It is awesome to once again be teaching web design at BC this Spring. I have an amazing class of very talented students. We look forward to working together to finish the semester strong.
New and established companies alike depend on innovation to remain competitive. While ideas may come from many different places, there are principally two key directions managers can look for novel solutions to business challenges and for new products: internal sources and external sources. Internal innovation, sometimes called closed innovation, utilizes existing companies’ resources, like a research and development lab, to generate new ideas and products. External innovation, often called open innovation, refers to the utilization of networks of individuals and companies outside of the firm to deliver new thinking. Each innovation source has its strengths and weaknesses.
Apple, Inc, for example, has successfully engaged for decades in a process of closed innovation. They hire the brightest minds, give them plenty of resources, and challenge them to create the “next big thing” through self-generated brilliant consumer insight, the most advanced engineering techniques, and stunning product design. John Lilly, CEO of Mozilla has referred to Apple’s process as “genius-based innovation,” contrasting it to the “network-based innovation” of Yahoo! and the “analytical innovation” of Google. He contrasts the Mozilla’s mode of operation with Apple’s “I used to work at Apple. I have an iPhone. But there are other ways of developing software. Instead of relying on individual brilliance, we rely on enabling a network around the world, like Wikipedia does. That’s a different aesthetic.” But few can argue the success of Apple’s strategy, as it has staged a historical comeback, with more than a decade of extraordinary growth and staggering product innovation that has knocked to their knees competitors in a multitude of industries (including music, computing, and mobile phones), leaving them dazed, confused, and bewildered. A key advantage is that their closed innovation strategy enables them to maintain a high degree of secrecy, leaving competitors vulnerable to surprisingly innovative new products that consumers desire.
The extreme downside of closed innovation is isolation and failure. The classic example is Xerox PARC. While they brought together the greatest minds, gave them plenty of resources and latitude to create, they failed to commercialize their ideas. Instead, their innovations fled to form companies like Adobe Systems (Postscript language) and Apple, Inc (Graphical User Interface and Mouse), and 3COM (Ethernet) among others. According to Henry Chesbrough, Xerox failed because “the innovations emanating from Xerox PARC departed substantially from Xerox’s current core businesses, commercializing these innovations would have required the company to work with the products and technologies of other firms, which Xerox was ill-equipped to do at the time.” In other words, the innovations developed at PARC were outside of Xerox’s core competencies. And while the researchers were open to new things, the management of the organization was not, and therefore unable to make the cultural leap necessary to develop their plethora of home-grown innovation.
Open innovation takes a converse approach. Managers look beyond the boundaries of the firm to find new solutions and utilize anyone at their disposal who can make a contribution. Partners may include suppliers, customers, competitors, research universities, and other entities. In his pivotal book Open Innovation: The New Imperative for Creating and Profiting from Technology Henry Chesbrough defines open innovation as the following:
“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology.”
A storied example of a successful open innovation project comes out of Proctor & Gamble and their “Connect and Develop” website. P&G uses the site to post challenges that they are facing as a company, and asks groups of individuals to deliver solutions in return for a cash reward. This technique is often called crowdsourcing. An often touted success story is one where P&G sought to print cultural icons on their Pringles potato chips. By posting their solution on the Connect & Develop site, they learned that someone had already developed a technique for doing this at a bakery in Europe. The company was able to save an extraordinary amount of R&D and instead just license the technology. P&G did not wish to cut short the life of its internal R&D organization, but rather supplant it. And it was CEO A.G. Laffley’s business goal of rapidly increasing revenue that led to his conclusion that “nearly half of all new products should come from outside the company.”
I listened to a pretty amazing radio program on this NPR this week. This American Life profiled Intellectual Ventures, which is Nathan Myrvhold’s high-level patent troll company. The troll makes you pay the toll.
His company has amassed a serious portfolio of patent
s and invites companies to pay them upfront to avoid being sued. They sell off some patents to shell companies that they use as fronts to sue other companies. It really sounds downright awful. And the bottom line is that it makes it sound as though the only people making money are Intellectual Ventures and the lawyers who work for them in East Texas.