Organizations find value in opening R&D to an online community.
The advent of the Internet age has allowed organizations large and small to reach out beyond their own research and development departments to innovators all over the globe.
Opening R&D to online communities is “a way of using collaborative networking techniques to solve complex problems that otherwise would require abilities not within your core competencies as a company, or require specialty skills beyond the scope of the company’s resources,” says Dave Torp, vice president of standards and technology for IPC in Bannockburn, Ill.
The growing interest in opening innovation to an online community appears to parallel a willingness on the part of CEOs to look outside their own companies for innovation, says Shauzab Ladha, IBM Global Business Services strategy leader with IBM in Cambridge, Mass, referring to the findings of the IBM Global CEO Study 2006. “We conducted in-depth consultative interviews with more than 750 CEOs/leaders, and the findings were quite compelling,” he says. “Only 14 percent of CEOs ranked internal R&D as the source of new ideas.” By comparison, he adds, the study found that in terms of driving innovation, 76 percent of CEOs ranked business partner and cluster collaboration as top sources for new ideas.
Companies look externally for innovation because, in many cases, that’s where the freshest ideas lie. Take Eli Lilly, which launched InnoCentive.com about a decade ago, for example. The site allows the Indianapolis-based company’s corporate clients, or “solution seekers,” to post scientific and technical problems online, explains Michael J. Tomczyk, managing director of the Mack Center for Technological Innovation at The Wharton School in Philadelphia. The solution seekers pay a reward—from $5,000 to $1 million—for what they deem the best solution.
“One of the lessons the founders of InnoCentive learned is that often in a very tight-knit industry, such as the chemical industry, everyone thinks they know everyone who might have a solution,” Tomczyk says. “But when they put a problem online for the entire world to work on, a surprising result is that solutions often come from outside the industry.”
One company’s experience
Dallas-based software firm TDI leveraged an online community of innovators to satisfy a product improvement request from clients. TDI builds console management security software used by the National Security Agency, CIA, and 3,200 banks, insurance companies, health care companies and financial institutions.
Many companies provide software to protect servers, routers and phone systems against intrusion. But the primary threat is not from external sources, but from internal intrusion by disgruntled employees, explains Jay Valentine, vice president of sales and marketing of TDI. As a result, TDI developed ConsoleWorks software to allow companies to maintain continual connectivity, ensuring they’re protected even when off network.
Customers, however, eventually wanted the same protection in the virtual world as the software provided in the physical world. Such protection would guarantee that even if applications running payroll, energy management or any other operational task were disaggregated from the hardware running them, they would not be vulnerable to hacking by unhappy employees.
TDI turned the problem over to an online community of ConsoleWorks’ end-users. “They worked with us on a daily basis online for a year,” Valentine says. “We put some of our customers who were working on this into contact with each other. We would come up with a feature that could be implemented three ways, and put together a conference call where the customers as a group could decide what design for that feature worked best. Much to our surprise, during those conference calls, people would raise issues about other features, and then collaborate to improve those.”
Perhaps the best dividend in this instance of online collaboration is that the end-users who collaborated online to develop the new software, called Virtualization Manager, have became the most enthusiastic customers of the improved software, Valentine says. He calls them “referenceable, monster customers who have already bought into it—because they helped build it.”
Creating a knowledge marketplace
Manufacturers interested in fully utilizing online R&D already have an ally in Cleveland-based innovation exchange network NineSigma, says President and CEO Paul Stiros.
NineSigma clients purchase innovation provided by what Stiros terms “solution providers,” who may be academicians, publicly funded research institutions, start-up companies, large established companies or even private inventors. NineSigma compiles the problems its buyers need solved, and puts them online at www.ninesigma.com for solution providers’ consideration.
“[Solution providers] can decide to participate by submitting a proposal,” Stiros says. “The buyer looks over the proposal and decides whether they want to form a relationship with the service provider.”
The solution providers do not pay NineSigma, or anyone else, to participate in the process. The company’s revenues flow from the companies buying the innovation or technology.
The pros and cons
One of the biggest advantages of opening R&D to an online community is the ability to access resources worldwide. That includes the growing community of engineers in developing countries like India and China, Tomczyk says.
Companies utilizing open R&D may save on costs, says Henry Chesbrough, executive director of the Center for Open Innovation at the Haas School of Business, University of California Berkeley, Berkeley, Calif. When companies undertake all R&D on their own, they pay for both what works and what doesn’t. By collaborating with an online community of innovators, companies pay only for what works, he says.
By opening R&D to an online community, companies also share the risk of success and failure. Just as a mutual fund spreads an investor’s risk across many stocks, a portfolio of technology initiatives lets organizations spend the same money but spread the risk across more initiatives, Chesbrough explains.
There are also potential negatives. A company that publicly seeks a solution to a research problem may be revealing an area of technological investigation and strategy to competitors, Tomczyk says. “There is also the problem of ‘intellectual property leakage,’ if trade secrets or patents are transferred to other companies, countries or markets,” he says.
In that vein is the question of who owns the rights to intellectual property. “If I’m the customer and you’re the supplier, do I own it because I contracted with you, or do you as the supplier own it because you created it?” Chesbrough says.
Another downside of online collaboration is what Chesbrough calls “the not-invented-here syndrome.” An organization’s strong internal R&D staff may reject external ideas, both because they question the rigor of others’ work and because they desire credit for creating new technologies themselves.
The future of outsourcing R&D
In the future, all R&D will involve an online component, including community and platforms developed to optimize collaboration, Tomczyk says. Some platforms have been slow to develop, based on delays in the evolution of bandwidth. Wireless telecom, Tomczyk says, has a long way to go to achieve smooth, seamless integration of the Internet with mobile phones, especially on a worldwide basis.
“The perfect ergonomic device for integrating telecom and computing with other applications has yet to be invented, in my opinion,” he says.
Ladha says as firms become “more globally integrated in this flattening world,” those likely to achieve success will be the ones collaborating with their ecosystem, which will include among others business partners, the R&D community, academia, and governmental and non-governmental entities.
