-market problem: not enough demand. What if NASA, Nike, Ford, GE, and others all were part of the same platform that aggregated challenges? Companies with problems-to-solve would have a centralized place to post their priorities and the parameters of the interface that need to be met for other firms to “plug in,” and firms with solutions could scan the site for potential partners or customers. The resulting platform would eliminate the need for RFPs and potentially foster a more collaborative innovation ecosystem.

I would greatly appreciate feedback on this concept in the comments below. Also, please post a comment if you know of any startups that resemble this idea.

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3 Responses

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  1. I like the idea of finding innovation externally (through a bazaar of ideas). If a manager cannot find innovation through his/her own firm, he/she can go to a another “shop” or “system”. I would love to see a crm system set up with companies across different industries. This way a finance firm can solve problems using ideas from places “outside their immediate vision”…maybe a healthcare management company or car manufacturer.

    Jamie

    May 5, 2011 at 2:27 am

  2. Evan, I like a lot of the ideas here. The challenge of being innovative is one that companies are clearly struggling with, and I haven’t heard an idea like this before.

    A few things that I’m struggling with:

    1. The assumption that articulating pain points is not a big deal for a company.

    Part of your approach presupposes that companies should have no problem broadcasting the problems that they want to solve. In reality, it seems like there are two issues with that. First, it gives competitors insight into company operations. For big companies, like the ones you’re targeting here, there are a number of potential problems they could choose to tackle. Broadcasting which one they’re focusing on could provide a head-start to their competitors.

    Second, the identification of pain points is not necessarily easy or straight forward. Maybe I, as a user, think my pain point is that I have too much email. Is my “real” pain point that I don’t have a good way to manage and prioritize the email I receive? Is the real pain point that I have information overload, and email is my primary information delivery mechanism? Identifying and articulating a pain point is difficult, and doing it well should not be taken for granted.

    2. In your model, its unclear to me what a company’s strength is.

    A company can have a number of assets, which I think of as “core capabilities”- what a company is good at. In your model, the company’s ability to innovate is clearly not its asset, and neither is its operations/execution model, since you suggest that the company should be looking away from the solutions it can most naturally implement, and that entrepreneurs would go beyond prototyping.

    When I take off “innovation” and “execution” from the list of things a company could be good at, I’m left with “branding” and “user knowledge/relationship”. If I were a CEO, that would make me very, very uncomfortable. Moreover, it seems like a solution that doesn’t take into account a company’s assets is making a mistake; a solution for Apple that didn’t take advantage of Apple’s supply chain and supplier relationships could be missing out. An entrepreneur couldn’t have access to this supply chain, and its product would likely be inferior.

    JD

    May 5, 2011 at 2:28 am


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