Wednesday, June 11, 2008

Harnessing the world's collective innovation

Wed, Jun 4, 2008 3:00 PM EST

As GE's chief executive, Jack Welch, one of the pioneers of the boundaryless organization concept, often lamented the struggles he faced getting his company's mindset around the idea of 'global intellect.' Mr. Welch felt strongly that to create new ideas for products and services, GE needed to tap every great mind in the world no matter where it was located.

Today, CEOs in a range of industries face a similar challenge. Faced with declining internal R&D productivity, the need to tap a more diverse range of knowledge in their innovation activities, and new competitors who can quickly commoditize their company's products, many CEOs have begun looking for ways to improve their innovation performance by harnessing sources outside their companies.

Pfizer is a good example of some of the innovation challenges that large R&D-intensive companies face, and the new approach that's emerging. The company has traditionally relied on internally generated innovation to fill its product pipeline. But over the last decade, it has purportedly spent more than $500 billion in internal R&D to produce only nine new drugs.

Faced with declining internal research productivity and a lacklustre product pipeline, the company opened its innovation processes by partnering with small pharma and biotech firms with innovative ideas. It's even established its own innovation incubator to nurture some of its partner biotech startups.

The same thing is occurring in other industries. IBM's experience shows that it's become increasingly difficult for even the largest companies to go it alone in today's highly competitive, globally integrated marketplace. To generate new ideas, IBM, a company with eight major research facilities and 32,000 scientists, has begun setting up 'co-laboratories' with countries, companies and independent research outfits.

This, of course, runs counter to the conventional wisdom that innovation should be kept close to home and jealously guarded, and that exposing a company's innovation activities to outside organizations is likely to result in a loss of control and an erosion of competitive advantage.

The Global Brain by Satish Nambisan and Mohanbir Sawhney, respectively professors in the Lally School of Management at Rensselaer Polytechnic Institute and Kellogg School of Management at Northwestern University, explores this rapidly evolving innovation landscape and documents the shift taking place from internally focused innovation to innovation based on external networks that constitute the 'global brain.'

This book is an excellent resource for CEOs and managers looking for ways to enhance their company's innovation performance. The authors provide a useful roadmap for creating and participating in innovation networks, and for helping companies fit the opportunities for external collaboration to their specific business contexts.

In particular, they provide four different innovation network models and describe for each the organizational capabilities needed; the key governance issues to be addressed; the benefits to be expected; the risks to be managed; the various approaches to intellectual property protection and how to measure success. There's also an excellent discussion of various web-based tools and platforms used to create and manage innovation networks.

The book is full of examples of how companies have tapped the global brain, such as Procter and Gamble's 'Connect and Develop' initiative in which the company invites individual inventors to submit patented product or technology ideas for potential commercialization. It's a practice also engaged in by a range of other consumer product companies like Kraft, Kimberly-Clark and Dial.

The book also highlights the important role of electronic marketplaces like NineSigma, which describes itself as the largest and most comprehensive open network of scientific researchers in the world, and which has been used by companies like 3M, Unilever, Dupont and Xerox to solve scientific problems.

Some of the examples are instructive in ways not necessarily intended by the authors, however, and which they may ultimately regret using. One of these is the Boeing 787 Dreamliner project. Highly touted by Mr. Nambisan and Mr. Sawhney as a story of "innovating in the innovation industry," it may be better used to highlight some of the risks involved in large-scale global innovation projects.

For the 787, Boeing abandoned it traditional 'build-to-print' model, which provided the designs for its suppliers. Instead, it adopted a radical business model built around a network of global partners who had the responsibility to both design and build parts of the aircraft. In this model, which was supposed to cut development times by 33 to 50 per cent and costs by 50 per cent, Boeing was responsible for only the design and development of around 35 per cent of the plane.

The Dreamliner, however, has become a bit of a nightmare, with numerous quality control problems, technical glitches, missed deadlines and delivery times, parts that don't fit and the inability of suppliers to meet Boeing's exacting technological demands. Based on this experience, Boeing is considering returning to their original production model.

The book also has an excellent chapter titled "Globalizing Network Centric Innovation: The Dragon and the Tiger," which looks at the important roles India and China play in the external innovation networks of companies. With a growing supply of scientific, engineering and technical talent and sophisticated consumers, these countries have become important innovation hubs and a significant source of new ideas, products and technologies.

Numerous surveys in recent years have indicated that a large majority of CEOs believe that innovation will be the major driver of future growth. This book provides very useful insights into the shift taking place in how companies view the innovation process, and the role that external collaboration plays.

Micheal J. Kelly is dean and professor of strategic and international management at the University of Ottawa's Telfer School of Management.

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