Is Open Innovation a Tournament?

by Stephen Shapiro

A magazine asked me to write a book review of "Innovation Tournaments" by Christian Terwiesch and Karl Ulrich. The book arrived in the mail yesterday and I immediately turned to the index to see if InnoCentive was listed. Sure enough, we are mentioned in several places in the book.

This got me thinking: Is InnoCentive a tournament?

The word tournament is derived from the French word for "medieval sport" and is now used to describe a wide variety of competitions.

Most competitions/tournaments are quite entertaining. And by their very nature, there is always a winner. One could argue that tournaments are "spectacles designed to find a champion."

Given this widely held point-of-view, using the word tournament as a descriptor of InnoCentive seems to be inaccurate.

The NCAA basketball championships are a tournament. The "World Series of Poker" is a tournament. American Idol is a tournament. With each of these, there is always a winner. The purpose of the tournament is to find that winner while (usually) providing entertainment value.

InnoCentive is not interested in finding a winner for the sake of naming the champion. The objective is to find workable solutions to real business problems. Their approach is one I call a "contingency-based, value-driven pricing model." Admittedly, that does not sound as sexy as calling it an innovation tournament.

Here's how it works. A company has a problem they want solved. They decide the "value" of finding a workable solution and they offer a "bounty" to anyone who can provide one. The bounty is only paid when they get what they need. This "pay for solution" model outsources the risk associated with complex problem solving.

Here are other examples that illustrate the key difference between the bounty-based approach with the tournament-based approach.

The NetFlix Prize was not a tournament. They only paid the team that improved the recommendation engine by 10%. This makes is a bounty-based approach. You only pay the bounty when you get a successful solution.

In contrast, The Cisco iPrize, can be thought of as a tournament. According to their website, they will "select up to 32 semifinalist teams that will work with Cisco experts to build a business plan and presentation... Up to eight finalist teams will present their business ideas to a judging panel to compete for the grand prize: a $250,000 award shared equally by members of the winning team." The LG Electronics competition (read my article on it here) was also a tournament-based approach.

The key difference is the way the challenge is articulated. With the bounty-based approach, the success criteria is clearly defined and you know if someone provided a successful solution: Did you improve the recommendation engine by 10%? Did you find a chemical compound that has specific properties? Did you develop a mathematical model that optimizes solves a specific problem? The "winner" of the bounty is determined by this success criteria. If the criteria is not met, the bounty is not paid.

With the tournament-based approach, the success criteria is not defined. The winner is the "best" of the submissions. Although these types of competitions can yield excellent solutions, I know from inside-information that the results are often less than stellar. One company that uses this type of tournament described the results as a "PR success yet a commercial failure."

Both approaches can provide value to any organization. It's just important to recognize that they are useful in different ways. Tournaments can be great to get a broad set of ideas for an undefined space. Bounties are great for when you are hunting down usable solutions.


Related articles:

• Innovation Tournaments Interview - Christian Terwiesch
  
• Book Review - "Innovation Tournaments"

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Stephen Shapiro is the author of three books, a popular innovation speaker, and is the Chief Innovation Evangelist for Innocentive, the leader in Open Innovation.

Are you an Innovation Venture Capitalist?

by Paul Sloane

The most innovative leaders have a mindset like that of a venture capitalist. They take a portfolio view of innovation projects. The venture capitalist will invest in a basket of different start-up companies, fully knowing that most will fail. A few might break even and one or two might be successes. But one big success can pay back the costs of all the failures. Even though he is smart, the VC does not know at the outset which ventures will succeed and which will fail so initially he backs them all. As time goes on he cuts funding for the failures and gives more to the winners.

It is the same with prototypes in business. The leading innovators run many different pilots and measure progress carefully. They chop the losers but pour more resource into the successful trials. That way they are first to market with the real winners.

VCs use a portfolio approach so that they balance the risk of losers with the upsides of winners. They are comfortable with the knowledge that many of the ideas they back will fail. They are also comfortable with quantity. They receive hundreds or thousands of business proposals every year from all sorts of diverse sources. Many of these have already been rejected by several other VCs but that does not matter.

The VC sets his own criteria and selects several ideas to support and put into his portfolio. If the business plan then misses its targets or milestones or the customer reaction is poor or the technology fails to deliver then the VC is sanguine about pulling the plug on this investment. He wants to put more resources into the portfolio ideas that are working and he is quite relaxed about strangling the losers. If he can cut his losses and get out early he will.

Contrast this with a typical corporate environment where a small number of new business proposals are considered. A handful is eventually selected and then every effort is made to make them succeed. Failure is abhorred. Extra resources and efforts pour into the CEO's pet project even when the market is screaming that this one won't fly. Emotion and egos come to the fore.

Think like a VC and remember these key points:

• Quantity is good - we want lots of ideas


• If an idea has been rejected before, we are happy to consider it again


• We will select the most promising on objective criteria


• We want a return on our innovation portfolio as a whole


• We know that many of the more radical ideas will probably fail


• We will focus our resources on the winners and cut resources on the losers

Why not get a venture capitalist to speak at your next executive meeting?


If you enjoyed this post, check out Blogging Innovation's book review of "Innovation Tournaments" and its interview of co-author Christian Terwiesch.

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Paul Sloane writes, speaks and leads workshops on creativity, innovation and leadership. He is the author of The Innovative Leader published by Kogan-Page.

Innovation Tournaments Interview

Interview - Christian Terwiesch of "Innovation Tournaments"

I had the opportunity to interview Christian Terwiesch, one of the co-authors of "Innovation Tournaments" about how to create and select exceptional opportunities. We also discuss a variety of other innovation topics including: barriers to innovation, education, and metrics.

Professor Terwiesch teaches MBA and executive classes in the areas of operations management and product development at The Wharton School of the University of Pennsylvania. He also holds a visiting appointment at INSEAD in Fontainebleau, France.

Here is the text from the interview:

1. When it comes to innovation, what is the biggest challenge that you see organizations facing?

Innovation is seen as an art and organizations believe that the best way to nurture innovation is to simply create the right organizational culture and environment for people to become creative. Open floor spaces, many meeting rooms, x-functional collaboration, etc. But it is not enough to rely on culture and the passion of individuals. You need to put processes in place and you have to equip people with the right tools of innovation. Innovation is NOT an art, I can teach you the basics of innovation in a day. I found innovation tournaments to be one great tool for people and organizations to move to a more process driven approach to innovation.


2. From your experience, what are some of the keys to increasing variability to help get the best ideas?

Variability is key in innovation and in innovation tournaments. The more diverse the set of ideas, the better are your winning ideas. But I find that many companies have a hard time coming up with high variability ideas. Those in charge of innovation always turn to the same people for ideas, they listen obediently to their bosses and to their customers. That kills variability. I'll give you another example - In some of our most recent research, we look at how brainstorming meetings function. Many of us are taught to build on other people's ideas in such brainstorming meetings. But our research shows that while this might make us feel happy and collaborative, the resulting ideas are actually less innovative. At least at the ideation step, you have to just break a lot of norms and existing molds.


3. What metrics do you usually see organizations using to measure innovation success?

Organizations need to measure innovation - what you don't measure, you do not manage. Talking to companies, I often see them struggle with measuring innovation - often I get asked "what measures should we track?". Organizations often don't know what they should measure. And so they measure what is easy to measure. Number of patents, percentage of revenues generated from new products, R&D spending, etc. You should not measure just for the sake of measurement. Before you measure, you first need a game plan, a strategy.

Let me give you an example. For managers, measures are what the dashboard is for a driver. They give you information about the way the process operates. Now look at the dashboard in your car. You are driving 60mph, your engine spins at 3000rpm and you currently get 20 miles per gallon. So what? These measures are meaningless unless you have some targets in mind. Is your goal to quickly drive from A to B? Then focus on speed and ignore the fuel efficiency. If you care about the environment, get into a higher gear (I like to drive with a manual transmission...) so your rpm's come down at the same speed and maybe you want to slow down to 50mph. Every performance measurement system needs to be custom built to fit your business needs. You cannot just ask a consultant for the "right measures".


4. If you were to change one thing about our educational system to better prepare students to contribute in the innovation workforce of tomorrow, what would it be?

I like to say "Fail quick, fail cheap, fail often". Innovation is all about failures. In an innovation tournament, you have 100s of 'losing' ideas for every winner. Our educational systems do not provide candid feedback to students. Every little project is praised as being great and every student is told that they did a 'good job'. So when these students graduate, they think that everything they touch is great. But they fail to understand that every great innovator loses far more often than they win. Innovation is not about avoiding failures, it is about recognizing a failure early and then learning from it.


My book review of "Innovation Tournaments" can be found here.

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.

Book Review - "Innovation Tournaments"

A few weeks ago I received "Innovation Tournaments" by Christian Terwiesch and Karl T. Ulrich in the mail. "Innovation Tournaments" is a relatively short, easy, and pleasant read. This book is definitely one of my favorite innovation books to date as it covers concepts clearly and in an accessible way. Wharton professors Terwiesch and Ulrich have chosen to focus their innovation book on creating and selecting exceptional opportunities.

Because all companies can create lots of ideas when they engage their employees, suppliers, partners, and even customers in the idea generation process, the real differentiation comes from creating processes for sourcing and selecting those ideas that are truly exceptional and having the courage not to back those that are only merely good.

Professors Terwiesch and Ulrich start off by defining innovation as a new match between a need and a solution.

One of the key concepts that they cover in this book is the 'innovation return curve', which graphically represents the expected profits from a set of innovation investments. Creating an innovation return curve helps you to identify exceptional opportunities, and after all - exceptional opportunities drive exceptional value. The overall concept of the book is that by evaluating ideas in a series of 'rounds' or 'filters', that you increase your chances at having only the exceptional ideas make it through to the other end.

The book discusses tools and techniques for generating opportunities, opportunity selection, strategy alignment, and opportunity analysis. In addition the book covers innovation portfolio management, interdependencies and risk management, governance, and administration.

One of the major tenants of the authors when it comes to innovation is that uncovering exceptional opportunities is more likely when your process exhibits greater variability (it actually displays less consistent output quality).

Techniques for stimulating opportunity generation include:

• Alternative approaches to existing innovations


• Follow a personal passion


• Annoyance-driven innovation


• De-commoditize a commodity


• Drive an innovation down-market


• Trend-driven innovation


• Attribute-based innovation


• Functional decomposition

The book also introduces a nice and simple visual tool for sorting opportunities into strategic buckets based on their level of technological uncertainty and market uncertainty:


A large part of the book is dedicated to financial management and risk management as it applies to innovation, and while interesting to read, is hard to summarize here.

And finally the book closes with an interesting innovation maturity model, which is summarized in a simple way by the chart I have created here:


Overall, I found the work of professors Terwiesch and Ulrich to be well worth the investment of time and money.

My interview with "Innovation Tournaments" co-author Christian Terwiesch can be found here.

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.