Yegii White Paper on Open Innovation

Yegii Inc. 8 Appleby Road Disruptive Insight | Only the knowledge that matters Wellesley, MA 02482, USA. Tel. +1-978-308-0432 (US) | Email [email protected] | http://www.yegii.com | Copyright © Yegii Inc. 2014.

1. Open Innovation is an attractive business model.

To have open innovation as a business model means to take key strategic input from

outsiders as well as insiders in the organization and deploy the insight gleaned in product

development efforts. The reason this is attractive is that industries change fast. Knowledge,

while sticky, goes stale.

2. There is often resistance towards true open innovation. Everyone, from the CEO, to executives, to middle managers, to expert knowledge workers

might feel threatened by the notion that there are ideas they themselves have not thought

of. The fact that those imported ideas can have an impact in their domain of responsibility is

viewed as an anomaly.

3. The 3rd party innovation market is maturing.

Since the idea has been around for decades, most firms say they do open innovation. Many

third parties engage in matching organizations to problem solvers and experts. However,

firms cannot fully benefit only from being matched to smart people. There must be a

process in place to exploit it.

4. The next generation open innovation is very different Increased trust in disintermediation has created opportunities at the higher end of the spectrum. Realizing the true potential of opening up innovation has to do with mobilizing employees and executives to share thoughts with the outside, not just receive input. Expert network? That’s you.

1. Open innovation is an attractive business model

To have open innovation as a business model means to take key strategic input from outsiders as well as insiders in the organization and deploy the insight gleaned in product development efforts. The reason this is attractive is that industries change fast. Knowledge, while sticky, goes stale.

Smorgasbord refers to a Scandinavian buffet with a variety of delicious, cold foods. It is

festive, yet practical. Given that this emerged in Northern Europe, cold food stays cold for a

while, and people like it that way. Open innovation, however, quite familiar in Scandinavia,

too, does not travel while cold. That’s where the metaphor breaks down.

Open innovation actually works around the principle of making sure things are hot. You

know how this works, because the all too familiar trend spotting industry works this way,

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too. Consumer tech is hot. Solar energy is hot. 3D printing is hot. There is no end to the

things that somehow are too warm to touch. Sometimes this is the problem. Keeping

anything hot is challenging.

Nothing would be more commonplace these days than to say you practice open innovation.

You cannot survive in the corporate world without it, it would seem. There is an entire

service industry catering to it. A new generation consulting firms rush to help firms

innovate; NineSigma, Hypios, Ideascale, Induct Software, Innocentive, Inno360, Kaggle,

Spigit, Yet2Come, they all have fancy names. Done right, with open innovation you innovate

faster, cheaper, and more predictably.

If you add the expert networks to it, AskVisory, Cognolink, Coleman Research, The

Conference Board, Gerson Lehrman Group (GLG), Guidepoint, HourlyNerd, Maven Research,

Skillbridge, Zintro, even LinkedIn, you have the whole nuclear family of knowledge and

innovation players. All are featured on Crunchbase, the go-to place for tech startups of the

last decade. According to Integrity Research, roughly 25 companies are in the expert

network business and the industry is expected to be worth approximately US$325 million in

2012. However, this is only the top of the iceberg since old school consulting is not included.

When the bestselling book Wikinomics was published back in 2006, many did not know

what mass collaboration was. Words like wiki, crowdsourcing, and social media have since

become commonplace. The site, Crowdsourcing.org lists in excess of 2500 websites in the

area globally, 195 of them seem to deal with open innovation directly. Just like the online

dating industry, using these sites is not embarrassing any more. It is the norm. If you don’t

collaborate you don’t have a job. If you don’t share what you’re doing, you cease to exist.

You go cold, as it were.

2. There is often resistance towards true open innovation

Everyone, from the CEO, to executives, to middle managers, to expert knowledge workers might feel threatened by the notion that there are ideas they themselves have not thought of. The fact that those imported ideas can have an impact in their domain of responsibility is viewed as an anomaly.

Open innovation challenges the idea of an internal R&D unit, strategy team, or executive

team. Rather than come up with everything themselves, they are now asked to prioritize

ideas that very visibly come from other parties. Where those ideas earlier were part of an

internal process where it was fairly easy to take the credit for the refinement and

organizational enactment of ideas originating somewhere inside your own organization,

now, the ideas might have been posted online for all to see.

For open innovation to work, you need to share early stage ideas and concepts before they

are fully formed. You will expose the fact that you have not made up your mind, that you

don’t have all the answers, or that you don’t fully understand what is being asked of you.




In some organizations, it is the perceived intellectual property risk that is the most

challenging. The legal department might fear that company secrets or strategies are leaking

out through the open innovation process, even though that aspect is handled quite well

with appropriate confidentiality agreements or managing what information the

participants get access to.

3. The third party innovation market is maturing

Since the idea has been around for decades, most firms say they do open innovation. Many third parties engage in matching organizations to problem solvers and experts. However, firms cannot fully benefit only from being matched to smart people. There must be a process in place to exploit it.

You might wonder how you actually help people invent new things. After all, isn’t that hard?

Well, there are different approaches. Most players believe web based solutions have

something to do with it. These are not the old school knowledge management systems that

take ages to learn and that nobody uses. They have nothing to do with the cold, lifeless,

corporate intranets of the last few decades.

Open innovation platforms are mostly quite simple to use. They have one purpose in mind

and one alone: help stimulate ideas to flow around the organization on its own, and enable

them to float to the surface whenever there’s an opportunity to exploit.

To stimulate open innovation, third party providers use a specific type of competitions. By

pitting people against each other, they will be motivated to share, is the dogma. Over the

last few years, gamification is the norm. Everything has a touch of fun and games. For

instance, if you compete to resolve, say, a tiny piece of NASA’s next space mission challenge

on Innocentive, you compete for a cash prize. On other sites, you compete for points. On all

sites, you compete for reputation.

Reputation is of course something everybody cares about. However, in the Internet world it

was for a long time only assumed that software programmers bothered with it. The first

generation of open source software, now ubiquitous, was built on the notion that people did

everything for free, as long as they got the credit for some beautiful piece of code in front of

their peers. Turns out, we are all like that. We want to show off. We want to be important.

And we want others to see it. Don’t you?

However, procuring and stimulating ideas is not enough to innovate. You must have a

process in place to exploit the ideas. This is where many large organizations fail. New ideas

are so challenging precisely because they do not follow the business logic of today. Vested

interests and investments do not always allow for tinkering. So, spinouts occur. Innovators

leave the building. Only when you truly can afford to think that your own organization

might have to change as a result of open innovation, can the ideas gain foothold.




We know that business model innovation is notoriously hard for larger companies. In the

forthcoming book, The Risk-Driven Business Model: Four Questions That Will Define Your Company (2014, Insead Professors Karan and Serguei Netessine state lack of top

management support, reluctance to experiment, and failure to pivot as reasons why.

Admittedly, most large structures develop set ways. It is the way it is, regardless if we know,

as management scholar Rosabeth Moss Kanter famously argued, that giants can learn to

dance.

Not to let startups off the hook. The only reason business model innovation is slightly easier

for smaller, agile players, is that they are constantly working on it. Or, they haven’t picked

one. But that doesn’t make it easy.

The long and short of it is that unless you are working on your business model, you don’t

have one. This is not some updated version of Any Grove’s Only the paranoid survive. No, it

simply means that change is happening to us rather than consciously being enacted. It

means the structure is shaping our choices for us. Unless, we act to prevent it, that is.

4. The next generation open innovation is very different Increased trust in disintermediation has created opportunities at the higher end of the spectrum. Realizing the true potential of opening up innovation has to do with mobilizing employees and executives to share thoughts with the outside, not just receive input. Expert network? That’s you.

Crowdsourcing is currently moving up the value chain and is no longer only for fringe

freelance work. For example, Hourly Nerd, a Harvard startup, is using the free time and spare

capacity (one would assume night time hours) of current and alumni MBAs from top

business schools as their workforce. Business challenges from $250 to $25,000 are solved in

hours, days or months, depending on what the case may be.

What is so different about these new approaches? Expert networks have always existed. We

can at least trace important professional societies to the Middle Ages. The way to learn a

trade used to be to learn as an apprentice. For the very ambitious, this meant traveling to

those in the world (or the country) who really knew what they were doing.

As massive amounts of people wanted to learn, and as capital and ideas accrued, that model

was abandoned. That is, we institutionalized learning into institutions called universities.

We put people in charge of teaching. We created classrooms and auditoriums. Auditorium

means a place where you listen.

The advent of the web in the 1990s meant vast amounts of information started to become

available at the push of a button. There was less listening. Now, people wanted to be active.

But they wanted to engage in their own activities, not in those of their masters, teachers, or

parents.




Over the last twenty years, we learned how to build online communities, mostly for hobbies

and socializing. The last decade has brought life to the idea of tapping into a network of

ideas from strangers you may have not met. Only, in the last few years have ome actors

have taken crowdsourcing to a professional level—beginning to source true expertise

globally.

Some say LinkedIn is an expert network. Most people beg to differ. They actually tried but

discovered they were a directory, just like Plaxo. A nice explanation is offered by the

anonymous author of the blog Stilltitled.org:

“An expert network solves three problems. First, discovery. It surfaces those experts, niche or

otherwise, whom you need to know. Second, it manages the engagement from qualification

to contracts and compliance to connections to compensation. Third, it builds a repository of

all past connections for both experts and clients. It’s the combination of everything – the

systems, policies, compliance – that makes it work.”

What distinguishes an expert network from another is not so much the number of experts it

purports to contain, but the actual level of expertise of those experts, and how the process

of mobilizing that expertise is organized. The most successful use of crowdsourcing involves

careful virtual team composition.

Another distinguishing feature of open innovation is the focus on content. No experts can

operate without content. The current word is big data, which essentially refers to the fact

that previously untapped information now can be brought to bear on strategic business

challenges because of better information gathering and analysis tools. But the process starts

before that.

In the beginning there were libraries. Then came book stores. Then came the internet. E-

books appeared. Now we essentially have both paper and digital coexisting, although some

will have it books have disappeared. Regardless of medium, there is a consistent focus on

gathering books, reports, and other data sources in repositories. The huge ones, Library of

Congress, British Library, HBS Baker Library, or MIT Library gather millions upon millions of

volumes, increasingly in electronic form. They also try to categorize it, but that job I dare say

they have almost given up. There are massive metadata initiatives. There are open data

sites, notably from the US government eponymous initiative.

I remember writing about search engines at the end of my Master’s thesis on the Quality

criteria of Publishing back in 1996 that they would become tremendously important filters

of information. I remember my advisor and the committee didn’t really understand or care

too much. This was the early days of the internet and there were plenty of such things,

AltaVista, Fast Search & Transfer, InfoSeek, Lycos, even Yahoo was in the business in those

days. They were viewed as complements to an avant garde pursuit of fetching information

from afar just because we could, not because it was particularly useful yet.

Yet, what strikes me now, in 2014 is not how right I was in claiming search engines would

seem important for a while (although that feels good, too). No, what strikes me is how

wrong it is that search engines are still perceived as important. In fact, some say that Google




is appropriate to use in the search of information. The problem is, Google is a consumer

service that tries to be everything for everyone. That was fine as a strategy to win against all

the others, but it will not suffice as a user strategy towards specialist audiences.

Who cares that there are billions of pages on the internet? Enterprise grade level products

must be able to sift through all the garbage. Not that garbage is the only problem. Good

reads is as much of a problem. In the energy sector, to take one, there are enough good

reads to last a century. That does not help when trying to pick what’s relevant in order to

understand the emerging energy landscape and the consequences for a startup or a huge

business. What are we left with?

Various new players have appeared, such as IPL2 and ReportLinker.com, who attempt to

organize the plethora or studies issued all the time and direct us to them and have us pay

for it. On the microcuration side, there is Curata, which builds on the success of Twitter and

all those weblinks that we used to organize in Digg or not organize at all.

Going forward, open innovation will no longer be only about matching passive corporations

to eager freelancing experts or content from universities or places afar. Also, it will not be

about engaging R&D departments of huge firms or universities.

Connecting executives, knowledge workers, experts, and publishers in creative, productive,

efficient ways means that everybody has a role, and everybody plays together, whether they

are far or near, inside or outside your organizational structure. Three features stand out:

Nobody is too busy or too clever to take part in the discussion. If they claim that,

they are simply not with it. Decisions are a very small part of innovation. It actually

does not take up so much time.

Nobody, as in no one person or entity, regardless of their stature or brand, has all

the answers. In-house teams don’t regardless whether they are a bunch of smart

PhDs in the lab, the strategy department, a successful line business, management

consultants, or freelancing consultants accessed through expert networks.

No one source exists that has all the answers. Whilst the emphasis should be on

curating and rank high value content, databases, experts, & reports, it is what they

mean in terms of mobilizing to create the architecture of new markets that counts.

For that, you need a mix of stakeholders. You need to test and see what sticks.

For too long, corporations have accepted the role of strategy consultants in telling them

what to do. Nothing could be further from open innovation. Instead, the next generation

will be about birthing innovation from within the ranks, enabling insight to emerge.

Strategy is nothing but an expression of where a firm is already going. However, knowing

where your firm is going is not as simple as to listed to the CEO or look in the annual report.

You need to tap into the true innovation flow and capture it; less glamorous, perhaps, but

slightly more real. The path from data to decision will still be long.

Not all firms eat at the open innovation smorgasbord. They are not hungry enough.




References

Chesbrough, Henry W. (2003). The Era of Open Innovation. Sloan Management Review. April

15, 2003. http://sloanreview.mit.edu/article/the-era-of-open-innovation/ (accessed

5/20/2014).

Cinzia Battistella; Fabio Nonino (2012). Open innovation web-based platforms: The impact

of different forms of motivation on collaboration. Innovation: Management, Policy &

Practice: Vol. 14, No. 4, pp. 557-575.

Evan, Frank (2009). Defining success in open innovation. Nine Sigma White Paper.

http://www.ninesigma.com/news-and-events/press-release/2009/new-ninesigma-white-

paper-defining-success-in-open-innovation (accessed 5/20/2014).

Linkedin does not an expert network make, 14 July 2011, Stilltitled.org:

http://stilltitled.com/2011/07/14/linkedin-does-not-an-expert-network-make/ (accessed

1/12/2014).



http://sloanreview.mit.edu/article/the-era-of-open-innovation/

http://www.ninesigma.com/news-and-events/press-release/2009/new-ninesigma-white-paper-defining-success-in-open-innovation

http://www.ninesigma.com/news-and-events/press-release/2009/new-ninesigma-white-paper-defining-success-in-open-innovation

http://stilltitled.com/2011/07/14/linkedin-does-not-an-expert-network-make/


About Yegii

Yegii is creating the world's first true insight network. What is an Insight Network? Short

answer: people who know something about technology, policy or business. Together,

assisted by a man/machine algorithm, we assess which knowledge assets—reports,

documents, books, and websites--are valuable and which are not. It doesn’t matter if you are

an industry professional, an expert, a consultant, or an academic. You need only the

knowledge that matters, nothing else. What does Yegii do? Yegii helps people and

companies find their innovative edge – even during industry disruption. For example,

Santander, a global top 5 bank, has asked Yegii about Bitcoin’s impact on Banks. Bitcoin is an

emerging payment system. However, as it exists today, it may remove the need for banks.

Will it take off? How soon? What will it look like? Why join Yegii? You seek knowledge in fast

moving industries such as healthcare, energy, or manufacturing. To solve business

challenges we need experts, thinkers, and doers to join Yegii and become a part of the

conversation. Earn money for your insight and become a part of the future of online

networking and professional development. Participation is fun, educational, paid, and may

change your life.

The team behind Yegii has led change projects at Oracle corp., Fidelity, Bertelsmann,

Random House, The White House, the European Union, and MIT. Yegii's Advisory Board

includes a CEO and a US Air Force General. Yegii's expert network counts CEOs, PhDs, and

industry professionals with 10+ years experience across industries.

See http://yegii.com/

About the Author

Trond Undheim, PhD, is Founder, CEO, Yegii Inc., the insight network, Managing Director

Tautec Consulting, and Senior Lecturer, MIT Sloan School of Management. Formerly, he was

a Strategy/business dev. executive at Oracle Corp. (2008-12), a Policy maker in the EU doing

IT policy & R&D (2004-8), and a Project manager (energy, IT) in a think tank (2002-2004).

Trond is a Serial entrepreneur (consulting/incubator/web) with a PhD in Knowledge

Management from Norwegian University of Science and Technology (NTNU) and has been a

Visiting Research Associate at UC Berkeley. Trond is a frequent speaker on emerging trends,

technologies, policies, and business models in several industries, including Energy, Finance,

Healthcare, Manufacturing, and Tech.



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Notes:




Berkeley.

