Open Innovation's Promise and Perils

Article excerpt

Corporate Strategy

Just like manufacturing operations and call centers, corporate R&D has gone global. It has done so via the Internet, facilitated by an emerging group of "knowledge brokers"-institutions that aim to bring together firms with difficult technical problems and individual scientists or scientific teams worldwide who possess the tools and the ideas to solve the problems.

"We have the capability to find virtually anyone in real time who has the knowledge and ability to tackle a problem," says Paul Stiros, CEO and president of NineSigma, a Cleveland, Ohio firm founded in 2000. "We're in an emerging field now," adds Phil Stern, co-founder and CEO of yet2.com, a Needham, Massachusetts, company founded a year earlier "to bring buyers and sellers of technologies together so that all parties maximize the return on their investments."

Quantitative data on the networks' expansion are hard to find. "I have not come across any such data apart from what companies project, which are not necessarily validated," says Satish Nambisan, an associate professor in Rensselaer Polytechnic Institute's Lally School of Management. But anecdotal information suggests that the number of problems solved by the "open innovation" web communities has grown steadily during the past five years.

"The idea is one part of companies' portfolio strategy," says Karim Lakhani, an assistant professor in Harvard Business School who studies web communities. "It's still nascent but ready to take off." Large companies such as Procter & Gamble, General Motors and IBM were the early adopters. But medium-sized firms have begun to buy into the concept. Often encouraged by glowing press reports, several have become clients of the brokers and the scientists in their databases.

Teething Troubles

Like any new industry, however, this type of communal research has experienced some teething troubles. Some clients have encountered difficulties when they try to incorporate solutions from the web communities into their product lines. "We have heard a lot of talk about the potential of open innovation communities," Nambisan says. "But when it comes to actual execution there is a significant gap."

Several unconnected developments stimulated the web communities. "There were two very public test cases: Linux and the open software movement," Lakhani explains. "They represented the idea of doing software development around the world with people you had never met. Another popularizer is Wikipedia-a very sophisticated knowledge-gathering mechanism. People say that if this can happen with software and an encyclopedia, why not in my domain?"

Some entrepreneurs translated the message into action. "The idea of open innovation existed in 1999 but wasn't on everybody's tongue," Stern says. "What led us to found yet2.com was a large set of technologies developed by large companies and not used in the marketplace. We saw the opportunity to monetize those assets."

And in 2001 the pharmaceutical firm Eli Lilly and Company funded InnoCentive, an e-business aimed at open-sourced, open network innovation and global collaboration.

The Basic Approach

The members of what Nambisan calls "the innovation bazaar" have varying philosophies and nomenclatures. However, they agree on the basic approach to problem solving. "There's a lot of knowledge outside the local organization," Lakhani explains. "Finding the knowledge is often a difficult search problem. Searching for the right person is a tough task. So rather than searching on the outside, you allow anybody to participate. It completely turns on its head the search process and the innovation process. What it says is: 'Let's be transparent about our problems and attract people who may have already solved them elsewhere'."

The knowledge brokers offer two forms of added value to their clients. First come their lists of problem solvers, which can amount to hundreds of thousands and even millions. …