Thursday, August 17, 2006

Open Innovation Blueprint: Commandment 8

This continues my on-going blog on mapping out a blueprint for implementing Open Innovation. The first entry in this series talked about the framework I am using to analyze this question, the Ten Commandments of Change Management. Open Innovation is a big change, and therefore requires a change management program. In today's blog, I'll cover the eigth element of the framework:

8. Develop enabling structures
Enabling structures include policies, new roles, processes, etc. needed to run Open Innovation. You should plan to introduce these structures as you build toward running your Open Innovation system in the steady state.

Policies – P&G says all technology becomes available outside of P&G after 3-5 years. Likewise, for external scouting, they aim to have 50% come from outside.

Roles – The CIO’s full-time staff includes Technology Brokers and their research aids. Make the brokers responsible for both scouting and marketing since, as P&G says, “Often, we find that the most profitable arrangements are ones where we both license to and license from the same company.” (HBR p. 8) The CIO’s dotted-line reports include an innovation manager from each business unit as well as legal support for transactions. Have the business unit staff a Quality Assurance function to evaluate in-bound technology. QA will not typically be the same people as your senior scientists and engineers who need to integrate and continue to invent technology for internal and external application.

Process – There’s a lot to the processes for Technology Scouting and Technology Marketing, contact me if you’d like to talk in more detail. At a high level, Technology Scouting starts with understanding market and technology trends and the needs arising from them. From there, search your own company’s technology for solutions that provide the desired set of benefits. Continue the search externally until a suitable match is found. For Technology Marketing, begin by articulating the benefits of each technology in the portfolio. Devote a fixed amount of time to searching for evidence of the need for those benefits in different markets. At each stage of these processes, you must prioritize the opportunities and if you run into a brick wall, work on re-articulating the benefits and re-searching. For Innovation Roadmapping, there are many good tools and strategies that borrow from “Seeing What’s Next” by Clayton Christensen.

Budgeting – Technology Brokers need to have a lot of leeway if they’re supposed to be out doing deals with other companies. You don’t want them to lose a negotiation because your company’s budget cycle isn’t for another month.

Reward Structure – It’s tempting to reward based on the number of in-bound deals, but that misses the point. According to P&G’s experience, the best way is to reward for speed to market. Give R&D people their ordinary bonus, no matter the source of the technologies they apply. But give an extra bonus if they can get a product done in half the time. For Technology Marketing, consider replacing a bonus based on the number of patents to a bonus based on the number of uses of the technology internally or the revenues from licensing it externally. Another consideration is how much time researchers spend with your customers as IBM does with its First of a Kind (FOAK) projects. A more general point is to reward your R&D people for getting out of the technology to enrich their understanding of the market’s problem and adapting the technology to work well at fulfilling the customer need.

Measurement Systems – According to a recent study by BCG (“Innovation 2006” and “Measuring Innovation 2006”), most companies struggle with measuring innovation performance. The measurements that are seen as the most useful are: Time to market, new product sales, and Innovation ROI. I’d like to thank Steve Winters for letting me know about this study.

I'll mention again, in the spirit of being open, all of these ideas are open for discussion, so please share your thoughts!

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