Connecting the Dots in Idea Markets: A Study of Inventor Diversity and its Implications for Idea Development

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A Master's Thesis from Copenhagen Business School on innovation management in Novozymes A/S.

This thesis examines the abilities of online idea markets to support idea generation and screening in the fuzzy front-end of the innovation process. Idea markets – spun out from the present digital revolution – is a growing phenomenon that may have potential to facilitate innovation, greater participation, development of knowledge, and increased diversity. The proliferation of interconnectivity of diverse and geographically dispersed individuals enabled by the refinement of the Internet is hypothesized to offer opportunities for the development of creative and novel ideas. Due to the embryonic stage of the idea market concept, further research is considered relevant for both practitioners and scholars. This thesis thus attempts to provide empirical evidence of the implications of diversity for the development of ideas. The research is embedded in a case study of Novozymes A/S (NZ) – a leading biotechnology company in the industrial enzyme industry – and an idea market conducted in the fall of 2011. For the analysis in this thesis, I use statistical measures of quantitative data collected from (i) the external consultancy firm NOSCO who specializes in idea markets, (ii) the HR department in NZ, and (iii) the Screen Team in NZ. The findings from the analysis support the hypothesis that the quality of ideas emerging from online idea markets increase with the diversity of inventors involved in developing the ideas. This finding may support NZ and other organizations when designing forthcoming idea markets. Furthermore, to support the notion of combinatorial innovation, one could argue that idea markets facilitate new connections of skills and disciplines by engaging a diverse crowd of participants. By implementing the idea market tool in NZ, R&D Management was able to mobilize and connect a large crowd of organizational members, provide a channel that could leverage ideas, and increase the quality of go/kill decisions in the idea screening process. The fact that NZ has scheduled nine other idea markets in 2012 is considered an indicator of the success of the tool.

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Connecting the Dots in Idea Markets: A Study of Inventor Diversity and its Implications for Idea Development

  1. 1. Connecting the Dots in Idea Markets A Study of Inventor Diversity and its Implications for Idea Development Copenhagen Business School Cand. merc. (SOL) Strategy, Organization, and Leadership September 2012 Maria Carlsen Advisor: Prof. Finn Valentin Dept. of Innovation and Organizational Economics Std. Pages: 79.9 (STUs: 181.791)
  2. 2. Executive Summary This% thesis% examines% the% abili.es% of% online% idea% markets% to% support% idea% genera.on% and% screening%in%the%fuzzy%front:end%of%the%innova.on%process.%Idea%markets%–%spun%out%from%the% present% digital% revolu.on% –% is% a% growing% phenomenon% that% may% have% poten.al% to% facilitate% innova.on,% greater% par.cipa.on,% development% of% knowledge,% and% increased% diversity.% The% prolifera.on%of%interconnec.vity%of%diverse%and%geographically%dispersed%individuals%enabled% by%the%refinement%of%the%Internet%is%hypothesized%to%offer%opportuni.es%for%the%development% of%crea.ve%and%novel%ideas.%Due%to%the%embryonic%stage%of%the%idea%market%concept,%further% research%is%considered%relevant%for%both%prac..oners%and%scholars.%This%thesis%thus%aDempts% to%provide%empirical%evidence%of%the%implica.ons%of%diversity%for%the%development%of%ideas.% The%research%is%embedded%in%a%case%study%of%Novozymes%A/S%(NZ)%–%a%leading%biotechnology% company%in%the%industrial%enzyme%industry%–%and%an%idea%market%conducted%in%the%fall%of%2011.% For%the%analysis%in%this%thesis,%I%use%sta.s.cal%measures%of%quan.ta.ve%data%collected%from%(i)% the%external%consultancy%firm%NOSCO%that%specializes%in%idea%markets,%(ii)%the%HR%department% in%NZ,%and%(iii)%the%Screen%Team%in%NZ.%The%findings%from%the%analysis%support%the%hypothesis% that% the% quality% of% ideas% emerging% from% online% idea% markets% increase% with% the% diversity% of% inventors% involved% in% developing% the% ideas.% This% finding% may% support% NZ% and% other% organiza.ons%when%designing%forthcoming%idea%markets.%Furthermore,%to%support%the%no.on% of%combinatorial%innova.on,%one%could%argue%that%idea%markets%facilitate%new%connec.ons%of% skills%and%disciplines%by%engaging%a%diverse%crowd%of%par.cipants.% %By%implemen.ng%the%idea% market% tool% in% NZ,% R&D% Management% was% able% to% mobilize% and% connect% a% large% crowd% of% organiza.onal%members,%provide%a%channel%that%could%leverage%ideas,%and%increase%the%quality% of%go/kill%decisions%in%the%idea%screening%process.%The%fact%that%NZ%has%scheduled%nine%other% idea%markets%in%2012%is%considered%an%indicator%of%the%success%of%the%tool.%% % % % % %
  3. 3. Acknowledgements The author would like to thank the Three Wise Men for the contributions to this thesis. Professor Finn Valentin, CBS Thank you for immeasurable guidance and for enabling me to develop and broaden analytical skills. Frank Hatzack, Senior Innovation Manger at Novozymes Thank you for encouragement and inspiration. Your drive and passion for biotech innovation has been the building blocks for this thesis. Giancarlo Lauto, Research Fellow at CBS Thank you for showing me that statistics can be fun. It has been rewarding to work with you.
  4. 4. ! 1! Table of Contents List%of%Figures%and%Tables%............................................................................................................................%4% 1.%Introduction%........................................................%6! 1.1%Problem%Statement%............................................................................................................................%8! 1.2%Research%Relevance%...........................................................................................................................%8! 1.3%Disposition%.........................................................................................................................................%10! 2.%Literature%Review%..........................................%12! 2.1%What%is%Innovation?%........................................................................................................................%12! 2.2%Knowledge:%the%Source%of%Innovation%.......................................................................................%14! 2.3%The%Fuzzy%FrontLEnd%of%the%Innovation%Process%...................................................................%16! 2.3.1!Idea!Generation!and!Online!Opportunities!.....................................................................................!17! 2.3.2!Quality!of!Ideas!............................................................................................................................................!19! 2.4%Crowdsourcing%Ideas%......................................................................................................................%21! 2.4.1!Idea!Markets!.................................................................................................................................................!23! 2.5%The%Implications%of%Diversity%......................................................................................................%25! 2.5.1!Geographical!Diversity!.............................................................................................................................!28! Hypothesis!1!..........................................................................................................................................................................!28! 2.5.2!Functional!Diversity!..................................................................................................................................!29! Hypothesis!2!..........................................................................................................................................................................!29! 2.5.3!Hierarchical!Diversity!...............................................................................................................................!30! Hypothesis!3!..........................................................................................................................................................................!30! 2.5.4!Tenure!Diversity!.........................................................................................................................................!30! Hypothesis!4!..........................................................................................................................................................................!31! 2.5.5!Diversity!Aggregated!across!Multiple!Dimensions!......................................................................!31! Hypothesis!5!..........................................................................................................................................................................!31! 2.6%Research%Gap%.....................................................................................................................................%31! 3.%Company%and%Case%Profile%...........................%34! 3.1%Novozymes%in%Brief%.........................................................................................................................%34! 3.2%The%Innovation%Office%.....................................................................................................................%35!
  5. 5. ! 2! 3.3%Growth%Bets%2011%............................................................................................................................%36! 3.3.1!Rules!of!the!Game!.......................................................................................................................................!37! 3.3.1.1!Mobilize!People!.....................................................................................................................................................!38! 3.3.1.2!Conceive!Ideas!.......................................................................................................................................................!38! 3.3.1.3!Screen!Ideas!............................................................................................................................................................!40! 3.3.1.4!Mature!Ideas!...........................................................................................................................................................!41! 3.3.1.5!Pitch!and!feedback!from!R&D!Management!.............................................................................................!41! 3.3.1.6!Reflection!.................................................................................................................................................................!41! 4.%Methodology%....................................................%46! 4.1%Research%Philosophy%......................................................................................................................%46! 4.2%Research%Approach%and%Design%..................................................................................................%47! 4.3%Data%Collection%..................................................................................................................................%49! 4.3.1!Qualitative!data!...........................................................................................................................................!50! 4.3.2!Quantitative!data!........................................................................................................................................!50! 4.3.2.1!Dependent!variable!.............................................................................................................................................!51! 4.3.2.2!Independent!variables!.......................................................................................................................................!52! 4.3.2.3!A!twoSfold!examination!of!diversity!............................................................................................................!53! 4.4%Limitations%.........................................................................................................................................%53! 5.%Analysis%.............................................................%56! 5.1%Analysis%Part%I:%Patterns%of%Performance%and%Participation%.............................................%56! 5.1.1!The!Output!From!GB11!............................................................................................................................!57! 5.1.2!Idea!Characteristics!...................................................................................................................................!58! 5.1.3!Comment!Characteristics!........................................................................................................................!61! 5.1.4!Participant!Characteristics!.....................................................................................................................!62! 5.1.5!Conclusion!to!Analysis!Part!I!.................................................................................................................!66! 5.2%Analysis%Part%II:%The%Implications%of%Diversity%......................................................................%68! 5.2.1!Idea!Inventors!..............................................................................................................................................!68! 5.2.1.1!Geographical!diversity!of!inventors!.............................................................................................................!70! 5.2.1.2!Functional!diversity!of!inventors!..................................................................................................................!70! 5.2.1.3!Hierarchical!diversity!of!inventors!...............................................................................................................!71! 5.2.1.4!Tenure!diversity!of!inventors!.........................................................................................................................!72! 5.2.1.5!Conclusion!to!diversity!of!inventors!............................................................................................................!73! 5.2.2!Commentators!.............................................................................................................................................!74!
  6. 6. ! 3! 5.2.2.1!Geographical!diversity!of!commentators!...................................................................................................!75! 5.2.2.2!Functional!diversity!of!commentators!........................................................................................................!76! 5.2.2.3!Hierarchical!diversity!of!commentators!....................................................................................................!77! 5.2.2.4!Tenure!diversity!of!commentators!...............................................................................................................!78! 5.2.2.5!Conclusion!to!diversity!of!commentators!..................................................................................................!79! 5.2.3!Diversity!Aggregated!across!Multiple!Dimensions!......................................................................!79! 5.2.3.1!Idea!inventors!........................................................................................................................................................!80! 5.2.3.2!Commentators!.......................................................................................................................................................!82! 5.2.4!Conclusion!to!Analysis!Part!II!...............................................................................................................!83! 6.%Discussion%.........................................................%86! 6.1%Igniting%the%Sparks%in%the%Crowd%................................................................................................%86! 6.2%New%Combinations%..........................................................................................................................%90! 6.3%The%Strength%of%Diversity%..............................................................................................................%91! 7.%Connecting%the%Dots%......................................%97! 7.1%Conclusion%..........................................................................................................................................%97! 7.2%Further%Perspectives%......................................................................................................................%98! Bibliography%.......................................................%100! Articles%and%Books%...............................................................................................................................%100! TED%Talks%...............................................................................................................................................%104! Appendices%.........................................................%105! Appendix%I:%Survey%..............................................................................................................................%105! Appendix%II:%Distribution%of%No.%of%inventors%.............................................................................%112! ! ! !
  7. 7. ! 4! List of Figures and Tables ! FIGURE!1:!DISPOSITION!OF!THESIS!....................................................................................................................................!10! FIGURE!2:!GB11!PROCESS!..................................................................................................................................................!37! FIGURE!3:!IDEAS!WITH!MULTIPLE!VS.!SINGLE!INVENTORS!............................................................................................!69! FIGURE!4:!IDEAS!WITHOUT!VS.!WITH!COMMENTS!..........................................................................................................!74! FIGURE!5:!DIVERSITY!SCALE!...............................................................................................................................................!80! FIGURE!6:!DIVERSITY!SCORES!OF!IDEA!INVENTORS!........................................................................................................!81! FIGURE!7:!DIVERSITY!SCORES!OF!COMMENTATORS!.......................................................................................................!82! ! TABLE!1!S!DESIGN!OF!GB11!...............................................................................................................................................!43! TABLE!2!–!PARTICIPANTS,!IDEAS,!AND!COMMENTS!IN!THE!DATASET!.........................................................................!57! TABLE!3!–!DESCRIPTIVE!STATISTICS!OF!OUTPUT!FROM!PARTICIPANTS!.....................................................................!57! TABLE!4!–!DISTRIBUTION!OF!CATEGORIES!OF!IDEAS!.....................................................................................................!59! TABLE!5!–!DEPTH!OF!IDEAS!................................................................................................................................................!60! TABLE!6!S!COMMENT!CATEGORIZATION!...........................................................................................................................!61! TABLE!7!S!DISTRIBUTION!OF!GENDER!OF!PARTICIPANTS!..............................................................................................!63! TABLE!8!S!DISTRIBUTION!OF!SITES!OF!PARTICIPANTS!I!.................................................................................................!64! TABLE!9!S!DISTRIBUTION!OF!SITES!OF!PARTICIPANTS!II!...............................................................................................!64! TABLE!10!–!DISTRIBUTION!OF!RANKS!OF!PARTICIPANTS!.............................................................................................!65! TABLE!11!–!DISTRIBUTION!OF!SENIORITY!OF!PARTICIPANTS!......................................................................................!66! TABLE!12!–!DISTRIBUTION!OF!IDEAS!WITH!SINGLE!VS.!MULTIPLE!INVENTORS!........................................................!69! TABLE!13!–!DIVERSITY!OF!INVENTORS:!SITE!..................................................................................................................!70! TABLE!14!–!DIVERSITY!OF!INVENTORS:!DEPARTMENTS!...............................................................................................!71! TABLE!15!–!DIVERSITY!OF!INVENTORS:!RANK!................................................................................................................!72! TABLE!16!–!DIVERSITY!OF!INVENTORS:!SENIORITY!.......................................................................................................!73! TABLE!17!–!IDEAS!WITH!VS.!WITHOUT!COMMENTS!.......................................................................................................!75! TABLE!18!–!DIVERSITY!OF!COMMENTATORS:!SITE!........................................................................................................!76! TABLE!19!–!DIVERSITY!OF!COMMENTATORS:!DEPARTMENTS!.....................................................................................!76! TABLE!20!–!DIVERSITY!OF!COMMENTATORS:!RANK!......................................................................................................!77! TABLE!21!–!DIVERSITY!OF!COMMENTATORS:!SENIORITY!.............................................................................................!78! TABLE!22!–!DIVERSITY!SCORES!OF!IDEA!INVENTORS!....................................................................................................!81! TABLE!23!–!DIVERSITY!SCORES!OF!COMMENTATORS!....................................................................................................!82! !
  8. 8. ! 5! ! ! ! ! ! ! ! ! ! “Innovation is all about making new connections. Most breakthrough innovation is about combining known knowledge in new ways or bringing an idea from one domain to another”. – Mike Addison, New Business Development Manager, Procter & Gamble ! ! ! ! ! ! ! ! ! ! ! ! Chapter 1 Introduction
  9. 9. ! 6! 1. Introduction The!digital!revolution!is!opening!the!world!making!knowledge!widely!accessible.!It!is! only!a!few!hundred!years!ago!that!society!was!revolutionized!by!the!printing!press!that! gave! us! access! to! new! knowledge.! Today,! the! Internet! has! revolutionized! society! enabling!us!to!not!only!get!access!to!knowledge!but!to!be!the!producer!of!knowledge.! Moreover,!“The!Internet!of!yesterday!was!a!platform!for!the!presentation!of!content.!The! Internet!of!today!is!a!platform!for!computation”! (TED! Talk:! Don! Tapscott,! 2012).! The! connectivity!of!people!in!the!online!sphere!enables!heterogeneous!groups!to!share!and! collectively! develop! ideas! through! virtual! communities! of! interaction.! The! world! has! indeed! become! smaller! and! the! business! environment! more! complex! and! ambiguous.! The!vast!technological!advancements!and!developments!in!communication!technology! have!caused!organizational!boundaries!to!become!more!porous!and!fluid;!giving!rise!to! concepts!such!as!open!innovation!and!crowdsourcing.!! ! The!notion!of!combinatorial!innovation!derived!from!Schumpeter!(1939)!refers!to!the! acknowledgement!that!innovation!is!in!essence!‘new!combinations’.!As!argued!by!Mike! Addison,!“Innovation!is!all!about!making!new!connections.!Most!breakthrough!innovation! is!about!combining!known!knowledge!in!new!ways!or!bringing!an!idea!from!one!domain!to! another.”!(Dodgson,!et!al.,!2006:337).!Innovation!is!increasingly!being!recognized!as!the! primary! source! from! which! organizations! gain! and! maintain! competitiveness.! Making! the!‘right’!go/kill!decisions!early!on!in!the!‘fuzzy!frontSend’!of!the!innovation!process!is! rewarding!albeit!challenging.!Practitioners!continue!to!emphasize!the!need!for!creativity! and! innovation! however! as! argued! by! McAdam! and! McClelland! (2002:86),! “[…]! the! literature!and!organizational!practice![…]!remain!somewhat!lacking!in!regard!to!the!front! end! of! creativity! and! innovation,! namely! idea! generation.”! It! is! therefore! necessary! to! draw! attention! to! the! conditions! under! which! ideas! are! developed! and! look! at! the! reflective! people! who! take! part! in! their! development.! I! thus! wish! to! provide! further! insights! of! the! idea! generation! process! and! the! opportunities! offered! by! the! digital! revolution.!! !
  10. 10. ! 7! An!effort!to!support!idea!generation!by!means!of!an!online!tool!was!recently!explored!in! the!Research!&!Development!organization!(R&D)!in!Novozymes!A/S!(NZ).!NZ,!being!the! world!leader!in!industrial!enzymes,!found!resting!on!the!laurels!highly!unfeasible.!To! boost! the! enzyme! business! in! NZ,! the! Innovation! Office! experimented! with! an! idea! market.!An!idea!market!is!an!online!competition!used!for!idea!brainstorming!and!idea! ranking.! R&D! employees! from! around! the! world! were! invited! to! participate! in! a! 17S daysSlong!idea!market!in!which!it!was!possible!to!submit!ideas,!mature!each!other’s!idea! by!commenting!on!them,!and!rank!ideas!by!trading!virtual!shares!in!them.!The!outcome! from!the!idea!market,!which!was!given!the!name!Growth!Bets!2011,!was!222!ideas!with! 636!comments!submitted!by!a!crowd!of!145!participants.!As!a!result,!25!highSquality! ideas!were!identified!from!which!one!idea!was!crowned!the!winner.!The!winning!idea! has!subsequently!received!research!funding!and!two!patent!applications!have!been!filed.!! ! The!growing!phenomenon!of!online!idea!markets!is!considered!to!facilitate!innovation,! greater! participation,! production! and! dissemination! of! knowledge,! and! increased! diversity!(Bothos!et!al.,!2012).!In!this!thesis,!I!shall!thus!examine!the!case!of!NZ’s!idea! market!and!explore!the!conditions!under!which!ideas!emerge.!Moreover,!I!shall!examine! the!diversity!of!people!involved!in!developing!the!ideas!as!theory!suggests!that!diversity! is!positively!associated!with!creativity!and!innovation!(BassettSJones,!2005).!I!therefore! hypothesize!that!the!connectivity!of!diverse!people!in!idea!markets!contributes!to!the! development!of!creative!and!innovative!ideas.!! ! !
  11. 11. ! 8! 1.1 Problem Statement The!present!thesis!studies!the!abilities!of!idea!markets!as!a!tool!for!idea!generation!and! filtering.!As!argued!by!a!number!of!scholars,!the!body!of!literature!on!the!fuzzy!frontSend! of!the!innovation!process!is!far!from!exhaustive.!!The!purpose!of!this!thesis!is!therefore! to! contribute! to! the! existing! literature! with! empirical! evidence! from! the! case! of! NZ’s! Growth!Bets!2011.!The!exploratory!nature!of!the!research!has!led!to!an!investigation!of! the!effects!of!inventor!diversity!on!the!development!of!ideas.!The!question!examined!is! thus:! ! Does%the%quality1%of%ideas%emerging%from%online%idea%markets%increase%with%the% diversity%of%inventors%involved%in%developing%the%ideas?% ! 1.2 Research Relevance As!I!stumbled!upon!a!quote!by!Poul!R.!Rasmussen!(Chairman!of!the!Board,!LEO!Pharma),! I!recognize!the!unique!opportunity!I!had!been!given!as!a!researcher.!The!quote!read,! “The!strength!of!today!is!diversity.”!(Dansk!Biotek,!2012:50).!The!Eureka!moment!was! obtained!by!the!recognition!that!I!had!been!provided!an!opportunity!to!‘measure’!the! strength!of!diversity.!The!opportunity!was!given!to!me!by!NZ!who!searched!for!further! enlightenment!on!the!strengths!and!weaknesses!of!using!idea!markets!to!support!the! idea!generation!process.!When!reviewing!the!literature!on!idea!markets,!it!became!clear! that!it!was!an!understudied!phenomenon.!Given!these!insights,!I!set!out!to!connect!the! dots!in!idea!markets!and!thereby!attempt!to!contribute!to!existing!theory!with!empirical! evidence! from! NZ’s! Growth! Bets! 2011.! The! relevance! of! the! research! is! therefore! considered!abundant.!Firstly,!the!research!is!relevant!for!NZ!in!their!forthcoming!idea! markets!so!that!they!are!able!to!customize!and!design!the!basis!for!the!desired!outcome.!!! Secondly,! the! research! is! relevant! to! existing! innovation! theory! that! emphasizes! the! combinatorial!nature!of!the!concept;!however!fails!to!provide!details!as!to!how!these! new!combinations!emerge!and!develop!in!the!fuzzy!frontSend!of!the!innovation!process.! Lastly,!this!thesis!is!the!culmination!of!five!years!of!studying!at!Copenhagen!Business! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1!The!concept!of!quality!will!be!defined!in!the!Literature!Review.!
  12. 12. ! 9! School.!During!these!years,!I!have!obtained!knowledge!of!and!interest!in!organizations! and! their! pursuit! and! management! of! innovation.! Moreover,! by! studying! the! SOL! (Strategy,!Organization,!&!Leadership)!programme!as!well!as!the!BBIP!(BioBusiness!and! Innovation!programme),!I!am!convinced!that!I!am!well!equipped!for!the!task!at!hand! and!I!shall!therefore!attempt!to!provide!a!dissertation!that!not!only!fulfills!the!formal! requirements,!but!also!provides!valuable!insights!to!the!dynamic!and!innovationSdriven! company,!Novozymes.!
  13. 13. ! 10! 1.3 Disposition The!disposition!of!this!thesis!is!illustrated!in!Figure!1!below:!! ! Figure!1:!Disposition!of!thesis! !
  14. 14. ! 11! ! ! ! ! ! ! ! ! ! “Although ideas are formed in the minds of individuals, interaction between individuals typically plays a critical role in developing these ideas. That is to say, ‘communities of interaction’ contribute to the amplification and development of new knowledge.” – Ikujiro Nonaka, 1994 ! ! ! ! ! ! ! ! ! ! ! Chapter 2 Literature Review
  15. 15. ! 12! 2. Literature Review In!this!chapter,!I!shall!review!the!literature!relevant!to!the!study!of!idea!markets.!I!set! out!to!discuss!innovation!and!knowledge!theories!to!elucidate!some!underlying!concepts! to!the!embryonic!phenomenon!idea!markets.!The!objective!of!this!chapter!is!to!identify!a! research!gap!in!current!theory!in!which!the!present!thesis!aims!to!make!a!contribution.! In! this! effort,! I! review! literature! on! the! topics! of! the! idea! generation! phase,! online! opportunities,!crowdsourcing,!idea!markets,!and!diversity.!By!combining!these!research! fields,!it!is!attempted!to!shed!some!light!on!the!phenomenon!under!scrutiny.!The!reS organizing!of!prevailing!theories!and!claims!from!extant!literature!offers!opportunity!for! new! interpretations! and! thereby! contributions! to! current! theory.! The! notion! of! combinatorial! innovation! is! firstly! discussed! to! present! the! motivating! argument! throughout! the! discussions.! The! thesis! is! then! positioned! in! the! social! constructivist! school!of!thought!by!drawing!on!theory!of!complex!processes!of!knowledge!creation.!The! clarification!of!the!fuzzy!frontFend!of!the!innovation!process!then!leads!to!a!discussion!of! the!opportunities!offered!by!the!growth!of!the!Internet.!In!light!of!this,!discussions!of! crowdsourcing! and! idea! markets! are! provided.! Finally,! the! concept! of! diversity! is! elucidated!and!thereby!five!hypotheses!are!developed.!! 2.1 What is Innovation? Innovation!in!its!widest!sense!is!considered!to!be!anything!that!is!new!to!a!business! (Abernathy!&!Utterback,!1978;!in!Hine!&!Kapeleris,!2006).!The!term!originates!from!the! Latin!innovare,!which!means!‘to!make!something!new’!(Flynn!et!al.,!2003).!To!provide!a! more! narrow! definition! of! innovation,! a! distinction! must! be! drawn! between! an! innovation!and!the!process!of!innovation.!Van!de!Ven!(1986:591)!provides!a!definition!to! the! former! as! “A! new! idea,! which! may! be! a! recombination! of! old! ideas,! a! scheme! that! challenges!the!present!order,!a!formula,!or!a!unique!approach!which!is!perceived!as!new!by! the! individuals! involved”.! The! latter! is! defined! as! “[…]! the! development! and! implementation!of!new!ideas!by!people!who!over!time!engage!in!transactions!with!others! within! an! institutional! context”! (Ibid.:591).! The! definitions! provided! by! Van! de! Ven! (1986)! include! both! technical! (products,! services,! and! processes)! and! nonStechnical!
  16. 16. ! 13! (organizational! processes,! and! administration! systems)! innovations! (in! Hine! &! Kapeleris,! 2006).! According! to! Rothwell! and! Gardiner! (1985)! innovation! does! not! necessarily!imply!the!implementation!of!only!major!advance!in!the!technological!state!of! the! art! (a! radical! innovation);! it! includes! the! utilization! of! even! small! changes! in! technological!‘knowShow’!(an!improvement!or!incremental!innovation)!(in!Flynn!et!al.,! 2003).! This! assertion! is! also! supported! by! Abernathy! &! Clark! (1985:4)! who! state! “Innovation! is! not! a! unified! phenomenon:! some! innovations! disrupt,! destroy! and! make! obsolete!established!competence;!others!refine!and!improve.”! Furthermore,! it! is! argued! that! organizations! must! bestow! a! balanced! attention! to! both! incremental! and! radical! innovation! in! order! to! gain! and! maintain! competitiveness.! That! is! to! say,! they! must! divide!resources!between!exploitation!and!exploration!activities!(March,!1991).!! A!distinction!must!also!be!drawn!between!an!innovation!and!an!invention.!As!the!above! definitions!suggest,!innovation!is!the!successful!implementation!of!inventions.!Hence,!an! invention! is! not! an! innovation! until! it! is! commercialized.! Invention! refers! to! the! development! of! a! new! idea! or! act! of! creation! (Ahuja! &! Lampert,! 2001).! Schumpeter! (1939)! offers! an! interesting! analog! to! the! distinction! between! an! innovation! and! an! invention.!In!his!work!‘Business!Cycles’,!he!compares!the!concept!on!an!invention!with! Columbus’!discovery!of!America.!He!states,!“![…]!both!create!new!possibilities!and!are!no! doubt!among!the!most!important!causes!of!economic!and!social!change.!However!they!are! external!factors!in!a!sense.![…]!They!acquired!relevance!only!when!the!new!possibilities!are! turned!into!commercial!and!industrial!reality,!and!then!the!individual!acts!of!realization,! and!not!the!possibilities!themselves,!are!what!concern!us.”! (Schumpeter,! 1939:15).! The! Schumpeterian! perspective! of! innovation,! from! which! the! concept! of! combinatorial! innovation! has! its! roots,! commonly! inspires! innovation! scholars.! Schumpeter! (1939)! argued! that! innovation! is! in! essence! ‘new! combinations’.! His! definition! is! thus,! “Innovation! combines! factors! in! a! new! way,! or! it! consists! in! carrying! out! New! Combinations.”!(Ibid.:84).!These!combinations!refer!to!the!introduction!of!a!new!product! or!new!quality!of!a!product,!a!new!method!of!production,!a!new!market,!a!new!source!of! supply! of! raw! materials,! or! the! implementing! of! a! new! organization! in! any! industry! (Ibid.:84S85).!His!definition!has!been!criticized!of!being!restricted!to!only!include!the! introduction! of! innovations! –! lacking! the! subsequent! and! consequent! steps! that!
  17. 17. ! 14! constitute! innovations.! According! to! Hagedoorn! (1996),! Schumpeter! did! not! demonstrate! a! great! interest! in! the! early! phases! of! technical! change,! the! inventive! activities! of! economic! actors,! the! preSmarket! developments! of! technology,! or! the! diffusion! of! technological! knowledge.! However,! “[…]! there! seems! to! be! a! number! of! similarities! between! Schumpeter’s! discussion! of! innovation! and! modern! ‘heterodox! theories! of! innovation.’”! (Ibid.:892).! In! line! with! the! Schumpeterian! perspective,! Flemming! and! Sorensen! (2004)! argue! that! invention! is! a! recombinant! search.! An! invention!comes!either!from!combining!technological!components!in!a!novel!manner!or! through!reconfiguring!existing!combinations.!These!technological!components!refer!to! the! “[…]! fundamental! bits! of! knowledge! or! matter! that! inventors! might! use! to! build! inventions.”! (Ibid:.910).! Furthermore,! they! argue! that! even! though! complex! physical! systems!clearly!combine!multiple!elements,!many!inventions!intuitively!seem!like!one! component.!However!by!deeper!examination,!these!inventions!reveal!a!recombination!of! discrete!components!and!processes!(ibid.).! ! The! discussion! of! the! innovation! concept! has! led! to! the! assertion! that! innovation! is! based!on!new!combinations!of!knowledge.!Invention!thus!refers!to!the!search!for!new! combinations!or!the!reconfiguring!of!existing!combinations.!It!then!becomes!pertinent! to!take!a!step!back!and!discuss!how!knowledge!is!created!and!how!the!connectivity!of! individuals!enables!the!development!of!new!combinations!of!knowledge.! ! 2.2 Knowledge: the Source of Innovation It! is! difficult! to! discuss! the! development! of! ideas! without! first! addressing! how! knowledge! is! created! and! developed.! The! knowledge! phenomenon! has! been! widely! researched! among! organization! and! strategy! scholars.! From! the! traditional! resourceS based!perspective,!knowledge!has!been!recognized!as!a!principal!source!for!competitive! advantage! because! knowledge! is! idiosyncratic! and! difficultStoSimitate! (Teece,! et! al.,! 1997;! Winter,! 1987).! In! line! with! this,! Kogut! and! Zander! (1992:384)! argue,! “[…]! the! central! competitive! dimension! of! what! firms! know! how! to! do! is! to! create! and! transfer! knowledge! efficiently! within! an! organizational! context.”! ! The! resourceSbased! view! of!
  18. 18. ! 15! knowledge! triggered! a! vast! amount! of! subsequent! research,! which! built! upon! the! arguments!of!knowledge!creation,!the!notion!of!dynamic!processes.!!!! ! In! the! early! work! by! Hayek! (1945),! organizational! knowledge! is! seen! as! fragmented! units!held!in!individuals.!He!argued,!“[…]!the!knowledge!of!the!circumstances,!of!which!we! must!make!use,!never!exists!in!concentrated!or!integrated!form,!but!solely!as!the!dispersed! bits!of!incomplete!and!frequently!contradictory!knowledge,!which!all!separate!individuals! possess.”!(Hayek,!1945:519).!This!notion!of!fragmented!knowledge!is!further!developed! by!Kogut!and!Zander!(1992:383)!who!assert,!“[…]!knowledge!is!held!by!individuals,!but!is! also! expressed! in! regularities! by! which! members! cooperate! in! a! social! community.”!! Central! to! Kogut! and! Zander’s! (1992:385)! argument! is! that! knowledge! is! socially! constructed!and!“rests!in!the!organizing!of!human!resources”.!! ! In! Nonaka’s! (1994)! organizational! knowledge! creation! theory,! dynamic! processes! are! emphasized.! Nonaka! (1994:15)! argue,! “[…]! although!ideas!are!formed!in!the!minds!of! individuals,! interaction! between! individuals! typically! plays! a! critical! role! in! developing! these!ideas.!That!is!to!say,!‘communities!of!interaction’!contribute!to!the!amplification!and! development!of!new!knowledge.”! ! Nonaka’s! argument! provides! a! further! dimension! to! knowledge! creation! that! involves! the! creation! of! knowledge! by! social! interaction! between! individuals! in! communities! –! communities! that! might! span! departmental! or! organizational!boundaries!(ibid).!In!the!famous!work!‘The!Knowledge!Creating!Company’! by! Nonaka! and! Takeuchi! (1995),!the! essential! contribution! to! theory! is! the! notion! of! knowledge! conversion! that! explains! how! two! diverse! concepts! –! tacit! and! explicit! knowledge!–!interact!along!a!continuum!(Nonaka!&!von!Krogh,!2009).!Their!notions!of! tacit! and! explicit! knowledge! were! inspired! by! Michael! Polanyi! (1966)! who! described! tacit!knowledge!as!subjective!knowledge,!which!is!hard!to!formulate!and!communicate!–! as! he! put! it:! “we! can! know! more! than! we! can! tell.”! ! (Nonaka,! 1994:16).! ! Contrarily,! Polanyi! described! explicit! knowledge! as! objective! codified! knowledge! that! is! transmittable! in! informal! systematic! language! (ibid).! ! Nonaka! and! Takeuchi! (1995)! added! to! Polanyi’s! descriptions,! the! element! of! a! dialectic! process! between! tacit! and! explicit!knowledge.!In!the!dialectic!process!it!is!possible!to!transform!the!subjective!tacit! knowledge!into!objective!explicit!and!thereby!practical!knowledge.!The!transformation!
  19. 19. ! 16! occurs! through! language,! which! renders! it! possible! for! tacit! knowledge,! held! in! the! individual,!to!become!available!to!others!trough!its!transformation.!Stacey!(2001)!built! upon! Nonaka! and! Takeuchi’s! (1995)! notion! of! knowledge! transformation! with! the! concept!of!Complex!Responsive!Processes.!According!to!Stacey,!knowledge!is!not!stored!in! individuals! but! is! continually! in! flux.! He! states,! “Complex! Responsive! Processes! perpetually!construct!human!futures,!particularly![…]!they!perpetually!construct!human! knowledge! in! organizations.! Relating! between! diverse! people! in! their! local! situation! is! understood!as!the!process!in!which!knowledge!is!reproduced!and!potentially!transformed.”! (Stacey,! 2001:6).! The! complexity! perspective! of! knowledge! promoted! by! Nonaka! and! Takeuchi! (1995)! and! Stacey! (2001),! claims! that! social! interaction! of! individuals! reproduces! and! creates! new! knowledge.! The! dynamic! processes! thus! allow! for! the! combination! or! recombination! of! knowledge,! which! is! transformed! from! tacit! into! explicit!knowledge!through!social!communities!of!interaction.!! ! What!are!the!implications!for!idea!markets?!It!is!held!that!idea!markets!offer!a!tool!for! knowledge!conversion.!That!is!to!say,!the!virtual!community!of!interaction!enables!the! articulation! of! tacit! knowledge! and! thereby! transforms! it! into! practical! knowledge.! Moreover,! the! dynamic! processes! of! social! interaction! facilitate! the! amplification! and! development! of! new! knowledge.! This! is! because! idea! market! participants! not! only! submit! ideas;! they! collectively! develop! each! other’s! ideas! through! the! feature! of! commenting.! It! is! thereby! possible! to! transform! and! increase! the! quality! of! ideas! through!a!dialectic!process!of!tacit!and!explicit!knowledge!conversion.!Having!discussed! the!concept!of!knowledge!and!its!implications!for!idea!markets,!the!subsequent!sections! shall!discuss!how!ideas!are!generated,!developed!and!filtered!in!the!preliminary!stages! of!the!innovation!process.!!! ! 2.3 The Fuzzy Front-End of the Innovation Process A! vast! amount! of! innovation! theory! and! practical! tools! are! concerned! with! the! later! stages!of!the!innovation!process.!The!StageSGate!system!(Cooper,!1990)!has!become!the! most! used! innovation! management! tool! in! organizations! worldwide.! While! the! stageS gate! model! of! innovation! does! include! the! idea! generation! phase,! it! fails! to! provide!
  20. 20. ! 17! details! of! how! ideas! are! generated,! developed! and! filtered.! This! argument! is! also! supported!by!Poetz!and!Schreier!(2012:245)!who!state,!“Despite!its!obvious!importance! to!the!ultimate!success!of!a!firm,!the!idea!generation!process!is!an!area!where!scholars! generally!still!have!limited!insights!with!regard!to!the!‘ideal’!process.”! ! The! uncertainty! concerning! the! preliminary! activities! of! idea! generation! has! provided! the! phase! with! fuzzy! connotations.! This! phase,! however,! is! critical! to! any! subsequent! phase! in! the! innovation!process.!As!argued!by!Flynn!et!al.!(2003:418),!“It!is!logical!to!maximize!the! output! of! the! idea! generation! phase,! as! it! is! relatively! less! costly! than! the! later! development! stages! of! the! innovation! process.”! ! It! is! therefore! important! to! ‘fail! fast’! rather!than!‘late’!in!order!to!optimize!the!use!of!resources.!In!the!following!section,!a! brief! description! of! the! idea! generation! phase! will! be! provided! and! followed! by! a! discussion!of!the!opportunities!offered!by!the!refinement!of!the!Internet.!! ! 2.3.1 Idea Generation and Online Opportunities The! idea! generation! phase! involves! not! only! generating! ideas! but! also! filtering! and! maturing.!The!first!step!in!this!process!is!typically!to!host!brainstorming!sessions!for! small!groups!of!organizational!members.!The!brainstorming!sessions!(also!referred!to!as! ideations)! involve! bringing! colleagues! together! in! groups! to! discuss! and! develop! solutions!to!a!predefined!problem!or!opportunity.!!Ideations!can!vary!in!scope!and!size! however!the!objective!is!to!have!as!many!contributions!as!possible!as!this!increases!the! likelihood! of! arriving! at! a! viable! solution! (Flynn! et! al.,! 2003).! Various! creative! techniques! can! be! implemented! to! facilitate! the! generation! of! ideas! including! groupS work!and!high!levels!of!social!interaction.!The!subsequent!step!in!the!idea!generation! phase!is!filtering!the!generated!ideas.!The!ideas!may!be!ranked!in!order!of!priority!or! importance! to! the! organization! (ibid.).! Usually,! the! managers! are! the! judges! however! some! ideations! may! take! a! more! collectivist! approach! where! ideas! are! scored! by! the! participants!and!subsequently!filtered!based!on!the!average!scores!(ibid.).!The!filtering! of!ideas!is!an!important!step!as!it!involves!making!go/kill!decisions!of!which!ideas!to! accept! or! reject.! The! generated! ideas! may! not! only! bring! about! solutions! to! the! prevailing!problems,!they!may!indeed!offer!solutions!to!problems!not!yet!identified.!The! challenging!yet!rewarding!task!of!managers!is!thus!to!effectively!evaluate!ideas.!The!last! step! in! the! idea! generation! phase! is! to! mature! the! ideas! that! have! passed! the! first!
  21. 21. ! 18! screening.! Maturation! typically! involves! further! elucidation! of! technical! feasibility,! IP,! and!customer!need!assessment.!In!practice,!the!first!two!steps!–!generating!and!filtering! –! are! often! interconnected! activities.! This! is! because! the! social! interaction! of! participants! in! ideations! effects! how! and! what! is! articulated.! By! discussing! possible! solutions!in!the!group,!the!initial!reactions!to!proposals!from!other!group!members!will! arguably!steer!the!direction!of!proposals.!In!the!creation!of!new!solutions!there!is!thus! an! important! relationship! between! formulating! something! new! and! at! the! same! time! being! subject! to! a! screening! process! S! acceptance! or! rejection.! The! two! processes! however! touch! upon! two! different! performances;! we! might! be! able! to! think! of! something!new!but!our!screening!abilities!involve!entirely!different!capabilities.!These! capabilities!primarily!rely!on!whether!organizational!members!are!informed!about!how! ideas!fit!into!a!particular!context.!Physical!proximity!and!social!interaction!and!control! in! traditional! ideations! thus! have! implications!on!idea!generation.! These!implications! can! arguably! both! have! positive! and! negative! effects! on! idea! development.! On! the! positive! side,! mutual! understanding! and! familiarity! breed! trust,! which! facilitates! successful! collaboration! (Nooteboom,! 2007).! On! the! negative! side,! mutual! understanding! and! familiarity! can! kill! creativity! (ibid.).! Furthermore,! the! pursuit! of! social! acceptance! in! groups! with! high! social! interaction! and! control! can! have! detrimental!effects!on!novelty!because!the!costs!of!articulating!a!‘wild’!or!‘unpolished’! idea!may!be!too!high.!! ! The!idea!generation!phase!in!organizations!is!increasingly!being!transformed!by!means! of! online! tools.! The! Internet! has! provided! opportunity! to! not! only! share! information! with! a! global! community,! but! also! to! develop! information! by! means! of! computation.! Meaning!that!the!web!–!the!grand!network!of!networks!–!facilitate!idea!exchange!both!in! real!time!and!asynchronously!which!renders!it!possible!to!aggregate!disparate!flows!of! ideas!in!one!stream!(Brabham,!2008).!Furthermore,!“The!nature!of!the!web!mimics!the! very!way!we!think!as!humans![therefore]!humans!should!see!themselves!in!the!medium!as! actors,!creators,!innovators,!as!implicated!in!the!information!flow!rather!than!witnesses!to! it.”!(Ibid.:81).!Increasingly,!ideations!are!being!held!by!means!of!online!tools,!which!offer! opportunity!to!brainstorm!ideas!in!groups!of!geographically!dispersed!individuals.!The! decrease! of! social! interaction! and! control! arguably! offers! the! opportunity! for! the!
  22. 22. ! 19! articulation!of!more!novel!solutions!by!participants.!An!idea!market!arguably!legitimizes! the!presentation!of!‘wild’!or!‘unpolished’!ideas.!Furthermore,!it!is!held!that!using!idea! markets!for!idea!generation!enables!a!separation!of!the!activities!of!idea!generation!and! filtering.!The!screening!of!ideas!is!done!at!a!later!stage!rather!than!simultaneously!with! idea! proposals.! This! allows! for! the! development! of! ideas! before! they! are! subject! to! filtering!activities.!That!is!to!say,!online!ideations!offer!the!opportunity!to!increase!the! quantity! and! quality! of! ideas! at! an! earlier! stage! than! in! traditional! ideations.! The! importance!of!identifying!the!quality!of!ideas!is!considered!paramount!in!order!to!make! the!right!go/kill!decisions.!Due!to!the!scope!of!this!thesis,!a!definition!of!quality!will!be! provided!in!the!following!section.!! ! 2.3.2 Quality of Ideas In!order!to!derive!at!a!definition!of!quality,!the!concepts!of!creativity!and!novelty!shall! be! discussed.! Creativity! and! novelty! are! believed! to! be! key! characteristics! of! ideas;! however!the!degree!to!which!they!contribute!to!the!quality!of!an!idea!is!arguably!a!very! difficult!and!subjective!measure.!!In!this!thesis,!I!shall!thus!rely!on!the!judgments!from! ‘experts’!in!the!idea!market!to!be!able!to!identify!ideas!with!high!quality.!! ! An!idea!is!commonly!understood!to!be!a!concept!or!a!plan!to!be!implemented!that!offers! a!solution!to!a!problem.!Ideas!and!creativity!is!often!argued!to!be!two!sides!of!the!same! coin!–!one!does!not!exist!without!the!other.!In!line!with!the!Schumpeterian!perspective,! creativity! is! that! which! “results! in! the! generation! of! new! and! useful! ideas! or! the! combination!of!existing!ideas!into!new!and!useful!concepts!to!satisfy!a!need”!(FaridSFoad! et!al.,!1993;!in!Flynn!et!al.,!2003:419).!However,!Vandenbosch!et!al.!(2003:260)!argue! that!ideas!are!not!necessarily!creative!to!be!useful;!there!exists!‘ordinary’!ideas,!that!is,! “managers!often!rely!on!old,!ordinary!ideas!or!new!but!imperfect!ones!to!cope!with!the! challenges!they!face.”!!In!line!with!this,!Ward!(2000)!argues!that!initial!ideas!may!not!be! creative!solutions!in!themselves.!Rather!they!represent!candidate!ideas!or!preventive! forms! that! may! or! may! not! lead! to! a! creative! solution! once! they! are! explored,! transformed,! modified,! and! extended.! Similarly,! Amabile! (1983:126)! asserts! that,! “Creativity!is!the!production!of!novel!and!useful!ideas!by!an!individual!or!small!group!of! individuals!working!together”.!I!suggest!that!the!degree!of!creativity!in!ideas!may!vary!
  23. 23. ! 20! from! idea! to! idea! and! is! arguably! a! subjective! measure! bound! to! the! nature! of! the! problem.!It!is!therefore!held!that!there!exists!creativity!even!in!incremental!solutions! and!the!importance!of!fostering!creative!thinking!in!organizations!is!thus!paramount.!!!! ! Novelty! of! ideas! refers! to! the! degree! in! which! they! offer! new! solutions! to! problems.! According!to!Abernathy!and!Clark!(1985),!novelty!refers!to!the!application!of!a!known! technology! to! a! new! purpose.! Arguably,! technological! novelty! is! the! pursuit! of! all! scientists.! It! is! the! novelty! of! an! invention! that! provides! scientific! merit! and! peer! recognition.!In!order!for!a!technology!to!be!patented,!it!needs!to!exhibit!a!certain!degree! of!novelty.!The!degree!of!novelty!is!thereby!measured!by!the!hitherto!scientific!frontier.! However,!what!can!be!regarded!as!relatively!mundane!changes!in!technology!can!have! major!ramifications!in!the!market!(Abernathy!&!Clark,!1985).!Contrarily,!“what!may!be!a! startling!breakthrough!to!the!engineer!may!be!completely!unremarkable!as!far!as!the!user! of!the!product!is!concerned.”!!(Ibid.:6).!! ! How! is! quality! defined! in! this! thesis?! As! discussed,! creativity! and! novelty! are! two! important! characteristics! of! ideas.! It! is! therefore! held! that! the! ideas’! quality! initially! refers! to! the! degree! in! which! they! offer! creative! and! novel! solutions! to! problems! subjectively!recognized!by!management!who!are!the!ultimate!judges.!The!definition!of! quality!adopted!in!this!thesis!is!thus:!ideas!with!high!quality!are!those!that!are!perceived! by!organizational!members!to!exhibit!creative!and!novel!solutions!to!problems!recognized! by!an!organization.!In!this!thesis,!the!identification!of!ideas!with!high!quality!is!based!on! the! judgments! from! ‘experts’! within! the! organization! examined.! By! drawing! on! their! expertise! and! knowledge! of! what! constitute! high! quality! ideas,! the! research! can! be! focused!on!the!dynamics!shaping!high!quality!ideas!rather!than!attempting!to!identify! them.!! ! What!are!the!implications!for!idea!markets?!The!above!discussions!on!the!fuzzy!frontS end!of!the!innovation!process!have!elucidated!the!processes!of!generating,!filtering!and! maturing!ideas.!It!was!argued!that!traditional!ideations!might!have!negative!effects!on! the!formulation!of!something!radically!new.!This!is!because!close!social!interaction!and! control!facilitate!internal!filtering!of!ideas!by!participants.!The!cost!of!articulating!‘wild’!
  24. 24. ! 21! or! ‘unpolished’! ideas! in! idea! markets! is! argued! to! be! low! because! of! the! reduced! familiarity! and! social! control.! Furthermore,! the! simultaneous! activities! of! generating! and! filtering! ideas! in! traditional! ideations! render! it! impossible! for! the! further! development! of! an! idea! before! its! evaluation.! In! idea! markets,! the! ideas! have! the! opportunity!to!be!developed!with!additional!information!provided!by!other!participants.!! Idea!markets!are!thus!argued!to!enable!increased!quality!of!go/kill!decisions!because! the!decisions!are!based!on!more!mature!ideas.!In!the!subsequent!section,!I!will!discuss! the!concept!of!crowdsourcing!as!a!means!of!tapping!into!a!wider!selection!of!ideas.! ! 2.4 Crowdsourcing Ideas The! concept! of! crowdsourcing! relies! on! the! notion! of! the! wisdom! of! the! crowd.! The! wisdom!of!the!crowd!refers!to!“[…]!the!discovery!that!the!aggregate!of!a!set!of!proposed! solutions! from! a! group! of! individuals! performs! better! than! the! majority! of! individual! solutions.”! (Yi! et! al.,! 2012:452).! The! effect! has! been! demonstrated! through! various! experiments;! for! example! counting! the! number! of! jellybeans! in! a! jaw;! guessing! the! weight! of! the! ox;! and! finding! the! position! of! the! missing! submarine! (Williams! &! Williams,! 2012).! By! calculating! the! mean! of! the! suggestions! from! the! crowd,! nearly! perfect! estimates! were! found.! The! wisdom! of! the! crowd! phenomenon! is! also! used! to! predict!future!events!in!prediction!markets!or!information!markets.!It!is!thereby!held!that! information!about!the!likelihood!of!future!events!is!better!predicted!by!many!people!i.e.! the!crowd!than!by!few!individuals.!This!is!because!(i)!informants!seldom!have!access!to! all!relevant!information!and!(ii)!using!multiple!informants!lowers!the!error!component! of!the!group's!forecast!(Van!Bruggen!et!al.,!2010).!Furthermore!Stasser!and!Titus!(1985)! claim,! “Groups! can! benefit! from! pooling! members'! information,! particularly! when! members!individually!have!partial!and!biased!information!but!collectively!can!compose!a! less! biased! characterization! of! the! decision! alternatives.”! (in! Van! Bruggen! et! al.,! 2010:404).! The! central! finding! in! the! wisdom! of! the! crowd! research! is! that! when! judgments!are!made!by!a!group!of!people,!the!judgment!obtained!by!aggregating!their! judgments!is!often!as!good!as,!or!might!even!be!better!than,!the!best!person!in!the!group.! Therefore! the! wisdom! of! the! crowd! phenomenon! relies! on! being! able! to! remove! the! noise! in! individual! judgment! to! get! closer! to! the! truth! (Surowiecki,! 2004;! in!Yi! et! al.,!
  25. 25. ! 22! 2012).! However,! there! are! limits! to! the! applicability! of! the! wisdom! of! the! crowd! technique!for!knowledge!retrieval!because!many!forms!of!practical!knowledge!cannot! be!represented!with!single!continuous!or!discrete!answers!(Yi!et!al.,!2012).!That!is,!for! combinatorial!problems!it!is!not!feasible!to!take!the!mean!or!mode!of!individual!answers! to!obtain!a!group!answer!(ibid.).!This!leads!to!the!question!of!how!can!the!wisdom!of!the! crowd!technique!be!applied!to!idea!generation!in!organizations?!! ! The!case!for!crowdsourcing!ideas!externally!is!built!on!the!assertion!that,!“no!matter! who!you!are,!most!of!the!smartest!people!work!for!someone!else”.! (Lakhani! &! Panetta,! 2007:97)!The!rather!bold!statement!emphasizes!that!“[…]!in!any!given!sphere!of!activity! most! of! the! pertinent! knowledge! will! reside! outside! the! boundaries! of! any! one! organization,!and!the!central!challenge!for!those!charged!with!innovation!mission!is!to! find!ways!to!access!that!knowledge.”!(Ibid.)!!The!concept!of!open!innovation!deals!with! this! challenge! by! inviting! externally! sourced! ideas! to! solve! internal! problems! in! an! organization.! Chesbrough! (2011:69)! defines! open! innovation! as! “the! use! of! purposive! inflows! and! outflows! of! knowledge! to! accelerate! internal! innovation! and! expand! the! markets! for! external! use! of! innovation,! respectively”.! Arguably,! the! impediment! to! the! concept!is!the!high!risks!involved!concerning!the!protection!of!knowledge.!Nevertheless,! the!concept!has!gained!increased!attention!in!organizations.!Crowdsourcing!draws!on! users!or!external!experts!to!contribute!with!ideas!for!either!a!monetary!compensation! or!other!kinds!of!incentives!in!a!widely!broadcast!idea!generation!competition!(Poetz!&! Schreier,!2012).!An!example!of!crowdsourcing!ideas!is!provided!by!Don!Tapscott!(TED! Talk,!2012)!who!describes!the!successful!use!of!crowdsourcing!by!a!mining!company.! The!geologists!in!the!mining!company!could!not!locate!any!gold!in!the!mine!but!instead! of!giving!up,!they!published!the!geographical!data!on!the!Internet!and!held!a!contest! called!the!Gold!Corp!Challenge.!There!was!a!prize!of!500.000!USD!for!the!idea!that!could! tell! them! where! the! gold! was.! Some! of! the! best! submissions! did! not! come! from! geologists!but!from!computer!scientists!and!engineers.!In!fact,!the!winning!idea!came! from!a!computer!graphics!company.!The!winning!idea!helped!locate!3.5!billion!dollars’! worth!of!gold,!which!consequently!led!the!market!value!of!the!company!to!go!from!90! million!to!10!billion!USD.!Needless!to!emphasize!that!in!this!case,!the!smartest!people! did!work!for!someone!else.!!
  26. 26. ! 23! A! recent! study! by! Poetz! and! Schreier! (2012)! found! that! crowdsourcing! might! complement! the! work! of! a! firm’s! professionals! in! the! idea! generation! phase.! The! scholars!compared!ideas!created!by!both!selfSselected!users!and!professionals!in!an!idea! contest!in!the!consumer!goods!market!for!baby!products.!Their!findings!indicated!that! the!user!ideas!scored!higher!on!average!in!terms!of!novelty!and!customer!benefit!than! the! ones! generated! by! the! firm’s! professionals.! The! study! also! revealed! that! the! best! ideas!tended!to!be!more!heavily!concentrated!among!users!(ibid.).!Why!the!conclusion! can!be!drawn!that,!“firms!who!rely!too!heavily!on!their!internal!expertise!might!be!blocked! from!finding!alternative,!potentially!more!successful!solutions.”!(Ibid.:248).!! ! What!are!the!implications!for!idea!markets?!The!examples!of!crowdsourcing!ideas!have! shown!promising!results.!The!research,!however,!is!more!concentrated!on!businessStoS consumer!firms!than!on!businessStoSbusiness!firms.!What!is!more,!advanced!scientific! knowledge! held! in! highStechnology! firms! is! more! difficult! to! aggregate! and! more! unlikely!to!be!found!among!external!individuals.!The!crowdsourcing!technique!thus!has! its! limits! of! applicability! when! concerned! with! businessStoSbusiness! firms! whose! operations!involve!complicated!scientific!research.!As!argued!by!Bos!et!al.!(2007:653),! “Scientists!generally!work!with!ideas!that!are!on!the!cutting!edge!of!what!is!understood.! This!knowledge!often!requires!specialized!expertise,!is!difficult!to!represent,!may!be!tacit,! and!changes!rapidly.”!!!They!find!that!advanced!scientific!knowledge!is!the!most!difficult! to! manage! over! distances! or! disseminate! over! large! groups! (ibid.).! Furthermore,! the! protection!of!IP!and!the!requirement!of!advanced!equipment!render!it!problematic!for! highStechnology! firms! to! find! ideas! externally.! For! these! types! of! businesses,! internal! crowdsourcing!–!i.e.!idea!markets!–!can!perhaps!be!a!better!solution!for!idea!generation.!! ! 2.4.1 Idea Markets An!idea!market!is!an!online!ideaSgenerating!tool!relying!on!internal!crowdsourcing.!That! is!to!say,!an!idea!market!is!a!tool!comparable!to!external!crowdsourcing!but!involves!the! selection! of! promising! idea! contributors! from! among! the! firm’s! own! employees! (Soukhoroukova!et!al.,!2012).!As!theory!of!this!phenomenon!is!lacking!(ibid.),!this!thesis! will!investigate!the!case!of!NZ’s!Growth!Bets!2011.!The!design!and!process!of!NZ’s!idea!
  27. 27. ! 24! market! will! be! described! in! greater! detail! in! Chapter! 3;! this! section! will! thus! be! delimited!to!provide!an!overview!of!the!concept.! ! Idea!markets!serve!the!purpose!of!online!collaborative!brainstorming!and!idea!ranking.! The!purpose!of!collaborative!brainstorming!of!ideas!is!rooted!in!the!notion!that!there!is! a! large! dormant! reservoir! of! useful! ideas! in! many! companies,! however! there! is! a! shortage!of!effective!channels!to!communicate!these!ideas!(van!Dijk!&!van!den!Ende,! 2002).!The!idea!market!provides!opportunity!for!a!large!group!of!diverse!participants!to! submit!their!ideas,!develop!these!ideas!by!submitting!comments,!and!rank!ideas!through! virtual!transactions.!Ideas!are!thus!ranked!in!accordance!to!the!wisdom!of!the!crowd!as! participants!can!buy!and!sell!shares!in!all!ideas!with!play!money.!The!participants!in!the! market!have!an!opportunity!to!display!their!creativity!to!management!and!colleagues! from!all!over!the!world.!The!incentives!for!participation!can!thus!be!intrinsic!(e.g.!peer! recognition)!and!extrinsic!(e.g.!prizes!for!best!ideas!and!research!funding).!Regardless!of! the!design!of!incentives,!the!markets!provide!an!organized!and!structured!process!for! idea! extraction! and! followSup,! which! in! itself! is! a! motivational! factor! for! participants! (van! Dijk! &! van! den! Ende,! 2002).! As! argued! by! Chan! et! al.! (2002),! “[idea! markets]! improve! upon! traditional! […]! methods! by! encouraging! greater! honesty! from! the! participants,!providing!participants!with!valuable!feedback!from!other!participants,!and! offering! participants! the! ‘joy! of! competitive! play’.”! (in! Spears! et! al.,! 2009:18)! Furthermore,!Spears!et!al.!(2009)!argue!that!traditional!means!of!encouraging!new!ideas! within! businesses! such! as! suggestions! boxes! and! brainstorming! sessions! have! considerable! limitations.! This! is! because,! “suggestion! boxes! often! go! unused! because! contributors!receive!little!or!no!feedback!about!their!idea!or!visibility!into!others'!ideas.! Brainstorming! sessions! are! often! infeasible! for! soliciting! ideas! from! large,! globally! distributed!teams!with!potentially!thousands!of!contributors.”!(Spears!et!al.,!2009:19)!! ! As!previously!stated,!theory!and!research!on!idea!markets!is!far!from!exhaustive.!!Given! the!novelty!of!the!tool!and!the!vast!possibilities!for!its!further!development,!research!is! highly! relevant! for! both! practitioners! and! scholars.! Furthermore,! the! case! for! idea! markets!is!found!in!the!notion!of!combinatorial!innovation!and!that!the!biggest!‘sparks’! are!ignited!when!pieces!of!ideas!come!together!from!a!diverse!set!of!individuals.!In!the!
  28. 28. ! 25! following! section,! I! shall! therefore! draw! on! diversity! theory! to! gain! insights! of! the! implications!for!idea!development!by!the!connectivity!of!diverse!participants.!! ! 2.5%The%Implications%of%Diversity%% Diversity!in!its!widest!sense!means!‘variety’!or!‘point!or!respect!in!which!things!differ’! (Milliken!&!Martins,!1996).!The!implications!of!diversity!have!been!vastly!studied!in!a! wide!array!of!research!fields.!In!an!organizational!context,!diversity!has!been!positively! associated! with! creativity,! innovation,! and! competitive! advantage! where! it! has! been! recognized!as!a!catalyst!of!creativity!in!teams!(West!&!Anderson,!1996;!in!BassettSJones,! 2005).!Furthermore,!Milliken!and!Martins!(1996:402)!studied!the!body!of!literature!on! diversity! and! found! that! “Diversity! in! the! composition! of! organizational! groups! affects! outcomes! such! as! turnover! and! performance! through! its! impact! on! effective,! cognitive,! communication,! and! symbolic! processes”.! The! effects! of! diversity! on! organizational! or! team! performances! are! thus! paradoxical! in! nature.! On! the! one! hand,! a! high! level! of! diversity! can! lead! to! less! integrated! groups,! dissatisfaction! and! higher! turnover! (ibid.:403).! Similarly,! BassettSJones! (2005:171)! argues! that! diversity! damages! cohesiveness,! reduces! communication! and! produces! inSgroups! and! outSgroups.! “This! results! in! discord,! distrust,! poor! quality! and! lack! of! customer! focus! and! market! orientation.”!!On!a!more!positive!note,!research!also!suggests,!“More!diverse!groups!have! the!potential!to!consider!a!greater!range!of!perspectives!and!to!generate!more!highFquality! solutions! than! less! diverse! groups.”! (Milliken! and! Martins,! 1996:403).! Also,! “[…]! when! diversity!is!managed!well,!it!can!enhance!creativity,!resulting!in!increased!commitment,!job! satisfaction! and! a! better! interface! with! the! market! place.”! (BassettSJones,! 2005:171).! Furthermore,! teams! that! are! characterized! by! high! network! heterogeneity! whereby! relationships!in!the!team!cut!across!salient!demographic!boundaries,!enjoy!an!enhanced! learning!capability!(Reagans!&!Zuckerman,!2001).!McAdam!and!McClelland!(2002:90)! found!that!“While!diverse!teams!are!often!more!creative!than!homogeneous!teams,!they! are! also! more! likely! to! fail! if! their! diversity! is! not! positively! managed.”! Resource! heterogeneity! provides! the! potential! for! learning! and! innovation! especially! when! dealing! with! exploration! activities! (Nooteboom,! 2007).! The! doubleSedge! sword! of! diversity!is!thus!found!by!the!increased!opportunity!for!learning!and!creativity!along!
  29. 29. ! 26! with! a! higher! risk! of! dissatisfaction,! misunderstanding! and! lack! of! cohesiveness! (Milliken!&!Martins,!1996).!! A! distinction! must! be! drawn! between! types! of! diversity.! Inspired! by! Milliken! and! Martins! (1996),! the! first! type! is! observable! attributes! such! as! nationality,! ethnic! background,!gender,!and!age.!The!second!type!is!less!visible!skillFbased!attributes!such!as! education,! technical! abilities,! functional! background,! and! tenure! in! the! organization.! Leonard! and! Swapp! (1999)! argue! that! it! takes! more! than! ethnic! and! demographic! diversity!to!result!in!creativity!that!leads!companies!to!perform!better!(in!BassettSJones,! 2005).! Diversity! in! personalities,! values! and! beliefs! can! have! large! effects! on! collaboration!in!teams!(Schein,!1985).!As!the!research!in!this!thesis!is!concerned!with! idea! markets,! the! relevance! of! diversity! in! personalities! is! arguably! not! great.! This! is! because!the!online!connectivity!of!geographical!dispersed!individuals!in!idea!markets,! results! in! less! social! interaction! and! control! than! traditional! group! work.! The! consequences! of! diversity! such! as! dissatisfaction,! misunderstanding! and! lack! of! cohesiveness! shall! not! be! examined! in! this! thesis.! Rather,! the! impact! on! cognitive! outcomes!(i.e.!quality!of!ideas)!is!what!is!investigated.!It!is!therefore!hypothesized!that! lack! of! physical! proximity! and! familiarity! offers! an! opportunity! to! articulate! wild! or! unpolished! ideas! regardless! of! social! acceptance! and! cohesiveness.! The! diversity! attributes!that!are!particular!relevant!in!the!idea!market!context!is!arguably!diversity!in! organizational!affiliation.!More!specifically,!the!dimensions!examined!in!this!thesis!are! diversity!in;!geographical!location;!functional!background;!hierarchical!level!and!tenure! in!the!organization.!These!dimensions!thus!include!both!observable!attributes!and!skillS based!attributes.!! Nooteboom!et!al.!(2007)!studied!the!concept!of!cognitive!distance,!which!refers!to!the! extent! that! people! have! developed! along! different! life! paths! and! in! different! environments,!they!interpret,!understand!and!evaluate!the!world!differently.!They!argue! that!for!organizations!to!achieve!a!common!purpose,!organizational!members!need!not! agree! on! personal! goals! however! they! need! to! share! certain! basic! perceptions! and! values! to! sufficiently! align! their! competences! and! motives.! The! research! of! cognitive! distance!by!Nooteboom!et!al.!(2007)!focused!on!collaboration!between!technology!firms! and! its! relation! to! innovation! performance.! The! research! proposed! that! there! is! an!
  30. 30. ! 27! invertedSU!shaped!relationship!between!cognitive!distance!and!innovation!performance.! As! cognitive! distance! increases,! it! has! a! positive! effect! on! learning! by! interaction! because! it! yields! opportunities! for! novel! combinations! of! complementary! resources! (ibid.).! ! At! a! certain! point,! however,! “[…]! cognitive! distance! becomes! so! large! as! to! preclude!sufficient!mutual!understanding!needed!to!utilize!those!opportunities.”!(Ibid.:3).! The! challenge,! they! argue,! is! to! find! partners! at! sufficient! cognitive! distance! to! tell! something!new,!but!not!so!distant!as!to!preclude!mutual!understanding.!! In!the!case!of!idea!markets,!I!argue!that!the!invertedSU!shaped!relationship!is!discarded! on!behalf!of!a!continuous!upward!sloping!line.!My!argument!is!twoSfold.!Firstly,!because! idea!markets!rely!on!participants!selected!internally!from!the!same!organization.!It!is! therefore!argued!that!the!mutual!understanding!of!the!firm’s!purpose!and!goals!is!great,! which!result!in!less!cognitive!distance!between!individuals.!Furthermore,!the!multiple! firmSlevel! study! by! Nooteboom! et! al.! (2007)! involves! large! and! more! heterogeneous! groups! than! in! the! present! case! of! idea! markets,! which! only! involves! small! inventor! teams.!The!research!in!this!thesis!is!therefore!only!concerned!with!the!upwardSsloping! effect.! Secondly,! the! variety! of! perspectives! involved! in! developing! ideas! through! the! feature!of!commenting!does!not!have!a!detrimental!effect!on!cognitive!outcomes.!That!is! to!say,!diversity!of!commentators!can!only!contribute!to!the!quality!of!ideas!by!adding! additional!information!to!the!previously!articulated!information.!Because!comments!are! added!over!time!instead!of!immediately!through!inSgroup!discussion,!the!comments!will! not!result!in!a!downward!sloping!effect.!Rather,!if!an!added!comment!is!out!of!context! (e.g.! a! sign! of! misunderstanding),! the! comment! can! be! disregarded.! The! cognitive! outcomes! from! added! comments! can! thus! only! have! an! upwardSsloping! effect.! Misunderstandings!and!lack!of!cohesiveness!do!thereby!not!decrease!the!value!of!ideas! but!rather!provide!opportunity!to!combine!and!build!new!knowledge.!The!decrease!in! social! interaction! and! control! thus! allow! for! more! creative! and! novel! solutions! to! be! articulated! by! a! diverse! set! of! participants.! I! therefore! argue! that! diversity! of! participants! can! increase! the! quality! of! ideas.! The! diversity! parameters! and! the! hypotheses!examined!in!this!thesis!shall!be!presented!in!the!following!sections.!! ! !
  31. 31. ! 28! 2.5.1 Geographical Diversity Multinational!organizations!depend!on!people!throughout!the!world!to!carry!out!their! operations!and!it!is!therefore!held!that!the!distinctiveness!of!workforce!competencies! derived!from!different!nationalities!contribute!with!organizational!diversity!(Caliguiri,! 2010).!Hofstede!!(1983)!argue!that!nationalities!of!employees!play!an!important!role!in! organizational! management! for! at! least! three! reasons.! The! first! reason! is! political! because!nations!are!political!units,!rooted!in!history,!with!their!own!institutions:!form!of! government,! legal! systems,! educational! systems,! labor! and! employer’s! association! systems! (ibid).! The! second! reason! is! sociological! because! nationality! has! a! symbolic! value!to!citizens.!It!is!held!that!we!all!derive!part!of!our!identity!from!it!(ibid).!The!third! reason! why! nationality! is! important! is! psychological! because! our! thinking! is! partly! conditioned! by! national! cultural! factors! (ibid).! Hofstede! (1983)! refers! to! ‘mental! programming’!as!a!consequence!of!past!experiences,!which!effects!our!interpretation!of! new! experiences.! He! argues! that! we! become! mentally! programmed! when! we! share! experiences! with! other! members! of! our! nation! (ibid.).! Hofstede’s! (1983)! longitudinal! study!of!50!nations!and!regions!indicated!clear!differences!in!cultural!dimensions!such! as! individualism! vs.! collectivism,! power! distance,! uncertainty! avoidance,! and! masculinity!vs.!femininity.!In!this!thesis,!geographical!diversity!refers!to!the!countries!in! which! employees! carry! out! their! operations.! Milliken! and! Martins! (1996)! draw! on! a! study! by! Watson! et! al.! (1993)! who! found! that! diversity! in! nationality! have! different! impacts!on!group!performance.!In!the!initial!stages!of!group!interaction,!homogenous! groups!performed!better.!However!in!later!stages!of!group!interaction,!diverse!groups! (in! terms! of! nationality)! scored! higher! on! two! aspects! of! performance:! range! of! perspectives! and! alternatives! generated! (Milliken! &! Martins,! 1996).! The! range! of! perspectives! and! alternatives! generated! are! elements! that! are! consistent! with! the! benefits!of!diversity!investigated!in!this!thesis.!I!thus!posit!the!following!hypothesis:! Hypothesis 1 H1:% Geographical!diversity!will!increase!the!quality!of!ideas!presented!and! developed!in!idea!markets! !
  32. 32. ! 29! 2.5.2 Functional Diversity Functional!diversity!refers!to!the!differences!in!skills!and!competences!acquired!from! working!in!specific!functional!areas!in!an!organization.!In!line!with!the!combinatorial! view!of!innovation,!it!is!held!that!radical!innovations!often!happen!at!the!intersection!of! disciplines! (Lakhani! &! Jeppesen,! 2007).! Furthermore,! “The!more!diverse!the!problemF solving!population,!the!more!likely!a!problem!is!to!be!solved.!People!tend!to!link!problems! that!are!distant!from!their!fields!with!solutions!they’ve!encountered!in!their!own!work”.! (Ibid.:1).!It!is!therefore!key!to!bring!people!together!from!upstream!and!downstream! functional!areas!so!that!they!can!communicate!and!bring!coordinated!knowledge!to!bear! on!a!project!(Keller,!2001).!Milliken!and!Martins!(1996)!found!that!diversity!along!skillS! or! knowledgeSbased! dimensions! have! some! positive! cognitive! outcomes! for! project! teams.!This!is!because!diversity!translates!into!a!greater!variety!of!perspectives!being! brought! to! bear! on! decisions! and,! thereby,! increases! the! likelihood! of! creative! and! innovative!solutions!to!problems!(ibid.).!Ancona!and!Caldwell!(1992)!found!conflicting! outcomes! of! functional! diversity.! Although! their! study! indicated! a! negative! effect! on! teamSrated!performance,!an!indirect!positive!effect!was!found!on!innovation!through!its! association! with! an! increased! frequency! of! communication! with! those! outside! the! project!group.!The!positive!effect,!they!argue,!may!lie!in!the!creation!of!linkages!to!those! not!in!the!team!(ibid).!Furthermore,!Simons!(1995)!argue!“Functional!diversity!will!only! be! positively! associated! with! organizational! performance! when! the! team! uses! decision! processes!that!allow!debate”! (in!Milliken! &! Martins,! 1996:410).! The! positive! effects! of! functional!diversity!are!thus!consistent!with!the!idea!market!concept,!which!allow!for! debate!by!the!feature!of!commenting.!The!benefits!of!functional!diversity!are!advocated! by!Hansen!and!Birkinshaw!(2007:3)!who!found!that,!“the!biggest!sparks![…]!are!ignited! when! fragments! of! ideas! come! together! –! specifically! when! individuals! across! units! brainstorm![…]”.!I!thus!posit!the!following!hypothesis:! Hypothesis 2 H2:! ! Functional! diversity! will! increase! the! quality! of! ideas! presented! and! developed!in!idea!markets! !
  33. 33. ! 30! 2.5.3 Hierarchical Diversity Hierarchical! diversity! refers! to! employees’! job! classifications! and! ranks! in! the! organization.! Although! organizational! tenure! (discussed! in! the! following! section)! is! sometimes! argued! to! include! the! hierarchical! level! of! employees,! for! the! sake! of! this! thesis,!hierarchical!diversity!is!separated!from!tenure.!Hierarchical!diversity!is!relevant! to! consider! as! it! is! held! that! the! higher! one! climbs! the! hierarchical! ladder,! the! less! scientific! and! specialized! becomes! one’s! daily! tasks.! Scientists! who! are! lower! in! the! hierarchy! are! expected! to! work! with! highly! specialized! and! technical! tasks! that! can! provide! solutions! to! highStechnological! and! complicated! problems.! Managers,! on! the! other!hand,!are!expected!to!effectively!manage!these!scientists!and!furthermore!focus!on! the! organization’s! overall! strategy.! It! is! therefore! managers’! task! to! secure! that! resources!are!spent!on!activities!that!fit!into!the!organization’s!strategy.!Theory!on!the! effects!of!hierarchical!diversity!is!scarce,!however,!it!is!only!logical!to!assume!that!by! hierarchical! diversity! comes! more! diverse! perspectives! and! more! critical! evaluation.! This!is!because!the!synergy!between!specialized!and!nonSspecialized!tasks!provide!both! highStechnological!knowledge!and!knowledge!on!the!overall!organizational!context!in! which!it!has!to!fit.!I!thus!posit!the!following!hypothesis:! Hypothesis 3 H3:!!Hierarchical!diversity!will!increase!the!quality!of!ideas!presented!and! developed!in!idea!markets! 2.5.4 Tenure Diversity Tenure!diversity!refers!to!the!difference!in!seniority!of!organizational!members.!More! specifically,! tenure! refers! to! the! amount! of! time! members! have! worked! in! the! organization.! Research! suggests! that! individuals! identify! with! others! who! enters! an! organization! or! department! at! the! same! time! and! that! this! identification,! in! turn,! influences! behavior! (Milliken! &! Martins,! 1996).! ! According! to! Ancona! and! Caldwell! (1992),! teams! that! draw! their! members! from! different! cohorts! achieve! higher! performance! because! members! who! have! entered! the! organization! at! different! times! know!different!set!of!people,!have!different!technical!skills,!and!different!perspectives! on! the! organization’s! history.! Homogeneous! groups! in! terms! of! tenure! may! be! more!
  34. 34. ! 31! harmonious,! however! the! performance! of! such! teams! is! limited! by! the! relative! redundancy! of! members’! perspectives,! information,! and! resources! (Reagans! &! Zuckerman,!2001).!Milliken!and!Martins!(1996:414)!state,!“Arguments!for!the!impact!of! team! tenure! heterogeneity! on! organizational! actions! are! based! on! the! idea! that! tenure! heterogeneity! reduces! groupthink! and! increases! creativity.”! I! thus! posit! the! following! hypothesis:! Hypothesis 4 H4:! ! Tenure! diversity! will! increase! the! quality! of! ideas! presented! and! developed!in!idea!markets! ! 2.5.5 Diversity Aggregated across Multiple Dimensions As! discussed! above,! research! suggests! that! diversity! in! observable! attributes! (i.e.! nationality)! affect! the! cognitive! outcomes! (e.g.! quality! of! ideas)! in! groups! in! positive! ways! (Milliken! &! Martins,! 1996).! Similarly,! diversity! on! skillSbased! dimensions! (i.e.! functional!background,!hierarchical!level,!and!tenure)!also!generally!has!been!found!to! be!associated!with!cognitive!benefits!(ibid.).!The!final!hypothesis!in!this!thesis!is!thereby! concerned! with! diversity! aggregated! across! these! dimensions.! I! thus! posit! the! final! hypothesis:!!! Hypothesis 5 H5:! ! Diversity! aggregated! across! multiple! dimensions! will! increase! the! quality!of!ideas!presented!and!developed!in!idea!markets! ! The!five!hypotheses!presented!above!shall!be!tested!in!the!Analysis!and!thereby!lead!to! the!conclusions!answering!the!research!question.!The!subsequent!section!shall!briefly! summarize!the!discussions!provided!in!this!Literature!Review!and!further!elucidate!the! research!gap!that!is!sought!filled!in!this!thesis.!! 2.6 Research Gap The! review! of! literature! and! theoretical! discussions! provided! in! this! chapter,! have! elucidated!concepts!relevant!to!the!phenomenon!under!scrutiny!–!a!phenomenon!that!
  35. 35. ! 32! may!have!potential!to!support!organizations!with!activities!in!the!fuzzy!frontSend!of!the! innovation!process.!It!has!been!argued!that!an!idea!market!is!a!tool!for!the!conversion!of! knowledge!from!tacit!into!explicit!through!interaction!of!participants.!The!tool!provides! a!channel!for!the!articulation!of!dormant!ideas!and!improving!these!by!amplified!and! new!knowledge!facilitated!by!the!virtual!community!of!interaction.!Furthermore,!idea! markets!enable!the!separation!of!two!activities!most!often!interconnected!in!the!idea! generation!phase:!idea!generation!and!filtering.!The!separation!of!these!activities,!it!is! argued,! results! in! the! development! of! higher! quality! ideas! by! allowing! ‘wild’! or! ‘unpolished’! ideas! to! flourish! and! develop! before! they! are! subject! to! evaluation! –! acceptance!or!rejection.!This!in!turn!enables!managers!who!ultimately!make!the!go/kill! decisions! to! base! their! decisions! on! a! more! informed! foundation.! Furthermore,! the! wisdom!of!the!crowd!technique!used!in!idea!markets,!ads!quality!to!the!go/kill!decisions! of!ideas.!This!is!because!when!judgments!are!made!by!a!group!of!people,!the!judgment! obtained!by!aggregating!their!judgments!is!often!as!good!as,!or!might!even!be!better! than,!the!best!person!in!the!group.!The!research!gap!identified!in!this!thesis!concerns!the! implications!of!diversity!in!idea!markets.!By!examining!diversity!theory,!it!was!found! that! diversity! in! groups! of! individuals! have! positive! effects! on! problemSsolving! and! innovation!capabilities.!This!is!because!diversity!leads!to!a!greater!range!of!perspective! and!more!critical!evaluation.!!The!notion!of!an!inverted!USshaped!relationship!between! cognitive!distance!and!innovation!capabilities!provided!by!Nooteboom!et!al.!(2007)!was! discarded!in!the!case!of!idea!markets!on!behalf!of!an!upward!sloping!relationship.!The! hypotheses!developed!thus!assert!that!in!the!case!of!idea!markets,!diversity!will!lead!to! increased!quality!of!ideas.!The!gap!that!the!research!attempts!to!fill!is!thus!concerned! with!the!empirical!findings!from!an!investigation!of!the!implications!of!diversity!for!the! development!of!ideas.!!! ! !
  36. 36. ! 33! ! ! ! ! ! ! ! ! ! “[GB11] is a much more efficient way for idea generation than traditional ideations where you are ‘forced’ to create ideas. In GB11 it was possible to look into other aspects of ideas because of the longer period of time in comparison to traditional ideations.” – GB11 participant ! ! ! ! ! ! ! Chapter 3 Company and Case Profile
  37. 37. ! 34! 3. Company and Case Profile In!this!chapter,!I!shall!provide!a!short!description!of!the!case!company!Novozymes!and! the! department:! the! Innovation! Office.! Furthermore,! I! shall! provide! a! detailed! description!of!NZ’s!idea!market:!Growth!Bets!2011.! ! 3.1 Novozymes in Brief Novozymes!A/S!is!a!Danish!biotech!company!spun!out!from!Novo!Nordisk!A/S!in!2000.!! With! 47%! market! share! in! the! enzyme! industry,! NZ! has! become! the! world! leader! in! industrial!enzymes!and!microorganisms2.!NZ!is!a!businessStoSbusiness!company!selling! over! 700! products! in! 130! different! countries! and! in! 40! different! industries.! NZ! is! a! highly! international! company! with! 50%! of! the! 5,400! employees! working! outside! Denmark.! NZ’! solutions! are! used! in! the! production! of! numerous! products! such! as! biofuel,! detergents,! feed! and! food.! By! having! such! a! diverse! product! portfolio,! NZ’s! vision!is!to!provide!their!customers!with!sustainable!and!green!products!that!will!lead!to! a!complete!bioFbased!society.!!Enzymes!are!efficient!biological!catalysts!known!from!any! living!organism.!They!are!used!in!production!to!increase!efficiency!and!yield!of!a!wide! range!of!processes!in!our!society.!With!enzymes!‘we!can!produce!more!with!less’!and! contribute!to!the!decoupling!of!economic!growth!and!use!of!natural!resources.!! The!key!element!to!NZ’s!success!is!innovation.!NZ!is!a!highly!innovationSdriven!company! with!over!7,000!pending!and!issued!patents!and!164!new!patent!families!filed!in!2011.! Furthermore,!NZ!is!spending!14%!of!annual!turnover!in!R&D.!As!a!result,!NZ!is!able!to! launch!many!new!products!every!year!(8!new!products!scheduled!for!2012)!and!new! products!accounts!for!25%!of!the!annual!turnover.!The!R&D!organization!in!NZ!consists! of!1,024!employees!of!which!40%!are!working!outside!Denmark.!!NZ’s!Enzyme!Business! operates!in!five!main!areas:! 1. Household!Care!enzymes!–!used!in!household!and!industrial!laundry!and! dishwashing!detergents.! 2. Other!Technical!enzymes!–!used,!among!other!things,!in!the!transformation!of! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 2!Information!about!the!company!is!gathered!from!an!internal!presentation!from!March!2012.!
  38. 38. ! 35! starch!into!different!kinds!of!sugars.!This!also!includes!enzymes!for!the!textile! industry.! 3. Food!enzymes!–!enhance!quality!and/or!efficiency!in!the!manufacture!of!food! products!such!as!bread,!wine,!juice,!beer,!noodles,!pasta,!and!alcohol.! 4. Feed!enzymes!–!when!added!to!animal!feed!increases!the!nutritional!value!of!the! feed.! 5. Bioenergy!–!enzymes!used!for!the!production!of!biodiesel,!biogas!and!other! biofuels.! As!competition!grows!worldwide,!the!continued!success!of!NZ!depends!on!its!ability!to! innovate! in! all! parts! of! the! organization.! Providing! an! enabling! environment! for! the! organization’s!highly!skilled!workforce!is!therefore!paramount.!!! ! 3.2 The Innovation Office The!case!examined!in!this!thesis!was!determined!in!collaboration!with!the!Innovation! Office! (IO)! where! I! have! held! a! student! position! since! September! 2011.! IO! is! a! department!in!NZ’!R&D!organization!composed!of!a!small!team!of!Managers,!Directors,! and!a!Vice!President.!The!raison!d’être!of!the!office!is!ensuring!that!NZ!maintains!its! leadership!position!as!the!most!innovating!biotech!company!in!the!world.!The!office’s! efforts! are! focused! on! developing! and! administering! projects! and! tools! that! facilitate! idea! generation! and! maturation.! Furthermore,! The! office! is! also! involved! in! political! debate! in! the! EU! and! OECD! with! the! goal! of! promoting! more! favorable! laws! and! subsidies!for!a!bioSbased!society.!The!goal!of!IO!is!catalyzing!innovation!throughout!the! entire! R&D! organization! by! means! of! implementing! and! administrating! a! variety! of! tools,!which!include!ideations!(brainstorming!sessions),!the!Idea!Web!(suggestion!box! on!the!Intraweb),!and!RIC!projects!(maturation!of!ideas).!! ! Ideations!are!administered!by!the!IO!and!involve!bringing!together!a!team!of!scientists! to! brainstorm! ideas! relating! to! specific! challenges! or! opportunities.! They! typically! unfold! in! a! very! organized! workshop! setting! during! one! or! two! days.! As! the! R&D!
  39. 39. ! 36! workforce!is!spread!throughout!the!world,!much!time!and!resources!are!being!spent!on! travelling.!! ! A!second!idea!generation!tool!administered!by!the!IO!is!the!Idea!Web,!which!is!an!online! suggestion!box.!The!Idea!Web!is!open!to!all!in!the!R&D!organization!all!year!round!and!it! only!takes!a!couple!of!clicks!on!the!Intraweb!to!post!an!idea.!It!is!the!IO’s!responsibility! to! screen! the! ideas! and! pass! them! on! to! relevant! idea! champions.! In! practice,! the! screening!of!ideas!is!done!by!a!single!member!of!the!office!who!checks!the!Idea!Web!a! couple! of! times! a! week! and! then! either! disregards! or! forwards! by! eSmail! the! idea! to! relevant!people!in!the!organization.!!This!screening!process!is!arguably!suboptimal!and! often!leaves!very!little!feedback!to!the!idea!contributor.!! ! A!third!initiative!steered!by!the!IO!is!the!Radical!Innovation!Catalysts!(RIC).!RIC!involve! maturing!ideas!from!Ideations!and!developing!them!into!New!Lead!projects.!RIC!is!built! of!a!volunteering!community!of!employees!called!the!RIC!Community!who!are!allocated! projects!with!the!purpose!of!maturing!them.!! ! With!increasing!growth!ambitions!for!2011,!R&D!Management!recognized!the!need!to! kick! off! more! large! growth! initiatives.! The! strategy! was! therefore! to! implement! new! processes!that!could!help!identify!and!mature!at!least!two!new!DKK!500!million!bets.!It! was!IO’s!responsibility!to!develop!and!steer!the!new!processes!that!would!help!boost!the! enzyme!Business.!The!IO!therefore!experimented!with!the!idea!market!tool!in!the!fall!of! 2011.!! ! 3.3 Growth Bets 2011 The! overall! goal! of! GB11! was! to! identify! at! least! two! new! ideas! that! had! substantial! growth!potential!to!expand!Novozymes’!product!pipeline.!By!applying!the!untraditional! idea!generation!tool,!it!was!possible!to!combine!and!build!upon!the!traditional!methods! used!for!idea!generation!and!maturation!in!a!novel!and!entertaining!manner.!The!GB11! tool!combined!two!key!aspects!of!the!traditional!tools!by!involving!a!pool!of!selected! employees!and!having!an!online!setup.!Furthermore,!GB11!offered!a!setting!of!a!global!
  40. 40. ! 37! ideation!uniting!employees!who!nonShabitually!work!together!to!share!ideas,!developed! each!other’s!ideas,!and!additionally!rank!ideas!by!buying!and!selling!shares.!Inspiration! to!the!setup!of!GB11!and!the!online!platform!were!provided!by!an!external!consultancy! firm!called!NOSCO!that!specializes!in!idea!markets.!NOSCO,!besides!administrating!the! global! online! ideation,! organized! workshops! for! the! GB11! Taskforce! (organizing! committee)!where!the!specific!setSup!and!features!of!the!idea!market!were!designed.! The!following!sections!will!account!for!the!process!and!design!of!GB11.! ! 3.3.1 Rules of the Game The!course!of!GB11!ran!from!September!2011!to!January!2012!and!was!steered!by!an! organizing! committee! referred! to! as! the! GB11! Taskforce.! The! Taskforce! consisted! of! eight!people!(three!form!Denmark,!three!from!the!US,!and!two!from!China)!who!were! invited! by! the! Innovation! Office.! The! Taskforce! together! with! the! consultant! from! NOSCO!held!two!workshops!(three!hours!each).!At!the!two!workshops,!the!process!and! design!of!GB11!were!discussed!and!determined!based!on!NOSCO’s!recommendations.! The!process!of!GB11!can!be!divided!into!six!phases!as!illustrated!in!Figure!2!below.! ! Figure!2:!GB11!Process% ! !
  41. 41. ! 38! 3.3.1.1 Mobilize People The!first!phase!involved!recruiting!people!to!participate!in!the!game.!Two!teams!were! formed:!(i)!a!Screen!Team!and!(ii)!a!Maturation!Champions!team.!The!Screen!Team!was! formed!of!seven!R&D!managers!and!directors!who!had!the!responsibility!to!screen!TopS 25!best!ideas!and!select!TopS5!ideas!from!these.!The!Maturation!Champions!were!a!team! of!five!R&D!managers!who!committed!to!spend!30%!of!their!work!time!for!three!to!four! weeks!to!work!on!maturing!the!TopS5!ideas.!The!Maturation!Champions!were!selected! by!the!Screen!Team.!The!Screen!Team!and!the!Taskforce!could!invite!five!to!ten!people! each!to!participate!in!the!idea!market.!The!invited!participants!were!selected!based!on!a! recognized!ability!to!problemSsolve!and!generate!ideas!by!the!inviters.!Participants!in! GB11! were! thus! ‘handpicked’! rather! than! randomly! selected.! Additionally,! R&D! Management!(Senior!Directors,!Vice!Presidents!and!the!Executive!Vice!President)!was! invited!to!participate!as!‘observers’!in!the!market.!The!Screen!Team!and!Taskforce!were! also!participants,!which!resulted!in!a!total!of!145!invited!participants.!!!!! ! 3.3.1.2 Conceive Ideas The! second! phase! involved! the! 17SdaysSlong! online! ideation! where! the! 145! invited! participants!could!submit!an!unlimited!amount!of!ideas!and!comments.!The!idea!market! was!commenced!with!an!online!meeting!where!NOSCO’s!consultant!briefed!participants! on!the!practicalities!and!features!of!the!game.!All!participants!had!an!online!profile!with! name!and!picture!(if!they!wished)!similar!to!a!Facebook!profile!where!they!could!see!a! summary! of! recent! activity! on! the! site.! R&D! Management! had! the! option! to! be! anonymous! in! the! market.! They! were! therefore! able! to! comment! on! and! trade! ideas! anonymously.!Participants!were!encouraged!to!submit!ideas!by!writing!a!brief!summary! and!attach!documents!and!links!to!support!their!idea.!There!were!three!predetermined! categories!for!ideas!determined!by!the!Taskforce!and!Screen!Team.!The!ideas’!scope!was! thus!delimited!to!fit!into!one!of!the!following!three!categories:! ! 1) Entirely% new% enzymeLusing% industries:% refers! to! ideas! that! involve! enzymes! and!applications!in!industries%that!are!currently!not!using!enzymes.!This!category! is!arguably!the!most!radical!because!of!the!difficulty!involved!with!penetrating!an!
  42. 42. ! 39! entirely!new!industry.!It!can!therefore!be!argued!that!this!category!is!the!farthest! away!from!the!core!business!in!NZ.% 2) New%industrial%applications%for%existing%enzymes:%refers!to!ideas!that!involve! new!applications!of!enzymes!that!NZ!currently!have!on!the!‘shelf’!in!industries! that! NZ! currently! supply! with! enzymes.! This! category! is! semiSradical! as! it! is! arguably!more!difficult!to!develop!new!applications!than!new!enzymes!in!NZ.% 3) Industrial%applications%for%new%enzymes%/%new%enzyme%classes:%refers!to!the! development! of! new! enzymes! /! enzyme! classes! for! existing! industries.! This! category!is!arguably!the!least!radical!as!enzyme!discovery!is!the!expertise!of!NZ! and!is!thus!the!closest!to!the!core!business.% ! From! the! point! of! view! of! R&D! scientists,! the! three! categories! are! very! broad! and! thereby!leave!room!for!a!wide!array!of!ideas.!An!additional!feature!of!the!market!was!to! comment!on!the!submitted!ideas!to!support!the!idea!with!additional!information,!raise! questions!to!the!idea!submitter,!and/or!show!appreciation!or!concerns!of!the!idea.!This! feature! enabled! participants! to! build! on! each! other’s! ideas! and! concepts! with! their! knowledge.!The!comments!were!visible!for!all!participants!and!it!was!possible!to!attach! documents! and! links! in! the! comment! threads! as! well.! If! multiple! colleagues! had! discussed!an!idea!that!they!wished!to!share!in!the!game!(whether!it!was!participants!or! employees!not!participating!in!GB11),!it!was!possible!to!include!coSinventors!in!the!idea! description.!A!third!distinct!feature!of!GB11!was!the!trading!of!ideas,!which!enabled!the! crowd!of!participants!to!rank!ideas.!All!participants!were!allocated!100.000!$!of!fictive! money.!They!could!then!buy!shares!in!their!favorite!ideas!(except!in!their!own!ideas)! and! sell! the! shares! again! if! the! idea! in! which! they! had! bought! shares! became! less! attractive!by!either!the!comments!or!because!other!ideas!became!more!attractive.!The! trading!feature!was!open!during!the!entire!online!ideation!and!the!transactions!were! made!between!the!participant!and!the!system,!hence!not!with!other!participants.!The! value! of! the! invested! shares! increased! by! the! amount! of! shares! bought! by! other! participant! in! the! same! ideas.! Likewise,! the! value! of! invested! shares! decreased! when! participants!sold!their!shares!in!the!idea.!At!the!closing!of!the!market!on!November!9th! 2011,!the!ideas!where!ranked!by!the!value!of!their!shares!bought!by!participants.!The!
  43. 43. ! 40! value!of!the!ideas!where!based!on!the!value!of!the!shares!bought!and!not!on!the!amount! of!investors.!! ! 3.3.1.3 Screen Ideas The! third! phase! was! to! screen! ideas! in! order! to! identify! the! best! ideas! with! a! large! growth!potential.!GB11!had!generated!222!ideas!submitted!by!the!participants.!The!first! selection!process!was!to!identify!TopS25!ideas,!which!would!move!on!to!an!additional! review!and!screening!by!the!Screen!Team.!The!pool!of!TopS25!ideas!consisted!of:!(i)!the! 10!ideas!with!the!highest!market!value!by!the!virtual!stock!trading;!and!(ii)!15!ideas! selected! as! ‘wildcards’! by! R&D! Management! immediately! after! closing! of! the! game.! These! 25! ideas! where! then! reviewed! by! the! Screen! Team! and! scored! on! seven! parameters!by!each!member!of!the!Screen!Team.!The!parameters!on!which!they!were! scored!with!a!fiveSpoint!scale!(1!lowest,!5!highest)!were:!! ! 1) Technical%feasibility:!The!idea!had!a!strong!feasibility!rationale,!based!on! proven!scientific/technical!facts!from!published!articles!or!inShouse!unpublished! knowledge.! 2) Customer%Need:!The!idea!related!to!a!proved!customer!need.! 3) Resources:!NZ!had!the!necessary!resources!(i.e.!knowledge,!competencies!and! assets)!or!could!source/acquire!them.! 4) Sales%potential:!The!idea!held!the!potential!of!DKK!500!million!turnover!in!the! long!term.! 5) Competitive%advantage:!The!concept!gave!NZ!a!unique!competitive!advantage! over!competitor’s!enzyme!or!nonSenzyme!solutions.! 6) Gut%feel:!One’s!gut!feeling!says!“go!with!it”!OR!“this!will!never!fly!in!the! organization”.! 7) XLfactor:!The!idea!was!something!really!surprising,!something!NZ!had!not! realized!before.! ! Once!the!members!of!the!Screen!Team!had!scored!the!TopS25!ideas,!the!ideas’!average! scores!were!calculated!and!the!Screen!Team!held!a!twoShour!meeting!to!collectively!pick!
  44. 44. ! 41! the!TopS5!ideas!for!further!maturation!and!pitch!for!R&D!Management!eight!weeks!later.! According! to! one! of! the! members! of! the! Screen! Team,! the! ranking! based! on! average! scores!of!the!ideas!produced!the!day!before!the!meeting!was!almost!completely!turned! around! during! the! discussion.! Hardly! any! parameter! seemed! predictive! to! the! final! selection!of!Top!5!ideas!–!except!the!scoring!by!‘XSfactor’.! ! 3.3.1.4 Mature Ideas The! next! phase! was! to! mature! the! TopS5! ideas! and! to! prepare! a! pitch! for! R&D! Management! in! January! 2012.! Each! TopS5! idea! was! appointed! a! maturation! team! consisting!of;!a!maturation!champion,!the!inventor(s)!of!the!idea;!two!or!three!selected! experts!who!was!solicited!from!the!GB11!Taskforce!or!from!GB11!participants;!and!one! coach!from!the!Screen!Team.!! ! 3.3.1.5 Pitch and feedback from R&D Management The!next!phase!involved!pitching!the!TopS5!ideas!for!R&D!Management!in!January!2012.! The! ideas! competed! on! becoming! one! of! the! new! large! growth! bets,! which! would! consequently!receive!research!funding.!The!goal!was!to!identify!two!ideas!that!had!large! growth!potential,!however,!the!jury!(R&D!Management)!crowned!only!one!winner!as!the! other!ideas!proved!unfeasible!for!immediate!attention!in!regards!to!incubating!scarce! resources.!The!winning!idea!has!consequently!received!research!funding!and!two!patent! applications! have! been! filed.! Due! to! the! novelty! of! the! idea! and! the! pending! patents,! specific!details!of!the!idea!cannot!be!provided.!!! ! 3.3.1.6 Reflection The! final! phase! was! to! evaluate! the! GB11! pilot! project! to! decide! whether! this! untraditional!idea!generation!tool!should!be!used!going!forward!as!support!in!the!idea! generation!phase.!I!(in!collaboration!with!NOSCO)!conducted!an!evaluation!survey!of!the! participants!in!GB11,!which!showed!predominantly!positive!attitudes!towards!the!tool! (see!appendix!1).!!The!vast!majority!of!participants!would!like!to!participate!in!a!similar! idea!market!in!the!future!and!thought!that!the!game!was!entertaining!and!easy!to!use.!

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