Thinking differently (externally) about innovation

The N.C. Rural Economic Development Center’s annual Rural Partners Forum is coming up in early October and the topic this year is INNOVATION. And we’re sure that they’ll present a slew of different ways in which innovation touches our state’s rural economies, but is there a vehicle for innovation more radical than the Internet?

While most companies still cling to the invention model that centers on internally-generated ideas and intellectual property, other companies are beginning to adopt a fundamentally different way of thinking about how to develop new products and processes. They understand that the Internet is fueling the transition to an open model of innovation that is driven by greater access to talent, risk-taking entrepreneurship and capital – wherever in the world it is found.

In 2000, Proctor and Gamble (P&G) realized that their return on increasingly expensive research and development (R&D) investments was inadequate. Studying their process for innovation, they estimated that each of their internally-employed researchers had at least 200 talented peers worldwide with skill sets that that P&G could potentially use. So P&G decided to fundamentally change their view of R&D to now include not only the 7,500 people inside the firm, but also 1.5 million scientists and engineers outside the company. The Internet made this possible by providing those new connections. The results more than support the wisdom of that decision – to adopt an open innovation policy. The company reported in 2006 that R&D productivity is up almost 60 percent, and 45 percent of products in development having key elements from external sources. Their innovation success rate has doubled, the cost of innovation has decreased, and perhaps the most telling of all – the price of a share of P&G stock has doubled.

Eli Lilly, a pharmaceutical giant headquartered in Indiana, has also used the Internet to dramatically change their innovation model. Eli Lilly created and spun-off Innocentive, a Web-based service firm that posts client’s scientific problems and offers cash for accepted solutions, maintaining the anonymity of all involved. This approach allows firms of all sizes to efficiently use the Internet to leverage their access to a critical and scarce R&D resource – talented human capital. It was found that for the 166 problems solved through Innocentive, the further the problem was from the solver’s expertise, the more likely he or she was to solve it. Non-experts in one field solved problems in another field by thinking differently. The results reinforce the value of the Internet as a boundary-eliminating connection that can serve to enrich blockbuster innovations.

The application of the Internet to spurring innovation is not limited to R&D enterprises. Netflix, a mail-order and Web-based entertainment service recently offered a $1 million award for an algorithm that would improve efficiency of one of its existing internal systems by at least 10 percent. They drew over 15,000 entrants from 126 countries, and the leading solution came from Budapest University of Technology and Economics.