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.

Real Reason Amazon Should Acquire Netflix

by Ric Merrifield

Amazon and Netflix might be great together, but not for the reasons you might think.

The way I see this, it's a little bit like peanut butter and chocolate, two great tastes you might not expect to go well together. People are talking about the possible acquisition of video company Netflix by Amazon, and they are speculating that it has to do with movies and streaming media. Maybe, but I don't think that's why this acquisition would be so powerful, and I am frankly surprised I haven't heard more people talking about this.

Here's why.

One of the biggest mistakes I think Amazon has been making all along is ignoring the buying history of customers. They never recommend anything to me based on my buying history. They tell me what other people have bought when I buy a certain book or a tent or a squash racket, but they don't seem to really pay attention to what I buy and what I like. And I buy a LOT on Amazon. They are crazy to have ignored this for so long.

By contrast, Netflix has the most incredible recommendation process ever. While I do have to make the effort to rate movies I have watched (irrespective of whether I watched them through Netflix) based on what I have liked and what I haven't liked, they have the ability to say, for example, that for a movie like Pulp Fiction, while the average viewer gave it three and a half stars out of five, based on my history and preferences, they think I would like it much more, on the order of four and a half stars. What's amazing to me is that they are always right, and I have really unusual taste in movies.

Back to peanut butter and chocolate - if Amazon could use the Netflix recommendation engine innovations to do a better job of tracking my purchases and preferences and recommending everything from books to movies to music to running shoes, it would be amazing.

Is it worth it? Well as of today, Netflix is worth about $3.22 billion, according to Wall Street, and Amazon is about 16 times bigger at $52 billion and to have this incredible way to connect with customers and help them find what they will really like even before they know about it, that would be a huge, much needed, boost for Amazon. The lift in revenue would be significant - just ask anyone in retail about how much upselling is done at the point of purchase.

Overdue rethinking at Amazon, but a great match. I really hope it happens.

P.S. It makes for an interesting side note that if Amazon does buy Netflix, that would probably put founder and CEO Reed Hastings on the board, and he's already on the board of Microsoft. Would he stay on the board of Microsoft?


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Ric Merrifield is known at the "Business Scientist" at Microsoft Corporation in Redmond, WA and is the author of "Rethink". He blogs about ways to rethink through getting out of what he calls "the 'how' trap".