Managing Innovation

Innovation is not just luck. Nor is it a simple, replicable process. Three management techniques have withstood the test of time:

1. Measure innovation. This is based on the adage that you can only manage what you measure. The most effective measurement is the percentage of revenue generated from recently created products.
2. The BCG Matrix. This quadrant helps define the areas where you should be seeking innovation.
3. The 20% free time for employees to spend on any project they like. This enables "off-the-wall" ideas to percolate without getting strangled at birth by management. Google made this famous recently, but it was originally pioneered by 3M. Here is a good review of the technique.

Innovation 3.0

Social media might enable a third wave of innovation management:

1.0 = Internal R&D departments. Give big budgets to bright people and tell them to invent. Bell Labs was the archetype of this model.

2.0 = Acquisition-led. This assumes you cannot innovate internally, that start-ups will build the new stuff, and you have to acquire the ones that succeed. This model has powered Silicon Valley for decades. It will always have a role to play (as will, to a lesser extent, 1.0 internal R&D labs). But the track is littered with failures. Integrating products is relatively easy. Integrating cultures and retaining the passion of entrepreneurs is really, really hard. Fred Wilson describes this eloquently in his post on how "We need a new path to liquidity."

3.0 = Leveraging social media. The potential exists to get the best of both the 1.0 and 2.0 worlds. The 1.0 internal R&D labs did not suffer integration issues but usually missed the big innovation opportunities that were achieved by acquiring start-ups. Social media offers the alluring possibility of harnessing outside innovation without the integration issues.

Crowdsourcing Successes and Failures

Crowdsourcing has been around for a while. Josh Catone wrote a good round-up of companies leveraging it back in May 2008. Enough time has elapsed that we can start to see the winning formulas and spot the losers.

Fundamentally, the crowdsourcing model depends on the motivation of the crowd to contribute. We have seen four main types of incentives:

1. Cash prizes. One of the pioneers of this, Innocentive, offers cash prizes. This clearly works.
2. Equity in start-ups (aka "Cash in future, maybe"). Many people have tried this and most have failed. Ideas without teams to execute are not of much value. It is just too woolly. These models bloom briefly at the end of start-up booms and die as soon as conditions turn harsh.
3. Visibility. These competitions that beckon contributors to find the right answer and get their name in lights can either work or be exploitive. It depends a lot on the execution. The visibility can lead to more business for the contributor (it's free advertising that comes from using one's smarts rather than cash), and it has ego gratification as a bonus.
4. Love. The rationale here is that if you love your country, community, school, or cause, you will donate time willingly. Entrepreneurs who cynically tap this motivation for profit are soon exposed.

Innocentive Shows that Context Matters

Innocentive is a pioneer in crowdsourcing. It started in 2001 and was made famous in Wikinomics: How Mass Collaboration Changes Everything (a great book, a must read that you'll find yourself referring to repeatedly). One reason why Innocentive works is that its challenge is very specific. It creates context, and that makes it executable. The "seeker" (the company looking for a solution) knows how to make money when it gets the answer from its community of "solvers."

Innocentive has a simple business model: i.e. taking a transaction fee. The company has been around since 2001 and looks like it has staying power. It raised $6.5 million in a Series B round in May 2008 from Spencer Trask (the VC firm that backed Thomas Edison's invention of the lightbulb, which is as iconic as it gets in the world of innovation!).

The Innocentive model is very well suited to problems that are well defined but tough to solve. For example, it's obvious we need smaller, longer-lasting batteries. The problem is easy to define, but the solutions are really hard. Anybody solving the technical challenges will make a lot of money.

But this model does not work so well for totally out-of-the-box innovation. You cannot say, "Create a totally new way to communicate" and expect some bright spark to invent Twitter and offer it to you for a set prize.

Brightidea Filters Ideas the Other Way

Brightidea is also working with big companies that want to turbo-charge their "suggestion box" and get some real value from it. The idea of using the web to ask customers, partners, and employees for ideas is nothing new. The web only enables the floodgates to open. Brightidea aims to help companies process and filter this flood of ideas so that they get the context needed to implement them.

This seems like a valuable service-based business with a neat web front end to facilitate the idea flow. The company boasts some big clients, "including Cisco, Emerson, Bristol Myers Squibb, Bosch, ING Financial, and the U.S. Department of Defense." With so much of middle management having been de-layered, re-engineered, or right-sized (pick your favorite euphemism for "fired"), enterprises need external resources for this critical function.

It is also critical for companies to be seen to take action on suggestions. There is nothing more unmotivating than saying "Take the time to give me your best ideas, for free," and then ignoring them. Of course, many ideas -- most, in fact -- are not executable. But you need to implement enough of them to put the inventors' names in lights and encourage others.

Brightidea helps those companies that want to do this and become "porous enterprises" but don't have the internal bench strength to make it happen.

Change.Gov and the American Enterprise

President Obama (it sure feels good to write that) is serious about changing America, and he is bringing his experience as a community organizer to Change.Gov, using all that the web has to offer. If you have not participated yet, try it now.