After being at it for three years, P&G reported that its R&D cost is down from 4.8% to 3.4% of its revenues while the innovation success rate has doubled! R&D productivity has increased by 60%. Its R&D network now has access to more than 1.5 million creative minds, 45% of their initiatives in product development are based on ideas from external sources, compared to the previous 15%. New products now take less than one year to get from concept to market, compared to a minimum of two years previously. P&G’s share prices are up and investors are happy.

But that’s not all. Remember the “failed” innovations from those R&D labs that did not make it to the market?  Open innovation says that companies should put them up for sale or be licensed to someone else. What may not be useful in one situation may be useful in another and making it another potential revenue source for the idea owner.

Some companies have taken this new business models to a new level by allowing idea and technology suppliers to participate in the co-creation and risk sharing. Take one of Apple’s iPod suppliers like Synaptics for example – they not only provided the iPod’s click wheel technology, but they also gets a revenue share for each iPod sold! That is a powerful incentive for suppliers to ensure the end product becomes successful.

Opening up your innovation process is the definite way to go. But where in the world do you go to source for ideas? Try NineSigma. (www.ninesigma.com). It is one of the new breed of companies in the emerging innovation space. Essentially they are online marketplaces that have sprung up to meet the growing demand for great ideas in recent years. Think of them as stock exchanges except that they facilitate the trading of ideas rather than shares.

Actually, NineSigma is not that new; it has been around since 2000. NineSigma uses a combination of "sophisticated software" and the expertise of technical, scientific, and other specialists to help its innovation seekers search for solutions.

One interesting case came about when detergent that was packaged in pouches made of a water-soluble film, started developing small leaks and started to stain the external card board boxes. Sure enough, the stained boxes were left on supermarket shelves as customers going for the competitors’ products and sales started to hurt.   

NineSigma helped the client define the need in a generic scientific problem then they comb through some 800,000 solution providers in the network. The search led to a solution from a small company in the U.K., but it is a company that makes insecticides, pesticides, and herbicides! No one would have thought that the fitting solution can be found in such an unlikely place – in a completely different industry. It turned out this company was using the same water-soluble film to package some its products, and had learned that the leaking problem could be alleviated in the packaging process. NineSigma then connects the client with the potential solution provider and continues to facilitate communications between the two until a contract is signed. The entire process is conducted in such a way that neither party has to fear having intellectual property compromised.

The cost? NineSigma charges a small discovery fee upfront and upon finding a workable solution, NineSigma then collects a “success fee.” The best part is that NineSigma doesn't accept fees from solution providers to avoid any appearance of having a conflict of interest. So innovators have a good incentive to get connected with them. To date, it has helped more than 1,300 companies find solutions to engineering or technical problems. Not a bad business model. And with clients like GlaxoSmithKline, Kraft, Philips, Unilever and Xerox, NineSigma is one of the fastest growing private companies in the U.S.

If you think NineSigma’s flavour of open innovation is radical, try throwing Web 2.0 at Open Innovation. What do you get? Something called Crowdsourcing. In this case, open innovation takes the form of product co-creation with customers or “the crowd”. Problems are defined and then broadcasted to groups of communities. The crowd then sort through and filters out all the noises and eventually picks the winning the solution. The company that did the broadcast i.e. the Crowdsourcer, ends up owning the solution selected. The Crowdsourcer may choose reward the winner, with money or some form of recognition.

Although intended to be a business model, this approach actually fits government and non profit organizations pretty well. One of the prime areas for crowdsourcing is urban transit system planning, like the one in Salt Lake City. The process is funded by the US government. Kuala Lumpur City Council or DBKL should really try this out when planning for Kuala Lumpur’s urban transport system!

Not surprisingly, there are already companies specializing in the Crowdsourcing business – companies like InnoCentive, Crowdspring and Crowdspirit to name a few. But this idea is still very new, the term Crowdsourcing was first coined by Wired Magazine only as recent as June 2006. So it remains to be seen if this business model is a viable one, but DBKL should still give crowdsourcing some serious thought regardless!




Article by: Gilbert Chang