In their quest to harness new sources of creativity, companies are reaching beyond their R&D labs to tap individuals and organizations outside their corporate boundaries. In their book titled, The Global Brain: Your Roadmap for Innovating Faster and Smarter in a Networked World (Wharton School Publishing, 2007), Satish Nambisan, a professor of technology management and strategy at the Lally School of Management at the Rensselaer Institute of Technology, and Mohanbir Sawhney, a professor of technology at Northwestern University’s Kellogg School of Management, explore the rise and implications of this network-centric approach to managing innovation. Nambisan spoke with India Knowledge@Wharton recently about how companies can work with outsiders to enhance their own efforts to create new products and services.
India Knowledge@Wharton: What do you mean by the “global brain?”
Nambisan: The “global brain” refers to the creative potential that lies outside corporate boundaries, including networks of independent inventors, scientists, academic researchers and different types of intermediaries who facilitate those transactions between inventors and companies and scientists and companies. This pool of talent is what we broadly refer to as the global brain. This is in contrast to, for example, your internal R&D and other in-house innovation capabilities. You could call that “the local brain.”
India Knowledge@Wharton: Could you offer some examples of companies that have gone from implementing innovative projects within their organizations to reaching outside for innovation? What tangible results did these firms achieve by adopting what you call the “network-centric approach” to innovation?
Nambisan: Procter & Gamble and IBM are well-known examples. Dial [a consumer products company in Scottsdale, Ariz.], which is part of the Henkel Group, has been one of the pioneers in reaching out directly to independent inventors. Dial set up a small unit just to focus on this. Traditionally, Dial used a lot of R&D to generate all the product concepts and then the company took those to the market. Starting some time in early 2000 to 2001, Dial started looking outside. Not only did the company have customers coming up with new products or ideas about improvement of products, it also found independent inventors who had some neat ideas.
Dial started thinking about tapping into that pool of talented people. The company held an invention contest to discover interesting ideas; it set up a website through which inventors could publish their ideas. Dial identified the best ideas and gave them awards, and in doing so, it created a community of inventors who considered Dial to be one of the main innovation portals. Anytime these inventors had some interesting ideas that related to Dial’s broad market, they would first reach out to Dial. By following this approach, the company was able to generate five to 10 ideas that made it into the product pipeline. Some of them are on the verge of getting out into the market.
The broad outcome, at least from Dial’s perspective, has been to increase the reach of sourcing from just the company’s internal capabilities to inventors around the globe. Since Dial is now part of Henkel Group, a German conglomerate, it holds global contests for inventors. The company can source ideas from any part of the world and find which part of Henkel they would fit in. That is an example of the power of network-centric innovation.
India Knowledge@Wharton: Many companies recognize that collaborating with outsiders can boost innovation, but they don’t know how to go about it. What are the major obstacles to such collaboration? How do firms know if they are prepared for harnessing the power of the global brain?
Nambisan: People have heard well-known examples of collaboration involving companies like IBM, but that may not be applicable to their particular context. So how do you contextualize the power of network-centric innovation? We have put forth a framework for companies to see what kinds of innovation goals they are looking for. Do they have a well-defined problem? Are they are looking for a solution? Or are their innovation goals much broader? It depends on the overall innovation goals and on the controls that you would like to exercise in the innovation process. Positioning your firm in this landscape is the most important challenge for a company.
Once you identify the appropriate innovation network and the role, then you can start looking at what you need in terms of capabilities. Otherwise, you might invest in resources to develop some of these capabilities and discover that this is not the network that is appropriate for your company. The first task is to see what kind of innovation network is suitable for your context and then what kind of role your company should play. Then you can develop capabilities and invest in those capabilities.
India Knowledge@Wharton: Your book describes four models of network-based innovation. What are these models, and how can you identify the right model for your company?
Nambisan: It’s based on a very simple framework where you look at the nature of the innovation space and whether it is well defined or something where the goals are not clear at the beginning, but will emerge over time. The other dimension is how much control you want to exercise. Is it a highly centralized network or is it a much more community-oriented or democratic type of network? Based on those two dimensions, you can come up with four different types of network-based innovation. We gave them names that relate to the entertainment industry. If you look at the business models that Hollywood follows, you’ll see that it has already tried many of the things we see in the business world today.
The first is the “Orchestra” model. The innovation space here is well defined and a dominant firm calls the shots. The Boeing 787 project is one example. Boeing leveraged the design capabilities of its partners’ firms. Boeing shifted from being just a designer of airplanes to a more integrated role where partners actually invest in the products — so they assume the risks as well as share in the rewards of the product. That’s very similar to an orchestra where the conductor is going to decide the flow of the music. There’s also something written down in terms of the music that everybody is supposed to play. The innovation architecture corresponds to the script of the music.
The next model that is much more emergent, but still involves a dominant firm, is the “Creative Bazaar.” That’s where the dominant firm takes the product to the market. The product concept has to be aligned well with the overall market portfolio of the dominant firm. The specific concept or idea can be much more emergent. As in the case of a bazaar, you can go and get relatively raw ideas and then bring them inside and develop them, or you can buy well-baked product concepts and the only thing you would have to do is bring them inside and get them to the market. A whole lot of players are involved in intermediating the transactions between the inventors and the firm.
The “Jam Central” model relates to musical jam sessions. This is where the innovation space is emergent and at the same time there is no one dominant firm; it is a community. As in a jam session, the community members actually share in the responsibility to govern the network, or to manage the flow of the music. There’s a lot of improvisation — nothing is really turned down. That’s how the innovation evolves.
We use the example of the Tropical Disease Initiative, a neat concept that was started by academic scientists who thought that large pharmaceutical firms did not focus on cures to tropical diseases because it was not very profitable. They said that a community of scientists could at least do the pre-commercialization part of the discovery process. A community of scientists makes all the decisions. The specific goals of the project — what kinds of diseases they should focus on — are much more emergent. There’s only a broad guideline that it should be a tropical disease. Depending on the interests of individual members, different projects get initiated, whether it is a cure for Malaria or some other tropical disease. These projects evolve over time. When it reaches a patent stage, non-profit organizations become the channel to take those cures to the market.
The last model, the “MOD (Modification) Station” model, is where the innovation space is well defined, but still there is no dominant firm. It is governed by a community. One of the interesting examples we came across was Sun Microsystems’ OpenSPARC Initiative (www.OpenSPARC.net). SPARC stands for “Scalable Process Architecture” and it is basically Sun’s bread and butter; all its workstations are based on that architecture. Sun put a version of it on the open-source community and allowed people to innovate on that platform. Here is an innovation architecture that is well-defined by one firm, but it gets innovated upon in a community. That community is very diverse, including academic scientists and small niche firms in Europe. The output from that innovation actually belongs to the community, so it’s an open-source license.
Within each of these four models, we identify the different types of roles that companies can play, either as the dominant firms or intermediary roles. It’s not only crucial to identify the model that fits your company, but also what kind of role you will play. Then you can look at what kind of process infrastructure you need to build internally to support that kind of role. You can also look at the IP-related issues and other organizational structures that you might need to implement or establish to support the role that your company plays.
India Knowledge@Wharton: What major challenges might a company face as it moves towards network-centric innovation? For example, in a collaborative setting, who owns the intellectual property that might be developed?
Nambisan: It depends on the context. If you look at the “Orchestra” model, there is much more clarity about who owns what. For example, in Boeing’s 787 project the partner firms own some of the patents and Boeing and the partner firms own some jointly. When you get into other models, like the “Creative Bazaar,” the company would either buy the patent or the license so there are avenues to sharing in the rewards. When you come to the other two models, it depends on the particular context. In Sun’s case, the open-source licenses are well defined and it gives a lot of transparency to the question of who owns what.
In general, the first challenge most organizations face is the ability to let go of control in the innovation process. That is a cultural challenge that some organizations have faced, especially IBM. As companies that have traditionally worked in the “Orchestra” model — where they have control — move toward a much more community-based network-centric innovation context, they are challenged culturally.
The other kinds of challenges are much more process-oriented. Most organizations don’t have a good process infrastructure established to deal with new ideas that come from the outside and get into the product-development pipeline. If you don’t have a good process infrastructure, those ideas could die. Either there are no clear budgets meant for commercializing those ideas or there are no processes to monitor how well those external ideas are acted upon. Organizations need to establish the appropriate process infrastructure. To some extent, we have helped by defining areas where processes would be required.
India Knowledge@Wharton: What leadership and human skills does a company need to succeed in building an innovation network?
Nambisan: You need to first look inside and make sure that you have the right orientation, not just among the senior management but also across the organization. We refer to that as the “mindset challenge.” Are we all okay with the whole notion of participating in external networks? Often, the senior managers might be okay with it, but not the rest of the organization. You must communicate that and provide a broad mental framework for the organization. What are the parameters of collaboration? For example, what kind of collaboration is good and what kind is not really required for the organization? It’s important to make those kinds of things clear and to get the buy-in from the larger organization community. That’s a slow process, but an important step.
When you build a network, whether it is one of individual inventors or a network of companies, the second thing is to have a good trust-based relationship. That doesn’t happen overnight. It takes repeated interactions and transactions for people to have the trust. You need to make sure there is sufficient transparency in all your relationships. For example, most of the people involved in Dial’s business-development network are not lawyers. Inventors are very wary of company lawyers. Small steps like that — getting the right people to interact with inventors — are important initial steps to building a very good trust-based relationship with the community.
Dial also looked at ways to build credibility and trust with the community by going to inventor associations and seeking out their help. You can use all sorts of strategies to make sure that your network members are comfortable with the objectives that are being set and the processes that are being executed with the organization assets. You will make a lot of changes as your project goes along. You need to continuously monitor and get feedback from your partners and make changes in your strategies and processes. You’re definitely not going to get it right the first time.
India Knowledge@Wharton: How can you measure if your company’s efforts at network-based innovation are working well or not?
Nambisan: Measuring success is very important, but you also need to specify your goals. You can measure success at multiple levels — at the network level or at the individual level. For example, IBM measures success by following the health of the community that it partners with. You want to partner with a community that is growing and is healthy in terms of retaining its members. You can also have individual-level measures. For example, Dial counts the number of external ideas that have been converted into products. You need to look outside and identify some metrics that tell you whether you are partnering with the right community or with the right network and whether your relationships with those partners are appropriate. You also look inside and see whether you are benefiting from this partnership in terms of number of ideas or products that have reached the market. Come up with a portfolio of metrics and track them, rather than using only one or two metrics.
India Knowledge@Wharton: We’ve talked about many of the benefits of network-based innovation. Is there any downside? Who loses out as a result of network-centric innovation?
Nambisan: The timeframe for realizing benefits from such networks is not always one or two months; it might be longer. Metrics don’t always tell the story well in the short-term. You might feel that somebody is losing out in the short-term, but the longer-term benefits realized by a partner might be different. IBM is a good example. When it started its partnership with the Linux community in terms of providing programmers and software developers, it took a while for IBM to see the benefits from that partnership. It also depends on the nature of the network. You need to have at least a couple of years to look back and see who lost and who gained.
India Knowledge@Wharton: What implications does network-based innovation have for companies in emerging economies such as India or China? What opportunities do these models create for such firms?
Nambisan: There are a lot of interested consumers in India and China, and interested consumers have lots of ideas for new products. If you’re good at sourcing ideas or innovation from customers, then both India and China offer a lot of opportunities.
Consumers are becoming much more aware of what they really want. There are also a lot of opportunities for niche firms or smaller firms with specialized expertise to play key roles in some of these networks. Wipro Technologies and HCL Technologies are companies that are playing roles in either IBM’s network or Sun’s network. Many of these companies in India have very specialized capabilities and knowledge that they can bring to platform-based networks.
There are also opportunities for intermediation by companies that can identify inventor ideas and take them to interested client firms. Several are coming up in India, including IdeaWicket, an open-innovation portal based in New Delhi. You’ll see more examples in the next couple of years as large companies like Henkel and Procter & Gamble start looking to India for innovative ideas from their customers.
India Knowledge@Wharton: What will network-centric innovation look like in five or 10 years?
Nambisan: Right now we are moving from firm-centric to network-centric innovation. There has been a lot of talk about sourcing innovation from external networks. We are probably going to see this whole notion playing out in the next five to 10 years as companies figure out what kinds of opportunities they can realize from external networks and what they can realize from internal networks. It’s very important to get the right balance between external and internal capabilities, rather than going from one extreme to the other extreme. You will also see a lot of these support institutions like intermediaries — that market will mature and have a lot more players. It will be easier for companies to partner with external networks in the next few years because there will be a much more defined network of companies playing the intermediary role.
The most important point is that we don’t want to get caught up in this whole notion of external networks and go to one extreme. Many companies have that tendency. Internal R&D capabilities are equally important. If you don’t have good R&D capabilities, then you’re not going to be able to exploit the opportunities that lie outside your boundaries.