From technology market placesto problem placesFrank T. PillerChair, RWTH Technology & Innovation Management Group, AachenC...
4Every innovation process requires two kinds of information,influencing the efficiency and effectiveness of the process.  ...
6Local search reduces problem solving effectiveness(Lakhani 2007)Local Search Problem                    EvidenceProblem-s...
8A good illustrationof open innovation: The Netflix Case                      11
12                                                                                 Objective: get root mean               ...
21From "The lab is our world"  to "the world is our lab"                                                                  ...
23                Crowdsourcing (Interactive Value Creation)    "Crowdsourcing represents the act of a company or     inst...
26                              Broadcast Search                                   (Karim Lakhani 2008)  InnoCentive is no...
28                   Exploring open innovation                   in the German machinery                            indust...
In the project, we selected five problems from both    companies and the FVA research consortium, be be    "boradcasted" o...
33© tim.rwth-aachen.de                       34© tim.rwth-aachen.de
On our call for solutions in five RFPs ("Requests for     Proposals") we got 95 solutions – from very     heterogeneous su...
Comparing „Broadcast Search“ and        Conventional Inhouse Problem Solving                        Typical inhouse       ...
Two statements of project managers       from our company partners                                        „During the proj...
Success Factors of "Problem Broadcasting"         A Good Open Innovation Environment            Clearly defined problem ow...
43                   This also provides great                       opportunities for                     technology trans...
Traditional pattern of university-firm technology transfer              University              scientists                ...
47    From market places    (for technologies) toproblem places for solutions                               47            ...
49      And there is so much        capacity for this                                          49                         ...
52The BIG question for innovation     management today: How to capture the "cognitivesurplus" existing for innovation  in ...
54Open for interaction:Prof. Dr. Frank T. PillerTIM-Group at RWTH Aachen UniversityTel.: +49 (0)241-809-3577piller@tim.rwt...
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Frank Piller - Keynote presentation

  1. 1. From technology market placesto problem placesFrank T. PillerChair, RWTH Technology & Innovation Management Group, AachenCo-Director, M.I.T. Smart Customization Group, Cambridge, MA tim.rwth-aachen.de | open-innovation.com 3 The problem of "local search"
  2. 2. 4Every innovation process requires two kinds of information,influencing the efficiency and effectiveness of the process. Solution Need Information Information market Ideation launch Doing things Doing the right right things Realization concept ("R&D", development product develop.) 5Overcoming the two problems of (just) "local search" for solution informationand "stickiness" of need information are crucial for innovation success. Solution Need Information Information sticky information market Ideation launch Doing things Doing the right right things Realization concept ("R&D", development product develop.) local search bias
  3. 3. 6Local search reduces problem solving effectiveness(Lakhani 2007)Local Search Problem EvidenceProblem-solvers have different local Experiment (psychology lab): individualknowledge stocks (Hayek 1945; von problem solvers have difficulty adaptingHippel 1994) to new problems (Luchins 1942; Duncker 1945)Problem solvers use their own local Team-based problem solving negativelyknowledge stocks and solution effected by prior experience and newalgorithms even when not appropriate: problems being different from old (Allen & Marquis 1964)Bounded rationality (Simon 1957) Firm & Industry level findings of negative effects: - Routines in problem solving – Photolithography (Henderson & Clark 1990) (Nelson & Winter 1982) – Semiconductor Manufacturing (Stuart & - Competency Traps Podolny 1995) (Levitt & March 1988) – Medical Imaging (Martin & Mitchell 1998) – Biotechnology and Semiconductors (Sorensen & Stuart 2000) 7 Open Innovation: A set of new methods to manage these two core problems ==> 20
  4. 4. 8A good illustrationof open innovation: The Netflix Case 11
  5. 5. 12 Objective: get root mean square error (RMSE) <= 0.8563 (Netflixs own algorithm Cinematch has RMSE of 0.9525, this equals to one point of error of recommendation on their 5-point scale of "hate-love" movie evaluation) 20A good picture of open innovation: Collaboration and input from diversesources ... and fair play in the end Nice summary from the winners perspective: http://www.research.att.com/~volinsky/netflix/bpc.html
  6. 6. 21From "The lab is our world" to "the world is our lab" 22 Open Innovation The formal discipline and practice ofleveraging the discoveries of unobvious others as input for the innovation process through formal and informal relationships*. *Note: It are the informal relationships that constitute the "innovativeness" of open innovation!
  7. 7. 23 Crowdsourcing (Interactive Value Creation) "Crowdsourcing represents the act of a company or institution taking a function once performed by its employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call. “ (Howe 2006) Other terms, same idea: Commons-based Peer-Production (Benkler 2002; Lakhani 2006); Open Innovation (Chesbrough 2003, Piller 2002); Interactive Value Creation; (Reichwald & Piller 2006; Piller 2004), Wikinomics (Tapscott 2007) 23 Inbound versus Outbound Open Innovation Inbound open innovation = "the practice of leveraging the discoveries of others" (Chesbrough and Crowther, 2006: 229) to support sourcing and acquisition of external ideas and knowledge to the innovative process Outbound open innovation = "the commercialization of technological knowledge exclusively or in addition to its internal application" (Lichtenthaler, 2009: 318)© tim.rwth-aachen.de Picture Source: http://www.psicorp.com/open_innovation/index.html 24
  8. 8. 26 Broadcast Search (Karim Lakhani 2008) InnoCentive is not alone: NineSigma and Yet2 are seen as core competitors, but have a slightly different business model Network Size 2m+ 160K+ Solvers, 175 120,000 registered users, 650K+ individuals Countries, 40 Disciplines 70+ brokers, 200+ 120+ Affiliates consultants How they make money Posting Fee Posting Fee Membership fee $4,000 to $12-19,000 $6,000 to $15,000 posting $30,000 Success fee = % of final fee* Consulting service fee contract or fixed amount Success fee = 40% of $30,000 to $40,000 (Retainer) contract or award Success fee = % of value of the deal Solver/Solution Provider $5,000 to $50,000 plus $5,000 to $1m Contract or licensing value awards follow-on contract value ($1.5m average) Growth 500 RFPs to end 2006 2008 postings nearly 25+ deals in 2008 400 RFPs in 2007 double 2007 postings Expansion of broadcasting large growth in 2008 and Opening of European office services 2009 in 2010© tim.rwth-aachen.de 27
  9. 9. 28 Exploring open innovation in the German machinery industry VDMA-FVA Project to Pilot Open Innovation in the German Driving Systems Industry 1. 1. Evaluation and 2. modification of OI Identification of methods for industry open innovation platform domain 3. Piloting of platform and 4. Development of evaluation of efficiency and business model effectiveness of approach as for future operation compared to conventional of platform on the means of organizing R&D FVA level© tim.rwth-aachen.de 30
  10. 10. In the project, we selected five problems from both companies and the FVA research consortium, be be "boradcasted" on NineSigma.© tim.rwth-aachen.de Source: David Feitler 2010 31 32© tim.rwth-aachen.de
  11. 11. 33© tim.rwth-aachen.de 34© tim.rwth-aachen.de
  12. 12. On our call for solutions in five RFPs ("Requests for  Proposals") we got 95 solutions – from very  heterogeneous suppliers. • 42 Industry • 32 Universities • 21 Others (non profits, research centers) Solution provider Origin of solvers institution 1% 1% 3% Industrie 1% Nordamerika Universitäten Südamerika Andere 8% Europa 22% Osteuropa 45% 41% Mittlerer Osten Asien Ozeanien 33% 44% Südafrika 1%© tim.rwth‐aachen.de 35 The solutions in general were both from sources new  to the companies and did contain a new technologial  solution Evaluation of solution proposals by project steering committees Institution Solution Technology RFP new known new known ? 66198 23 3 16 6 4 66204 10 0 3 7 0 66207 7 0 6 0 1 66201 33 2 evaluation ongoing 36© tim.rwth‐aachen.de
  13. 13. Comparing „Broadcast Search“ and Conventional Inhouse Problem Solving Typical inhouse problem solving* Broadcast Search 100 extern 25 30 5 8 intern 1 Direct search and self identification of solution providers enables a much more focused solution space * typical numbers from the literature 37© tim.rwth-aachen.de 38 Increasing the productivity of problem solving
  14. 14. Two statements of project managers from our company partners „During the project, our culture shifted dramatically. My colleagues are all bumping „During the project, we at my door, and want to have learned a lot about have their own RFP. We are new players and the changing from a notion of positions of other privacy and being closed companies in the (for better) to become technology space, and this more open. Participating at in a very short time. The this project was clearly the real "Aha" however was driver of this change.“ that we did learn so much about ourselves. We got a much better understanding where we are and what we know.“© 2010 tim.rwth-aachen.de 39 40 Changing the culture of innovation
  15. 15. Success Factors of "Problem Broadcasting" A Good Open Innovation Environment Clearly defined problem ownership (expert promoter) Buy-in for the implementation of returned solutions Managed by passionate outwardly focused project leaders (process promoters) Realistic time planning (RFPs will get to competitors sooner or later) Realistic budget planning (power promoter) Focus on Adherence to the Timeline Rapid high quality RFP crafting/iteration/turnaround (process and expert promoters) Rapid, well-defined internal RFP review process (power promoter) Cooperating with intermediary / broker and alignment of organizations for processing and scheduling optimization (process promoter)© tim.rwth-aachen.de The client perspective: Success factors of selecting an OIA (and working with them) • Determine the objective of your open innovation venture FIRST! • Decide about the control you want to keep on the open knowledge transfer process (and the exploitation opportunities of the results) • Decide about your resource allocation: Do you want to outsource or to co-create the innovation process with the OIA? Hint: Much "open innovation" today is inside the firm • Consider whats next in the short term: Shall the OIA provide support before and after the open task? (e.g., generating thousands of ideas is one thing, evaluating them another) • Consider whats next in the long term: Think of, e.g., community management • Look on your budget (especially if you are piloting)© tim.rwth-aachen.de 42
  16. 16. 43 This also provides great opportunities for technology transfer 43 Piloting open innovation via broadcast search as an innovative measure of technology transfer (DFG project in the material sciences and EU FP7 funded project for the nano-technologies) Starting situation: The European Paradox Europe is leading in basic research in the material sciences (and especially "nano" research) ... ... but is lacking behind North America and Japan in exploitation of research results Same on German level fro DFG: Plenty of initiatives, but no large impact in transferring research results from basic research into practice Idea to pilot open innovation: Research contract to RWTH-TIM First stage Background research on state of technology transfer system Empirical research and broad qualitative research (today) TAM study on level of researchers Second stage Piloting of open innovation for technology transfer Idea is to complement traditional transfer channels, not to substitute them Third stage If evaluation of pilots positive, establishment of OI platform on level of DFG / European Community© tim.rwth-aachen.de 44
  17. 17. Traditional pattern of university-firm technology transfer University scientists Companies Search for interesting document results Transfer technologies database Incentives for transfer Search for research in universities etc. - Part of grant contract - Screening of usual suspects - Expected value of potential - Using existing networks demand of knowledge by a firm - Local search bias - Increasing reputation - Transfer often stopped by "Not-invented-here"© tim.rwth-aachen.de 45 Using Open Innovation for Technology Transfer: A project for the German National Academy of Science (DFG) University scientists Companies screening of problems Open Broadcasting innovation problems platform Activities on research site: Activities on company site: - Screening of problems - Transfer of problems - Reaction only when problems seems to be - Screening and evaluation of problems known and cost to answer affordable - Transfer of "best" solution - Transfer of solution idea - Contracting of further directed research - Transfer of suggestion for contract research© tim.rwth-aachen.de 46
  18. 18. 47 From market places (for technologies) toproblem places for solutions 47 48 From "global" to "small worlds": Providing an arena for local open innovation 48
  19. 19. 49 And there is so much capacity for this 49 51200 billion hours of television watched each year (US only!) 200.000.000.000This equals about 2000 times the total(!) human hours invested in creating the English Wikipedia 51
  20. 20. 52The BIG question for innovation management today: How to capture the "cognitivesurplus" existing for innovation in the world (but not in your companys R&D lab)? 52 53 Our theme for today We problems!
  21. 21. 54Open for interaction:Prof. Dr. Frank T. PillerTIM-Group at RWTH Aachen UniversityTel.: +49 (0)241-809-3577piller@tim.rwth-aachen.detim.rwth-aachen.deopen-innovation.commass-customization.blogs.comscg.mit.edutwitter: @masscustom 54

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