Distributed Idea Generation Outperforms Team Brainstorming

by Hutch Carpenter


"This has significant managerial implications: if the interactive build-up [of team brainstorming] is not leading to better ideas, an organization might be better off relying on asynchronous idea generation by individuals using, for example, web-based idea management systems."


That quote is from a report by three researchers from the INSEAD and Wharton business schools. They published a study, "Idea Generation and the Quality of the Best Idea", that analyzes a mainstay of corporate life: the brainstorming session.

Is it effective in generating quality ideas?

To find out, the researchers conducted a field experiment in which they compared two models of generating ideas:

• Team structure: Group works together at the same time together in a room to generate ideas.


• Hybrid structure: Individuals generate their ideas independently, then meet together in a group.

Their objective was to determine which of those two structures generated more ideas, ideas of higher quality and is better able to discern the quality of ideas. They found in all cases that the hybrid structure outperformed the team structure.

Extreme Value Theory

The success of idea generation in innovation usually depends on the quality of the best opportunity identified. For most innovation challenges, an organization would prefer 99 bad ideas and 1 outstanding idea to 100 merely good ideas. In the world of innovation, the extremes are what matter, not the average or the norm.

The researchers - Karan Girotra, Christian Terwiesch, Karl T. Ulrich - were interested in determining what methods generate the best ideas. They distinguish their approach from previous research which analyzed the quantity or average quality of ideas generated.

They use extreme value theory to understand the factors impacting the quality of ideas. Extreme value theory shows that the maximum value of an idea from a set of ideas is based on:

1. The sheer volume of ideas generated
   
2. Average quality of all ideas generated
   
3. The level of variance in the quality of generated ideas

These concepts are put together nicely in this graphic:



Once you understand this framework for innovation, it becomes a matter of maximizing the values for each component. Watching, of course, for correlative impacts between them.

Field Research Experiment

The three researchers conducted an exhaustive experiment to determine which of the two methods - team structure or hybrid structure - generated the highest quality ideas at the top end of the scale. Here is the summary of their experiment.

Subjects: 44 juniors, seniors and grad students at the University of Pennsylvania

Challenges: They generated 443 ideas around two challenges.

• You have been retained by a manufacturer of sports and fitness products to identify new product concepts for the student market. The manufacturer is interested in any product that might be sold to students in a sporting goods retailer.
  
• You have been retained by a manufacturer of dorm and apartment products to identify new product concepts for the student market. The manufacturer is interested in any product that might be sold to students in a home-products retailer.

Idea generation formats: Subjects were split into four clusters. Half the clusters did the team structure first, half did the hybrid structure first. The clusters then switched structures for the different ideation challenges.

Idea quality: The quality of the ideas was assessed in two ways.

1. Business value: Panel of 41 Wharton MBA students each assessed the business value of the ideas on a 1 - 10 scale
   
2. Purchase intent: Panel of 88 college students (the target market for the ideas) each assessed their own likelihood of buying a given product proposal on a 1-10 scale

Experiment format: Subjects conducted idea generation exercises as follows.

• Team structure: 30 minutes together in a room to generate ideas together. Then 5 minutes of assessing and selecting the best 5 ideas.
  
• Hybrid structure: 10 minutes of generating ideas on their own. Then 20 minutes of discussing these and new ideas. Finally, 5 minutes of assessing and selecting the best 5 ideas.

Results: Hybrid Structure Tops Team Brainstorming

The results of the experiment are eye-opening. The researchers analyzed the two approaches on the three components of extreme value theory. They find hybrid is better on the individual components of the theory, and in the ultimate test: quality of the top ideas produced.

Number of ideas generated. Hybrid structure generates three times more ideas than does the team structure. Researchers attribute this result to three dynamics:

1. Free riding: it's easy enough to ride the idea coattails of the group
   
2. Evaluation apprehension: the fear of negative reaction when proposing an idea in front of a group
   
3. Production blocking: participants have to wait while one person is speaking, limiting idea generation throughput

Idea quality: The average quality of the hybrid structure ideas was higher than that of the team structure. Specifically, 0.25 points better in business value, 0.35 points better in purchase intent. To put this in perspective, these differences translate into roughly a 30 point differential in percentile rankings. In other words, the difference between the 1st and 30th idea in a pool of 100 ideas.

Researchers attribute the decrease in idea quality for team structures to the same free riding dynamic that reduces the quantity of ideas.

Idea quality variance: The researchers found no discernible difference in idea quality variance between the hybrid and team structures.

What this means is that from extreme value theory, the quantity and average quality of ideas are the key drivers of generating the highest-ranked ideas.

Best ideas: Here's where the rubber meets the road. Which approach had the highest ranked ideas? Hybrid structure, by a landslide.

The researchers looked at the top 5 ideas, by quality scores, that emerged from the two approaches. The hybrid structure ideas were of much higher quality than those generated from the team structure. This finding held for looking at the top 3, 4 and 6 ideas as well.

To recap:

The hybrid structure produced:

• More ideas
  
• Ideas of better quality on average
  
• Highest rated ideas

Ability to Select Best Ideas

Perhaps the one down note from the study is the ability of the group to select the best ideas. Remember that in both the team and hybrid structures, the group did a consensus selection of the top ideas. Participants weren't asked to select the top ideas individually.

The researchers found a small advantage in the hybrid structure group's ability to select the top 5 ideas resulting from their ideation exercises. But it wasn't material. Indeed, they note:


"The hybrid process may generate better ideas, but that due to the noisy selection process, its relative advantage is much diminished, to the point of becoming statistically insignificant for one of our quality metrics."


"Noisy selection process", indeed. Ever been in a brainstorming session where you're supposed to rank the ideas at the end? Imagine the dynamics of resolving differences of opinion, time constraints and the extraordinary influence of certain individuals that drowns out other opinions. This is not an optimal way to determine the ideas that define innovation for your organization.

What This Means for Companies Seeking Innovation

As we described previously in "Crowdsourcing Is the New Collaboration", there are many benefits to taking a new approach to idea generation, peer collaboration and integrating innovation more deeply into an organization's culture. Advanced innovation management platforms are ideal for this approach.

As this study confirms, distributing the idea generation process, as well as the idea selection process, results in higher quality ideas for organizations. This study dovetails well with another study by Professor Ron Burt, that found that employees with access to a wider range of viewpoints and feedback generate higher quality ideas.

Brainstorming does have its benefits in terms of face-to-face interactions. Perhaps the nature of what is brainstormed needs to change. Brainstorming can be valuable for project-oriented tasks and problem-solving. But don't consider it your go-to activity for the best ideas.


Don't miss an article - Subscribe to our RSS feed and join our Continuous Innovation group!

---

Hutch Carpenter is the Vice President of Product at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

You Might Get Your Problem Solved for Free

hypios.com has launched its first annual "A Problem to Love" promotion. hypios will pay a total of $50,000 to solvers of two of the world's most compelling problems, as determined by visitors to the site.

Teleportation? A cure for cancer? Maybe, maybe not. Candidate problems must be submitted by an employee of some form of research organization - any discipline, public or private. hypios envisions that the two "Problems to Love" will be perennially frustrating research and development (R&D) puzzles. Current unsolved problems on hypios range from the mundane (how to make biodegradable, nonpolluting batteries) to the abstract (a model for frame-dragging that is consistent with Einstein's general theory of relativity - the details of which will not be explained here).

The two top problems will be judged on structure and promise of impact, then posted on hypios for a prize totaling $50,000, giving each problem a fair chance to find a solution. One, chosen by a jury, will be worth $30,000 to the Solver; the other, selected by the public, wins the Solver $20,000 - both paid for by hypios.

The persons that posted the problems receive all intellectual property rights to Solvers' solutions, once accepted.

Is there a problem you want solved?

Enter here


Don't miss an article - signup for our rss feed or our Continous Innovation group today!

---

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.

Four Models for Competitive Crowdsourcing

by Hutch Carpenter

Crowdsourcing is heating up in terms of corporate interest. Pepsi's decision to skip the Super Bowl in favor of a crowdsourced ideas initiative - Pepsi Refresh - is an example of the interest in the market. Digital strategy, marketing and design firm Last Exit called crowdsourcing a top digital marketing trend for 2010.

Contests are a particular form of crowdsourcing that are proving to be beneficial in a number of areas. Contests allow people from around the world to compete with one another on a specific challenge put forth by an organization. Participation is motivated by incentives commensurate with the level of the challenge.

The contest version of crowdsourcing has its own activities for gathering, filtering and selecting among the submissions of people. These activities are:

Crowdsourcing starts with the contributions of people from around the globe. These submissions are aggregated into a common site. Submissions are provided in the format matching the contest objectives.

People provide their feedback on the submissions of others. This feedback can be up-down votes, star ratings, comments and buying into ideas with virtual currency. This process can be collaborative, helping refine submissions.

Organizations establish panels of experts who review the crowdsourced submissions, and select those best meeting their requirements. Experts possess distinct domain knowledge to make the final decision in the contest.

The winners of the contest are determined by people's votes and other measures. This selection process is a mix of overall crowd sentiment, weighted for higher reputed members, and the power of individuals to leverage word-of-mouth marketing.

These components can be integrated in different ways to provide four different models for running crowdsourced contests. These four models are described below.


Model #1: Crowd Sentiment, Expert Decision


The Crowd Sentiment, Expert Decision model allows organizations to include the sentiment of the crowd as part of their decision-making process. This is valuable input for contests where the selected submissions will ultimately be put in front of the market. The crowdsourced feedback provides an early read on the potential market reaction.

This model is also ideal for cases where a collaborative spirit can refine and improve submissions. Especially for more complex contests, feedback from interested collaborators is valuable for fully understanding the opportunity in the submission and its weaknesses.

Two organizations are using our tools for this model of crowdsourcing contest. Cisco is seeking $1 billion ideas through its I-Prize contest. And the Enterprise 2.0 Conference is managing its competitive speaker proposal process with this model. Both are utilizing crowdsourced feedback as part of the decision-making process.


Model #2: Crowd Decision


The Crowd Decision model leverages the crowd for all parts of the contest. This model provides a great platform for organizations to better understand the meaning that is associated to their products and services. The submissions reflect the creativity of customers and interested parties. The feedback on a submission signals the intensity of feeling for someone's particular interpretation of meaning. Winners are determined by how the community rates their submissions.

This model is ideal for marketing purposes. It becomes a strategic engagement model, particularly where customers are talking about your organization in social media. It's a fun way to increase company awareness.


Model #3: Expert Decision


The Expert Decision model engages the global community to find solutions to complex problems. Experts review the submissions, identifying those best addressing the objective of the contest. The sentiment of the crowd is not an element in these contests, as they typically address more technical challenges.

This model also prevents theft by competitors of people's ideas. The submissions are only visible to designated experts associated with the sponsoring organization. The closed nature of submissions is important for generating interest from people with the technical competence to address a challenge.


Model #4: American Idol


The American Idol model is so-named because it reflects the selection process of that show. The community ultimately selects the winners of the contest. But the candidates in the contest are first selected by experts.

This model is good when the quality of submissions will fluctuate significantly. The experts act as a filter before the community votes. It's also appropriate when the sponsoring organization has a specific direction it wants for the winning submission. The experts identify candidate submissions consistent with the direction desired.

Four different models for running a competitive crowdsourcing initiative, each with its own characteristics and business objectives. The biggest takeaway for anyone considering such an initiative is the flexibility of approaches to accomplish different objectives.


Enjoy this post? Subscribe to our RSS feed and join our Continuous Innovation group!

---

Hutch Carpenter is the Vice President of Product at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

Crowdsourcing Innovation vs. The Economics of Elitism

by Mark Prus

Which Is Better?

A recent article in The New York Times discussed the innovation process at Apple. Clearly the process begins and ends with Steve Jobs. And clearly Mr. Jobs is a creative genius. He also has a lot of help with top notch design engineers. As a result, Apple is perceived as one of the most innovative companies on the planet.

If you have visionary leadership at your company, this might be a good way to go. But companies like Procter & Gamble (P&G) also have strong leadership and they have taken a different route to innovation. P&G has been a leader in Open Innovation, and many of the new products they have launched in the past few years have come from outside the company.

Which approach is better? Some say that Crowdsourcing produces a lot of good ideas, while "home grown" innovation is capable of producing bigger breakthrough ideas.

I love Apple (full disclosure: I own Apple stock and am a big fan of their products). However, I am not sure that the "elitism model of innovation" is one that can be expanded to a lot of companies. I believe that Steve Jobs is a true visionary, and that people like him come along far too rarely for this to be a workable model of innovation. It does work for Apple... but how many other companies can implement it?

Your thoughts?


Enjoy this post? Subscribe to our RSS feed and join our Continuous Innovation group!

---

Mark Prus is a marketing consultant who offers a name development service called NameFlash^SM.

You're Crowdsourcing Innovation Wrong

by Hutch Carpenter

ComMetrics is a social media analytics company, a division of CyTRAP Labs GmbH. ComMetrics is well-known in the industry, including its FT ComMetrics Blog Index.

The company published a useful piece, Crowd-wisdom fails businesses. The basic premise is that crowds do not innovate. It's useful, because it contains both truths and misconceptions about the role of communities in the innovation process.

Let's break it down.

Innovation via a stadium crowd?

The initial point of the post is that "Crowds Innovate - NOT". And it's true in its literal sense.

This may be one of my favorite misconceptions about the role of communities in innovation. That crowdsourcing is some sort of mind meld where innovations spring from a collective brain wave.

This quote by ComMetrics both sums up the truth, and the common misconception:


"It seems a bit naive to think that going to Dodger Stadium or the LA Coliseum in the hope that crowdsourcing will show people exhibiting the above [innovation] behaviors, and therefore help us innovate faster..."


Really now...

Actually, it wouldn't be naive if you were soliciting the stadium's feedback on ways to improve the sport event experience. Understand the different "jobs" the sport event is supposed to do:

• Outlet for aging or non-practicing athletes


• Family adventure


• Business social events and networking

You mean you wouldn't solicit the stadium crowd for ideas related to what they'd like to see on those fronts? How about their feedback on the stadium management's and others' ideas?

The stadium example is a good one, because it offers a chance to parse out the role of crowdsourcing into three dynamics:

1. Crowdsourcing involves collecting ideas in aggregate


2. Community feedback brings a diversity of viewpoints to the ideas


3. Crowdsourcing does mean 100% of the world's population

Collecting ideas in aggregate. Stop for a moment and consider that. I'm contrasting that view of crowdsourcing from the hivemind singularity that operates off a single brain wave. While the employees of a business have more of a vested in its success, the actual users of a product or service have a pretty good sense of what they want to accomplish.

Diversity of feedback. Research demonstrates the power of information diversity in increasing the quality of ideas. And crowdsourcing is a marvelous way to capture a broad spectrum of opinion and understanding. If you're going to get a range of opinions, including wild cards that you weren't expecting, soliciting a community's feedback is a powerful approach.

Crowdsourcing doesn't mean the whole world. When I read the stadium crowd quote, I get a subtle 'dis' in it. Namely, that there some serious nimrods in the crowd, and what the hell would they know about your business? But that's a stereotype. For instance, look at the open source operating system Linux. Linux is a great example of crowdsourcing. But you're not going to find me contributing anything there. I have no knowledge, opinion or interest in it. Crowdsourcing attracts parties interested in the product/service being examined. It'd be too demanding to participate otherwise.

The problems with popularity

The ComMetrics post has two separate points around the problems with popularity. First, is the issue of superusers having too much control over crowd opinion:


"The notion that a book might be a must-read because it is highly ranked by many on Amazon does not make it Nobel prize material. The earth did not stand still just because Galileo fell out of favor, nor has evolution been shown to be false due to the faith of believers.

Hence, product reviews driven by superusers and crowds who follow just means that the wisdom of crowds can only be conventional. Volume against quality."


The second point is that simple votes don't provide enough input on an idea's value:


"Thumbs Up or Down works but fails to explain why: Crowds do not drive and bring innovation to successful fruition in the form of a marketable product. Nor are they the best source for assessing quality - the one that shouts the loudest is heard the most."


Nevertheless, crowds can tell you if they like or dislike something.

There are truths in both of these observations. Amazon superusers are the modern equivalent of tastemakers in pre-Internet society. The people the crowd followed to find the best of things, often read in the newspapers. There are cases where the opinion of an A-Lister can have too much sway.

One key difference is this: today, people have to re-earn their influence over time. If over a sustained period someone falls down and no longer looks forward to the fresh, to the new, they lose their influence. The crowd moves on to someone else who is at the leading edge. Humans have a natural affinity for the new.

Perhaps more importantly, one cannot argue that no one has solid authority over a particular innovation domain. We don't all wake up as blank slates every morning, having to relearn expertise during that day's work cycle. There are bona fide, honest-to-goodness authorities on subjects who are motivated for improvement.

Which brings me to the second point about simple up-down votes. These votes do provide valuable feedback. You get an early read on what is resonating with the crowd, which is a valuable filter. But they lack nuances that can help identify the best among ideas that are resonating.

Microsoft's Wilson Haddow's observation is spot-on. Companies ought to be able to leverage both the wisdom of the crowd in getting feedback, but also leverage the opinion of authorities as well. Going back to what I wrote earlier...

• The crowd can provide ideas in aggregate


• The crowd can collectively weigh in on ideas' merits


• Individual authorities are generally needed at later stages of evaluation

And the role of these authorities should include finding valuable ideas the crowd overlooks.

In the blog post Corporate Innovation Is Not a Popularity Contest, I argue that binary feedback mechanisms - up-down votes - fall short. They are valuable, but not enough. And this is something Spigit does with its integration of reputation scores into the innovation process.

ComMetrics makes good points here. And kudos to ComMetrics for taking the time to weigh in on this topic. Their post provides a good framework for considering both the problems and opportunities of working with communities in the innovation process.

---

Hutch Carpenter is the Vice President of Product at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

150,000 Good Ideas

by Kevin Roberts

Ideas are the currency of the future and can come from anywhere, and Google probably knows this more than anyone right now! To help celebrate their 10th birthday, Google invited people to submit their ideas to help make the world a better place for everyone with their special "Project 10 to the 100th."

150,000 ideas were sent in from people living in 172 countries, speaking 25 different languages. There were eight different categories that ideas: community, energy, environment through to health, education, shelter and opportunity, and not to forget the 'everything else' basket. The same people who submitted ideas were then invited to vote on the best ones that should receive the $10 million that Google are going to invest and which should be announced soon.

You can see the full range of ideas here. Some of the finalist ideas were:

• Support efforts to increase young Africans' access to quality education by creating "cyber schools"


• Create a fund to support social entrepreneurship by providing targeted capital and business training to help young entrepreneurs build viable businesses and sustained community change

Coordinate a rapid-response tool for natural disasters; introduce an ecological VAT instead of income tax

• Create an advanced health monitoring system


• Encourage positive media depictions of engineers and scientists


• Create a transportation system that enables electric cars to run on a rail-type system

When so many ideas struggle just to see the light of day, it's wonderful how the project has given people the opportunity to spread their ideas. The project has just finished voting and winners should be announced shortly, when the ideas go to work they will surely help transform the way people live.


Image source: http://www.project10tothe100.com/ideas.html

---

Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

A Fascinating Model for the Auto Industry

by Vyoma Kapur

When you hear the word 'crowdsourcing', what comes to mind? Most people list ideas, tee-shirts, logos and advertisements. If you are familiar with InnoCentive, the world's largest open innovation platform, you would know product development, design projects and campaigns can be crowdsourced too.

It was at the Business Innovation Factory conference earlier this week I first heard of a 'crowdsourced' car. Jay Rogers, the founder of Local Motors, amazed the audience with his story of launching a unique automotive business that taps into a community to design and develop cars through regular competitions.

Running Colspark LLC, a company that crowdsources for ideas and solutions, I certainly found this concept bizarre. A few questions sprung up. What is the community made of? How are the winners selected and rewarded? In what way are Local Motors cars different from regular cars?

Rogers explained that the Local Motors community consists of over 3,000 designers, engineers and car enthusiasts. Local Motors organizes monthly competitions focusing on making car designs 'local'. These competitions can focus on either the exterior or the interior of a vehicle. Community members pick up competition briefs along with engineering guidelines to create their designs. Submitted designs are critiqued and selected by the community, which keeps in mind which designs will fit best in which region.

Once a design gains enough popularity, Local Motors, after determining that it is 'manufacturable' and takes them to the next phase of development. The community is kept involved in every step of the developmental process.

Local Motors is, hence, dedicated to COOL - Community, Open, Ownership and Local. Its cars are built in regional micro-factories which are also picked by the community. Once design and engineering has been completed, members of the community are able to go to a micro-factory of their choice to build their own vehicle. With the possibility of such customization, Local Motors customers are able to develop cars with higher horsepower, greater fuel efficiency and have other advantages over regular cars.

The open innovation model has numerous benefits for companies that adopt it. The most apparent one is the output it helps create, in terms of both quality and quantity. In just a few years, Local Motors has built a repository of thousands of original car designs.

Another less apparent benefit pertains to marketing. By leveraging car enthusiasts, Local Motors effectively addresses the disconnectedness there tends to be between the automotive manufacturing industry and their consumers. In this day and age of consumer sovereignty, it is important to involve consumers in decisions that have a direct impact on them. The power of a community lies in its dedication to a brand, a concept or a company. Local Motors has benefited vastly from the word-of-mouth awareness generated by its community.

Being a huge believer and practitioner of crowdsourcing, I definitely see Local Motors going far. It has revolutionized the age-old car manufacturing process and sets an example of others in the industry.

---

A marketing professional turned entrepreneur, Vyoma avidly supports and practices open innovation. Earlier this year, she founded Colspark LLC (www.colspark.com), a crowdsourcing platform to help companies tap into student talent for ideas and solutions.

How Understanding Customer Jobs turns Crowdsourcing into Smartsourcing

by Graham Hill

Crowdsourcing is becoming a part of many companies' innovation strategy. But crowdsourcing suffers from a number of problems that limit its effectiveness. By selecting 'emerging customers' - who are better at spotting winning innovations - and helping them innovate around unmet customer needs, crowdsourcing can be turned into smartsourcing. Leading companies like Cisco already use smartsourcing to identify tomorrow's winning innovations.

Peter Drucker the gurus' guru famously said, "Because the purpose of business is to create a customer, the business enterprise has two - and only two - basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs." Marketing is hard enough to get right, but innovation is a whole lot harder still. Depending on the industry, about 80% of new products fail on introduction in the market. And up to 60% fail in reintroduction.

To overcome this disastrous failure rate, companies have started to recruit customers to generate ideas for new products. A process Jeff Howe called Crowdsourcing in a 2006 article in Wired magazine. There are a number of great examples of successful crowdsourcing programmes, however, two examples illustrate what happens when companies start crowdsourcing programmes without really thinking them through properly.

The first of these is Dell with its Ideastorm programme. Anyone can come up with a computer-related idea, post it on the Ideastorm website, vote for the best ideas, comment about them and hopefully, see them implemented. Sounds great. Why not harness ideas from customers? And why not get customers to vote for them to cut programme staff costs. Unfortunately, crowdsourcing has a number of serious problems. The first problem is that customers, even large numbers of them, typically produce average, unremarkable, incremental innovations, rather than the step-change innovations that companies hope for. Although 12,483 ideas have been posted on the website since Ideastorm started in February 2007, only 366 have been implemented to-date, a miserly 2.9% of the total. And most of the implemented ideas provide only incremental improvements to Dell's business. To its credit, Dell says that Ideastorm is intended as an extension of its relationship with its customers, rather than just as a source of product ideas. Just as well, as Ideastorm is a failure as a source of winning new innovations.

The second example is Starbucks with its My Starbucks Idea. Similar to Ideastorm, My Starbucks Idea allows any registered customer to post an idea, vote for the best ideas, comment on them and see them implemented. Or not as the case may be. My Starbucks Idea, despite receiving over 75,653 ideas, has only implemented 315 ideas to-date, an even more miserly 0.4% of the total. You wouldn't think that having ideas to improve a coffee-house chain would be all that difficult to implement. But the low rate of implementation illustrates the second problem with crowdsourcing; that customers have no idea of how the business works, what business capabilities it has and thus, no idea whether even the simplest of ideas can realistically be implemented, (let alone whether they will turn a profit). In stark contrast to Starbucks, Toyota implements over 1,000,000 employee ideas every year, 95% of them within 10 days of being submitted. But unlike Starbucks's customers, Toyota's employees know exactly where the best innovation opportunities lie, what can realistically be implemented and the profit-impact of doing so. Coming up with innovations like this is part of the Toyota Way. It's what makes Toyota such a unique company.

And there is another big problem too. Customers expend a lot of creative goodwill generating ideas for Dell and Starbucks, only to see the vast majority of them shot down by their peers or ignored by the companies. All that talk by Dell of building a relationship with customers quickly comes to nothing when its customers' hard work creating ideas is neither recognised nor rewarded. As Dell and Starbucks attempts at crowdsourcing illustrate only too clearly, crowdsourcing's supposed advantage of harnessing customers as sources of innovation is in fact its biggest weakness. The fact is that most customers simply don't have any good ideas, those that do are often not implementable and the miniscule implementation rate burns a lot of customer goodwill in the process.

So what should companies who still want to harness customers to generate winning innovations do? How can they turn wasteful crowdsourcing into productive smartsourcing.

One company that got it right is Cisco with its I-Prize competition. Starting in late 2007, Cisco asked innovators to come up with ideas that could it turn into the next billion dollar business. Cisco collected over 1,200 ideas from 2,500 innovators in 104 countries across the globe The ideas were initially filtered to see if they tackled Cisco's pain paints, if they could be delivered using Cisco's capabilities and if Cisco could make money from doing so. The filtering was done by a full-time, six-man team, drawn from across Cisco's business. The best 40 ideas were then assigned a mentor to help the innovators turn their idea into a workable business plan. The final 10 ideas were then selected, and taken though an interview and further filtering process to find the eventual winner. A single idea -- for a smart electricity grid -- by a German/Russian team was selected to collect the $250,000 prize.

Cisco's success at smartsourcing shows the importance of focussing ideas on particular pain points or opportunities. Rather than just let innovators come up with ideas, it is much better to focus their creativity on just those opportunities where they can produce a breakthrough. As innovation gurus Tony Ulwick of Strategyn and Prof. Clayton Christensen have shown, in today's customer-centric business environment this means understanding the jobs customers are trying to do and the outcomes they want from doing them. And not only functional 'doing' jobs, but also emotional jobs that describe how the customer feels about what they are doing and social jobs that describe how the customer relates to their peers too. Once you understand customer jobs and outcomes, they should be prioritised to find the areas where the importance to customers is highest but satisfaction with current solutions is lowest. This is the innovation sweet spot. Experience suggests that focussing on the innovation sweet spot can produce an 80% success rate for new products; a whole lot better than the 80% failure rate we commonly see.

Only when you know where the innovation sweet spot is should you seek to harness the creativity of customers. And not just any old customers either. As Dell and Starbucks' experience with crowdsourcing shows, harvesting ideas from the mass of customers produces a very small number of good ideas and a large volume of poor ones. It also generates a lot of wasteful costs if ideas are to be assessed properly. Recent research on emergent customers suggests that by screening potential customer innovators for their ability to imagine how innovations can be developed that will be successful in the market, the quality of ideas generated is significantly increased. Emergent customers produce much better ideas than the mass of customers, better ideas even than the lead-customers who are alredy pushing products beyond wheree they were designed to go. Just think what being able to identify the best innovators from the broad customer base could mean for companies. Companies could harvest a smaller number of high quality ideas. That would free up resources to help develop the best ideas together with customers. And more ideas would make it successfully to market. It would enable companies to turn inefficient, wasteful crowdsourcing into much more productive smartsourcing.

As the failure of Dell and Starbucks' crowdsourcing programmes, and the success Cisco's smartsourcing one shows, understanding customer jobs provides a solid foundation for targeted open innovation, whilst identifying emergent customers provides the best way to harness just those customers whose ideas will help produce winning innovations: new products that help customers get important jobs done well and create profit for the company too.

What do you think? Have you been disappointed by crowdsourcing initiatives? Have you seen great examples of smartsourcing in action? Are you an emergent customer?


Further Reading:

Jeff Howe, The Rise of Crowdsourcing

Matthew May, Elegant Solutions: Breakthrough Thinking the Toyota Way

Harvard Business Review, Inside Cisco's Search for the Next Big Idea

Tony Ulwick, What is Outcome-driven Innovation?

Hoffman et al, Identifying and Using Emergent Consumers in Developing Radical Innovations

---

Graham Hill is a Customer-centric Innovator and CRM Guru at CustomerThink.com. Follow me on Twitter.

Innovation - Elite Unit or Crowdsource?

by Hutch Carpenter

A classic dilemma for companies is determining the best way to foster innovation. There are many good books with different approaches. Clayton Christensen's "Innovator's Dilemma" has influenced a generation's thinking about innovation. He focuses management and entrepreneurs' attention on the Big I: 'disruptive innovation'.

One outcome of the popularity of Christensen's book is the awareness people have that entrenched business practices can inhibit companies' ability to recognize and address discontinuous innovations from new market entrants. Motorola, for example, is often held up as an example of this. The company continued to develop only analog cell phones even as the digital phones were getting traction. In clinging to analog, which it dominated, it fell far behind in the mobile phone market.

A key practice espoused by Christensen is for companies to tackle discontinuous innovations by creating separate divisions. These divisions have an R&D profile, meaning they are funded without requiring a financial return. They do not have to prove themselves to sales or other parts of the organization. This gives them the room they need to figure out how to approach the impending market shift.

The issue with the popularization of this framework is that it sets up a binary approach to innovation. You're either addressing disruptive or discontinuous innovations, or you're executing on yesterday's business. It's this dichotomy that obscures the value of innovations that move organizations forward, competing to increase market share and profits.

To that end, let's examine two ways companies create work structures for innovation.

Integrated or Separate Innovation

The graphic below highlight two very different ways to approach innovation. And that's a good thing.


Separate Division

• As advised by Clayton Christensen, this approach is best for companies that need to address disruptive innovations. And all companies need to address disruptive innovations.These days, it's not a matter of if, but when. For fundamental market shifts, too much is invested in the current operations for companies to address changes. Freeing a group of people from these constraints is critical, if the corporate culture is not open to big-bet innovations.

A couple examples of interest here. First, let's go back to Motorola. Yes, the company muffed it badly on the transition from analog to digital. But there was something that it did right years before. Motorola researcher Jim Mikulski could see in the 1960s that existing cellular technology was insufficient for the emerging uses of the mobile technology. He had a new technology to replace it, and asked the head of Motorola's communications division, John Mitchell to fund its development. Mitchell said "no,"


Arguing that 400MHz technology offered sufficient capacity and met consumer needs. The Communications Division current product line was the market leader, and a new product, which would likely cannibalize the current system, was deemed to be both unnecessary and potentially harmful to this business line.


So Mikulski found refuge in Motorola's Corporate Research Laboratory. He worked on the new technology there, receiving funding for its development. When his view of the coming changes proved to be true, Motorola was ready with its new technology.

In other words, he addressed innovation that affected the communications division in a completely separate division.

Microsoft, on the other had, has programmatically set up a separate division for innovation. The Microsoft Research group works on ideas that may never have commercial appeal. But some of their work has resulted in product features and direction for its new Natal gaming system, its Bing search engine, and an upcoming release of Outlook email.

They have a separate division, but the innovations arguably are of the sustaining variety, not disruptive.


Integrated into Daily Work

• In this work structure, everyone is involved in innovation. The company sets expectations, and encourages employees' to share ideas. Done right, this is in-the-flow stuff. Employees are encountering issues to be addressed daily, and they're hearing new customer feedback all the time. They are well-positioned to come up with innovative solutions and products, if senior management makes that a priority.

Whirlpool is a good example of this. In 1999, then-CEO David R. Whitwam made the determination that Whirlpool needed to stop competing on price, and make innovation its central strategy. Fast forward to today, and the results have been stellar. Whirlpool has escaped competing as a commodity vendor, with $4 billion in revenue (21% of total sales) generated from its innovation efforts. Are they satisfied? No. CEO Jeff Fettig stated that while participation in innovation from 5,000 employees is good, he's looking to increase it to 15,000.

That's integrating innovation into employees' daily work for sustaining innovation. In this case, sustaining innovation has been the source of growth and profits.

Another company where innovation is part of everyday work is 3M. The company is legendary for its innovation. And clearly, the encouragement of all employees to be part of innovation has taken hold. For instance, there was this story recently in Fast Company:


3M told a great innovation story at the ARF annual conference about a new product that started with a complaint call into customer care. The representative did his own research online, came up with a solution, filmed a video that he put on YouTube and re-contacted the customer to see if that is what he was looking for.


The sheer volume of ideas that employees have to improve companies' existing businesses puts a premium on crowdsourcing ideas. And inevitably, some of that culture and the ideas emerging from sustaining innovation will relate to discontinuous or disruptive innovations.

Why Not Do Both?

Google is a good example of a company that does both. Its 20% time for employees to devote to innovation is the stuff of business legend. And according to the company, half of its new products result from this employee time.

But then look at Google Wave. This project was done beyond 20% time. It was actually a completely separate project developed by a 5-person 'startup' team in Australia, far from the company's Mountain View, CA headquarters. Google Wave is transformative, and will likely usher new design principles into a host of software applications.

Google is a good example of an innovation-led company. They mix the elite unit approach to innovation with the everyday encouragement for employees to innovate.

There's not this dichotomy of "all disruptive/discontinuous innovation, or you're just falling behind." Rather, it's a smart blend of the strategies.

---

Hutch Carpenter is the Director of Marketing at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

What's Your Lifeline for Innovation?

by Stephen Shapiro

During dinner the other night, I compared crowdsourcing to the lifelines on "Who Wants to be a Millionaire?"

Imagine you are sitting in the hot seat. The show's host asks you a question. You are nervous and can't think straight. You believe you know the answer to the question, but $64,000 is on the line. You are no longer that sure of yourself. You have all of your lifelines. What do you do?

A. Answer the question on your own.
B. Phone a Friend
C. Use the Fifty-Fifty
D. Ask the Audience

Let's explore each option...

You could of course answer the question on your own (A). You answered the previous 10 questions correctly doing it this way. But the stakes are higher now. Maybe it's time to get some help.

You could "Phone-A-Friend" (B). Based on the few times I watched the show (admittedly the last time I watched WWTBAM was back in 2001 when was living in England), this option rarely proved reliable. Of course, if your friend has access to Google and can search quickly, then it might be the best option. But if relying solely on brain power, this option is typically a dud. One extra brain helps little.

You could go for the "Fifty-Fifty" (C). Here, two incorrect answers are eliminated, leaving you only two choices. This is a great option. Unfortunately, according to the all-knowing Wikipedia, "the answers eliminated were not random but were pre-selected as the ones the contestant was least likely to pick." Well, that makes things a bit harder.

You could "Ask the Audience" (D). According to Wikipedia, "This is a popular lifeline, known for its near-perfect accuracy. (Regis) Philbin once said that the audience's answer is statistically 95% of the time correct." However, my research shows that for more difficult questions, the audience is often clueless. The problem is, everyone answers rather than only those who know the answer. This creates a lot of invalid noise.

In the current version of the show, there are other lifelines, including "Ask the Expert." You can guess what this is.

Ok, now, imagine you are in the hot seat at work. You are working on a pressing challenge. You think you know the answer. Or maybe you haven't a clue how to solve it. Regardless, how do you want to bet the company's money?


Lifelines in Business

You could Phone-A-Friend. That is, you could ask the people around your desk at work. This would most likely improve your chances. (and no, your friend can't use Google to solve real world problems)

You could do the equivalent of Asking the Audience by requesting, for example, customer feedback. MyStarbucksIdea simulates this concept. Unfortunately, as with the WWTBAM audience, you get a lot of "noise" in the responses because everyone wants to be heard.

You could Ask the Expert. To do this you might partner with a University or hire a consultant. Or maybe you outsource the challenge to a 3rd party who takes responsibility for solving the challenge.

Or maybe there is a hybrid solution. Call it the "Ask the Audience of Experts." This involves posting a challenge to a group of highly skilled experts; people who have a higher likelihood of solving your problems. You get the viewpoint of many people (much better than Phone-A-Friend), but you also eliminate the "noise" associated with a generic audience. This gives you the added bonus of using a "Fifty-Fifty" lifeline because you end up with fewer "wrong" answers.

Solving challenging problems requires a wide variety of techniques. No one technique is universally correct.

As far as I know, no one has ever won the million dollars on the TV show without using their lifelines. Why should your organization try to win its millions without using the best lifelines available to you?

So, what's the correct answer? E - All of the above. And yes, that is my final answer.

---

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.

Top 10 Jeffrey Phillips Insights (Spigit Innovation Summit)

by Braden Kelley

I had the good fortune to hear Jeffrey Phillips of OVO Innovation speak on the second day of the Spigit Innovation Summit on August 14, 2009. We are lucky to have Jeffrey Phillips as a contributing author here on Blogging Innovation.

Here are the top ten insights that I captured from Jeffrey Phillips' speech:

1. 1/10 of 1% of ideas submitted on Dell's IdeaStorm apparently are found to be useful (1 out of a 1000)


2. Suggestive innovation sites like Dell's IdeaStorm can have the problem of vocal minority influencing the broader majority


3. The directed, invitational external community model best for generating disruptive innovation (via @bhc3)


4. Lotka's Law and communities says that out of 100 people in a community, only 10 people participate, and only 1 participates frequently


5. Anywhere from 20-40% of employees may participate in your innovation community - Your rollout communications and culture have a huge impact


6. Lurking is a form of community participation - curiosity


7. You can't be a "little bit pregnant" with external innovation communities. You need to establish a strong engagement model upfront. (via @bhc3)


8. You should really visualize your process for integrating the ideas that come out of an innovation community before you begin


9. When building an innovation community, you have to position it as a site that highlights what's in it for the community participants


10. To get participation in an innovation community, its members must be able to trust that something will change as result of their participation

What do you think?

---

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.

Creating a Culture of Innovation

I define innovation as an "organization's ability to adapt and evolve repeatedly and rapidly to stay one step ahead of the competition." A culture of innovation, when done right, gives you a competitive edge because it makes you more nimble with an increased ability to sense and respond to change.

A culture of innovation has less to do specifically with new products, new processes, or new ideas. There are of course discrete innovations such as the iPhone or a battery that is powered by viruses (MIT has developed this). These are valuable and necessary in order to create a culture of innovation.

But a culture of innovation is more than new ideas. It needs to be repeatable, predictable, and sustainable. This only happens when you treat innovation like you treat all other capabilities in your business. This means having, amongst other things, a defined process.

An organization's innovation process must achieve three things. It must:

• focus on the "right" challenges


• find appropriate solutions to those challenges, and


• implement the best solutions.

These translate into three "portfolios" an organization must create:

• A portfolio of challenges


• A portfolio of solutions


• A portfolio of projects

Let's take each one at a time.


A Portfolio of Challenges

All companies have challenges. They can be technical challenges on how to create a particular chemical compound. They can be marketing challenges on how to best describe your product to increase market share. They can be HR challenges around improving employee engagement.

An organization's ability to change (i.e., innovate) hinges on its ability to identify and solve challenges. Challenges are sometimes referred to as problems, issues, or opportunities. But at the end of the day, they are all just various forms of challenges. I will use these terms interchangeably here.

Where do you find these challenges? You can find them anywhere - from customers, employees, shareholders, consultants, vendors, competitors, and the list goes on.

Let's face it, companies have no shortage of challenges.

And guess what, some of the most important challenges to solve are hidden due to organizational blind spots and assumption-making.

The "meta-challenge" for all organizations is to find which challenges, if solved and implemented, will create the greatest value. Given that organizations have limited resources and money, prioritization is critical.

My favorite quote (used many times in this blog) comes from Albert Einstein - "If I had an hour to save the world, I would spend 59 minutes defining the problem and one minute finding solutions." Most companies spend 60 minutes of their time finding solutions to problems that just don't matter.

Therefore, the first step in creating a culture of innovation is to surface, identify, and codify challenges. And then you must become masterful at valuing, prioritizing, and framing these challenges.

Think of your innovation portfolio much like you would handle a financial investment portfolio. You want some safe bets (incremental innovation) and some riskier investments (radical innovation). You also want a variety of innovations ranging from technical challenges to marketing challenges, and service challanges to performance improvement challenges.

Once you have the right challenges to solve, the next step is to find solutions.

A Portfolio of Solutions

Every challenge has multiple potential solutions. And there are multiple ways in which to find these solutions.

Some challenges are solved in the moment by the person who thinks them up. Most challenges in fact are solved this way. These challenges tend to be "unarticulated" in that they are not presented to the organization as a problem to solve.

Other challenges are more complex and require specialized expertise. You need to find the right person(s) with the right knowledge.

Others require less technical expertise and are solved through creative thinking.

For each challenge, you need to first determine which mechanism would best yield a viable solution. Approaches include, but are not limited to...

• Internal Individual/Team: This is the most common way challenges are typically solved. This is when you use internal resources whose job is to solve these types of challenges. For example, this would be the development team members assigned to a particular product. They are paid to solve their product development challenges. Brainstorming is often the tool of choice.


• Internal Crowdsourcing: Sometimes the best solutions are found by people who typically do not work on this problem. It might be a customer service representative finding a great new branding idea. Or maybe it is tapping into R&D people who are in different parts of the organization. Sometimes this can be achieved through company-wide competitions. Read my article on how reality TV show type competitions can be used to stimulate creativity.


• Outsourced (External Single Source): Some challenges can be solved (and potentially implemented) by a third party who takes ownership for delivering the result. Typically, outsource partners are found through some type of RFP process. eLance.com is a well-known example of a platform that matches specific challenges with bidders who are able to solve specific types of problems.


• External Crowdsourcing: Some challenges are best solved by a diverse group of external solvers who can independently work on a solution to your problem. In some circles, this is referred to as Open Innovation. InnoCentive and 99Designs.com are two good examples of this. A challenge is posted and solutions are provided by a wide variety of solvers.

These are only a few of the many approaches. If one technique (e.g., internal team) does not yield a workable solution), try a different approach (e.g., external crowdsourcing).

Regardless of which technique(s) you use, the result will be a portfolio of solutions for the given challenge. Depending on the technique you use, you may end up with a low signal to noise ratio. This is the ratio of a signal (what you want - that is, good ideas) to the noise (what you don't want - the duds). Your success is often based on your ability to separate the wheat from the chaff.

The next step is to strengthen and select the best ideas, combining them into a comprehensive solution. If you find a solution that works, the next step is to implement.

A Portfolio of Projects

The final attribute of a culture of innovation is the ability to take all of the selected solutions and turn them into programs/projects so that they can be converted from ideas into reality.

Elsewhere on my blog, I discuss many different ways of making this happen. Some of them include "Build It, Try It, Fix It" - an iterative development process where you learn by doing rather than analyzing. Other more "waterfall" type development approaches are more linear and rely heavily on analysis and testing (analyze, design, build, test, deploy).

Regardless of how you implement, without this step, you end up with lots of ideas on the cutting room floor, none of which create value.

During implementation, it is critical that you keep track of the value proposition for each project, having the courage to change direction, or, in some cases, killing ideas altogether.

Bottom Line

A culture based on surfacing, solving, and implementing valuable challenges can make innovation repeatable and predictable. This requires more than just a process, it requires an entire innovation capability [read my perspectives on the innovation capability].

My mantra is, "When the pace of change outside your organization is faster than the pace within, you will be out of business." And as we all know, today's pace of change is crazier than ever. A culture of innovation, when done right, can give you a leg up in a highly evolving marketplace.

P.S. There are many different "techniques" that can be used at each stage of the process. Communities, social networks, customer-feedback systems, etc. These will be addressed more fully in future articles.

---

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.

Crowdsourcing Delivers Personalized Innovation

The new dimension of innovation is about having customer as an integral part of the system. Firms can no longer afford to stay separate from customers and still come up with great innovations. The success of social media websites (like Facebook) is frequently attributed to engaging customers in the creation of new innovations - also referred to as crowdsourcing.



The topic of innovation is multi-dimensional, which no firm in the globe can afford to ignore today. Being innovative is necessary to stay competitive in the business. The new age of innovation has a lot to do with making the customer an integral part of the innovation system by engaging and involving them with the product or service that the firm is working on.

This is all the more true with consumer-targeted social networking sites like Facebook, where the users drive how the product should look. The customer-centric innovation started off with creating and opening up a software development kit (SDK) for anyone to create and host their applications.

Want to get a real experience with what we are talking about? Just login to your Facebook or Orkut profile and click on the "applications" link. You will see an array of cool stuff in the form of quizzes, music, games, etc. Who do you think has developed them? Do you think Facebook or Orkut has enough employees to develop thousands of these applications? Definitely not!

It is done by enthusiastic folks around the globe with decent web programming knowledge. They downloaded the SDK, developed the app and hosted it all for free. The buck doesn't stop there. After it gets uploaded, the importance of these applications is decided by other users. As more folks add a particular application to their profile, its rating goes up. If the application is not interesting enough for the community, it gets automatically pushed down the stack. From the user's perspective, they can choose and install applications of interest to them, thereby 'personalizing' their profile. This is the real power of crowdsourcing - consumers as creators.

According to Wikipedia, crowdsourcing is a neologism for the act of taking a task traditionally performed by an employee or contractor, and outsourcing it to an undefined, generally large group of people or community in the form of an open call. In the context of social networking, the crowdsourcing goes beyond outsourcing, where users become voluntary creators to benefit of the community.

By democratizing their SDK, firms like Facebook benefit greatly by harnessing the innovative ability of anybody in the world. This breadth of innovation is impossible to groom and sustain within the confines of the firm's employees. Also, the cost of making such innovation happen inside the organization is extremely high compared to crowdsourcing.

On a larger scale, the idea of crowdsourcing has been harnessed by Apple (iPhone) and Google (Android) - these firms designed a monetization model allowing developers to host their applications and quote a price. When users download the developer's application a portion of payment goes to the developer.

In his recent work on 'New age of Innovation', renowned management thinker C.K.Prahalad calls this phenomenon as 'N = 1 R = G'. In order to provide one unique user experience (N = 1) firms need to leverage resources (R) globally (G). It is mainly because every consumer has his unique preferences when using a product, which cannot be satisfied by the firm hiring more people. This new school of thought is much different from the previous generation of technology products where every feature was developed by the firm in a closed development environment. In this new age, the role of the firm is to create a platform and leave it open for consumers to create the applications they want.

So, next time you are set out to innovate something, ask yourself: 'Am I involving my customers in the process?'

---

Jayakumar Balasubramanian is an engineer by profession. This article originally appeared on MyBangalore.