21 February 2007
The Wisdom of Crowds: How Open Is Your Innovation?
The Wisdom of Crowds: How Open Is Your Innovation?
Few would argue with the fact that it is the innovative nature of the American economy that makes it what it is: increasingly global, intensely competitive, and able to rapidly rebound after recession downturns. Many industrial leaders, however, have come to a conclusion that the current mode of innovation – relying on in-house R&D and a network of established academic collaboration – is broken. R&D costs are out of control: in many large American companies, R&D budgets are growing faster than revenue.
Over the past few years, a new approach has emerged and companies are switching from "traditional" to "open" innovation.
The concept of open innovation takes advantage of the explosion of Internet communications, aided by cheap computers and proliferation of social software such as blogs and instant messaging. But it also has an ideology shrewdly dubbed by The New Yorker's columnist James Surowiecki as "the wisdom of crowds:" large groups of people are always better at solving problems than a few individuals, no matter how brilliant those individuals may be.
The lead in open innovation has been taken by pharmaceutical giant Eli Lilly and consumer behemoth Procter & Gamble (P&G).
P&G, which is spending close to 2 billion USD on R&D each year, has created – by using a combination of tools such as intranet, Internet, and search engines -- a virtual "innovation network" that connects P&G employees with themselves and a variety of external sources. Today, estimates say that P&G gets 35 percent of its new products from outside the company, up from 20 percent just a few years ago. The important statistic of sales per R&D person employed received a boost of 40 percent.
Eli Lilly's early forays into using the wisdom of crowds took advantage of so-called "prediction markets." In one such an experiment, a group of employees successfully predicted the outcome of a drug trial well before the official data were released. Emboldened by this success, Eli Lilly has made a step further and created, in 2001, InnoCentive, an Andover, MA-based company now claimed to be the "largest virtual laboratory in the world."
InnoCentive boasts an impressive roster of corporate clients, known in the new industry as "seekers," and which includes the cream of world leaders in innovation: Eli Lilly, P&G, Dow AgroSciences, DuPont, Novartis, and Solvay, among others. Recently, some notable players in the non-profit sector, such as the Rockefeller Foundation, have come aboard, too. With the help of InnoCentive scientists, the client companies post on the InnoCentive website research projects called "challenges." Each challenge covers a scientific or technological problem in areas as diverse as pharmaceuticals, agribusiness, consumer goods, and food products. Each challenge has a deadline ranging typically from two to six months and an award that will go to a "solver" who finds the solution to the challenge. The typical award is between 15,000 USD and 75,000 USD; however, higher awards also occur. Recently, Prize4Life, a Cambridge, MA-based non-profit organization seeking better treatments for those with Lou Gehrig's disease, posted a challenge with a price tag of 1,000,000 USD.
InnoCentive charges its corporate clients an annual 100,000 USD subscription fee. This covers all aspects of challenge posting, including face-to-face training sessions at the client's place of business. InnoCentive also collects a 2,500 USD posting fee for each posted challenge and, if the seeker accepts a solution, InnoCentive keeps 30 percent of the award as a commission. Non-profits use InnoCentive at discounted rates.
InnoCentive's network of solvers is a virtual workforce of about 120,000 individuals (and growing at 500-1,000 per month) living in 175 countries around the world. Once registered (for free!) and having signed some mandatory paperwork, each solver gets to read detailed discriptions of the challenges. If the solver feels that he or she may have a solution, it may be electronically uploaded to the InnoCentive website. It is very important that solvers have no guarantee that their work will be eventually rewarded. This only occurs if a seeker chooses to use the solution a solver upload. This is a difficult risk vs. reward decision they must make for themselves.
The submitted solutions are forwarded back to the seeker, who then decides which of them, if any, to award. The whole process is doubly-anonymous: at no time do the solvers know whose problem they are working on nor do seekers know the identity of the solver who submitted the solution. This fact underscores just how democratic the research process is being made by the open innovation: whether you are a Nobel laureate or a first-year undergrad, what matters is the workability of your solution.
The average solution rate, although heavily dependent on the type of a problem, is about 30 percent, which is not small given that many of these problems have defeated the best and brightest minds in the corporate R&D for years before they are offered to open innovation. What seems to be making the InnoCentive "crowd" so powerful is the diversity of educational backgrounds, opinions and experiences it brings to the table. InnoCentive's veterans fondly speak of a protein crystallographer who found a solution to a unique toxicology problem, a solution that had evaded a number of professional toxicologists.
So is it money that motivates InnoCentive Solvers? Sure! Since its inception, InnoCentive has paid more than 2,000,000 USD in awards. A total of 45,000 USD added nicely to the family budget of Giorgia Sgargetta of Italy, who has solved two InnoCentive challenges (one of them by finding a dye that turns blue upon dilution in water). However, there seems to be something else which inspires Giorgia, a quality control manager in a pesticide plant, to take on one InnoCentive challenge after another: it is a thrill of creating. The same is true for Werner Mueller, a retired chief of R&D at a chemical company, who has worked for two months in his personal lab optimizing a synthetic scheme for a chemical compound that eventually earned him a 25,000 USD award. "But it wasn't the money I was after," he said. After having spent a good deal of his highly successful professional carrer managing R&D, Mueller simply wanted "to tinker again."
InnoCentive is by far not the only player in the growing field of open innovation. Take, for example, NineSigma, a Cleveland, OH-based company. NineSigma helps its clients to prepare technical briefs (often called RFP, Request for Proposal) describing complex technological problems. Like InnoCentive, NineSigma then distributes these briefs among thousands of researches around the globe. However, unlike InnoCentive, NineSigma's goal is not to bring back specific solutions, but, rather, to identify people who would be able to provide such solutions on a contract basis. Yet another incarnation of the open innovation spirit – and another brain-child of Eli Lilly – is Indianapolis, IN-based YourEncore, a network of a few hundred highly-accomplished retired scientists and engineers. YourEncore earns its money by matching their clients with an appropriate expert from the network for a short-term assignment.
The pioneer efforts of InnoCentive and its peers have begun attracting attention. In October 2004, InnoCentive was named one of the twenty-one North American companies "poised for growth in the 21st century." Dwayne Spradlin, InnoCentive president and CEO certainly agrees. Having taken the lead at the company in November 2006, Spradlin is spearheading InnoCentive's further expansion into the corporate, government, and not-for-profit markets.
The trend is clear: the world of R&D innovation is opening. How is your innovation doing?
InnoCentive® is an exciting web-based community matching top scientists to relevant R&D challenges facing leading companies from around the globe. We provide a powerful online forum enabling major companies to reward scientific innovation through financial incentives.