open innovation idea-generation-collaboration.pdf

Open Innovation: Enhancing Idea Generation Through Collaboration

Table of Contents Project Personnel and Copyright

2

Research Champion

3

Sponsor and Best-Practice Organizations

3

Introduction

4

Research Champion Perspectives

5

Subject Matter Expert Insights

7

Study Findings

10

Open Innovation Strategy

12

Open Innovation Roles

29

Open Innovation Processes

38

Open Innovation Measurement and Improvement Improvemen t

61

Open Innovation Enablers

73

Research Champion: Project Management Institute

89

About This Research

89

Case Study: Amway

92

Case Study: British Telecommunications Telecommunications plc (BT)

113

Case Study: Cisco Systems Inc.

128

Case Study: Corning Inc.

152

Case Study: General Mills Inc.

162

©2013 APQC. ALL RIGHTS RESERVED. page 1


Table of Contents Project Personnel and Copyright

2

Research Champion

3

Sponsor and Best-Practice Organizations

3

Introduction

4

Research Champion Perspectives

5

Subject Matter Expert Insights

7

Study Findings

10

Open Innovation Strategy

12

Open Innovation Roles

29

Open Innovation Processes

38

Open Innovation Measurement and Improvement Improvemen t

61

Open Innovation Enablers

73

Research Champion: Project Management Institute

89

About This Research

89

Case Study: Amway

92

Case Study: British Telecommunications Telecommunications plc (BT)

113

Case Study: Cisco Systems Inc.

128

Case Study: Corning Inc.

152

Case Study: General Mills Inc.

162



Project Personnel PROJECT TEAM Marisa Brown, director, research services, APQC Becky Partida, research specialist, APQC Andrea Stroud, research program program manager, APQC RESEARCH CHAMPION Chris Landes, manager, market research, Project Management Institute Stephen Townsend, director for global alliances and networks, Project Management Institute SUBJECT MATTER EXPERTISE Matthew Heim, executive vice president, inno360 Christopher W. Miller, CEO and founder, f ounder, Innovation Focus CONTRIBUTING WRITER Lauren Trees EDITORS Paige Leavitt Mowbray Becky Partida MEMBERSHIP INFORMATION For information about how to become a member of APQC and to receive publications and other benefits, call 800-776-9676 or +1-713-681-4020 or visit our website at www.apqc.org at www.apqc.org . COPYRIGHT ©2013 APQC, 123 North Post Oak Lane, Third Floor, Houston, Texas 77024-7797 USA. This report cannot be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, faxing, recording, or information storage and retrieval.

Additional copies of the report may be purchased from APQC by calling 800-7769676 (U.S.) or +1-713-681-4020 or online at www.apqc.org. Quantity discounts are available. ISBN-13: 978-1-60197-186-9 STATEMENT OF PURPOSE The purpose of publishing this report is to provide a reference r eference point for an insight into the processes and practices associated with certain issues. It should be used as an educational learning tool and is not a “recipe” or step-by-step procedure to be copied or duplicated in any way. This report may not represent current organizational processes, policies, or practices because changes may have occurred since the completion of this study.



Research Champion Project Management Institute

Sponsor Organizations Aramco Services Co. Cenovus Energy Inc. ExxonMobil Corp. The Houstonian Hotel, Club and Spa Nestlé Purina Pet Care Newmont Mining Corp. Trimble Navigation Ltd. United Technologies Corp. U.S. Army ARDEC

Best-Practice Organizations Amway British Telecommunications plc (BT) Cisco Systems Inc. Corning Inc. General Mills Inc.



Introduction Bolstered by the increasing rate of change in many markets, organizations are seeking ways to get to market faster, deliver greater value to customers, and better manage costs. Open innovation, with an emphasis on collaborating externally and internally, has helped many organizations achieve those goals. APQC undertook this study, Open Innovation: Enhancing Idea Generation Through Collaboration, to examine the practices of successful organizations. By studying Amway, BT, Cisco, Corning, and General Mills, in partnership with PMI, Matthew Heim, and Christopher Miller, we found organizations getting desired results. Access to the right network, the right mechanisms to integrate and expedite vetting new ideas, and a fully integrated process helps level the playing field with larger competitors and enables the shift from small innovations to more large, breakthrough ones. Expanding the organization’s sources of new ideas powers the shift from quantity to quality of innovations. In this research, we saw that open innovation yields access to connections and partners with differential technology that was not previously considered. But it’s not just technology. Open innovation also helps organizations take advantage of processes and cost structures that they may not have known before reaching out to the partner. This collaboration also gives organizations the ability to leverage different business models—such as different go-to-market or manufacturing opportunities—from partners. Two particularly interesting findings that emerged in this research are: 1) the integration of open innovation and knowledge management (KM) and 2) the treatment of intellectual property by the best-practice organizations. APQC has studied KM as a discipline since 1995. We now see how some core KM approaches like expertise location, the facilitated transfer of best practices, the transfer of lessons learned, and the use of social media for collaboration are all relevant and helpful to open innovation. APQC’s prediction is that the intersection of these two disciplines is going to yield many exciting changes in the years to come. When it comes to intellectual property, in this study APQC saw organizations shifting away from long-held beliefs that they must own all intellectual property related to their products and services. As comfort with open innovation has grown in the organizations studied, so has their willingness to try other models and be more open regarding ownership of intellectual capital. As the world becomes more open, so do many corporate approaches and policies. —Marisa Brown Director, Research Services, APQC



Research Champion Perspectives PROJECT MANAGEMENT INSTITUTE The innovations coming over the next 10 years have the potential to completely transform the world in which we live. From enabling entrepreneurs in developing countries to mobile medicine to alternative energy sources, the potential opportunities and their impacts are astounding. The companies effectively leading and sustaining that innovation curve will experience strong financial performance and have a significant competitive advantage.

From a shorter-term business vantage point, a recent report from Wipro and Forbes Insights titled Growth Strategies for 2012 and Beyond found that “strategic innovation is more important than ever for driving growth at the world’s largest companies. Under pressure to differentiate their businesses after the 2008-2009 recession, and with emerging markets playing a more critical role in future growth plans, business leaders believe their ability to innovate is what will set them apart.” The global study found that 68 percent of surveyed executives agreed that “innovation is now more important than it was prior to the recession.” All aspects of the innovation process—ideation, evaluation, validation, and execution—are important. Still, research organizations such as Booz & Co., the Boston Consulting Group, and PricewaterhouseCoopers continue to produce studies showing that execution performance is the most critical component of innovation. For example, the Booz & Co. 2012 Global Innovation 1000 study found that those companies that described themselves as highly effective in the early stages of innovation reported that being highly effective at idea conversion is more important to financial success than being highly skilled at generating ideas. This finding demonstrates that innovative ideas must be transformed into some end that drives business strategy to be of value to organizations. Organizational project management—which includes project, program, and portfolio management—is the system through which innovations are transformed from ideas into actions. The Project Management Institute’s 2012 Pulse of the Profession™ In-Depth Report: Organizational Agility identified that more compact and agile innovation is critical. Three-quarters of respondents identified faster response to strategic opportunities as a required characteristic for an agile organization, and almost two-thirds mentioned the need for shorter decision/production review cycles. The Economist Intelligence Unit’s 2009 study Organizational Agility: How Business Can Survive and Thrive in Turbulent Times further proved that finding by uncovering that half of CEOs and chief information officers surveyed said that rapid decision making and execution were essential for a company’s competitive standing. When asked in the Pulse study how successful they were with implementing new initiatives over the past two to three years, most organizations responded that their performance was unchanged or less successful (55 percent).


Open Innovation: Enhancing Idea Generation Through Collaboration A PMI-funded study, Best Industry Outcomes by Lynn Crawford and Terry CookeDavies, examined how business strategy drives organizational project management in nine industries. The study found that the key strategic drivers, success criteria, and factors across all industries in order of precedence are: 1. execution performance, 2. financial performance, 3. customer focus and satisfaction, and 4.

innovation.

The Project Management Institute is dedicated to helping organizations improve their execution performance so they are better able to leverage their innovation activities to drive business performance and success. As a partner with APQC on this important study, PMI hopes that its contributions provide useful insights, approaches, and knowledge for practitioners seeking to change the world through innovation.



Subject Matter Expert Insights Open innovation is a term that has existed for merely a decade, yet it has rapidly advanced from being viewed as a fleeting trend to becoming a globally recognized management discipline. This rapid development can only be attributed to one factor: it has proven to generate demonstrable value. Recent advances in technology, competitive landscapes, and social media have presented both drivers and opportunities for external collaboration. It is crucial at this time of rapidly increasing competition that companies begin to understand the new tools, structures, and best practices that are available today and how to create value from their open innovation investments. The concept of contemporary open innovation derived from the need of companies to sustain the rapid pace of technological advancement in their product development lifecycles. As the idea of going to the outside showed promise, other departments across the value chains of organizations explored new ways to leverage external knowledge. Hence we see the emergence of crowdsourcing and other externally facing, campaign-based activities designed to augment ideation and knowledge generation, from the demand chain through the supply chain of many organizations. Furthermore, we now see the practice of open innovation migrating from manufacturing into other service-based industries such as insurance, banking, and professional services. Open innovation used to be a discipline practiced only by larger corporations that could afford to build an infrastructure of people, process, and technology to support external collaboration. More recently, smaller regional governments, science parks, and other local and federated networks have been forming to provide smaller and mid-sized enterprises better access to the open marketplace. With their limited budgets and resources, it is even more crucial for these smaller organizations to have the means to continue innovating with access to external knowledge. We will continue to see open innovation expand into the small and mid-sized market segments as these new networks and programs continue to emerge. In this study, APQC has assembled the collective knowledge of various experts in the field of open innovation, as well as companies that have evolved into a mature state of open innovation strategy, process, and overall effectiveness. Although there is still no single best way of implementing and managing open innovation, the companies highlighted in this study share the diverse practices they have developed that have proven to be effective in generating value for their organizations. With this knowledge, today’s new open innovation practitioners can quickly discern which practices would best fit their organizations’ unique needs and perhaps inspire new ideas that will contribute to the ongoing growth and evolution of this exciting new frontier. —Matthew Heim Executive Vice President, inno360


Open Innovation: Enhancing Idea Generation Through Collaboration As open innovation has matured, it has moved from an interest in simple idea screening from external/non-company sources to experimenting with a large variety of tools and techniques that target and extract ideas from:  within the value chain (partnering with consumers and vendors),  within the community of interest/the value network (parallel groups that must

work together, such as software and hardware), and  the rest of the world. Few would disagree that companies serious about market leadership must consider open innovation. Yet many organizations have faced the challenges of discovery with little concrete evidence of what works. What metrics are appropriate? Are we comparing open innovation with internal innovation techniques? Can you even run different innovation projects against a common set of metrics? The first step in having meaningful metrics is to have a solid set of hypotheses. APQC’s Open Innovation: Enhancing Idea Generation Through Collaboration research is important work not only for what organizations can learn and immediately apply, but also because it suggests a set of significant hypotheses. These hypotheses can be tested and potentially yield the metrics fact-based organizations yearn for. My nominations for hypotheses about all forms of discovery, open and internal, follow.  The ideation process, like all processes, is a servant body of knowledge. It

supports the content and does not lead it. It is not about the tool; it is about what you want to do with the tool.  Those with an agreed-to process succeed more often than those that work to constantly reinvent it. A process helps an organization or project team go from an agreed-to starting point through a discovery activity and ultimately to an agreed-to conclusion.  Those that have facilities with different types of ideation tools and more flexibility to exercise them tend to be more satisfied with the outcome. A tool can be anything from co-location to a short creativity exercise.  Finally, and most controversially, ideas are the smallest outcome unit of ideation activities, relationships, and understanding. Empathy, shared commitment, and agreed-to direction can all emerge from ideation and are the essence of the value.


Open Innovation: Enhancing Idea Generation Through Collaboration Potential open innovation ideation differentiators follow.  Projects that use open innovation are more likely to have clear strategic









direction than those that do not. This implies a charter with a discovery process connected to the strategy and agreed to by the team and its high cover. Those that aggressively support open innovation use a greater variety of tools than those that do not. They do not limit themselves to the process knowledge within their corporate walls. Those that are aggressive about the use of open innovation strengthen the capability of their internal team by exposing it to diverse knowledge sets. This, in turn, can strengthen internal innovation efforts. Those that use open innovation are more successful at breaking through artificial organizational definitions and barriers. The innovation teams take a broader world view that allows more honest introspection of what an organization does that is helpful and what it does that might inhibit its goals. Finally, ideation within open innovation is not restricted to the discovery stage. All stages—discovery, development, commercialization, and life-cycle management—represent opportunities for open innovation ideation. After all, building something new may require new operating processes, new business models, and new organizational structures.

This APQC research is an important effort to add understanding by observing best practices in a few best-in-class companies. It will not give you a definitive answer to what will work for you. But it will give you an important understanding and a unique perspective on ideation within open innovation at this time. If you can convert the ideas and questions created here into an honest dialogue for the continuous improvement of your company’s process, then we contributors will be deeply grateful. It has been a pleasure to join you in a small part of the journey. —Christopher W. Miller, Ph.D., NPDP CEO and Founder, Innovation Focus



Study Findings BEST PRACTICES The APQC project team, in conjunction with the Project Management Institute and the study subject matter experts, identified 11 best practices in this research regarding open innovation strategies, roles, processes, and measurement and improvement. Open Innovation Strategy

1. Focus on targeted, needs-based open innovation. 2. Partner broadly across a variety of external and internal organizations. 3. Position your organization to build and manage key relationships. 4. Allow open innovation maturity to drive the approach to intellectual property ownership. Open Innovation Roles

5. Establish a central, dedicated group to drive open innovation. 6. Seek open innovation team members with specialized skills and backgrounds. Open Innovation Processes

7. Integrate and align the open innovation process with other relevant processes to ensure key entities are involved at critical points. 8. Embrace broad and specific scouting for new ideas. 9. Invite participation in open innovation via experiences. Open Innovation Measurement and Improvement

10. Seek compelling measures for open innovation. 11. Use change management to drive commitment to open innovation.


Open Innovation: Enhancing Idea Generation Through Collaboration KEY ENABLERS In addition to best practices, the project team recognized five practices that are common enablers of successful open innovation. Their presence is not necessarily a best practice, but their absence would affect the organization’s odds of achieving success.

1. Seek hands-on support from and exposure to senior leadership. 2. Recognize internal and external contributors for their ideas. 3. Match portfolio management to the innovation and organizational strategies. 4. Focus on the open innovation process and players first, and then find the tools to help. 5. Capture lessons learned, and continuously improve the open innovation process.



Open Innovation Strategy Findings in This Section 1. Focus on targeted, needs-based open innovation. 2. Partner broadly across a variety of external and internal organizations. 3. Position your organization to build and manage key relationships. 4. Allow open innovation maturity to drive the approach to intellectual property ownership.

FOCUS ON TARGETED, NEEDS-BASED OPEN INNOVATION.

To thrive, an organization’s open innovation initiative should be needs-based and closely tied to the organization’s strategy. APQC’s research has previously found that successful organizations develop strategies for their product development and innovation programs. APQC’s 2007 report Successfully Embedding Innovation: Strategies and Tactics found that leading organizations use business strategy to create guidelines for innovation. 1

The results of this study extend this concept into the open innovation space. Rather than throwing open the doors and accepting all unsolicited ideas, the best-practice organizations in this study focus their open innovation initiatives on areas of the business that have specific needs. This ensures that new innovations acquired by these organizations remain relevant to the business. HOW BEST-PRACTICE ORGANIZATIONS DO IT Amway has a focused open innovation effort in that 80 percent to 90 percent of the innovations it sources from external groups are based on specific needs identified by the organization. This provides some freedom for the organization to pursue additional innovations while keeping a primary focus on the strategic needs of the business. When searching for new innovations, Amway creates a technology profile,

1

APQC. Successfully Embedding Innovation: Strategies and Tactics . APQC’s Collaborative Benchmarking, 2007.


Open Innovation: Enhancing Idea Generation Through Collaboration which is a detailed description of a technology or solution that Amway is seeking. These profiles include:  the characteristics of the desired technology,  its intended purpose or use,  any existing technologies in the same category, and  any deal breakers, or items that should be taken off the table in sourcing

potential innovations. Amway shares these profiles both within the organization and with potential partners to accurately communicate what the organization is looking for and to quickly filter through potential innovations. BT’s open innovation initiative focuses primarily on addressing needs within the organization for new service offerings to repackage and distribute to its customers. Its centralized innovation group communicates with senior managers to identify needs from the organization’s business units. The centralized innovation group can then research external organizations that BT may partner with to address the organization’s need. In a different way to address organizational needs, General Mills has established the General Mills Worldwide Innovation Network (G-WIN) to find relevant technologies. Through its G-WIN innovation portal on the organization’s website, General Mills accepts submissions from outside organizations. The organization posts briefs that describe needs that it wants to address. These briefs are abstract enough to generate a variety of potential solutions from both within and outside of the food industry. Align open innovation initiatives with organizational strategy.

In addition to maintaining a focus on addressing the needs of the business, the bestpractice organizations in this study ensure that open innovation efforts align with organizational strategy. This means that organizations look for innovation opportunities in adjacent markets that expand the business without moving in a radically different direction. The best-practice organizations also set clear expectations on the value that must come from new innovations. Many organizations that have advanced open innovation practices provide a process to review and integrate unanticipated, adjacent technologies found through open innovation that could add value. HOW BEST-PRACTICE ORGANIZATIONS DO IT Cisco Systems’ emerging technologies group seeks new innovations in markets adjacent to Cisco and in areas in which other parts of the organization are not investing. It focuses on the value that these new innovations can generate for the


Open Innovation: Enhancing Idea Generation Through Collaboration organization overall. However, the organization’s revenue goal in expanding is an ambitious one: its emerging technologies group has a mission to cultivate new businesses with billion-dollar revenue potential. It set this goal because of the amount of revenue needed to make an impact on overall revenue for an organization the size of Cisco. The organization also seeks to generate value for the enterprise by seeking innovations that provide growth opportunities for Cisco’s foundation and other businesses. Amway also uses innovation as a means of staying competitive. The organization views innovation as a combination of creativity, potential value, and strategic fit. It uses innovation strategically in that it only pursues an idea that has a clear market and aligns with the long-term goals of the organization. Its innovation process focuses on bringing together a consumer need, a technology (including design, materials, process, or information), and an opportunity to create value for the business. Amway recognizes that it needs innovation because it does not have the resources that its competitors have to devote to internal product development. Thus it determined that open innovation could potentially facilitate $48 million in new business every month and lead to 5 percent organic growth. Having an ambitious goal for the organization’s open innovation initiative ensures that Amway remains focused on using innovation to remain competitive. At BT, its technology scouting initiative aims to find organizations with innovative technologies that BT can then package and offer to its customers. This goal is in line with BT’s focus on providing new service offerings to customers at the lowest cost and with the best customer service. An example of how the technology scouting group provided value to the organization is BT’s service offering Dolby Voice. BT’s scouting group learned that Dolby Laboratories Inc. was developing surround sound technology that could be applied to phone calls. BT licensed this technology as a way of differentiating its audio conferencing services from that of its competitors.

PARTNER BROADLY ACROSS A VARIETY OF EXTERNAL AND INTERNAL ORGANIZATIONS.

The best-practice organizations in this study collaborate with a wide variety of external and internal groups for innovation. The backbone of such collaboration is the openness to suggestions from external sources. As part of this study, APQC collected data from both the study’s best-practice organizations and from the study’s sponsoring organizations. All of the participants were asked to rate whether their organizations were receptive to projects suggested by strategic partners and other external sources. The best-practice organizations indicated that being receptive to projects suggested by these external sources applied to some degree to their organizations. For the sponsoring organizations, this is true to a lesser extent. Sixty


Open Innovation: Enhancing Idea Generation Through Collaboration percent indicated that it was true to some extent, and the remaining 40 percent indicated that they were not sure or that it was not true to some extent. The willingness of the best-practice organizations to look outside of the enterprise for new ideas signals a shift from recent ways of doing business. During the late 1800s and early 1900s relationships were often built in designated clubs, where representatives from organizations would meet to strike deals. Then around World War II companies grew more protective and became internally focused, which led them to develop complex R&D organizations and rarely look externally for innovations. However, to remain sustainable, best-practice organizations are again looking beyond their walls to source innovations from external groups. Although relationship development remains important, it has shifted from the insulated environment of clubs to one in which organizations establish nontraditional relationships with groups they may not have considered before. Figure 1.1 presents the types of groups that both the best-practice organizations and the sponsoring organizations for this study work with on innovation efforts. Partners for Idea Generation and Innovation Employees and business units outside of the group responsible for open innovation

100% 100%

Suppliers

100% 100%

Consultants

100% 100% 100%

Customers

75%

Universities

75%

Employees within the group responsible for open innovation

100% 100%

50%

Entrepreneurs

100%

25%

Government agencies

100%

25% 75% 75%

Open innovation service providers Competitors

0%

Other (Affiliate organization)

0% 0%

75% 25% 20%

Best-Practice Organizations (N=4)

40%

60%

Sponsoring Organizations (N=4)

Figure 1.1


80%

100%

Open Innovation: Enhancing Idea Generation Through Collaboration The best-practice organizations in this study collaborate with employees, as well as more traditional partners such as customers, suppliers, and universities. However, these organizations also collaborate with government agencies and entrepreneurs. These organizations have embraced business, government, and university collaboration to facilitate innovation and creativity. Nearly all of the best-practice organizations also collaborate to some degree with their competitors. By contrast, the sponsoring organizations for this study collaborate primarily with traditional partners such as suppliers and consultants. Only one-quarter of these organizations collaborate with government agencies and entrepreneurs for idea generation, and none of these organizations collaborate with their competitors. It is important to note that the best-practice organizations vary the outside groups with which they collaborate based on the innovation need. Thus they may not have projects in progress with all of the different types of partners at the same time. HOW BEST-PRACTICE ORGANIZATIONS DO IT Amway leverages networks for potential sources of innovation (Figure 1.2). For example, Amway uses scientific advisory boards to identify and locate bleeding-edge technologies that are of interest to the organization. Many of the board members from academia have brought promising startups to the attention of Amway’s open innovation team. Amway’s Networks for Open Innovation

Note: SAB denotes Amway’s scientific advisory board.

Figure 1.2


Open Innovation: Enhancing Idea Generation Through Collaboration Amway also taps its customers and internal business units as sources of innovation. Some of these internal units conduct local product development that can be used in other areas of the organization. Amway’s open innovation team also maintains close relationships with other business units to gain valuable perspective on the feasibility of projects. Figure 1.3 presents the partnerships the open innovation team has established with other units within Amway. Partnerships Between Amway’s Open Innovation Team and Other Functions

Figure 1.3

For example, Amway's open innovation team has a close relationship with the procurement function, which provides valuable insight into negotiations. The open innovation group tapped the procurement function to create its own strategic sourcing position. Amway also looks to foreign governments for introductions to innovative organizations. Because venture capital is not readily available in some countries, the national governments for these countries sometimes provide seed money to innovative companies. These governments are eager to connect organizations such as Amway with these smaller companies so that home-grown innovations can be brought to market.


Open Innovation: Enhancing Idea Generation Through Collaboration Similarly, BT works with a variety of internal and external groups to source innovations. Figure 1.4 outlines the organization’s sources for innovation. BT focuses on licensing and adapting existing technologies rather than investing in technology development. The creation of BT’s Dolby Voice audio conferencing service is an example of this. Rather than develop the technology within BT, the organization invested in an adaptation of an existing BT service. Innovation Sources and Initiatives at BT

Figure 1.4

General Mills seeks innovation partnerships with suppliers, universities, and organizations outside of the food industry. The organization has also adopted software to map talent and expertise across the globe. Through its G-WIN portal, General Mills seeks novel technologies to address the needs of the organization. Corning uses external collaboration as a way of distinguishing itself from competitors. It collaborates with universities both within and outside of the United States to gain access to expertise, equipment, and facilities that the organization does not have. It has established long-term agreements with key universities to enable more rapid interaction, which can lower barriers to initiating projects. Collaboration with universities has had the added benefit of helping Corning to identify prospective employees.


Open Innovation: Enhancing Idea Generation Through Collaboration One of Cisco’s key strategic methods for innovation is acquisition. The organization has grown largely through the acquisition of other organizations, which it purchased in part to access new technologies. Cisco also looks to retain the leadership from its startup acquisitions in order to develop new technologies that can help the organization maintain a competitive advantage.

POSITION YOUR ORGANIZATION TO BUILD AND MANAGE KEY RELATIONSHIPS.

The best-practice organizations in this study have positioned themselves to have access to and manage collaborative relationships. This involves encouraging personal interaction rather than depending solely on electronic communication with open innovation partners. The high-touch aspect of relationship development is just as important to these organizations as the high-tech developments obtained through open innovation. This can be especially important for organizations with partners in countries with cultures that value personal interaction in business, such as Brazil and China. Several of the best-practice organizations in this study are interested in areas around the world in which innovation tends to be clustered, such as in Silicon Valley or Research Triangle Park. These organizations have staff located in these regions so that they can better access the innovators who are there. Best-practice organizations in this study also have development facilities co-located with other organizations. These facilities encourage close relationships with the other organizations and enable collaboration for potential innovations. HOW BEST-PRACTICE ORGANIZATIONS DO IT BT’s scouting group primarily acts in Silicon Valley because of the concentration of innovative companies in this area. However, the scouting group also maintains a focus on London, Israel, the Boston area, and Asia in its search for potential innovation partners. This group maintains contact with other areas of the business to both learn more about business unit innovation needs and to present potential innovation partners to BT staff. BT has located its engineering headquarters at Adastral Park in the United Kingdom. BT shares this facility with 44 other organizations.

BT’s Applied Technology Centre interacts with internal customers by providing rapid prototyping services. The staff of the Applied Technology Centre translates an idea into early-stage visualizations or working prototypes so that BT business unit staff can quickly understand potential customer experience and benefit. These also provide a better idea of the technical feasibility of a concept and build confidence within the business units for a particular offering.


Open Innovation: Enhancing Idea Generation Through Collaboration Corning has a central R&D facility designed to combine the technical capabilities of its staff and create keystone components. Having a central location facilitates creative interactions among researchers, developers, and engineers, which can lead to innovation. However, the organization also has a network of research and technology centers across the globe, which provides Corning with a better understanding of local markets. It has also established the West Technology Center in Silicon Valley to work with universities, customers, and technology companies on the West coast of the United States. The relationships developed through this center have led to idea generation, as well as the identification of other opportunities for collaboration. Cisco also looks to Silicon Valley for potential sources of innovation. Cisco originated in Silicon Valley and has grown through the acquisition of startup companies in the area. Staff from these companies are retained after the acquisition and often become involved in incubation teams that develop new ideas for expanding the business. These teams are small and have limited resources in order to mimic the startup environment, but they also have the safety and security of a large organization. The Cisco culture encourages collaboration among employees. The most effective Cisco employees have a wide network of contacts within the organization. This enables them to learn from each other, draw on the best ideas, and quickly overcome obstacles in idea development.

ALLOW OPEN INNOVATION MATURITY TO DRIVE THE APPROACH TO INTELLECTUAL PROPERTY OWNERSHIP.

An important consideration for organizations engaging in open innovation is how to address intellectual property that is brought to or results from an innovation initiative. The data collected by APQC from both the best-practice organizations and sponsoring organizations for this study indicate that an organization’s approach to intellectual property ownership tends to reflect its level of experience with open innovation. When asked how they addressed intellectual property concerns raised in the open innovation effort, all of the sponsoring organizations indicated that they seek ownership of all intellectual property. Only half of the best-practice organizations for the study seek intellectual property ownership in their open innovation efforts. However, the methods an organization employs to address intellectual property in open innovation may change depending on individual circumstances. When asked to rate the extent to which intellectual property issues are an obstacle to their open innovation efforts, half of the responding best-practice organizations indicated that such issues were only a slight obstacle. The highest rating any of the best-practice organizations gave intellectual property concerns was that they were


Open Innovation: Enhancing Idea Generation Through Collaboration only somewhat of an obstacle. In comparison, the sponsoring organizations in the study rated intellectual property concerns as somewhat to definitely an obstacle to their open innovation efforts. For the best-practice organizations in this study, intellectual property considerations do not inhibit the consideration of an innovation. The open innovation groups in these organizations seek to move forward with collaborations that provide value for both parties and let other, specialized areas of the organization handle the intellectual property negotiations. For organizations in an industry with technology that frequently changes, intellectual property is even less critical because of the rate of technological change. In these industries the need to quickly move on innovations is the driving force behind open innovation efforts. The role of intellectual property ownership in open innovation partnerships with universities is also changing. Historically, universities in the western hemisphere did not want to part with their intellectual property. However, with the rising popularity of open innovation, they have become much more flexible in creating licensing agreements that allow different arrangements such as providing corporate partners with exclusivity rights within a certain industry or for a given period of time. Organizations with more mature open innovation efforts are taking advantage of this shift and recognizing that there are alternatives to ownership of the intellectual property. HOW BEST-PRACTICE ORGANIZATIONS DO IT Cisco’s approach to intellectual property originating through its open innovation efforts varies depending on the source. Cisco will often acquire other companies as a means of accessing a new technology. For intellectual property submitted for IPrize (the organization’s external innovation challenge), Cisco has evolved its approach to intellectual property in partnership with its lawyers. Initially the organization sought to own all intellectual property submitted, but now it looks at submitted ideas with the possibility of licensing selected ideas in the future. This balances the needs of the business with the need for the organization to protect itself. When it does license technology from I-Prize, Cisco does not always seek exclusivity. It has adopted this strategy to ensure that it can execute new ideas as quickly as possible and so that external groups will feel comfortable contributing ideas. The organization also recognizes that many entrepreneurs seek out Cisco for development of an idea because they do not have the funding necessary to bring the idea to market. Refraining from exclusivity can encourage these individuals to partner with Cisco, leading to benefit for both parties.

BT holds patents that it primarily uses to protect itself against infringement from other organizations. When the organization works with existing or potential partners in its hothouse events (three-day, competitive innovation events), BT executes agreements with these parties that specify the intellectual property that existed prior to the hothouse. These agreements indicate that new intellectual property developed


Open Innovation: Enhancing Idea Generation Through Collaboration during the hothouse belongs to BT, but this can vary if a partner is being paid to participate in the event or if the resulting idea is an improvement on existing technology owned by the partner. General Mills builds relationships with innovation partners that provide value to both parties. Its external partner development group works with organizations wanting to provide an early-stage technology. The group builds relationships with these organizations before discussing precommercial rights and development. Some of the lines of business have regular discussions with key suppliers about new product opportunities, and other key suppliers now have research staff co-located at General Mills’ facilities to enable collaboration between the organizations.



Research Champion Insights: PMI Focus on targeted, needs-based open innovation.

Varying economic growth rates worldwide and shifting global market priorities have created a complex, risk-laden business environment. There is little question that global volatility will continue into the foreseeable future. So organizations face a future that rewards innovation on one hand while threatening innovation projects due to the rapid pace of change on the other. Depending on the industry, innovation can be absolutely critical to an organization’s success, as the PMI-funded Best Industry Outcomes study found. Explore the following industries, for example: 2

 Aerospace and defense —This sector is highly capital-intensive and

characterized by large, lengthy programs and projects carried out under contract for government and large private sector companies. Programs and projects in this sector usually involve multiple suppliers and partners to deliver the end product to the customer. Technological innovation is required for such programs and projects, and from the customers’ perspective the quality and reliability of the technology is paramount. Current drivers of innovation in this sector include reductions in research and development investment, shrinking public sector funding, and competition from emerging markets, according to the 2012 report Realising the Value of Open Innovation by Big Innovation Centre.  Automotive —This industry, also highly capital-intensive, requires a significant infusion of capital upfront. Thus, profitability fueled by customer features and vehicle performance are critical factors in benefits realization for both vehicle manufacturers and component manufacturers. Today’s vehicles have extensive technology-enabled systems that support vehicle performance and help to facilitate maintenance. At the same time, vehicles use both on-board and offboard technologies to provide customer features such as satellite radio and mapping support, Bluetooth-capable system operability, and video streaming. Those features add complexity to the design and product life cycle process. 3

2

Lynn Crawford and Terry Cooke-Davies. Best Industry Outcomes . Project Management Institute, 2012. John Golightly. Realising the Value of Open Innovation . Big Innovation Centre, 2012. 3



Many customers now evaluate vehicles based on fuel performance and use of biofuels. All of these forces combine to continuously push the need for innovation within the industry.  Engineering and construction —One respondent respondent from the Best Industry study perfectly stated the range of innovation associated associated with Outcomes study engineering and construction projects: “Deliver products faster, better, cheaper than the competition, and delight our customers through the delivery of those projects so that we gain repeat business from those customers. Part of delivering more for less for our customers is providing innovation innovation solutions, so taking the ultimate benefits they want from the projects and looking at the delivery solution for them, and trying to value engineer that and innovate it so that it delivers back benefits for less costs.” telecommunications —The rapidly changing technological  IT and telecommunications technological landscape means that companies in this sector must get to market quickly with products and services that deliver value to their customers. And those products and services must have reliable performance and quality, or else risk negatively impacting customers. So this sector faces two innovation challenges: how to deliver products and services that customers need and how to develop new offerings that customers do not yet know that they need. For example, the mobile phone has evolved into a multifunctional mobile device. device. It incorporates talking, texting, video, live television feeds, GPS, financial services, calendars, and tools to collaborate, innovate, and capture new ideas in real time, anywhere in the world.  Pharmaceuticals —According to Big Innovation Innovation Centre’s Centre’s 2012 report Realising the Value of Open Innovation , this industry is moving from “a ‘chemical paradigm’ to innovative therapies requiring mixed disciplines and integration of technologies.” Perhaps that explains why in the Best Industry Outcomes study study this industry was the only one for which respondents identified innovation as its strongest strategic driver. One respondent characterized innovation in this sector as “building the blueprint as you go,” rather than starting with one. Innovation projects in this sector have high degrees of complexity and uncertainty that are 4

5

6

4

Lynn Crawford and Terry Cooke-Davies. Best Industry Outcomes . Project Management Institute, 2012. John Golightly. Realising the Value of Open Innovation . Big Innovation Centre, 2012. Lynn Crawford and Terry Cooke-Davies. Best Industry Outcomes . Project Management Institute, 2012. 5 6



managed throughout the project. Thus, the projects tend to be large, of long duration, and subject to regulatory compliance issues. Over the course of a project, organizations in this sector often create new knowledge that may be different from what they originally expected to create. Thus, strong change management and portfolio management are required to quickly translate that new knowledge into innovative products. industry was perceived perceived as slow moving when when government government or  Utilities —This industry state-controlled enterprises represented the primary generation and distribution providers. However, as privatization and deregulation continue to take hold, the industry has become volatile, highly regulated, competitive, and cost sensitive. Companies in this sector reported in the Best Industry Outcomes study study that innovation supports growth strategies and use of new technologies. 7

Successful organizations embrace continuous innovation by adopting Lean methods, integrating the voice of the customer, and adjusting their projects to take advantage of market conditions. However, the number of organizations that feel they do this well is limited. PMI’s 2012 Pulse of the Profession™ In-Depth Report: Organizational Agility uncovered that today’s turbulent environment demands organizational agility to support the need for innovation and to adapt to change. However, only 12 percent of organizations surveyed in 2012 felt they were highly agile, and that rate had declined from 23 percent in 2008 (before the global economic recession’s impacts were fully felt). felt). 8

Building the capacity for organizational agility provides many rewards, such as:  faster response to changing market conditions,  overall improved organizational efficiency,  improved customer satisfaction, and  more profitable business results.

Changes in the external environment can sabotage projects and programs unless organizations are prepared to mitigate the impacts. Thus, effective risk management practices are essential for organizational agility. Risk management requires effective planning and identification of known risks that can impact a project’s or program’s

7

Ibid . Project Management Institute. Pulse of the Profession™ In-Depth Report: Organizational Agility . Project Management Institute, 2012.

8



success. Known risks may include supply chain issues, the need for regulatory approvals, the availability of financing, and similar project needs that are subject to forces outside of the project or program. There are also risks that cannot be foreseen but may have negative implications for projects. For example, natural disasters may deplete specific resources that the supply chain needs to deliver on its commitments or new regulations may inhibit an organization’s ability to move into a new market. Although not foreseen, these risks still need to be mitigated, or the entire project or program could fail. PMI’s 2012 Pulse of the Profession™ In-Depth Report: Organizational Agility found that 90 percent of organizations that are effective at risk management report high or moderate levels of agility. Those organizations were effective at detecting and evaluating risks in the external environment (72 percent) and at identifying and leveraging significant risks (39 percent). Those organizations standardized their practices to mitigate risks on several levels by:  integrating the voice of the customer into the project/program,  establishing formal risk management processes inside and outside of projects,  conducting project risk simplification, and  conducting contingency planning.

9

Partner broadly across a variety of external and internal organizations.

Like project management, innovation processes may sometimes benefit from external inputs and supports. Critical external support can come through partnerships—that partnerships—that is, structured relationships relationships in which two or more parties exchange services, products, technologies, knowledge, or other capabilities in exchange for something of mutual benefit. There are two key partnership types that relate to innovation and project management. 1. Supplier —One —One or more organizations organizations have a contract to provide something to the contracting party in exchange for remuneration. The contract governs the relationship between the parties. The contract attempts to maximize performance or financial benefit while reducing or deflecting risk. 2. Collaborator —One —One or more organizations enter into a relationship to share something that enables all parties to accomplish mutually beneficial objectives that they would not be able to accomplish effectively individually. With collaborations, the relationship governs performance and drives strategic alignment, information exchange, capability sharing, and process integration.

9

Ibid .



Both supplier and collaborator structures add elements of risk to innovation projects. Both introduce multiple stakeholders, each of which may expect a different outcome from the project. Key risks in this area include goals that are not shared among stakeholders, hidden agendas, and imprecise terminology that affects communication and understanding. Partners involved in groundbreaking projects that neither party has attempted before may face ambiguous project elements, unpredictable risks, and nonlinear processes. Partnerships can generate structural stresses as the partners attempt to integrate their staff, processes, and technologies. All of these uncertain elements create new risks for the innovation project. The tidal wave of corporate mergers, acquisitions, and expanded use of strategic alliances that has enveloped the business landscape over the last 20 years has brought significant change within organizations in strategic, operational, and human terms. Many high-profile mergers and acquisitions have failed because the companies could not effectively integrate their distinct cultures, processes, and strategies. Perhaps the key factor in defining the failure of mergers, acquisitions, and alliances is value realization. In most cases, failure is defined as not realizing the promised value for shareholders and/or customers of the acquisition or alliance. A good example of the need for partnership alignment comes from the automotive and IT sectors. Automotive companies are now embedding third-party software into the technology systems of their products to provide greater value to customers. With the rapid pace of technological change, software providers that want long-term relationships with automotive companies must ensure that their software remains aligned with the technologies their clients embed in their vehicles. So the relationships between software and automotive companies require long-term management and strategic alignment in order for both to achieve the full benefits of the collaboration. Among the best-practice companies in this study, BT often leverages services developed by third-party companies as part of its innovation practices. Both parties are at risk in that relationship if either partner changes its technology platform, software, or infrastructure in such a way that it is no longer compatible with that of the other. And Cisco’s approach of acquiring organizations with innovative technologies mitigates such risk but then requires Cisco to effectively integrate those technologies. Both approaches work effectively for those companies, but each company must decide how best to integrate with its partners. The external partner development group within General Mills plays an important role in establishing connected innovation partnerships. New partnership opportunities are first identified by its strategy and innovation group, which cultivates the relationship. The mission of the external partner development group is to enable growth through strategic partnerships, so the group is organized into teams with diverse sets of skills. Each team is essentially a community of practice and could include individuals with backgrounds in procurement, finance, licensing, business



development, law, or other relevant areas. The external partner development group works to establish win-win relationships with external groups and feels responsible for ensuring that partners find value in every interaction with the organization. These activities support General Mills’ goal of becoming the partner of choice for innovators. Even if a particular project does not move forward, the external partner development group wants to ensure that the partner will return to General Mills in the future with additional innovations.



Open Innovation Roles Findings in This Section 1. Establish a central, dedicated group to drive open innovation. 2. Seek open innovation team members with specialized skills and backgrounds.

ESTABLISH A CENTRAL, DEDICATED GROUP TO DRIVE OPEN INNOVATION.

The best-practice organizations in this study show that successful open innovation efforts are often driven by a dedicated group of staff members. Seventy-five percent of responding best-practice organizations from this study have a group of staff members specifically dedicated to open innovation, whereas only 40 percent of the sponsoring organizations have such a group. Despite the size of the best-practice organizations in this study (having a median annual revenue of $17 billion), they keep their open innovation groups relatively small. Two-thirds of these responding organizations have 25 or fewer employees in their open innovation groups, and onethird have 26 to 50 employees in their open innovation groups. One benefit of having a dedicated group for open innovation is that it enables an organization to execute an agile open innovation strategy. Without such a group an organization would struggle to maintain direction and achieve continuity. Another benefit is that this group is the clear owner of the open innovation process. Although this group may work closely with others in an organization, it maintains accountability for open innovation initiatives. It is worth noting that despite their ownership of open innovation, the dedicated groups for the best-practice organizations in this study do not own product or service development. Instead, they act as facilitators that connect business units with potential sources of innovation. As in the case of BT’s development of a self-run hothouse kit, these groups may also develop tools and resources that other business units can use to develop their own innovation approaches. HOW BEST-PRACTICE ORGANIZATIONS DO IT Located within Cisco’s development organization, the emerging technologies group has a business incubation program for new technologies that could allow the


Open Innovation: Enhancing Idea Generation Through Collaboration organization to enter into new markets. The group also partners with the organization’s corporate development group to scout for technologies and startups in new areas. The business incubation program also serves in an advisory, consulting, and support capacity to Cisco’s internal startups. Amway’s open innovation team is located within the organization’s broader R&D function. It was designed to be a place for ideas to incubate and grow, with less emphasis on aggressive timelines and more on flexibility. This team focuses on longer-term projects that may provide Amway with more value than the incremental innovation on which the organization had previously focused. Corning’s emerging market and technology group is also located within the organization’s R&D function. This group identifies potential markets on which to focus and tracks market trends. Individuals in this group are responsible for longterm and burgeoning projects and focus more on learning rather than on delivering quick financial results.

SEEK OPEN INNOVATION TEAM MEMBERS WITH SPECIALIZED SKILLS AND BACKGROUNDS.

The results of this study indicate that best-practice organizations look for specific skill sets when staffing their open innovation teams. The employees sought for these teams tend not to be new hires to the organization. The best-practice organizations in this study look beyond the skill sets of a traditional R&D employee to include the ability to work with others in the organization to identify and communicate innovation needs. Several of the best-practice organizations also look for individuals with an entrepreneurial mindset to ensure that their innovation teams can work creatively and quickly with limited resources. These finding are in line with previous research on the needs of open innovation initiatives. In the book A Guide to Open Innovation and Crowdsourcing , Matthew Heim emphasized that open innovation teams should have a minimum of the following attributes:  an entrepreneurial mindset,  the ability to enact change in the organization,  the ability to work with and facilitate collaboration across business functions,  a process orientation,  listening skills,  articulation skills,  the ability to see patterns and trends across business units and processes,


Open Innovation: Enhancing Idea Generation Through Collaboration  networking and communication skills, and  intellectual curiosity.

10

Because of the need for open innovation staff members to facilitate collaboration, identify needs, and enact change, these employees are often developed within the ranks rather than acquired from outside the organization. Although all the best-practice organizations in this study have defined to some extent the skill sets needed for staff members within their open innovation efforts, some have also identified deal-making skills that are critical for their success. These skills emphasize the need to consider the innovation partner rather than focusing strictly on the needs of the organization. HOW BEST-PRACTICE ORGANIZATIONS DO IT BT has developed a set of criteria for the staff members in its centralized innovation group. All members must have enough experience with technology to articulate to other BT employees how new technology features will translate into business benefit. They must also be able to establish relationships with both internal stakeholders and external partners. Open innovation staff members who work with external partners must have project management skills that include relationship development in addition to the more traditional process skills. Staff members who work with innovation activities involving other BT employees must be connected within the organization so that they can help keep employees engaged.

General Mills has also established requirements for its open innovation team members, but these requirements vary depending on the initiative. Its X-Squad seeks team members who are entrepreneurial, can scout for new sources of innovation, can determine the needs of their assigned lines of business, articulate those needs to others, and identify the talent needed to address the needs. General Mills’ iSquad looks for team members with a variety of backgrounds. However, these team members take continuing training to further develop their consumer empathy. Some employees within this team are trained in improvisational acting because of the amount of time they spend facilitating groups. When interacting with potential innovation partners, the external collaboration initiative at General Mills is motivated by the goal of being the partner of choice. This means that all interactions with a partner can influence whether it will consider working with General Mills on future innovation opportunities.

10

Matthew Heim. “Leadership Issues and Challenges in the OI World.” In: Paul Sloane, ed. A Guide to Open Innovation and Crowdsourcing . Korgan Page, 2011.


Open Innovation: Enhancing Idea Generation Through Collaboration At Amway, the open innovation team is part of the organization’s R&D function. Most of the team members are experienced Amway employees with long tenures in product development. The staff members in this team, therefore, have knowledge of both the organization and of its product development process. When negotiating deals, Amway’s open innovation team members are encouraged to keep the needs of the other party in mind rather than seeking to secure only Amway’s interests. Staff members are encouraged to consider whether, if the roles were reversed, Amway would sign a proposed deal. If not, staff members must reconsider the deal to ensure that the needs of the other party are met. Cisco is selective when bringing new team members into its emerging technologies group. Successful staff members have an entrepreneurial background, which enables them to understand how to grow a business. Other successful staff members have backgrounds as strategy consultants, which gives them the ability to think strategically and also approach problems differently. These individuals are also able to influence and convince others to make investments in new ideas. Successful staff members in Corning’s emerging market and technology group have the ability to function well amid uncertainty and ambiguity. This helps individuals within this group manage long-term and burgeoning projects that do not provide immediate results.



Research Champion Insights: PMI Seek open innovation team members with specialized skills and b ackgrounds.

The Economist Intelligence Unit’s 2009 report Talent strategies for innovation identified multiple challenges that organizations face in talent acquisition and management. From an internal perspective, the following challenges are among the top identified in the report:  Insufficient internal collaboration and resource sharing among different parts of

the organization—53 percent  Talent strategy is not effectively aligned with the business strategy—44 percent  Lack of appropriate training opportunities for key staff—36 percent  Lack of labor pool with appropriate skills—31 percent External challenges also impact talent acquisition. The following external challenges are identified in the report:  Greater global competition for talent—45 percent  Desire of employees to switch jobs frequently—43 percent  Increasing labor costs—42 percent  Lack of skilled graduates for entry-level jobs—36 percent

11

According to various studies, global CEOs clearly understand that human capital is critical for their organizations’ success. Almost three-quarters (71 percent) of CEOs responding to IBM’s 2012 Global CEO Study see human capital as a key source of sustained economic value. CEOs also understand the implications of nonexistent or poor talent management within organizations, which include:  decreased product or service delivery quality,  difficulty innovating effectively,  cancelled or delayed key strategic initiatives,

11

Economist Intelligence Unit. Talent strategies for innovation . Economist Intelligence Unit, 2009.



 inability to achieve growth forecasts, and  inability to pursue a market opportunity.

12

Across all industries, the competence of personnel is second only to execution performance in criteria required for organizational success, according to the PMIfunded Best Industry Outcomes study. The study found that many organizations are experiencing difficulty in finding suitably qualified people to manage their projects. Interestingly, in most industries, fewer than half of the respondents report that their projects are fully resourced, and just over half indicate that their project managers have the authority needed to effectively lead their projects. 13

The Economist Intelligence Unit’s 2009 report Talent strategies for innovation found that, of the 11 top-rated innovation skills, the majority are “soft skills” rather than technical or business skills.  Creativity—51 percent  Ability to collaborate—40 percent  Ability to learn quickly—35 percent  Ability to solve problems—30 percent  Self motivation—25 percent  Ability to work across functions—23 percent  Entrepreneurial skills—22 percent  Knowledge transfer skills—17 percent  Networking skills—11 percent

14

Unfortunately, senior business executives are finding it more challenging to recruit individuals with the skills their organizations need. The 2013 GE Global Innovation Barometer, for which 3,100 global corporate executives were interviewed, found declining levels of confidence among those executives that the higher education system is effectively preparing tomorrow’s innovators. Across 20 regional markets, only executives in India, the United States, Mexico, the United Kingdom, Russia, Germany, and South Africa showed growing confidence in their countries’ educational systems between 2012 and 2013. Overall, among the 20 markets,

12

IBM Global Business Services. Global CEO Study . IBM, 2012. Lynn Crawford and Terry Cooke-Davies. Best Industry Outcomes . Project Management Institute, 2012. Economist Intelligence Unit. Talent strategies for innovation . Economist Intelligence Unit, 2009. 13

14



confidence levels declined by 6 percent, from 61 percent in 2012 to 55 percent in 2013. Half of the respondents felt that their national governments should encourage a stronger entrepreneurial culture in higher education systems, and 44 percent felt government should better align curricula with business needs. 15

Global executives face another critical issue in sourcing talent: major demographic changes. Booz & Company’s 2009 report Global Talent Innovation Strategies for Breakthrough Performance painted a clear picture of a work force in transition. In today’s global economy, the vast majority of educated workers are women and people of color. In addition, only 22 percent of today’s college graduates come from North America and Western Europe. While their numbers in the work force grow, women and people of color remain underrepresented in management ranks. At the same time, there is a major generational shift occurring worldwide. Baby boomers, those born in the mid-1940s to the mid-1960s, are remaining in the work force longer than their parents’ generation. That pressure is challenging upward mobility of their successor generation, Generation X. Generation X is being squeezed on the other end by Generation Y, those born between 1979 and 1994, who will make up close to 75 percent of the global work force by 2025. These three generations have different work styles, preferences, and profiles, and employers have to determine how to recruit, develop, and retain individuals with such diverse requirements. 16

Organizations in which talent management aligns with organizational strategy have an average project success rate of 72 percent, whereas organizations in which talent management is not effectively aligned to organizational strategy have an average project success rate of 58 percent, according to PMI’s 2013 Pulse of the Profession™ In- Depth Report: The Competitive Advantage of Effective Talent Management . Those organizations understand the need to provide training in soft skills such as leadership, conflict management, and negotiation (85 percent) while also making training a priority (84 percent). They also have active performance management systems (66 percent) and integrate talent management across the organization (62 percent). 17

BT has a focus on talent management that extends beyond just project management skills and capabilities. Being a highly technical company, BT targets talent development in a way that ensures project managers bring more systemic talents to their projects. So project managers must have strong stakeholder engagement skills, demonstrate an understanding of business strategy in how they approach their work, display inquisitiveness and openness to innovation, and have the ability to

15

GE. GE Global Innovation Barometer . GE, 2013. Booz & Company. Global Talent Innovation Strategies for Breakthrough Performance . Booz & Company, 2009. Project Management Institute. Pulse of the Profession™ In-Depth Report: The Competitive Advantage of Effective Talent Management . Project Management Institute, 2013. 16

17



communicate effectively with senior-level executives. Most importantly, BT sees its project managers as translators: they translate customer needs and requirements in high-level terms into prototypes the company can turn into new offerings. The problems stemming from having poorly defined development paths for staff are being recognized. Although many organizations still have a strong “career ladder” mentality, some organizations are shifting to a more development-centric career management framework. That framework often combines the following characteristics:  specialized career paths to build key capabilities, set role expectations, and clarify

accountability and  developmental assignments that help individuals expand their skills and experience without a defined path forward. Organizations may use specialized career paths when they identify capabilities that are strategically important to the business and its achievement of strategy. Project and program management have evolved into specialized roles defined by organizations to support innovation, new product/service development, and other activities that deliver value to customers. Innovation is a critical organizational capability that resides in many individuals within an organization rather than a specific role. Thus, organizations are creating opportunities for individuals to contribute to innovation projects to build their capabilities, rather than establishing new roles or functions. This exposure can be achieved through lateral moves to positions that allow staff to gain new skills and business insight. Work assignments can be structured to create developmental challenges that test some of the critical skills, particularly soft skills, associated with innovation activities. Clear objectives and performance assessments can help to evaluate developmental measures that may point to new opportunities. Booz & Company’s 2009 Global Talent Innovation Strategies for Breakthrough Performance report suggests that organizations identify talent segments within their staff. For example, the study defined pivotal staff as those who have highly specialized skills, knowledge, and abilities that “drive competitive advantage and contribute a disproportionate share of the company’s strategic objectives.” The study also identified core staff who are critical for executing strategy. Identifying those individuals could facilitate targeting staff for developmental opportunities.



To be a 21st century organization, Booz & Company recommended that organizations explore:  a diverse and global talent pool;  systems that enable people to work effectively and collaboratively through virtual

and face-to-face means;  flexible work arrangements that focus on overall work performance rather than performance during work hours;  incentives that encourage employees to build leadership, business, and technical skills; and  discontinuous career paths that allow people to move in and out of different assignments or roles, take leave or sabbaticals to refresh, etc. 18

18

Booz & Company. Global Talent Innovation Strategies for Breakthrough Performance . Booz & Company, 2009.



Open Innovation Processes Findings in This Section 1. Integrate and align the open innovation process with other relevant processes to ensure key entities are involved at critical points. 2. Embrace broad and specific scouting for new ideas. 3. Invite participation in open innovation via experiences.

INTEGRATE AND ALIGN THE OPEN INNOVATION PROCESS WITH OTHER RELEVANT PROCESSES TO ENSURE KEY ENTITIES ARE INVOLVED AT CRITICAL POINTS.

The best-practice organizations in this study are clear on their definition of innovation. Simply put, innovation encompasses ideas put into action to generate value. Successful and agile innovation processes have multiple stages, beginning with early-stage business case development and related processes that should be integrated seamlessly with the organization’s later-stage processes for new product or service development and commercialization. There is a strategic link between innovation and execution. In this study, the best-practice organizations have holistic systems in which innovation is not separate from the rest of the business, beginning with early-stage ideas. An important definition deserves mention here. In How Companies Win , Rick Kash and David Calhoun note, “Innovation is finding unsatisfied profitable demand and then fulfilling it.” Therefore, innovation has no constraints. Applying open innovation practices to the most significant strategic initiatives, or demand pools, creates a culture that embraces innovation. 19

A larger percentage of the best-practice organizations in this study have fully implemented a formal process for fostering and vetting new ideas, compared with the sponsoring organizations and the larger population of 297 organizations participating in APQC's Open Standards Benchmarking in innovation (Figure 3.1).

19

Rick Kash and David Calhoun. How Companies Win . HarperBusiness, 2010.



Existence of a Formal Process for Fostering and Vetting New Ideas 7 Has fully developed a formal process for fostering and vetting new ideas

75%

0%

20% 25% 25% 17%

6 5 4 Developing a formal process for fostering and vetting new ideas 3 2 1 No formal process

0% 15% 0% 0%

20%

0% 11% 0% 11% 0% 0%

25% 25%

6%

0% Best-P Best-Prac ractic tice e Organi Organizat zation ionss (N=4) (N=4)

25%

25%

Sponso Sponsorin ring g Organi Organizat zation ionss (N=4) (N=4)

50%

75 %

1 0 0%

Open Open Standa Standards rds (N=298) (N=298)

Sources: APQC’s Open Standards Benchmarking in innovation, Open innovation study detailed questionnaire

Figure 3.1

In many industries, innovation success is related to speed to market. Several bestpractice organizations in this study link their innovation processes to their execution frameworks so they can quickly get to market. The best-practice organizations in this study also tend to have a strong project management/product development stage-gate process. Stage-gate processes alone are not a differentiator, but they are necessary to compete in today’s markets, especially when faster time-to-market is key. Figure 3.2 shows that the best-practice organizations lead the other organizations surveyed by tracking a greater extent of projects through a gated process. APQC’s Open Standards data in Figure 3.2 shows a more diverse set of answers to the question, compared with the study’s best-practice organizations and sponsoring organizations.



Extent Organizations Track Product or Service Innovations Through a Stage-Gate Process 7 All open innovation innovation initiatives tracked in stages stages

25% 25% 18% 25%

6 5 Only major open innovation innovation initiatives tracked in stages

3 Open innovation initiatives are tracked but not not in stages

1 No open innovation innovation initiatives are tracked

15%

0% 0% 0% 0%

2

17% 9%

0% 0% 6% 0%

Best-Pr Best-Pract actice ice Organi Organizat zation ionss (N=4) (N=4)

50%

18% 0% 0%

4

50%

17%25%

25%

50 %

Spons Sponsorin oring g Organi Organizat zation ionss (N=4) (N=4)

75%

100%

Open Open Stand Standard ardss (N=28 (N=282) 2)


Figure 3.2

Although success is more achievable when an organization fully aligns all related processes to reduce cycle time, minimize knowledge loss at transition points, and engage key stakeholders, it is important to note that process is not the only important factor. It is just as important to have the right people involved at relevant steps. Leaving out stakeholders can kill an open innovation deal quickly. Stakeholders can include the following:  Marketing —Does this new product, service, or change change make sense from a

marketing perspective? Will it be viable in the marketplace?  Legal —To —To minimize minimize late-stage delays or killed killed open innovation innovation opportunities, opportunities, engaging the legal function early in the process helps gain buy-in and speed up needed approvals and reviews.  Purchasing —Involving the purchasing or procurement function avoids avoids delays from excessive negotiation or a one-sided deal.  Executive sponsor —With the the budget to purchase technology, technology, the executive executive sponsor can help remove barriers and hasten the speed to market.


Open Innovation: Enhancing Idea Generation Through Collaboration HOW BEST-PRACTICE ORGANIZATIONS DO IT The sourcing of ideas from external organizations and internal employees is part of BT’s concept-to-market (C2M) idea development process (Figure 3.3). This process has four stages:

1. idea, 2.

proposal,

3. business case, and 4. delivery. BT’s Concept-to-Market Process

Note: MFU is a market-facing unit within BT.

Figure 3.3

BT’s open-ended idea stage involves sourcing and filtering ideas from internal and external sources of innovation. BT moves a concept into the proposal stage when it is deemed worthy of consideration for a business case. During the proposal stage the idea is articulated and validated, which can involve conducting early customer trials, codevelopment with customers, and proof-of-concept development. This stage takes 60 days or fewer to complete.


Open Innovation: Enhancing Idea Generation Through Collaboration Once the proposal stage is complete and the relevant BT business unit has validated the idea, it can move into the business case development stage. BT then conducts trials of the product or service. These can be small-scale trials that evaluate how the product or service will work or large-scale trials that evaluate how customers will use the product or service. This stage lasts 120 days from business unit validation to customer trial. Once trials are completed and a full business case is developed, the business unit responsible for the technology confirms project approval. During the delivery stage, BT completes any development necessary to get a quality launch for the new product or service. The process ends with a full commercial launch for the product or service. BT has also established an accelerated development process called C2M Lite (concept-to-market lite) for ideas that do not need complex validation processes. An idea is selected for acceleration for several reasons: if BT needs to verify that it is not infringing on intellectual property owned by another organization, that it has the security needed for a service to be put through a trial, or that the idea is compatible with mainstream architecture. BT created C2M Lite to facilitate a “fail fast, fail cheap” environment that makes product market trials more efficient. The process involves testing and validating minimum marketable features of potential products and services using early market testing. The results of the testing and validation are then used to support decisions on creating business cases for potential products and services. With the accelerated process, trials can be shortened to 60 to 90 days. At Amway, a formal, enterprise-wide process guides innovation and can be applied to multiple types of innovation, including business model innovation. As shown in Figure 3.4, the process consists of four distinct phases: 1. technology surveillance, 2. R&D exploration, 3. product development, and 4. business sustaining.



Amway’s Overarching Innovation Process

Figure 3.4

The technology surveillance phase involves identifying ideas and taking them through early concept development. According to Amway, thousands of ideas enter its innovation funnel each year, but only about 150 reach the second phase, R&D exploration. During R&D exploration, Amway further narrows its portfolio and creates a project proposal and business case for each idea. Ideas are presented to Amway’s technology review board at key milestones during R&D exploration, and this group ultimately decides which ideas move forward and receive additional funding. Approximately 20 to 30 projects each year reach Amway’s business case development phase, where they are refined using a formal stage-gate process called idea to market (ITM). During this phase, the project management function creates a project brief, which is a contract among the development groups, Amway’s marketing function, and representatives from the markets where the product will be initially launched. The project brief defines each idea further and lays out exact details regarding scope, costs, and the timeline for development and launch. Approximately 10 to 15 projects reach this point each year, 90 percent of which ultimately result in product launches.


Open Innovation: Enhancing Idea Generation Through Collaboration The business sustaining phase of Amway’s innovation process begins once the product is launched and addresses ongoing evaluation and continuous improvement. One important observation about Amway’s integrated process is that there is an overlapping transition period between phases rather than a sharp handoff. This gradual shift helps team members with critical knowledge ensure that all relevant information is communicated and that the receiving team members have time to absorb the information and preserve continuity in the project. This clear acknowledgement of the need to capture and transfer knowledge is echoed in APQC’s knowledge management research. (More information on putting knowledge in the flow of work can be found in APQC’s Knowledge Base.) In a different look at innovation processes, the Cisco emerging technologies group’s framework (Figure 3.5) begins with its team looking for new ideas for new businesses using an open innovation approach. The next step is to filter and shape the idea by developing a prototype and a proof of concept to decide if Cisco should make the next level of investment and, like a venture capital firm, invest seed funding to create that new business. During the incubate phase, Cisco has a set of milestones to manage the process to start a business. Cisco brings in the founding team or creates a team and gives it considerable freedom to refine the idea. Cisco’s Emerging Technologies Group Incubation Framework

Figure 3.5

One of Cisco’s critical success factors is that a member of the business incubation team stays with the startup businesses even when they go to market in the accelerate phase. When entering a new market, Cisco has found that startup teams often lack some of the expertise needed to achieve the scale necessary for a billion-dollar business.


Open Innovation: Enhancing Idea Generation Through Collaboration After Cisco’s accelerate phase, the emerging technologies group either places the startup into another mainstream business unit or suggests exiting completely. At any time, the emerging technologies group tends to have three to four startups operating. However, Cisco does not expect a 100 percent success rate on these new businesses, and when a project is cancelled, people are redeployed to other projects. Similarly, Corning has a high-level process to monitor its effectiveness in converting innovation opportunities created with an understanding of customers and markets into revenue. Corning’s emerging market and technology group begins by creating a road map to identify attractive markets and screen opportunities. It also assembles academics and specialists from business and industry to investigate a particular area of opportunity. This process requires cross-functional participation from marketing, commercial, manufacturing, and individuals from different business units within R&D. Corning then builds its innovation portfolio by selecting projects and aligning resources. Selected projects move through Corning’s stage-gate innovation process, established in 1987 (Figure 3.6). The innovation process uses five stages and gates to accelerate time-to-market, ensure projects proceed efficiently, and provide clear goals and guidance to project teams. The process keeps investments and risks in check by continuously reprioritizing projects. As a project progresses, risk and uncertainty decrease as knowledge and cost (or the size of the project) increase. Managed by the corporate innovation and process group, Corning’s process involves a cross-functional team from marketing, technology, manufacturing, and R&D. Corning’s Innovation Process

Figure 3.6


Open Innovation: Enhancing Idea Generation Through Collaboration At General Mills, the strategy and innovation group is comprised of smaller subteams with different processes for generating innovative solutions to the organization’s needs. General Mills’ iSquad explores opportunity areas using its I 3 process (Figure 3.7). The first two stages in the process (immersion and interaction) require the team to conduct research to both understand the nature of the problem from a business point of view and to experience the problem from the consumer point of view. The third stage of the I 3 process is idea creation, or developing solutions to the problem. General Mills’ I 3 Process

Figure 3.7

Another General Mills catalyst team, the externally-focused X-Squad, has a threepart process for partnering for connected innovation. The first part looks at internal collaboration, the second looks at collaboration with trusted partners, and the third part looks at collaboration with new partners. This team focuses on finding solutions rather than ideas; a solution could be a technology that results in a new benefit or technical expertise that could bring a solution or a new product to General Mills. The X-Squad developed a process called X 3 to assess a particular need and find a solution to that need (Figure 3.8). This process focuses on finding a technology rather than developing new products.



General Mills’ X 3 Process

Figure 3.8

In the first stage of General Mills’ X 3 process, the problem is identified and refined so that the solution will adequately address the need. Hypotheses are developed in the second stage of the process, and in the third stage talent that can find a solution to the problem is identified. Individual projects that address a specific phase of the X 3 process (known as X 3 a La Carte) can be completed. These can take the form of internal alignment sessions, problem definition sessions, the creation of a talent list to address a particular problem, or a direct on-site connection to a potential solution to a problem. General Mills’ Sparks team is a relatively new group that often leverages the work of the iSquad and X-Squad to develop ideas into actionable product opportunities. The Sparks team holds online and in-person sessions to generate as many ideas as possible and then quickly weeds out ideas that will not work. It uses convergent and divergent thinking for generating and refining ideas. For product development, General Mills uses a standard stage-gate process that it has adapted to meet its needs. The process emphasizes the need to ask the right questions at the right time, have the right individuals involved, and maintain alignment within the organization. The process begins with strategy development and ends when the product has been in the market for six months. To facilitate the faster development of a potential product, General Mills created an in-context experimentation team. This team’s method of new product development provides early learning on “hunch” ideas for potential products. The organization’s innovation entrepreneurs and a support system lead the development, but the in-context experimentation team finds both internal and external groups that can move the early development along.



EMBRACE BROAD AND SPECIFIC SCOUTING FOR NEW IDEAS.

When scouting for new ideas, the best-practice organizations in this study focus on both a specific list of needs that they revisit regularly and on broader trends still within a defined arena. In the broader type of scouting, designated employees monitor the landscape that is relevant to the organization’s future. These scouts gather and share information on emerging trends, upcoming or current threats, new players in the market, and even acquisitions to target. Effective scouting is often enhanced by in-person relationships and access to the tools that will help find those new relationships. HOW THE BEST-PRACTICE ORGANIZATIONS DO IT BT’s external scouting group maintains a set of technologies that BT is interested in (specific) but also looks for technologies that BT could expand into (broad but focused). Each scout researches about 300 companies per year. Staff members often meet with representatives from these external companies to vet their business models and technologies. BT also finds potential partners at conferences, meetings, and networking events and through recommendations from venture capital groups and industry blogs.

BT’s scouting group captures data on every company it evaluates and stores the information in a central repository. For each company selected as a potential partner, the scouting group creates a one-page description that can be circulated within BT and presented during a monthly call. The group also maintains documents that discuss broader trends in BT’s lines of business. Senior managers at BT often come to the scouting group with a particular need they want to address with new technologies. Staff members within the scouting group conduct background research to understand what must be addressed by the solution, as well as the key players and trends in the area. Scouts then identify and meet with various companies that may provide a solution for the need, narrow the group of potential companies down to a core group, and present the core group to the senior managers. For every company presented to a senior manager, scouting group staff members have investigated five to 10. Once the potential partners have been presented to senior management, the senior managers and scouting staff members discuss the potential impacts of partnering with the companies. To keep informed of new developments in the telecommunications industry, the scouting group conducts benchmarking with BT’s industry peers. Benchmarking allows the group to track new developments among North American telecommunications organizations that can then be applied to BT’s European markets. Similarly, Amway’s open innovation team relies heavily on a network of technology scouts who seek potential sources of external innovation. For needs-based scouting,


Open Innovation: Enhancing Idea Generation Through Collaboration the scouts strive to locate technologies meeting Amway’s specifications. Over time, the team has improved its scouting practices by learning to look beyond the most obvious sources. For example, scouts in the beauty category began to visit spas and meetings of dermatologists looking for innovations. Often, the technologies the scouts uncover must be adapted before Amway can apply or use them. These repurposed technologies have been some of the open innovation team’s biggest successes. To identify broader trends, Amway’s scouts regularly attend academic, technology, and other conferences, as well as tap into the organization’s networks. To do their jobs effectively, scouts must have a deep understanding of the fields in which they operate and keep up-to-date on scientific and technical advancements. This allows them to know which ideas are feasible, which are truly innovative, and which might be adapted to address Amway’s needs. Cisco, like the other best-practice organizations, casts the net wide for breakthrough ideas. As a decentralized enterprise, Cisco has many pieces and stakeholders for innovation. The emerging technologies group scouts for ideas by talking to customers and other external parties, scanning for sentiments in employee and external groups, talking to venture capitalists, and following market developments. Cisco sees more of the venture spend moving to earlier-stage investments. Therefore, Cisco is developing relationships with several early-stage business incubators and accelerators in order to stay current on new formative developments while offering them mentoring. Within General Mills’ X-Squad, innovation entrepreneurs define the needs of their business or function and then scout for solutions. These innovation entrepreneurs look for organizations across the world that can provide General Mills with new technologies, and they seek new talent that can provide the organization with new solutions. The X-Squad is looking at other ways of connecting with new partners for collaboration. On occasion, it conducts indigenous innovation tours to identify innovation that is unique to several regions across the globe, most recently focusing on China and India. To expand its scouting reach, General Mills also partners with organizations in other countries. For example, it partners with an organization in the Netherlands that serves as a resource for introductions to new products and technologies. It also works closely with an organization in China to help scout for innovation in that area. General Mills also uses analytics software to map expertise across the globe to gain a visual representation of where talent is located.



INVITE PARTICIPATION IN OPEN INNOVATION VIA EXPERIENCES.

There is nothing like first-hand experiences to engage employees, customers, and other partners in the open innovation process. This best practice extends the findings APQC documented in the 2012 best practices report Putting Knowledge in the Flow of Work. In that report, APQC examined how best-practice organizations integrate knowledge sharing and collaboration for employees to the point where these activities are no longer viewed as separate pursuits but rather as integral parts of the work being done. Those organizations strive to embed collaboration in innovation, project management, and daily work, but they also sponsor knowledgesharing events that take employees out of their routines. Although not technically part of the normal work flow, these events are in the flow of business because they address issues that are vital to organizational strategies and priorities. The employees who participate in these events do not see them as frivolous distractions from their core duties but rather as opportunities to directly contribute to their organizations’ innovation and continuous improvement goals. The best-practice organizations in this study extend the practice to include events and contests involving external partners such as suppliers and customers. 20

Additionally, allowing customers and other partners to interact with early prototypes and other potential new products or services helps engage them in the innovation process and makes the new offering more real and tangible for them. Third-party suppliers are often happy to participate in the innovation process, given the increased likelihood of them receiving new supply contracts when their customers’ products and supply chain needs shift. Contests and events help get employees and external partners involved.

Contest and events create urgency, help create buzz on social media, strengthen the relationship between the parties by building a sense of fun, and tend to give contributors a benefit for participating (often in the form of prizes, points, or other rewards). They can also influence an organization’s culture to be more open. HOW THE BEST-PRACTICE ORGANIZATIONS DO IT To turn insights into business opportunities, General Mills’ Sparks team coordinates a global expo in which 30 to 50 ideas are presented to business teams as tangible prototypes. The Sparks team often works with graphic designers to provide business teams with a representation of the potential product. These expos can lead to the business teams taking action on some of the presented ideas. Smaller expos are also held for individual business teams.

20

APQC. Putting Knowledge in the Flow of Work. APQC’s Collaborative Benchmarking, 2012.


Open Innovation: Enhancing Idea Generation Through Collaboration General Mills also organizes an annual two-day technical conference during which representatives from across its innovation, technology, and quality group present work from the product lines and share best practices. The conference features keynote speakers and eight to 10 tracks with 400 presentations or posters authored by 800 individuals. The conference is open to anyone within General Mills, but the majority of its approximately 1,400 attendees come from the innovation, technology, and quality group. General Mills’ X-Squad has designed several events to engage external partners in innovation. In 2009 the team initiated supplier summits, which it holds every two years to share technical or innovation needs and address how strategic suppliers can collaborate with General Mills to address those needs. Each summit also features an awards presentation. The supplier summits have resulted in increased collaboration between General Mills and its strategic suppliers. The team also organized an informal event with key suppliers on the lawn of General Mills’ headquarters to generate new product innovations. Like General Mills, BT holds several contests and events for employees, customers, and partners. Employees can participate in BT’s My Customer Challenge Cup, a contest in which teams compete to develop new ideas. The contest has quarterfinals, semifinals, and a grand final level, and with each level the teams gain greater exposure within the company. Teams that complete their projects are given a blue ribbon award regardless of whether they make the quarterfinals of the competition, and this award is noted in each team member’s profile on BT’s internal directory. Leaders of winning teams are often promoted within the organization. Hothouses are three-day competitive events that BT adopted from the software industry and are similar to hackathons. These hothouse events bring together 80 to 90 individuals from across business units and external groups with an interest in a particular product or service. In addition to BT’s customers, participants can represent BT’s marketing, customer support, and engineering functions and include external suppliers and partners. BT has dedicated facilities to hold these events and assigns two facilitators to each event. During a hothouse event, BT facilitators split attendees into cross-discipline teams and give them a problem to solve. They also ensure that each team has the technology, data, and files that it needs to develop a solution. The teams present their developments daily to a judging panel of senior executives for the business unit that will own the product or service and, if possible, to customers as well. The winning team has the most points at the end of the three-day period. Teams are encouraged to steal ideas from each other so that the winning idea is the combination of the best ideas developed during the hothouse. The solution developed during an event can vary from a prototype of a software or service offering to a customer experience design for a product or service. A hothouse can also yield a delivery plan for getting a product or service to market quickly and competitively. The team that developed the solution is kept informed or engaged during the development process.


Open Innovation: Enhancing Idea Generation Through Collaboration The purpose of BT’s hothouses changes depending on the stage of idea development; early on in the process a hothouse could be held to further refine the idea, whereas later in development a hothouse could be held as a way to accelerate a business case and product trial. To ensure it obtains maximum benefit from each hothouse, BT will stop planning one if there is a lack of available individuals with the necessary skills or a lack of sponsorship. BT holds 40 to 45 hothouses per year, with about half managed by dedicated hothouse staff. BT has developed a self-run hothouse kit that allows any business unit to create and run a hothouse on its own. The success rate for hothouses at BT is about 30 percent to 40 percent. In one successful example, a new product was rolled out to the market within 12 months following the hothouse. As a different type of event, Cisco’s I-Prize is a global innovation competition seeking great ideas from outside the company. With senior leader visibility within Cisco, the CEO launched the first I-Prize competition in 2007, and the second time he helped announce the winners. The I-Prize competition has evolved over time. Cisco is now running regional contests in various countries, which helps other entities build their own open innovation capabilities. There are several tangible and and intangible benefits benefits to Cisco from the I-Prize contests. contests. The company sees interesting ideas that can leverage its technologies technologies and help build innovation capabilities outside of Cisco. By reading all the submissions, Cisco gets insight into trends and sentiments. These contests also expose Cisco’s technologies to contestants and the media, as well as generate sales opportunities. Cisco has gained expertise in managing innovation challenges through its work with the I-Prize. It has acquired experience in framing the problem to solve, targeting the challenge, communicating about the event, finding participants, securing judges, helping people collaborate, and leveraging its own technology. Cisco has found that clearly laying out who is responsible for activities in each phase helps recruit new participants and ensures clarity. Looking internally, Cisco gathers ideas from employees via its I-Zone platform. In 2006, I-Zone 1.0 began in the emerging technologies group as a wiki, which was one of the first times the entire employee population at Cisco was invited to submit ideas for innovation. In the platform’s first year, employees submitted about 800 ideas. I-Zone 2.0 has incorporated more social aspects and provides better collaboration (including voting) around new ideas that are submitted. A senior leader typically promotes new ideation challenges by sending out broad communication to drive employees to I-Zone. A Cisco employee can contribute in three ways: submit an idea, vote on an idea, or comment on an idea. In 2010, Cisco launched Smartzone, which took open innovation for employees, especially in the services organization, to the next level using the I-Zone platform. Employees use Smartzone to submit and champion ideas. Additionally, Additionally, Cisco has an annual global Launchpad competition as a talent development effort and a means of generating innovative customer solutions. In


Open Innovation: Enhancing Idea Generation Through Collaboration four global locations, a six-person cross-functional team (with high-potential, manager-level employees) is assigned a challenge to solve in six weeks. There are two challenges, with two teams working on each. Each team works with an internal Cisco consultant during the process, and the teams present to senior vice presidents “shark tank” style. The winning team receives personal compensation plus seed money for the project itself. Having senior vice presidents as judges helps the projects get sponsorship as they move forward. These competitions expose senior leaders to others in the organization who are focused on innovation, which helps drive culture change from the top down and bottom up. Like the other best-practice organizations, Amway strives for a culture in which innovation is encouraged and promoted. To surface innovation within the work force, the organization uses events called 5x5s, during which employees present ideas for new products, technologies, or business process changes. Each participant showcases his or her idea in five minutes using only five slides. At the conclusion of each 5x5 event, Amway selects a winner whose idea receives funding and resources to support further development. development. Customer showcases allow the organization to give customers and other partners first-hand experience with with new and potential products products and services in an immersive context.

Several of the best-practice organizations in this study have created facilities where partners can interact with potential new products or services. These facilities are typically experiential and fun. These innovation centers can bring suppliers, customers, and others together to show how new knowledge can be integrated into products and services. Having tangible prototypes that customers can see and touch helps the organization quickly assimilate customer needs. Highly realistic visualization and immersion experiences are helpful helpful to open open innovation. innovation. HOW BEST-PRACTICE ORGANIZATIONS DO IT In 2011, Corning shared its vision for the near future in a video called A Day Made of Glass that shows how glass, partnered with other technologies, can affect everyday lives. In 2012, Corning released with A Day Made of Glass 2 to continue the story about a more connected world that expands Corning’s glass innovations into additional locations and applications. The company is engaged in research and collaborative partnership opportunities that will help make the vision for the near future in both videos become a reality.

BT holds annual innovation showcases for its customers that present a blend of current BT services, offerings in development, and third-party innovation from around the world. BT creates displays that put the featured services in context; for example, the health care showcase looks like a hospital. Demonstrations can be held in each of the showcase areas. BT uses its innovation showcases to test innovations with customers, as well as to present BT as an organization that customers can use


Open Innovation: Enhancing Idea Generation Through Collaboration as an innovation partner. At each showcase, BT hosts 150 to 200 customer accounts, as well as influencers and stakeholders, such as government representatives and members of the press. Customer representatives, generally at the C-suite level, are often invited to attend if they are in a deal-making process with BT.



Research Champion Insights: PMI Integrate and align the open innovation process with other relevant processes to ensure key entities are involved at critical points. The PMI-funded Best Industry Outcomes study found a clear connection between project and program management and innovation. As the Best Industry Outcomes study

found, project and program management involve: planning and then creating some product or service that at the point of inception exists only in the imagination of the person or people who are promoting it. The process of planning these activities, therefore, involves imagining a series of steps that may or may not work out as planned, each of which may have unforeseen consequences. It could be described as a process of enfolding an envisaged future into a known present, and can be conveniently labeled as “innovation.” 21

Understanding the distinction between project and program management can be challenging. According to PMI’s A Guide to the Project Management Body of Knowledge (PMBOK® Guide), a project is a temporary endeavor undertaken to create a unique product, service, or result. It has a specific scope of work associated with it, internal resources assigned to it, a budget, and a schedule by which the project output is expected to be delivered. A program often begins with a concept and a set of desired business benefits. There is no clear plan or path for how to convert the concept into something that can deliver the benefits. To deploy the strategy, the organization centralizes the management of groups of related projects under the umbrella of a program. For example, building an airplane requires building and then assembling wings, a tail, etc., to the fuselage. Each piece of the plane is a unique project with its own design, manufacturing process, and assembly process. In the end, all of the pieces must come together seamlessly for the plane to function as intended. The oversight of the entire airplane design and assembly is a program. 22

The Best Industry Outcomes study also identified variances in the use of organizational project management systems across industries:  Portfolio management is used more significantly in financial services, with 60

percent of organizations reporting usage. About one-third of organizations in

21

Lynn Crawford and Terry Cooke-Davies. Best Industry Outcomes . Project Management Institute, 2012. Project Management Institute. A Guide to the Project Management Body of Knowledge (PMBOK® Guide)—Fifth Edition . Project Management Institute, 2013. 22



the utility (38 percent) and IT/telecommunications (33 percent) industries use portfolio management.  Program management is predominantly used in the aerospace/defense (75 percent), pharmaceutical (70 percent), and IT/telecommunications (62 percent) industries.  Fewer than half of organizations across industries reported using project management methods. The highest usage rates were in the aerospace/defense (44 percent), engineering/construction (41 percent), and IT/telecommunications (40 percent) industries.  Only about one-quarter of organizations reported having support and tools for project management, and they were mostly in the utilities (38 percent), engineering/construction (35 percent), and IT/telecommunications (35 percent) industries. 23

Project and program management capabilities are core to enabling the delivery of innovation. A 2012 Franklin Covey/PricewaterhouseCoopers LLC global study on the current state of project management revealed that as many as 97 percent of respondents believed project management was critical to business performance and organizational success, and 94 percent believed project management enables business growth. PMI’s 2013 Pulse of the Profession™ study found that when standardized practices are used throughout the organization, 70 percent of projects meet goals and business intent. When they are not used throughout, only 47 percent of projects meet goals. 24

25

Both innovation and project management can benefit from an integrated methodology that customizes generic approaches and techniques to the unique needs and practices of an organization. A methodology is a documented approach for integrating regularly interacting or interdependent practices, techniques, procedures, and rules that determine how best to plan, develop, control, and deliver a defined objective. A methodology usually incorporates and integrates three important elements:

23

Lynn Crawford and Terry Cooke-Davies. Best Industry Outcomes . Project Management Institute, 2012. Franklin Covey and PricewaterhouseCoopers LLC. Execution-Focused Leadership: Balancing Short-Term Survival with Long-Term Sustainability . Franklin Covey and PricewaterhouseCoopers LLC, 2012. Project Management Institute. Pulse of the Profession™: The High Cost of Low Performance . Project Management Institute, 2013. 24

25



1. how an organization conducts its business, including its requirements and processes; 2. key aspects of the organization’s culture and capabilities, as well as the environment, industry sector, and context within which the organization operates; and 3. proven, recognized best practices or techniques for accomplishing intended results. Organizations may benefit from having an integrated innovation and project management methodology in many ways.  The methodology provides a repeatable approach that can be used across the     

organization. The methodology centralizes required documents, templates, and tools so the organization does not have to constantly reinvent its approach. The methodology standardizes repeatable processes, which then allows for consistent reporting to organizational decision makers. Constant improvement and refinement are incorporated as lessons learned. The organization can provide training and development aligned with the methodology. The methodology can provide greater assurance that those steps deemed critical by the organization are being completed.

Without calling itself out as such, BT’s innovation team is highly projectized. Its hothouse events use project teams to explore innovative ideas that lead to service prototypes. Those prototypes can lead to business cases for bringing new service offerings to market. Project managers participate in most aspects of the innovation process so that project flow is maintained and helps accelerate speed to market. Enhanced flow reduces the concept-to-market time frame within BT. Like BT, General Mills appears to have project management linked to driving innovation processes and project execution. For example, iSquad members are innovation facilitators. Similarly, the Sparks team converts insights into business opportunities. General Mills’ collaborative processes capture meaningful intelligence from which a plan of action can be implemented. The processes allow General Mills to engage with its suppliers, potential partners, and customers to deliver innovative products



to market. Further, General Mills wants to be known as the strategic innovation partner among its suppliers. Its connected innovation strategy is making strides toward that goal. Because Cisco is highly decentralized and all employees are encouraged to explore innovative opportunities, Cisco has invested in building organizational capabilities to support innovation. Its Services Innovation Excellence Center helps to build innovation competencies among staff, provides tools and resources to support innovation workshops and collaborative activities, sponsors contests and competitions to spur innovation, and coaches and assists individuals trying to elevate their ideas. The challenge is that many organizations value innovation but do not effectively enable it by investing in their project and program management capabilities. PMI’s 2013 Pulse of the Profession™ study found that organizations risk losing about 14 percent of every dollar invested in a project as a result of projects not meeting their goals and the resulting lost investment. The study also found that only 54 percent of organizations value project management. Perhaps as a result of the undervaluing of project management, project success rates continue to decline. Since 2008, the percentage of project managers reporting that their projects met their original goals and business intent has declined by 10 percent, from 72 percent in 2008 to 62 percent in 2012. Today, fewer organizations are providing training in project management tools and techniques, investing in developing their project management competence, and/or actively maturing their project management practices. 26

PMI’s 2012 Pulse of the Profession™ In-Depth Report: Organizational Agility found that more than two-thirds (71 percent) of organizations with high levels of agility have established project management offices and encourage work across organizational silos (67 percent). Some organizations have launched these offices to establish and/or mature their project management capabilities and thus their ability to execute strategy. Project management office activities can range from building project management processes and tools that others implement to fully managing organizational programs and projects. The percentage of organizations with project management offices, or a similar centralized project management department, is increasing, according to PMI’s 2013 Pulse of the Profession™ study. Nearly seven out of 10 organizations (69 percent) have a project management office, up from six out of 10 (61 percent) in 2006, when PMI first began tracking this. Organizations are increasingly establishing project management offices with enterprise-wide responsibilities, which are growing more rapidly than those that serve a department, 27

26

Project Management Institute. Pulse of the Profession™ In-Depth Report: The Competitive Advantage of Effective Talent Management . Project Management Institute, 2013. Project Management Institute . Pulse of the Profession™ In-Depth Report: Organizational Agility . Project Management Institute, 2012. 27



region, or division of an organization. Compared to their department-specific, regional, and divisional peers, enterprise-wide project management offices are more focused on strategic aspects of project management, such as training, managing portfolios, establishing metrics, and developing core project management maturity. These findings suggest that as more enterprise-wide project management offices are created, more projects will align with the business goals of the organization and project management will be executed more strategically.

28

Beyond project and program management, Lean principles have application within innovation efforts. Flow is one of the key Lean principles. Flow means that systems and processes are structured to ensure a smooth transition from one developmental phase to the next without interruption, rework, or stoppage. Flow leverages the resources dedicated to the project by ensuring that the right people are involved at the right time to keep the project’s forward progression. Flow also reduces non value-adding activities, such as handoffs, redundant tasks, and waiting. Integrating innovation with program/project management processes helps to ensure a smooth flow from ideation to commercialization, as best-practice organizations BT, Cisco, and General Mills demonstrated. When Amway established its open innovation team, it formalized its innovation process and established business rules to guide projects between when a need is established and the beginning of the formal stage-gate process. The organization developed standard criteria for assessing projects and instituted a series of checkpoints to ensure that only the best ideas moved forward. If Amway can bring a consumer need, viable technology, and business value together in a potential product, then it continues to pursue the opportunity; but if any element is missing, then the project is either recycled for additional incubation or put on hold until circumstances change. Corning’s external technology collaborations group is a bridge to help internal projects succeed by sourcing external capabilities when needed. Typically, technologists identify collaborators based on the needs of a particular project. Occasionally, the external technology collaborations group assists technologists in identifying potential collaborators. The external technology collaborations group manages government and university relations and collaborates within the R&D function of Corning. The group connects Corning scientists with outside entities. This work initiates from requests from scientists, project managers, and program managers. Based on the objectives, group members select the best method of collaboration and assist in selecting collaborators. Requests are also received from internal customers when scientists know what entity they would like to

28

Project Management Institute. Pulse of the Profession™ In-Depth Report: The Competitive Advantage of Effective Talent Management . Project Management Institute, 2013.



collaborate with. The group also manages contracts through the life cycle of collaboration and conducts post-collaboration interviews to measure and track the benefits of the collaboration. Invite participation in open innovation via experiences.

At APQC’s 2013 knowledge management conference, CEO Carla O’Dell stated, “Innovation occurs at the boundaries of many disciplines.” Organizational project management is based on interdisciplinary integration. Team members from knowledge management, innovation, project management, engineering, product development, operations, marketing, legal, acquisition, and other functions must contribute and collaborate to achieve business results. Organizational project management must enhance open innovation practices. To do that, organizations must develop and sustain project management skills at world-class levels. Strengthening interdisciplinary project teams is an important approach organizations have deployed to increase their agility. Why? Interdisciplinary project teams ensure that the people with the right talents, skills, and knowledge collaborate to drive execution and find creative solutions to challenges that may surface during the project. The best-practice organizations in this study recognize those connections and have created integrated links into their processes. BT, for example, is in an industry in which speed to market is critical. Time lost to hand-offs and knowledge transfer interrupts flow and can affect project performance. So BT engages project managers in the early stages of evaluating new ideas to enhance a smooth flow from ideation to development to launch. Innovation staff, engineers, project managers, marketing team members, and others work shoulder to shoulder on project execution.



Open Innovation Measurement and Improvement Findings in This Section 1. Seek compelling measures for open innovation. 2. Use change management to drive commitment to open innovation.

SEEK COMPELLING MEASURES FOR OPEN INNOVATION.

Measures allow an organization to gauge the effectiveness of its open innovation efforts. These measures must be compelling in order to capture organizational interest and tell a story that people will listen to. APQC’s 2012 study Using Metrics that Drive Bottom-Line Value found organizations can take the following key steps to ensure they have the right measures:  align measures with strategic goals by having senior management support,

      

obtaining stakeholder feedback, and linking measures to high-impact business processes; align individual measures with departmental or group measures; use voice of customer feedback from external and internal customers to identify and validate measures, as well as define customer-centric measures; maintain a healthy performance measurement system with a balance of leading and lagging indicators; limit the number of measures to less than five for the average business process; involve senior leaders in the measurement process from the beginning; take a holistic view of process measurements by using a diverse blend of measures; and assign an owner for the measurement system to maintain consistent collection and reporting approaches. 29

29

APQC. Using Metrics that Drive Bottom-Line Value . APQC’s Collaborative Benchmarking, 2012.


Open Innovation: Enhancing Idea Generation Through Collaboration According to Matthew Heim, there are two predominant schools of thought on how to measure open innovation. Tracking individual successes within the stages of the innovation process is the most common approach. Once a success is tracked, its cost is compared with an estimate of what the cost would have been to develop the new capability internally. Heim points out that this approach requires tracking and reporting at many different levels and within various departments where open innovation is practiced. Because this approach can often be confusing and overwhelming, it often leads to mixed results. The second approach, according to Heim, “requires an enterprise-wide mandate to see a significant percentage of new product ideas and non-core development solutions through open innovation channels rather than developing them internally.” With this approach, R&D spending as a percentage of revenue is benchmarked before open innovation is implemented, and then it is tracked annually after the implementation. Tracking is done at the highest levels of the company. This less common and more strategic approach was first introduced by Procter & Gamble in its Connect+Develop program. 30

There is a consensus among the best-practice organizations in this study that product success in the marketplace (e.g., market share) is a vital measurement for open innovation. In other words, did the collaboration or partnership pay off in a financially viable new commercial offering? The majority of best-practice organizations in the study stress that an organization must beware of placing too much emphasis on return on investment (ROI) to measure open innovation effectiveness because it can lead to short-term thinking. In addition to outcomes like revenue and market share, Figure 4.1 shows that the best-practice organizations look at input measures, such as the number of ideas submitted, and in-process measures, such as the number of ideas that move forward to the next stage.

30

Matthew Heim. “Leadership Issues and Challenges in the OI World.” In: Paul Sloane, ed. A Guide to Open Innovation and Crowdsourcing . Korgan Page, 2011.



Measures Used to Evaluate Open Innovation Efforts 100%

Product success in the marketplace (e.g., market share)

33%

Direct revenue from open innovation ideas that were implemented

33%

75%

75%

Revenue growth (percentage change over time) Implementation/Adoption (e.g., number of ideas that moved forward) Improved efficiency Number of idea submissions

33% 75% 0% 75% 0% 75% 0% 25%

Other

67% 0%

20%


40%

60%

80%

100%


Figure 4.1

As mentioned, the number of ideas submitted and the rates of implementation and adoption of ideas are important measures. However, every best-practice organization participating in this study has fewer than 50 percent of its ideas survive the filtering-out process. Individuals within an organization and its partners have to be comfortable with their ideas being filtered out. The measurement and documentation of this is important in the event that ideas are revisited at a later time. In addition to the hard measures for open innovation in Figure 4.1, the bestpractice organizations in this study also look at softer measures or indicators to measure and improve their performance in open innovation. HOW BEST-PRACTICE ORGANIZATIONS DO IT BT uses a balanced scorecard approach to its innovation measures and sets both leading and lagging measures for the different stages of the innovation process. The organization recognizes that balancing short-term s uccesses with long-term thinking is a specific challenge when it comes to measuring innovation. BT tracks a range of metrics related to open innovation, including:  revenue generated from new services;  revenue generated from contacts made at BT’s innovation showcases;  cost savings generated from new services, systems, or technology as a result of

innovation initiatives;


Open Innovation: Enhancing Idea Generation Through Collaboration  cost avoidance resulting from ideas submitted by BT employees through its new

ideas scheme;  the number of ideas fed into the pipeline from companies that went through an innovation showcase; and  the number of ideas progressing to each stage of BT’s C2M process, with a goal of a 5 percent improvement in cycle time for each stage over the prior year. Measuring the number of ideas across certain milestones or phases is also important because it offers value to individual innovation initiatives. Amway’s open innovation team tracks a range metrics related to open innovation, including:  number of ideas screened,  number of technologies presented to the organization’s technology review

board,  number of technologies that advance through the three technology readiness levels (a measure used by open innovation teams to help order the project by progress and maturity) and how much time they spend at each level,  number of conversions to business case, and  number of conversions to product. Amway’s open innovation team has also found collecting and sharing success stories to be useful in communicating the value that open innovation generates for the organization. Cisco’s emerging technologies group focuses on building new markets and pushing innovations forward faster. Projects are tracked through rigorous timelines. Cisco uses many different measures depending on the phase the innovation is in. To avoid projects being killed too early, initial measures for startups are not the same as measures used in the core business. However, customer satisfaction and product quality are measured at each stage. Although its measures differ from those of the emerging technologies group, Cisco's Services Innovation Excellence Center maintains a focus on the business impact of innovation. The center’s key metrics include the financial and non-financial impact of implemented ideas, as well as innovation maturity level and progress from awareness, to competence, and then to excellence. Innovation maturity is the foundation for a certification program in development with components for the level of organizational maturity and an individual certification program based on individual skill mastery and business impact.


Open Innovation: Enhancing Idea Generation Through Collaboration To evaluate Cisco’s Smartzone idea pipeline, the center looks at:  the number of participants per organization size,  the number of active participants,  the number of ideas submitted per quarter,  the number of ideas incubated,  the number of ideas implemented, and  the number of ideas graduated in the last two quarters.

Executives and business unit leaders at General Mills meet twice a year to discuss the product pipeline, set expectations and evaluate performance using new product measures. Measures reveal product sustainability in the marketplace, product incremental sales, and an analysis of margin and profit. General Mills uses a variety of measures to evaluate the success of its connected innovation efforts. It monitors:  the percentage of launches enabled by external innovation,  the percentage of sales enabled by external innovation,  the percentage of cost savings enabled by external innovation,  sales per headcount (with the recognition that innovation is not the only factor

that can affect this measure), and  cost savings per headcount. General Mills is also developing measures to evaluate the quality of an innovation partner’s service and its innovation potential. Corning’s operating divisions use a variety of measures to track open innovation success. Aside from measuring the percentage of new products introduced to the market in the last three years and the number of patents filed by its scientists, Corning evaluates improved efficiencies and product success in the marketplace.

USE CHANGE MANAGEMENT TO DRIVE COMMITMENT TO OPEN INNOVATION.

Open innovation is a change to the way most organizations have conducted research and development. To get employee buy-in, an organization looking to collaborate with external sources has to carefully manage the change. The


Open Innovation: Enhancing Idea Generation Through Collaboration organization’s leaders must encourage buy-in across the organization and address fears that open innovation will replace peoples’ jobs or reduce their roles. APQC’s 2005 study Realizing Change: Knowing When and How to Successfully Change found that best-practice organizations gain buy-in for change by having a commitment from the highest levels of the organization, aligning change to the core strategy, having a model or methodology to guide the journey, and communicating the strategic message of change and a change culture. Change rarely occurs within an organization without some cultural resistance. 31

An organization can use reward systems to encourage individual and group behaviors to change. According to Heim, “The key behaviors that drive success in both the business unit and the open innovation program is speed to acquire new knowledge, speed to develop new innovations, and ultimately, speed to market.” 32

HOW BEST-PRACTICE ORGANIZATIONS DO IT Amway put forth a great deal of effort in managing change within its organization. When Amway decided to launch its open innovation program, the open innovation team had to find a way to engage senior leadership, managers, and scientists in the product development function. Because Amway was successfully producing new products and growing, many of the organization’s members did not understand why there was a push to change existing processes. In order to facilitate change, the open innovation team created a presentation that promoted the benefits of open innovation and highlighted the reasons why Amway needed to make adjustments to its approach. However, changes to Amway’s culture could not occur without senior leadership support driving the change. Even though its open innovation initiatives began at the grassroots level, Amway found that its open innovation team had to make a formal case to leadership to ensure that there was ongoing support and funding for the initiative.

Amway experienced the following types of cultural resistance when it rolled out its open innovation processes:  “Pocket veto” —occurs when the open innovation team identifies a potential

technology but is unable to get the marketing and product development functions to confirm whether they are interested in it;  “My needs are secret” —occurs when there is difficulty getting product development, marketing, and other areas of the business to communicate their needs and the technologies they would like the open innovation team to find; 31

APQC. Realizing Change: Knowing When and How to Successfully Change . APQC’s Collaborative Benchmarking, 2005. Matthew Heim. “Leadership Issues and Challenges in the OI World.” In: Paul Sloane, ed. A Guide to Open Innovation and Crowdsourcing . Korgan Page, 2011. 32


Open Innovation: Enhancing Idea Generation Through Collaboration  “Deep pockets, short arms” —occurs when product development and

marketing functions do not want to fund the development of a particular technology that they have expressed a need for or interest in;  “Speed waiting” —occurs when product development and marketing functions cannot decide whether or not they are interested;  “Not invented here” —occurs when there is an assumption that internally developed technologies are inherently better, which creates concern among organization members that jobs will be at risk due to external sourcing; and  “I don’t have time” —occurs when the product development function neglects technologies it brought to the open innovation team due to an excess of projects. Although Amway’s open innovation team has not overcome all cultural resistance, it has been able to overcome some. Amway has been able to mitigate the challenge “my needs are secret” by creating a technology planning process that forces product development, marketing, and other internal stakeholders to communicate their needs in a clear and concise manner. Amway has made considerable progress against the “not invented here” challenge as employees have realized the value of bringing in external technologies to create more internal product development work. Cisco experienced many challenges with seeking innovation in new markets, and some of the challenges had to be overcome by changing the organization’s culture. The following are five challenges that Cisco believes large organizations often struggle with when seeking innovation in new markets, along with descriptions of how Cisco manages those challenges. 1. Too much money —Cisco approaches this challenge by creating a sense of urgency and intentionally starting lean when it incubates a business. The team thinks fast when projects are in startup mode and are only given enough money to get to the next milestone. 2. Too much time —Cisco mitigates this challenge by executing projects quickly through prototyping and piloting. With markets moving faster, Cisco tries to push an idea to market in 12 to 18 months. 3. Too many people —Cisco handles this challenge by creating small teams that are empowered to move quickly. These teams act as startups. Cisco makes an effort to have fewer than 50 people on a team before the first shipment of a product. 4. Too much love —Cisco mitigates this challenge by having new technology startups operate in stealth mode for the first 18 months, which allows them to get to market at the fastest rate possible. Projects are taken out of stealth mode when they are ready for market so that the sales and service


Open Innovation: Enhancing Idea Generation Through Collaboration organizations can be involved. The emerging technologies group then does the necessary work to move the new technology into the organization. By delaying the new technology’s entry into the mainstream, Cisco avoids having too much involvement from internal groups that want to be part of a high-profile project. 5. Too much hate —Cisco avoids this challenge by encouraging its emerging technologies group to leverage senior executive champions, as well as keeping startup units together during incubation. 6. Black sheep —Cisco’s emerging technologies group focuses on incubation and what it does best. Having this focus helps the group avoid being the outcast or being considered negatively by others in the organization. General Mills’ attitude regarding innovation has shifted from a focus on only sourcing innovation internally to a focus on actively seeking innovation from both internal and external entities. Prior to 2005, company policy was not to evaluate, accept, or fund ideas generated outside of the organization. However, after recognizing that its focus was leading to mainly small, close-in product line extensions, General Mills benchmarked externally and researched other innovation programs to compile best practices. The strategy and innovation group then adopted its current organization of smaller catalyst teams to support the implementation of these best practices.



Research Champion Insights: PMI Seek compelling measures for open innovation.

According to John P. Kotter, a Harvard Business School professor emeritus widely regarded as a father of business strategy, “Strategy should be viewed as a dynamic force that constantly seeks opportunities, identifies initiatives that will capitalize on them, and completes those initiatives swiftly and efficiently.” Strategy is a plan of action for achieving the vision and mission of the organization. It translates the vision and mission into benefits and changes that will deliver maximum value to stakeholders, thus ensuring continued growth and a sustainable competitive advantage in a chosen market. Benefits, value, and changes from implementing organizational strategy may be realized in any or all of the following key areas: 33

Strategic Value

Financial Value

 New market entry/market

 Increased revenue

expansion  Brand equity/market image  Technology breakthrough  New product/service development

 Exclusive value creation (intellectual

Operational Performance

Relationship Quality

 Increased productivity

 Greater trust

 Improved delivery of value to

 Strategic alignment with suppliers,

customers  Improved service levels  More efficient/effective processes  Increased quality

partners, etc.  Improved communication  Stronger integration/collaboration  Increased loyalty

property and patents)  Expected ROI  Cost reductions/savings

In today’s increasingly competitive global environment, organizations are constantly seeking ways to improve their capabilities and performance in the delivery of strategy. So although business measures and value are critical metrics of innovation, organizations should also evaluate their execution performance. A 2010 Franklin Covey/PricewaterhouseCoopers report Execution-Focused Leadership: Balancing Short- Term Survival with Long-Term Sustainability found that CEOs identified their organizations’ three greatest challenges as: excellence in executing strategy

33

John Kotter. “Accelerate!” Harvard Business Review , November 2012.



(55 percent); consistent execution of strategy by top management (47 percent); and speed, flexibility, and adaptability to change (47 percent). However, most CEOs did not feel that their organizations were particularly effective at executing their programs and projects. Since execution performance affects business measures and value, it is critical that organizations evaluate that performance and target underperforming areas for improvement. 34

At Amway, after-action reviews allow its open innovation team to evaluate what worked, what did not, and why. Even when a project is discontinued, something is learned, and Amway tries to focus on this aspect when projects are eliminated or put on hold. The Amway open innovation team reports that it is not uncommon for a project to be shelved and then subsequently resurrected and brought to market. Companies structure their metrics to reflect factors that are critical to their organizations. Best-practice organization Corning assesses the outcomes of its projects to determine if objectives were achieved, costs were avoided, capital expenses were reduced or avoided, new inventions were created, and new thought leadership was established. Therefore, managing this knowledge and maintaining its portfolio of ideas is vital to the organization’s innovation model. Some discoveries that are not ready for larger scale scrutiny may be shared with strategic partners to address a niche or smaller segments of the market before they become part of the organization’s global operation. Within General Mills, product performance visibility is critical. The organization maintains a performance dashboard to evaluate how well products are being adopted by consumers. Cisco has taken a different approach to measuring the performance of its innovation activities. It has unique metrics for its startups to evaluate them as they mature. Once matured, they have to meet established corporate metrics. Use change management to drive commitment to open innovation.

There are many change management principles associated with innovation. At the highest level, strategy execution occurs in a dynamic environment. Thus, the needs to manage the changes within that dynamic environment, maintain strategy alignment, and ensure cross-organizational integration with strategic change are critical capabilities for successful execution and benefits realization across a portfolio of

34

Franklin Covey and PricewaterhouseCoopers LLC. Execution-Focused Leadership: Balancing Short-Term Survival with Long-Term Sustainability . Franklin Covey and PricewaterhouseCoopers LLC, 2010.



programs and projects. Similarly, organizations need to effectively and smoothly assimilate the impact of change resulting from the implementation of the projects and programs. Both objectives require organizational change management. Research continues to show the importance of effective change management in strategy execution. The IBM 2012 Global CEO Study of more than 1,500 CEOs, general managers, and public sector and business leaders found that complexity and change are presenting challenges that more than half of the CEOs believe their organizations cannot manage. 35

Organizational leaders are starting to respond to the need for more effective change management. PMI’s 2012 Pulse of the Profession™ In-Depth Report: Organizational Agility found that organizations with strong change management practices have high to moderate levels of agility. Those organizations effectively detect and evaluate changes in the external environment (52 percent compared to 7 percent of organizations that are minimally effective) and identify and leverage significant changes (39 percent compared to 12 percent for minimally effective organizations). Those results echoed findings from the 2011 Pulse of the Profession™ study, which found that 71 percent of portfolio and project management office leaders within organizations felt that managing change was one of the most critical success factors for projects. 36

Corning has changed its culture by encouraging its employees to share new ideas and collaborate across teams in order to increase efficiencies, reduce time to market, and realize ROI and operational goals. By widening its external strategic alliances and by partnering with suppliers and research firms, it has been able to sustain a competitive advantage and deliver innovative products to its customers. Cisco’s emerging technologies group aims to align with the business units’ priorities, which allows for the emerging technologies group to adjust as priorities shift. This group has also learned how to navigate the Cisco culture in order to launch initiatives and startups while at the same time balancing being good corporate citizens with the need to function as startup entrepreneurs. Strategy—and the portfolios, programs, and projects that evolve to realize strategy— are often in a state of transition due to the constant push and pull within and outside of organizations. Internal organizational dynamics add complexity to strategy execution. Such dynamics include a shared understanding of the strategy and how staff roles support its achievement, as well as shifting priorities among and within a

35

IBM Global Business Services. Global CEO Study . IBM, 2012. Project Management Institute. Pulse of the Profession™ In-Depth Report: Organizational Agility . Project Management Institute, 2012. 36



portfolio of programs and projects. PMI’s 2013 Pulse of the Profession™ report revealed that communicating the significant objectives of a program or portfolio and sharing the vision for the initiative across an organization are major contributors to engaging employees and achieving higher levels of program or project success. 37

37

Project Management Institute. Pulse of the Profession™ In-Depth Report: The Competitive Advantage of Effective Talent Management . Project Management Institute, 2013.



Open Innovation Enablers Enablers in This Section 1. Seek hands-on support from and exposure to senior leadership. 2. Recognize internal and external contributors for their ideas. 3. Match portfolio management to the innovation and organizational strategies. 4. Focus on the open innovation process and players first, and then find the tools to help. 5. Capture lessons learned, and continuously improve the open innovation process.

To increase the number of high-quality ideas sourced and generated, as well as to increase the speed of open innovation, the best-practice organizations in this study embrace certain enabling practices, processes, and tools. Although the adoption of these enablers is not in itself a best practice, it furthers the success of open innovation efforts.

SEEK HANDS-ON SUPPORT FROM AND EXPOSURE TO SENIOR LEADERSHIP.

Enthusiastic and engaged senior leaders can play a vital role in enabling a successful open innovation initiative and help accelerate a shift in the company’s culture toward openness and collaboration. This support goes beyond just speaking about the importance of open innovation to actively being a part of the process. Senior leaders in the best-practice organizations in this study tend to take a more active role in open innovation than at the sponsoring organizations and the larger population of 279 organizations participating in APQC’s Open Standards Benchmarking in innovation (Figure 5.1).



Senior Management Involvement in Open Innovation Process

75%

7 Takes an active sponsorship role

25% 25%

6

0%

5

0% 0%

4 Communicates broadly about open innovation 3

25% 23%

16%

0% 25% 15% 0% 0% 11% 0%

2

25% 8% 0%

1 Not actively involved

25% 2% 0%


20%

40%


60%

80%

100%

Open Standards (N=279)


Figure 5.1

Executive sponsorship can help remove roadblocks and drive participation in open innovation efforts. This support can help managers spend less time overcoming barriers and more time enhancing innovation productivity. New open innovation programs often have an R&D manager or director rally people to participate across the organization, as well as develop internal and external networks. HOW BEST-PRACTICE ORGANIZATIONS DO IT Corning’s CEO has hands-on involvement in innovation. The CEO sits on its growth and execution council, to which program managers present open innovation projects. Having the exposure to and input from executive leadership helps provide direction for scientists in the organization. It also encourages scientists to create more innovative ideas to present to senior leadership.

Cisco has found that having strong senior executives as champions elevates innovation and ensures that it happens. Executives at the most senior level evaluate company-wide innovation, and it is customary for senior leaders to promote new ideation challenges and send out broad communications to drive employee engagement in innovation.



RECOGNIZE INTERNAL AND EXTERNAL CONTRIBUTORS FOR THEIR IDEAS.

Rewarding and recognizing both internal and external idea contributors helps generate goodwill and, in turn, higher-quality ideas. APQC’s 2012 Best Practices Study Improving the Flow of Knowledge in Product Development found that reward systems are distinct from the other methods of recognition because they verify that the organization is serious about capturing new ideas and motivating individuals to contribute. Some individuals within an organization participate in knowledge capture and transfer initiatives based on intrinsic motivation. Intrinsic motivation is typically associated with acceptance, status within the organization, and honor. Extrinsic motivation can take the form of gift cards, employee awards, monetary bonuses, a flattering e-mail to an employee’s boss, or organized activities. 38

The data from this study shows that all five of the best-practice organizations reward and recognize idea contributors. The majority of sponsoring organizations also recognize employee and external contributions. Organizations in this study use a variety of formal and informal methods to reward and recognize contributors for their idea submissions (Figure 5.2). The best-practice organizations often use reward systems that provide mentoring and professional development to idea contributors, as well as time to work on innovative projects of interest.

38

APQC. Improving the Flow of Knowledge in Product Development . APQC’s Collaborative Benchmarking, 2012.



Methods of Reward and Recognition for Idea Contributors

100%

100%

100% 100%

100%

90% 80%

75%

75%

70% 60%

50%

50%

50% 40% 30%

25%

20% 10%

0%

0%

0%

0% Formal Informal recognition recognition (e.g., (e.g., identification in recognition by a a publication or supervisor or on a website) manager)

Monetary awards


Nonmonetary awards

Rewards systems

Other


Figure 5.2

HOW BEST-PRACTICE ORGANIZATIONS DO IT Cisco, BT, and Corning have multiple events that reward internal idea contribution.

Cisco has surveyed its engineers to find out what drives them to innovate. The top two incentives are time to work on innovative ideas followed by having that innovation work affect their career in terms of visibility with senior executives and potential promotions. Consequently, the services organization has an innovation catalyst award for significant contributions, which provides individuals with visibility with executives and promotions. This award recognizes initiative, persistence, and the building of skills. Recipients report feeling respected by their peers and being seen as innovative. BT has multiple ways of recognizing and rewarding idea contributions. BT financially rewards employees who submit original ideas through its new ideas scheme. The company tracks employees who are key players in bringing an idea to launch and rewards them accordingly. By creating such a list, BT has an informal expertise locator of known productive contributors. BT also gives teams that have exceeded efficiency expectations a dedicated percentage of time to devote to innovation. BT structures that time by giving those employees a research question to address.


Open Innovation: Enhancing Idea Generation Through Collaboration Corning uses both formal and informal recognition and rewards for its idea contributors. Corning’s scientists are recognized for idea generation, publication of papers, presentations to the community, and presentation of scientific posters. Details on patent holders are displayed in common spaces. Corning focuses on the prestige of being recognized for patents rather than on monetary rewards. However, monetary rewards tied to how well a new product performs are part of its year-end evaluation process. In addition to rewarding innovative employees, Cisco and General Mills also reward external idea contributors. Cisco’s global innovation competition rewards idea contributors outside of the organization. The rewards for its I-Prize were initially monetary, but for upcoming regional contests Cisco has planned to offer mentoring and in-kind services (e.g., legal and marketing assistance that will help winners move their companies forward). General Mills offers both monetary and service-based (e.g., packaging design for a contributing organization) rewards for its external partners.

MATCH PORTFOLIO MANAGEMENT TO THE INNOVATION AND ORGANIZATIONAL STRATEGIES.

Open innovation projects, like other projects in an organization, need to be tracked, assigned resources, and guided. Portfolio management involves identifying, prioritizing, managing, and controlling projects, programs, and other related work to achieve strategic business objectives. For open innovation projects, it is important to match the level and type of portfolio management to the innovation and organizational context. APQC’s best practices report Portfolio Management: Optimizing for Success found that when the portfolio management process is linked to other processes in an organization, the overall performance of the organization is optimized. 39

40

HOW BEST-PRACTICE ORGANIZATIONS DO IT Amway has a technology review board that prioritizes and aligns projects in its queue and assigns resources. Project summaries are submitted to the technology review board, which then decides whether to allocate funding and resources. The board is made up of R&D middle management, as well as representatives from procurement and marketing when needed.

39

Project Management Institute. A Guide to the Project Management Body of Knowledge (PMBOK® Guide)—Fifth Edition . Project Management Institute, 2013. APQC. Portfolio Management: Optimizing for Success . APQC’s Collaborative Benchmarking, 2007. 40


Open Innovation: Enhancing Idea Generation Through Collaboration Additionally, open innovation teams at Amway use a measure called the technology readiness level to order projects by progress and maturity. Ideas are evaluated based on efficacy/functionality, market assessment, safety and regulatory adherence, intellectual property/exclusivity, and commercial viability. There are three technology readiness levels. 1. Level 1 indicates the potential for a technology to solve a problem or address an opportunity. 2. Level 2 indicates that a technology has been developed in a laboratory, has been tested, and is supported by the industry. 3. Level 3 indicates that a technology has been proven effective, meets customer needs, and warrants a well-defined business case. For Cisco’s services organization, there are top-down and bottom-up components to its innovation portfolio. Cisco does not track a directed portfolio for the bottomup component because the focus is more on employee engagement and customer satisfaction. For its top-down approach, Cisco’s targeted innovation is evaluated from an investment perspective by an existing portfolio management process at the services level.

FOCUS ON THE OPEN INNOVATION PROCESS AND PLAYERS FIRST, AND THEN FIND THE TOOLS TO HELP.

To avoid expending unnecessary resources to automate or enhance an ineffective or inefficient process, best-practice organizations focus on understanding the innovation process and the stakeholders involved before looking at which tools to use to make it better, faster, or cheaper. Clarifying the roles involved and the way the process works can make it easier to establish criteria for the types of tools needed. Once the process and players are established, then the organization can search for the proper vehicles to enable its innovation efforts. The best-practice organizations in this study also tend to use tools (at least initially) that they already have available, and their approach evolves as their open innovation effort matures. HOW BEST-PRACTICE ORGANIZATIONS DO IT Cisco’s approach to tools for innovation focuses on the goals the organization wants to achieve first and then on finding the right tools to help accomplish those goals. To help with idea capture, generation, and evaluation efforts, Cisco has adopted commercially available tools such as Brightidea and Spigit.

To capture internally generated ideas, Cisco has a platform called I-Zone. After the internal success of I-Zone, Cisco replicated it externally in 2007 with its launch of the first I-Prize. Cisco chose a tool from Brightidea for the first I-Prize. Cisco then


Open Innovation: Enhancing Idea Generation Through Collaboration chose to use the Brightidea tool internally in 2008 with I-Zone version 2.0. I-Zone version 2.0 allows Cisco to take advantage of the social aspects of the tool and enables more collaboration around new idea submissions through features such as a voting function. To drive engagement in open innovation, Cisco has used gamification as a tool for external challenges, although it has recently been used internally. (Cisco used Spigit as the platform for its second I-Prize because of its prediction market capabilities.) Cisco used gamification to give I-Prize participants points to invest in ideas in a virtual market similar to the stock market. Cisco also allowed participants to select a small percentage of the ideas that would move forward. Idea contributors could then encourage others to rally behind and invest in their ideas so that they could advance to the next round. Corning has adopted tools as a means of facilitating documentation and collaboration among its scientists. To enable scientists to submit ideas or postproject issues that need input, Corning uses forums in Microsoft SharePoint. Corning also uses SharePoint to distribute recorded after-action reviews among principal investigators and to document project failures. Corning’s scientists use Microsoft electronic lab notebooks to track R&D progress. These notebooks also increase collaboration among scientists by providing a virtual workspace. For Amway, software solutions were not the starting point for its open innovation process. It put the resources and projects in place and adopted tools to help track them. Amway primarily uses Microsoft SharePoint to track projects and resources and to manage content related to potential technologies. Amway also uses a custombuilt technology database.

CAPTURE LESSONS LEARNED, AND CONTINUOUSLY IMPROVE THE OPEN INNOVATION PROCESS.

Capturing lessons learned provides best-practice organizations with a rich opportunity to streamline open innovation processes by helping them avoid past mistakes and adopt proven practices. APQC research has identified seven steps for a successful lessons learned approach. 1. Determine the strategic objectives for the lessons learned process. 2. Support current project and process teams through adaptation and application. 3. Foster reuse in other projects or domains where sources and recipients are not the same.


Open Innovation: Enhancing Idea Generation Through Collaboration 4. Create governance processes and clearly define roles. 5. Design the lessons learned process. 6. Ensure participation. 7. Measure the impact of the lessons learned process.

41

Capturing lesson learned is important to ensuring that knowledge flows throughout an organization. Collection of knowledge is one of the seven steps in APQC’s Knowledge Flow Process (Figure 5.3). In a lessons learned process, critical knowledge is created, identified, collected, reviewed, shared, made accessible, and used. Enhanced collaboration and having a formal knowledge management effort can minimize rework and helps identify expertise within an organization (and among partners). 42

APQC’s Knowledge Flow Process

Figure 5.3

Capturing and transferring lessons learned can be made easier with a searchable repository. However, the focus should not be on the tool, but rather on getting the lessons learned process baked into the open innovation process. It has to be embedded into processes, tools, and templates for people to use and reuse it.

41

APQC. Cutting the Cost of Not Knowing: Lessons Learned Systems People Really Use . APQC’s Collaborative Benchmarking, 2010. APQC. “ Tips to Enable Knowledge Flow .” APQC Knowledge Base, 2012. 42


Open Innovation: Enhancing Idea Generation Through Collaboration Figure 5.4 shows that a larger percentage of this study’s best-practice organizations than sponsoring organizations use internal collaboration software and staff meetings as vehicles to capture and share failures and lessons learned from open innovation. This shows that the role of people and collaboration is more important than the tool used to store and access the information. Documentation of Failures/Lessons Learned from Open Innovation Effort

75%

Staff meetings

33% 75%

Internal collaboration software (e.g., SharePoint)

0% 50%

Organizational intranet or database

33% 25% 33%

Internal communications My organization does not track failures or lessons learned from the open innovation effort

0% 33% 25%

Other

0% 0%


20%

40%

60%

80%

100%


Figure 5.4

HOW BEST-PRACTICE ORGANIZATIONS DO IT Corning has a formal knowledge management program that allows the company to leverage its history, culture, and employee tenure while being agile enough to keep pace in competitive markets. Corning captures failures and lessons learned through written documentation of all technology findings; these are accessible to everyone in the organization.

Amway regularly re-evaluates projects to aggressively winnow down its pipeline. The open innovation team uses after-action reviews to evaluate which open innovation efforts worked, which did not work, and why. It documents those evaluations to monitor progress. Amway believes there is something to be learned even when a project is stopped. Projects can also be shelved for a certain period of time and then brought to market at a later time. Every time Cisco conducts an I-Prize contest, leaders first ask what can be done better or changed from the last iteration. Figure 5.5 presents lessons learned from Cisco that are applicable to both internal and external innovation challenges.


Open Innovation: Enhancing Idea Generation Through Collaboration Cisco’s Innovation Challenge Lessons Learned Consideration

Best Practices

Cisco’s Recommendation

Goals

 Clear objectives

 Create internal enthusiasm

 Follow-up actions defined 

Contest Design

 Decide: broad vs. specific  



Participant Roles and Desired Behaviors







Executive Stakeholders

 

challenge Thoughtful framing of challenge Incentives line up with objectives and promote desired behavior Designed to produce desired outcome Promote collaboration (80 percent will help develop idea rather than submit idea) Moderator communicates frequently to participants to show that someone is listening Provide feedback Executive sponsor visibility crucial Funding/Resources for implementation of winning idea identified











for innovation, new ideas at all levels of company Lift visibility of innovation within venture capital, technology cluster, and academic communities Must be clear about what you are asking people to contribute Not all incentives need to be cash; recognition, visibility to senior executives, and impact to career are powerful motivators Define participant, moderator, evaluator, and judge roles Ask participants to comment, vote, and refine ideas, not just submit ideas Active moderator/sponsor participation

 Executive sponsor

launches challenge and participates as judge (or picks winning ideas)



Consideration

Best Practices


Evaluation Criteria

 Defined during campaign

 Make evaluation process

Resources

 Dedicated program

design and clearly communicated to participants and judges





Marketing Plan

  

Intellectual Property





Tools



 

manager Judges for each phase identified and they understand evaluation criteria Determine what resources and assistance to provide participants to refine/develop promising ideas Communication plan Use social media to drive participation Share success stories after completion of campaign Bring legal function into planning process as partner Intellectual property due diligence built into evaluation process Enable collaboration; connect people who can help Social/Gaming elements built in Aids with evaluation and communications processes

quick and easy for evaluators and judges  Decide how and who is going to pick winning idea(s)  Budget for program includes tools, marketing, and rewards  Provide resources to help develop most promising ideas

 Promote culture of

innovation and desired new behaviors

 Be clear about intellectual

property to partners and suppliers

 Tools support

collaboration and facilitate team creation  Enable viral marketing

Figure 5.5



Research Champion Insights: PMI Seek hands-on support from and exposure to senior leadership.

Too often, the term executive sponsor conjures up the image of a disconnected executive whose main responsibility is to initiate a project and then come in for the victory lap when it is all over. But an engaged executive sponsor—with a vested business interest in the project from kickoff to close—can mean the difference between success and failure. Indeed, one of the most common reasons why projects fall short is a lack of executive sponsorship and management buy-in, according to KPMG’s 2010 New Zealand Project Management Survey. 43

Despite the strategic importance of the role, the KPMG survey found that 68 percent of companies do not always have an effective sponsor. In addition, PMI’s 2010 government program management study found that 81 percent of program managers at U.S. government agencies said that strong support from at least one executive-level sponsor had a high impact on program success. 44

The executive executive sponsor’s key key responsibilities responsibilities follow. follow. 1. Provide clear direction for the project and how it links with the organization’s overall strategy. By making the effort to draw a clear connection from project to strategy, sponsors provide team members with a sense of purpose. And that can serve as a major motivational tool. Organizations cannot execute strategic initiatives unless they can effectively communicate their strategic alignment and business benefits. According to PMI’s Pulse of the Profession™ In-Depth Report: The Essential Role of Communications , many organizations admit that they are currently not placing adequate importance on effectively communicating critical project information, especially when explaining the business benefits of strategic initiatives to stakeholders at all levels of a project. As revealed in the report, 55 percent of project managers agree that effective communications to all stakeholders is the most critical success factor in project management. 45

43

KPMG. New Zealand Project Management Survey . KPMG, 2010. Project Management Institute. Program Management 2010: A study of program management management in the U.S. Federal Government . Project Management Institute, 2010. Project Management Institute. Pulse of the Profession™ In-Depth Report: The Essential Role of Communications . Project Management Institute, 2013.

44

45



2. Help the project team ensure the project is on time, on budget, and on scope. The role of the sponsor starts at the very origin of the project. Sponsors not only lead the project through the selection process until it is formally authorized but also play a crucial role in the development of the initial scope and charter. 3. Provide feedback on status reports, and ensure they reach the necessary stakeholders. As the project project progresses, sponsors must must also relay relay any information, requirements, progress reports, or warnings from the project manager. Sponsors should have consistent interaction with team members, including at project meetings. This will help sponsors stay on top of the project’s progress and demonstrate to the team that the organization is invested in the project. 4. Champion the project at the executive level to secure buy-in. Sponsors must act as liaisons to the organizational stakeholders by communicating how the project will integrate into their overarching strategy and goals. Perhaps the most important role for the sponsor is as project advocate. As such, effective sponsors must know how to convey the project vision to anybody who can influence the outcome. When companies close the gap between the developers of the strategy and those who must execute it, projects are more successful. Organizations that report more frequent project communications, particularly surrounding the business benefit and contribution to strategy, average significantly more successful projects versus organizations that communicate that same information less frequently, according to PMI’s Pulse of the Profession™ In-Depth Report: The Essential Role of Communications . 46

Executive sponsorship of strategic projects is critical for program and project success. PMI’s 2013 Pulse of the Profession™ study study found that more than three-quarters of projects (79 percent) at high-performing organizations enjoy active project sponsors, compared to less than half (43 percent) at low-performing low-performing organizations. 47

Within BT, executive sponsorship is critical for successful innovation. innovation. Business unit executives jointly invest with the innovation team in research and development. That support and collaboration early on ensures that innovation projects have the resources and executive oversight required to proceed.

46

Ibid . Project Management Institute. Pulse of the Profession™: The High Cost of Low Performance . Project Management Institute, 2013.

47



Since 2005, General Mills has conducted innovation reviews twice per year in which executives engage with business leaders to gain greater insight into product development projects. The reviews help to ensure that the executives understand the projects and have input into the product pipeline. At Cisco, the Services Innovation Innovation Excellence Excellence Center was was formed in 2010 2010 to provide provide a vehicle for employees with valuable knowledge to showcase their ideas. Within two years, the program has grown to having three senior vice presidents as sponsors and drawn the attention of other senior vice presidents. Match portfolio management to the innovation and organizational context.

Organizational project management provides a means for organizations to improve the delivery of strategy through portfolio, program, and project management. Organizational project management is a strategy execution framework utilizing project, program, and portfolio management, as well as organizational enabling practices to consistently and predictably deliver organizational strategy producing better performance, better results, and sustainable competitive advantage. Organizational project management aligns the development of strategy with implementation through the deployment of a portfolio or portfolios of programs and projects for the creation and delivery of strategic business results. Alignment also harmonizes the strategic aspirations of the organization with operations or businessas-usual to ensure optimum assignment of talent, knowledge, and capital resources. Through the merging of organizational organizational integration and alignment, organizational organizational project management provides the most effective means for implementing and maximizing the delivery of strategy. Portfolio management balances investment and risk and represents what an organization wants to be in the future, versus what its operations operations are today. Portfolio management centralizes the selection and management of projects, programs, and related work to achieve specific strategic business objectives. An organization’s portfolio of programs and projects represents those investments in change that leadership believes to be most significant and necessary for the organization to succeed in its chosen market(s). Therefore, the deployment of strategy through the right mix of both internally and externally facing initiatives is an important step in the successful implementation of strategy. Not only is the deployment of strategy into a balanced portfolio crucial, it is also the most leveraging step in the allocation of scarce organizational resources. r esources. Further, the deployment of the portfolio is not a one-time activity. Although a portfolio is typically deployed to represent a specific planning period, it must be reviewed periodically in the context of a rapidly changing global environment to ensure its continued relevance and ability to deliver intended business results. Accordingly, the mix of initiatives represented in the portfolio may undergo change over both the short- and long-term horizons. As the portfolio is adjusted and those



adjustments transition to the program and project levels, effective change management ensures ongoing alignment and integration with the evolving strategy across the organization. Portfolio management helps to enable innovation to fulfill an organizational vision. In the PMI-funded study Project Portfolios in Dynamic Environments: Organizing for Uncertainty , a research paper by authors Brian Hobbs and Yvan Petit outlined four high-level goals for strategic portfolio management.  Strategic direction—Show a clear link between organizational strategy and the

portfolio of programs and projects.  Balance—Ensure a mix of low-risk and high-risk projects.  Agility—Shift the portfolio in response to dynamic changes in the organization or its markets through:  Sensing—identify and filter changes that affect the portfolio to ensure the organization is choosing the right programs and projects.  Seizing—align projects to organizational capabilities and resources so the organization can fully leverage opportunities.  Transforming—realign available resources and structures to drive strategic objectives.  Value—Maximize the return on all programs and projects within the portfolio.

48

PMI’s 2012 Pulse of the Profession™ In-Depth Report: Portfolio Management found that highly effective organizations are twice as likely to look to portfolio management to enable innovation as those that are minimally effective. Highly effective organizations have staff who spend 75 percent more of their time on portfolio management. In organizations where managers focus on strategic as well as departmental goals, 70 percent of projects meet or exceed their forecasted ROI. For portfolio management to succeed, executives and other staff need to understand and support portfolio management. Organizations must be equipped with the right portfolio management tools and practices. 49

BT’s core processes focus on bringing concepts to market. BT’s centralized innovation group is responsible for qualifying ideas after they have been sourced from an initiative. After ideas are qualified they enter BT’s formal process for

48

Yvan Petit and Brian Hobbs. Project Portfolios in Dynamic Environments: Organizing for Uncertainty . Project Management Institute, 2012. Project Management Institute. Pulse of the Profession™ In-Depth Report: Portfolio Management . Project Management Institute, 2012. 49



bringing concepts to market. BT executives measure benefits realization by how well BT packages existing and evolving services with pricing strategies that meet customer needs. The innovation team therefore has a direct interface with corporate strategy. That strategy provides the portfolio inputs into the innovation system. The innovation system then authorizes strategic projects and programs for exploration and development. Capture lessons learned, and continuously improve the open innovation process.

Organizations need to continuously focus on improving all of their business processes and practices. That improvement process requires the use of change management practices to effectively transition from the current state of performance to the desired state. As effective as it currently performs, BT’s Applied Technology Centre continues to evolve. Since its inception about five years ago, it has added new capabilities such as external scouting for evolving technologies and services that BT can add to its portfolio. The company has created internal competitions and a virtual platform to cultivate innovative ideas from its staff. All of these efforts have evolved with connections to the innovation team’s core characteristics: alignment with the strategic portfolio, strong executive sponsorship, and effective collaboration. Cisco faces a different change management challenge based on its decentralized culture. Cisco has a lot of projects and explorations going on behind the scenes that are not visible to the rest of the organization. Thus, there is duplicative work, projects that should be killed, and other unproductive activities the organization has recognized that it needs to address. Cisco’s Service Innovation Excellence Center’s change management opportunity is better internal integration of innovation activities that balances the desire for freedom and creativity with effective use of resources, collaboration, and alignment with strategy.



Research Champion: Project Management Institute PMI is the world’s largest not-for-profit membership association for the project management profession, with more than 650,000 members and credential holders in more than 185 countries. PMI’s worldwide advocacy for project management is supported by globally recognized standards and credentials, an extensive research program, and professional development opportunities. Stephen Townsend, Director, Global Alliances and Networks

PMI’s director for global alliances and networks, Stephen Townsend has worked within PMI since 1999 in member services, chapter and community relations, business and government relations, and PMI’s global development activities. He has nearly 30 years of experience in nonprofit leadership and management. Chris Landes, Manager, Market Research

In his role as manager of market research for PMI, Chris Landes leads, directs, and implements PMI’s market intelligence processes and programs, which expedite the collection and assessment of data and the evaluation of business opportunities and offerings. He identifies priority opportunities and new business areas aligned with organization and operational strategies that provide measurable improvement toward advancing project, program, and portfolio management, as well as customer satisfaction.

About This Research SUBJECT MATTER EXPERTISE Matthew Heim, Ph.D., Executive Vice President, inno360 Matthew Heim is executive vice president at inno360, a global open innovation search and management software organization. Heim has guided many companies through the development of new growth-oriented innovation strategies, which incorporate cutting-edge collaborative open innovation models. He has more than 25 years of global executive management experience in strategic planning, innovation, and large-scale systems change. Prior to joining inno360, Heim served as president of NineSigma, an open innovation service provider. He has also served on two university faculties and authored and co-authored many books, journal articles, and white papers on innovation and strategy, including SMEs and Open Innovation: Global Cases and Initiatives (IGI Global, 2012) and A Guide to Open Innovation and Crowdsourcing (Kogan Page, 2011).


Open Innovation: Enhancing Idea Generation Through Collaboration Christopher W. Miller, Ph.D., NPDP, CEO and Founder, Innovation Focus

With more than 20 years of experience in facilitating, speaking, writing, and consulting about innovation, Christopher W. Miller is the CEO and founder of Innovation Focus. His firm specializes in the discovery stage of NPD and is responsible for numerous significant innovative products across an array of companies. He often works with interdisciplinary, high-performance teams on product development, customer interaction, and rapid project completion. Miller has held positions in information systems and market research with two Fortune 500 companies. In addition, he initiated several business ventures. He is a past president of the board of the Product Development and Management Association (PDMA) and remains an active volunteer. Miller is a regular guest lecturer at universities and conferences and is a published author, with works including a series of growth forum articles for PDMA’s Visions magazine and chapters in each PDMA ToolBook. Marisa Brown, Director, Research Services, APQC

As director of APQC’s research services, Marisa Brown focuses on researching best practices and benchmarks and publishing original content to APQC members and the public. Her research services team conducts research and publishes both quantitative and qualitative information in the areas of human capital management, financial management, supply chain management, product development/innovation, knowledge management, and business excellence. Since 2002, Brown has been integrally involved as a project manager and subject matter expert in all aspects of APQC’s innovation and product development research. METHODOLOGY The research in this report was collected using APQC’s award-winning best practices study methodology. The process began in the fall of 2012 when the APQC team compiled a list of potential best-practice organizations based on secondary research; APQC past research and knowledge of open innovation programs; and recommendations from the study’s sponsoring organizations, subject matter experts, and PMI, the research champion.

After assembling a list of more than 130 potential best-practice organizations, the APQC study team conducted a multistep screening process to refine the list and identify the most suitable candidates. First, APQC approached each organization on the target list to assess its interest in and qualifications for participating as a bestpractice organization. Then team members administered a short screening survey followed by telephone interviews with the process owners at a subset of qualified and interested organizations to better understand each organization’s processes and practices and determine whether it was a good fit for the scope of this research. Finally, APQC presented 10 candidate organizations to sponsoring organizations at the best-practice organization selection virtual meeting in January 2013.


Open Innovation: Enhancing Idea Generation Through Collaboration From the 10 final candidates, the sponsoring organizations selected five to participate as best-practice organizations: Amway, British Telecommunications plc (BT), Cisco Systems Inc., Corning Inc., and General Mills Inc. APQC—joined by representatives from PMI, the subject matter expert team, and sponsoring organizations—conducted a virtual or in-person site visit with each selected best-practice organization. Key leaders hosted the site visits in accordance with a discussion guide supplied by APQC. Representatives from the sponsoring organizations provided valuable input into the design of the site visit guide and participated in the site visits. The APQC study team prepared a written case study of each site visit and submitted it to the best-practice organization for review and approval. In addition, APQC asked each best-practice organization and sponsoring organization to complete a detailed questionnaire about its open innovation practices and processes. Findings are embedded throughout this r eport. The study wrapped up with a two-part knowledge transfer session. The first was an in-person networking event held in conjunction with APQC’s annual knowledge management conference on May 2-3, 2013, with the theme “Using KM to Boost Creativity, Innovation, and Competitiveness.” The second part was a virtual session on June 4, 2013, during which APQC, PMI, and the subject matter experts presented the report and findings to all study participants. ACKNOWLEDGMENTS APQC would like to thank all the participants in this collaborative best practices study. The sponsoring organization representatives provided valuable input throughout the study by helping to design the site visit guide, influencing the selection of the best-practice organizations, and participating in the site visits.

A special thank-you is extended to the representatives from the five best-practice organizations, who took time out of their busy schedules to participate in this study. The representatives received no compensation or reimbursement for their time or travel. Each representative from the best-practice organizations went out of his or her way to guarantee the success of this study. The study research champion PMI, as well as subject matter experts Matthew Heim and Christopher Miller, provided valuable insights and perspectives throughout the project.



Case Study Amway ORGANIZATION OVERVIEW

Amway is a privately held direct-selling company offering a range of consumer products. A family-run organization headquartered in Ada, Mich., Amway reported revenue of $11.3 billion in 2012, having nearly doubled its sales over the past five years. It has 15,000 employees, as well as a network of 5 million distributors who sell products on the organization’s behalf. Amway produces and distributes products in three categories: 1. nutrition, 2. beauty, and 3. home (including water treatment, air treatment, and other durable goods). During its first 25 years in business, Amway’s business focused primarily on North America. Over the past several decades, it has expanded its geographic focus by emphasizing growth in Asia and other parts of the world. The organization now operates in 80 countries and territories, with 90 percent of its business originating outside the United States. R&D FUNCTION

Amway’s research and development function has, at its core, a culture of continuous innovation. Its primary goals are to:  consistently exceed the expectations of its key stakeholders;  deliver products, solutions, and services that bring sustainable double-digit

growth to the enterprise; and  attract and retain top-level R&D talent from around the globe. According to Senior Principal Scientist Rodney Johnson, Amway’s R&D function emphasizes scientific credibility and maintaining its reputation as a leader in innovation and development. The organization holds 900 patents worldwide, with another 900 patents currently pending. R&D staff are expected to share their findings with the broader scientific community; Amway boasts more than 75



university association memberships, more than 300 trade association memberships (including 40 leadership positions), and more than 200 published presentations and publications. Like Amway as a whole, the R&D function is globally dispersed, with major facilities in Michigan, California, and China. In addition to manufacturing facilities in China, it runs farms in Brazil, Washington State, and Mexico where it grows plant materials used in nutritional products. Amway invests heavily in technology assets, especially those related to testing products and ensuring they are safe and effective. Johnson said that Amway’s clinical testing for nutritional and beauty products is more typical of a pharmaceutical model, but the organization considers this testing vital to prove the products do what they are supposed to do. Amway also partners extensively with academic organizations in order to maintain an understanding of the fundamental science behind its R&D efforts. Working with academic advisory boards allows Amway to maintain a science-based mindset and ensure its products take advantage of the latest advancements. “If you look at the continuum from science to technology to development, then you need to have a very good understanding of that entire realm,” Johnson said. GROWTH THROUGH INNOVATION

Traditionally, Amway has focused on a direct-selling model, in which distributors— called independent business owners—market and sell products to customers and receive bonuses for recruiting additional distributors. The organization has been successful in expanding this business model across the globe and capturing market share in rapidly growing Asian markets. However, in the early 2000s, the senior leadership realized that growth through regional expansion would ultimately tail off as Amway ran out of new markets to enter. To continue to grow at its current rate, the organization expanded its focus to increasing its share of the markets in which it already operated. In response, senior leaders launched an initiative called Growth Through Innovation, which increased Amway’s focus on developing and acquiring new products. According to Senior Principal Scientist Ron Sharpe, “Products became a lot more important to what we were doing than just the business model.” In addition to product innovation, the R&D function was encouraged to think about innovation in broad terms and re-evaluate how it conducts market research, the processes that guide product design, and how products are packaged. Business model innovation was also part of the initiative, with Amway looking at new ways to market and distribute products and services.



THE INNOVATION PROCESS

A formal, enterprise-wide process guides innovation at Amway. As shown in Figure 1, the process consists of four distinct phases: 1. technology surveillance, 2. R&D exploration, 3. product development, and 4. business sustaining. Amway’s Overarching Innovation Process

Figure 1

The technology surveillance phase involves identifying ideas and taking them through early concept development. According to Sharpe, thousands of ideas enter Amway’s innovation funnel each year, but only about 150 reach the second phase, R&D exploration. During this phase, Amway further narrows down its portfolio and creates a project proposal and business case for each idea. In-depth feasibility



testing is conducted, and details related to development costs and potential suppliers are fleshed out. Ideas are presented to Amway’s technology review board at key milestones during R&D exploration, and this group ultimately decides which ideas move forward and receive additional funding. Approximately 20 to 30 projects reach business case development each year. Ideas that successfully pass through R&D exploration enter the business development phase, where they are refined using a formal stage-gate process called idea to market (ITM). During this phase, the project management function creates a project brief, which is a contract among the development groups, Amway’s marketing function, and representatives from the markets where the product will be initially launched. The project brief defines each idea further and lays out exact details regarding scope, costs, and the timeline for development and launch. Sharpe estimates that 10 to 15 projects reach this point each year, 90 percent of which ultimately result in product launches. The business sustaining phase begins once the product is launched and addresses ongoing evaluation and continuous improvement. The high-level innovation process in Figure 1 is most closely aligned with product innovation, but Amway applies it to other types of innovation, such as business model innovation. The R&D function has been using this process since 2007, but it was rolled out to the rest of the business in 2013. STRATEGY

Implementing a Strategy for Open Innovation A new technology group within the larger R&D function manages the R&D exploration phase of Amway’s innovation process. Historically, this team focused on internal R&D. The prevailing attitude was that Amway could develop anything it required and internal development was better because the organization would have full control over any intellectual property. There was little oversight, and few projects were ever discontinued. Often, individual researchers made decisions about which projects to pursue.

“A lot of what was going on was long-term experienced scientists saying, ‘Hey, I think this is cool, I’m going to go work on that,’” Sharpe said. Over time, Amway recognized that this was a suboptimal way to meet its innovation needs. After conducting a retrospective five-year analysis of its innovation pipeline, the organization determined that it was producing primarily incremental innovation. This lack of breakthrough innovation ultimately spurred the business case for chartering a dedicated open innovation team. The idea was that, with more flexibility and a less aggressive timeline, the open innovation team could focus on longer-term projects with the potential to provide more value than the incremental



innovation on which Amway had previously focused. Open innovation was designed as a place for ideas to incubate and grow. When Amway established the open innovation team, it formalized its innovation process and established stricter business rules to guide projects between when a need is established and the beginning of the formal stage-gate process. The organization developed standard criteria for assessing projects and instituted checkpoints to ensure only the best ideas moved forward. Before developing its open innovation approach, Amway benchmarked with organizations it knew had strong open innovation programs and learned what worked for them. Although the organization hired a few people experienced in open innovation at the start of the program, most of the open innovation team was formed by reallocating existing staff. Sharpe identified a critical success factor: Because these individuals had experience with Amway, its culture, and its product development process, they were better equipped to make good decisions about specific innovations and the open innovation approach as a whole. Open Innovation Process Overview Figure 2 shows Amway’s R&D exploration process, which includes:  identifying a technology or a need,  discovering it,  evaluating it, and  turning it into a solution (i.e., a marketable product).

This process guides ideas acquired from external partners, as well as internally developed ideas.



Amway’s R&D Exploration Process

Figure 2

Needs are identified during an annual technology planning process designed to detect new or unfilled consumer needs and needs within the businesses. According to Sharpe, the technology planning process allows Amway to look at all its potential projects and filter them down to the handful most likely to add value to the bottom line. This more strategic approach helps take decisions out of the hands of individual researchers, who tend to select projects based on how interesting they are rather than their feasibility and commercial viability. Once Amway decides which opportunities to pursue, the R&D leadership selects the best approach for each. If the group has the right resources and capabilities to develop a particular technology, then it may assign that project to internal development. However, if the organization does not have the right skill set or decides it does not want to invest in a given area, then the open innovation group may conduct external technology mining to find an appropriate third-party partner. Sharpe described this as the heart of Amway’s open innovation approach. Once started, all projects are subject to the same checkpoints and evaluation criteria, regardless of whether they are developed internally or externally.



Open Innovation Model In describing Amway’s open innovation model, Sharpe cited the difference between creativity and innovation. Creativity, according to Sharpe, includes all new ideas— anything that a scientist or inventor might pursue out of curiosity or interest. Innovation, by contrast, represents the subset of ideas that have a practical application and potential to fill a need. For an idea to be an innovation, someone ultimately has to be able—and want—to use it.

Amway’s open innovation model focuses on three tenets: 1. establishing well-defined needs, 2. building external networks, and 3. finding and evaluating technology. Establishing Well-Defined Needs

Amway thinks about innovation strategically as a combination of creativity, potential value to the business, and strategic fit. For the organization to pursue an idea, the idea must not only be feasible but also have a clear market and align with the longterm goals of the organization. For example, Sharpe said that even if Amway surfaced a revolutionary innovation in fuel efficiency, it would not pursue it since it is not involved in the automotive market. In its innovation process, Amway strives to bring together a known consumer need, a viable technology, and an opportunity to create value for the business. Figure 3 shows how those factors funnel through the innovation process (which is detailed along the bottom of the figure). Defined as “the application of skills and knowledge to meet a need,” a technology in Amway’s terminology can refer to any aspect of an innovation including design, materials, process, or information.



Combining Consumer Needs, Viable Technology, and Business Value

Figure 3

If the organization can bring a consumer need, viable technology, and business value together in a potential product, then it continues to pursue the opportunity. But if any element is missing, then the project is either recycled for additional incubation or put on hold until circumstances change. For example, if there is a clear customer need and the potential for business value but the technology is not ready to be manufactured and marketed, then the project is put in stasis until scientific advancements make the technology more viable. Embracing open innovation has caused the open innovation team to broaden its thinking in terms of the products and services Amway offers. In the beauty business, for instance, Amway traditionally focused on what Sharpe refers to as “lotions and potions”—products available at the beauty counter. However, as the team began to evaluate potential innovations, it realized that some needs could be met more effectively by devices or other types of beautification solutions. The team has also evaluated opportunities to expand the business model and offer beauty services.



Building External Networks

Robust networks are a vital part of Amway’s open innovation model. Figure 4 depicts the sources the organization uses for networking including internal business units, customers, suppliers, manufacturers, consultants, and competitors. Networking for Open Innovation

*SAB = scientific advisory board

Figure 4

The open innovation team started small in building its networks by reaching out to existing suppliers and consultants with which Amway had relationships. By talking to these individuals, the team was able to identify key contacts with knowledge of specific technology areas. In addition, scientific advisory boards help identify and locate bleeding-edge technologies. In putting together these boards, R&D focused on recruiting active members, not just figure heads. Board members attend one or two board meetings per year and provide one-on-one consulting to the open innovation team. Over



time, board members have recommended their own contacts to join the boards, which allows Amway to strengthen its network and ensure the right strategic mix of board members to meet current innovation goals. Scientific advisory board members, especially those from academia, have brought promising startups to the open innovation group’s attention. In addition, Amway looks at its customers and internal business units (some of which conduct their own local product development) as potential sources of innovation. According to Sharpe, foreign governments also serve as sources. He explained that, because venture capital is not readily available in countries like Korea, their national governments sometimes provide seed money to small, innovative companies. Eager to realize their investments, the governments are valuable resources to help Amway get in touch with organizations developing cutting-edge technology in those countries. Sharpe sees collaboration with competitors as the ultimate step in network building. Amway has not yet worked on a major project with a direct competitor, but it has experimented in smaller, more indirect ways. Finding and Evaluating Technology

Amway refers to its open innovation approach as focused, in that 80 percent to 90 percent of the external innovations it sources are based on specific needs articulated during the technology planning process. The strategy does provide some flexibility to pursue innovations that do not address identified needs but that the team believes will fit well in the business and generate value. However, the open innovation team tries to limit this type of activity to 20 percent or less of its total portfolio. Because of this focused approach, the open innovation team relies heavily on technology scouts who go out into the field and locate technologies meeting Amway’s specifications. Over time, the team has improved its scouting practices by learning to look beyond the most obvious sources. For example, scouts in the beauty category began to visit spas and meetings of dermatologists looking for innovations. Often, when a scout encounters a significant breakthrough innovation, it is not positioned to meet Amway’s exact needs. However, the scouts are able to analyze the technologies and see how they might be applied in a different way. According to Sharpe, these types of repurposed technologies have been some of the open innovation team’s biggest successes. Change Management and Cultural Barriers When launching the open innovation program, the open innovation team needed to sell the concept to senior leadership, as well as managers and scientists within the product development function. Many people across the organization did not understand why the existing processes needed to change, given that Amway was producing new products and continuing to grow.

The open innovation team created a presentation to promote the benefits of open innovation and the reasons why Amway should modify its approach. The



presentation began by pointing out that Amway needs to generate $48 million in new business every month to achieve 5 percent organic growth. It emphasized that the organization does not have as many resources to devote to internal product development as some of its competitors. For example, Amway has 35 scientists developing beauty products, which is far less than other cosmetic manufacturers. The presentation went on to explain that Amway could make up for this disparity in resources by partnering with third parties to develop and market their technologies. Reaching out to a broader network would allow the organization to level the playing field and innovate at the same rate as its larger competitors. “You don’t have to originate the research to profit from it,” Sharpe said. In describing the open innovation team’s efforts to promote the business case for open innovation, Sharpe emphasized the importance of securing senior leadership support. “You can’t just start a program like this and not make sure you have support at the highest levels of the company … to make it go,” he said, also noting that open innovation can start as a grassroots initiative, but ultimately the team must make a formal business case to leadership in order to ensure ongoing support and funding. After selling the open innovation concept to upper management, the open innovation team still faced cultural barriers in rolling out its processes with product development and marketing. Sharpe described most resistance as falling into the following categories:  “Pocket veto” —refers to when the open innovation team identifies a





 



promising technology but cannot get the marketing and product development functions to respond concerning whether they’re interested; “My needs are secret” —refers to the difficulty of getting product development, marketing, and other parts of the business to articulate their needs and the technologies they would like open innovation to find; “Deep pockets, short arms” —refers to situations in which product development and marketing express a need and are interested in a particular technology but do not want to fund its development; “Speed waiting” —refers to when product development and marketing can’t decide whether or not they’re interested; “Not invented here” —refers to the assumption that internally developed technologies are inherently better and, if the organization sources externally, jobs will be at risk; and “I don’t have time” —refers to product development neglecting technologies brought to it by open innovation due to an excess of projects.



Although the open innovation team has not completely overcome these barriers, it has been able to mitigate many of them. For example, the technology planning process has forced product development, marketing, and other internal stakeholders to lay out their needs in a straightforward manner. In addition, employees have realized that bringing in external technologies actually creates more internal product development work because the organization must grapple with unknown technologies and shape them to its needs. According to Sharpe, the biggest ongoing challenge is dealing with time constraints and people who still feel overwhelmed by too many projects. OPERATING THE INNOVATION ECOSYSTEM

People Amway’s open innovation team is part of the organization’s broader R&D function. The open innovation team manager reports directly to a vice president within R&D, and technology scouts report into the open innovation team. Most members of the open innovation team are experienced employees with long tenures in product development. Each is assigned to a specific technology area related to Amway’s core product categories (i.e., nutrition, beauty, and home).

Amway strives for a culture in which innovation is encouraged and promoted. For example, it supports a guerilla innovation team that meets monthly to pursue radical, out-of-the-box ideas. To surface innovation within the broader work force, the organization uses events called 5x5s at which employees present ideas for new products, technologies, or business process changes. Each participant showcases his or her idea in five minutes using only five slides. At the conclusion of each 5x5 event, Amway selects a winner whose idea receives funding and resources to support further development. In addition to the 5x5 events, employees are encouraged to bring their innovative ideas directly to the appropriate R&D groups. Amway has had more success with this approach than with employee ideation portals, which require a lot of time to manage and have not yielded significant results for the organization. Internal Partnerships

A critical ingredient in the open innovation team’s success has been and building partnerships with other parts of the organization (Figure 5). By consulting the product development, marketing, procurement, and technical regulatory functions early on, the open innovation group is better able to assess the feasibility of projects and whether they are worth pursuing. “You can innovate more effectively if you find ways to work with smart people inside and outside the company,” Sharpe said.



Partnerships Between Open Innovation and Other Business Functions

Figure 5

Amway finds it is particularly important to involve the marketing function early in the process. Although the open innovation team may see value in a technology from an R&D perspective, marketing has a different perspective and evaluates innovations according to its own criteria. Early feedback from marketing helps the open innovation team determine whether a product is ultimately saleable before it invests too heavily in development. The open innovation team has also built a strong partnership with the procurement function, which provides access to a critical knowledge base. For example, when open innovation began identifying promising external technologies, it realized that—being made up of scientists and product development experts—it did not have the appropriate skills to negotiate the needed agreements. To address this, the team tapped the procurement function to create a strategic sourcing position within open innovation. A procurement representative supplies all the competencies required to scope, negotiate, and execute deals with third parties from which Amway wants to acquire intellectual property. Amway recognizes that working with procurement has provided many advantages, but the open innovation team is especially appreciative of its help clarifying



objectives from the outset. In procurement, the goal is usually to negotiate deals with the maximum benefit to Amway, but the open innovation team is more interested in building mutually beneficial relationships with its partners. This has required procurement to shift its mindset slightly when working with open innovation. Process Figure 6 depicts Amway’s open innovation process. The fundamentals of the process were put in place in 2005, but the process has evolved significantly over the ensuing years, with the open innovation team adding governance structures and checkpoints to infuse more rigor into its activities. Open Innovation Process

Figure 6

A detailed description of each chevron, along with the evaluation criteria used during the various stages, follows. Identify Needs

The open innovation cycle begins with Amway’s annual technology planning process, which determines the organization’s innovation agenda for the year and how to allocate resources. The plan is shaped by the long-term business strategy in combination with market intelligence, including:  competitive insights —what competitors are doing, how Amway’s products

and services compare, and where the organization needs to invest in order to keep up;  consumer insights —what consumers want in each product area and how strongly those needs affect sales;  marketing insights —the brand identity and message; and  technology insights —patent trends and innovations coming out of academia and suppliers.



Synthesizing these inputs, Amway generates a plan that lays out which projects it will pursue over the coming year, which it will discontinue, and the level of resources devoted to each. The business strategy informs the technology plan, but the plan also feeds back into the business strategy by specifying innovations the organization should pursue to maximize its growth. In this way, the organization strives to balance technology push (i.e., innovations it pursues based on opportunities it finds) with market pull (i.e., innovations it actively seeks out to meet customer and business needs). Although technology planning is an annual process, some aspects occur quarterly or even more often as the open innovation team re-evaluates customer and business needs and discovers promising new innovations. Discover

The next step in the process, discovery, involves identifying technologies to address the needs identified in the technology plan. As noted, Amway uses a network of technology scouts to research potential sources of external innovation. These scouts regularly attend academic, technology, and other conferences, as well as tap into the organization’s networks. To do their jobs effectively, scouts must have a deep understanding of the fields in which they operate and keep up-to-date on scientific and technical advancements. This allows them to know which ideas are feasible, which are truly innovative, and which might be adapted to address Amway’s needs. Most scouts are also knowledgeable about negotiating and the intellectual property implications of various deals. A key tool used in the discovery process is a technology profile, which is a detailed definition of the specific technology or solution Amway is seeking. Each profile outlines:  the characteristics of a desired technology,  its intended purpose or use,  existing technologies in the same category, and  any deal breakers (i.e., things that should be taken off the table in sourcing

potential innovations). Shared with internal staff in procurement and R&D as well as with external partners, the profiles help people across Amway understand what the open innovation team is looking for and filter through ideas to find the right technologies. Evaluate and Refine

Once a potential technology is identified, the next step is to refine it and evaluate its feasibility. Scouts perform initial assessments to determine which projects enter the pipeline. If a technology passes this first test, then the open innovation team compiles a brief summary describing the technology and its potential impact.



Summaries are limited to one page to avoid excessive detail that is difficult to understand and/or time-consuming to review. The summary is submitted to Amway's technology review board, which makes the final decision regarding whether funding and resources are allocated. The board consists of R&D middle management, along with representatives from procurement and marketing on an as-needed basis. During an initial review, the technology review board evaluates each idea based on: 1. Relevance to the technology plan —Does it meet an identified need? 2. Commercial viability —Can it be produced at a reasonable cost? 3. Alignment to innovation and business strategies —Is it applicable to key markets? Depending on the answers to these questions, the review board either assigns resources, discontinues the project, or shelves it until a later date. The open innovation team reports that it is not uncommon for a project to be shelved and then subsequently resurrected and brought to market. As projects move forward, the open innovation team uses a measure called technology readiness level to articulate the maturity and progress of each technology. Technology readiness is a standard, composite measure based on the following criteria:  Efficacy/Functionality —Does the technology work as intended, and what is 

  

the likelihood of it ultimately being incorporated into a product or service? Market assessment —What is the market size and market strategy? What alternative technologies are available, and how do they compare to the technology being evaluated? Safety and regulatory —What safety and regulatory compliance issues exist in the potential markets? Intellectual property/Exclusivity —Are there patents or other intellectual property associated with the technology? Can Amway obtain exclusive access? Commercial viability —Can the technology be manufactured at a reasonable cost? What does the supply chain look like? What are the details regarding agreements, licensing, and the competitive environment?

The readiness scale has three levels. Technology readiness Level 1 indicates that a technology has the potential to solve a problem or address an opportunity but remains at the conceptual level. A scout has



conducted initial feasibility testing, but knowledge of the technology is based primarily on secondary literature, rather than direct experimentation or studies. The likelihood of commercial success for technologies assessed at this level is zero percent to 20 percent. Technology readiness Level 2 indicates that a technology has been developed in a laboratory, has been tested, and is supported or accepted by the industry. It has also been evaluated by representatives from the legal, technical regulatory, and marketing functions. At this level, the likelihood of commercial success is 20 percent to 60 percent. Technology readiness Level 3 indicates that a technology is proven effective, meets a precise customer need, and has a well-defined business case. Additional feasibility testing has been conducted by product development and a third-party intellectual property vendor responsible for performing final intellectual property and patent searches. The likelihood of commercial success for technologies assessed at this level is 60 percent to 80 percent. Develop Solution

During the solution development phase, Amway works to convert the acquired technology into a product. The open innovation team engages the marketing function and secures its buy-in for the project, conducts testing and focus groups, defines the business case, and begins to develop more precise projections regarding sales and profitability. During this phase, opportunities are prioritized based on the following criteria:  Commercialization timeline —How quickly can the technology be brought to

market, and does that time frame align with marketing’s needs and expectations?  Technical feasibility —Is the technology ready to be developed into a product and brought to market?  Potential value —Does the technology represent a significant business opportunity? Although projections are fleshed out at this stage, the open innovation team strives to evaluate each technology’s commercial potential and role in the portfolio much earlier. Even though the forecasts are rough estimates, they indicate scale—whether a technology will have a large, medium, or small effect—and help the team determine which projects should move forward.



Advocate Solution

Johnson said that advocating for specific solutions is vital to the success of Amway’s open innovation program. In some cases, the open innovation team uses persuasive communication and marketing to overcome resistance to externally sourced technologies. Sharpe said, “If I’m passionate about a technology and I think it’s got value to the business, I almost have to run a political campaign across the company to get it elected.” As part of this strategy, the open innovation team promotes the innovation to marketing and upper management in order to ensure they understand what the final product might look like and how it might be used. If the open innovation team gets a sufficient number of high-level managers interested in an innovation, then it is much easier to secure support and resources from the rest of the product development function. Develop Product

Assuming a project passes through the entire process and clears all the hurdles, it enters Amway’s traditional stage-gate product development process. At this point, all uncertainties have faded, and a rigorous timeline is established to guide the solution through to its initial product launch. Insights on the Process

Johnson said that, even though Amway has a rigorous and well-defined open innovation process, some innovations do not follow the process exactly. The process has built-in flexibility to accommodate different technologies, markets, and partnerships. For example, an acquisition can take many forms, ranging from a simple agreement to purchasing a company. The process is often not linear but iterative, where the team receives feedback and then cycles back to test and refine a technology further, thus ensuring it meets the necessary criteria. Johnson also pointed to the importance of After-Action Reviews where the open innovation team can evaluate what worked, what didn’t, and why. Even when a project is discontinued, something is learned, and Amway tries to focus on this aspect when projects are eliminated or put on hold. “The culture has to encourage openness to things not turning out as planned,” Johnson said. “You’re still gaining from it, and there’s still value.” Tools According to Johnson, software solutions are not a critical piece of Amway’s open innovation process. The team uses Microsoft SharePoint to track projects and resources and manage content related to potential technologies. It also maintains a custom-built technology database and uses standard online patent and literature services. Other tools and facilitated approaches include:



 a manually created technology pipeline map (Figure 7) showing the product

categories on which open innovation is focused and the status of the various projects within those categories;  global focus groups that provide feedback on prospective products; and  partnerships with consultants who crowd-source technologies on Amway’s behalf in response to specific needs and challenges.

Open Innovation Technology Pipeline Map

Figure 7

Johnson said that tracking and reporting is a potential area for improvement for the open innovation team. When the team first launched, it evaluated various tools but did not implement them, in part because it didn’t know what its exact needs were. Now it is looking for tools that match its process. This has made it more challenging to find the right tools, but Johnson and Sharpe are glad the team chose to define its process before deploying technology, which they deem a less important element.



When the open innovation team was formed, it was interested in setting up a Web site to crowd-source ideas from the broader public. But the team did not prioritize this aspect of open innovation in its initial stages. As the team talked with peers operating these types of sites, it ultimately decided that the potential return did not justify the resources required to sift through the submissions. EVALUATING THE SUCCESS OF OPEN INNOVATION

The open innovation team tracks a range metrics related to open innovation, including:  the number of ideas screened,  the number of technologies presented to the technology review board,  the number of technologies that advance through the three technology

readiness levels and how much time they spend at each level,  the number of conversions to business cases, and  the number of conversions to products. The organization is working to improve its assessments concerning net present value (NPV), including the percentage of NPV from open innovation at the business case stage and the percentage of revenue from open innovation leading to new product launches. The open innovation team also collects and shares success stories as compelling evidence of the value open innovation has generated for the organization. For example, individual products resulting from the open innovation program in the nutrition category have generated $45 million in global sales. Lessons Learned Johnson and Sharpe shared the following lessons learned from their experiences establishing and developing Amway’s open innovation process.  Re-evaluate projects regularly and be aggressive in winnowing down the

pipeline. “If you want to be innovative, you really need to be able to kill things—and kill things without consequences,” Sharpe said.  Have a process to deal with unsolicited ideas, even if you do not actively seek ideas from the public through channels such as an ideation Web site. Amway’s open innovation team gratefully acknowledges the submissions it receives; this responsiveness is important to Amway’s brand reputation.  Establish robust networks, and take the time to nurture them. Many of the open innovation team’s best technologies came through its external network, often from the third or fourth person in a string of contacts.



 Think broadly, and expand your boundaries. The open innovation team has







 

found that the best ideas do not originate with the traditional supply base. They come from start-ups, government-funded technologies, and other untraditional sources. Move quickly, and be communicative. Once a promising external idea is identified, let the owner know that you’re evaluating it and provide frequent progress updates. If you decide not to move forward, then the owner know as soon as possible, rather than simply not responding. When negotiating deals, make sure that the other party has the resources it needs and is properly motivated, rather than simply securing your own interests. “The test I use is: Would you sign this deal if you were sitting at the other side of the table?” Sharpe said. “If you’re not willing to do that, then you may want to look at it again.” Strive to understand what motivates potential partners. For many small organizations, money is not the only—or even the primary—driving factor. For example, the open innovation team works with start-ups operating on aggressive timelines; treading water for six months while Amway conducts clinical testing can be a challenge for them. In these cases, the open innovation team often negotiates deals where, if it decides to walk away after conducting clinical trials, the partner receives ownership of the clinical study. This ensures that the partner gets something of value even if Amway never brings the product to market. Build long-term relationships with sources of external innovation. Once you partner with someone, it’s a lot easier to partner with them again. Focus on high-impact technologies with the potential to drive significant growth within the business. Don’t spread your time and resources across numerous small projects that don’t add a lot of revenue.



Case Study British Telecommunications plc (BT) OVERVIEW

BT is a telecommunications company based in the United Kingdom. It was founded more than a century ago as a government-owned company but was privatized in 1984. Its revenue for 2011-2012 was $30 billion (USD). BT has more than 89,000 employees worldwide and more than 26 million customers in 170 countries. BT sits in one of the most competitive markets in the United Kingdom, with about 200 voice competitors and about 250 Internet competitors. It provides voice, broadband, and business services including information and communications technology, conferencing, collaboration, cloud, and security and is rolling out fiber broadband services in the United Kingdom. It has four key lines of business: BT Retail (which serves the consumer and business markets in the United Kingdom); the wholesale market (which resells infrastructure to other telecommunications companies, including mobile operators and BT’s competitors); Openreach (which connects homes and businesses to the Internet); and global services (which sells information and communications technology services to large, corporate enterprises). Many of BT’s recent initiatives have been driven by innovation. For example, the organization is investing in entertainment through BT Vision, an IPTV service that provides television programs over broadband lines. BT was recently awarded access to 38 Premier League soccer games, as well as rugby and other sports. The company established more than 5 million Wi-Fi hotspots across the United Kingdom and was the Official Communications Provider for the 2012 Olympics in London. Innovation and Open Innovation Program

BT has a centralized innovation group that is connected to and services the organization’s business units. The group acts as a resource that any business unit can use when it has an innovation question or an idea that it wants to pursue and develop. This group not only responds to requests for assistance from business units but also helps those units adopt innovation. Although this group does not conduct any delivery work associated with a particular innovation, it will deliver a prototype if needed. BT has a separate portfolio group that manages the product/service lifecycle and evaluates current offerings. BT is a service company, so it is always looking for new service offerings to repackage and distribute at the lowest cost and with the best customer service.



The centralized innovation group has 45 staff members, with five located in Silicon Valley and 40 located in the United Kingdom. The group in charge of innovation through research and academic partnerships has about 200 staff members. With the exception of the staff conducting research, all parts of the centralized innovation group report to the managing director of external innovation. The centralized innovation group at BT is funded through a discretionary fund for the CIO/CTO function of the organization. The budget for this fund amounts to about one-quarter of the research and development budget for the organization. Because the group of staff conducting research is managed separately from the other innovation initiatives, it has a larger budget tied to a research plan that must be approved every year by the business units. STRATEGY

BT’s external innovation group started an initiative to set up a venture fund for technology startups in Silicon Valley. However, the financial value BT obtained from its venture fund was extremely small compared to the organization’s other sources of revenue. In addition, BT concluded that minority equity investments did not adequately serve its innovation objectives. BT determined that a formal internal innovation team was needed with the resources necessary to address BT’s needs. In its current innovation program, BT seeks to obtain solicited and unsolicited ideas from both internal and external sources. Its innovation strategy classifies innovation as coming from the following sources:  customers,  partners,  employees,  research, and  academia.

BT’s research and academic partnerships provide more traditional ways of obtaining new ideas, but the organization has also adopted less traditional methods of sourcing innovation, such as collaboration events and employee competitions. OPERATING THE INNOVATION ECOSYSTEM People

BT has a set of criteria for its staff members in the centralized innovation group. Members of this group must have sufficient experience with technology to be able to translate new technology features into business benefit when speaking with internal staff. In addition to having an interest in innovation, these staff members must also be able to build relationships with internal stakeholders and external



partners. Staff members that work with partners must have project management skills that extend beyond process and numbers to relationship development so that the team can take the needs of business units and translate them into potential innovations. Staff members that work on innovation initiatives involving BT employees must also have connectivity within the organization to keep employees engaged. Incentives for Innovation

BT rewards its employees for idea generation in a variety of ways. Individual employees can submit new ideas through the organization’s New Ideas Scheme program; the best ideas lead to financial rewards of up to £30,000. BT tracks the names of employees who submit ideas, as well as those who help refine it. The organization then compiles a core group of individuals that were instrumental in bringing an idea to launch and rewards the individuals accordingly. Employees can also participate in BT’s My Customer Challenge Cup, a contest in which employees participate in teams to develop new ideas. The contest has quarter finals, semifinals, and a grand final level, and with each level the teams gain more exposure within the company. Teams that complete their projects are given a blue ribbon award regardless of whether they make the quarter finals of the competition, and this award is noted in each team member’s profile on BT’s internal directory. Leaders of winning teams are often promoted within the organization. BT recently developed its “Time to Innovate” program as a way of rewarding employees. The organization was inspired by a Google program that gives employees a dedicated amount of time to devote to innovation. BT conducts a quarterly review of engineering teams that have exceeded efficiency expectations. These teams are granted 10 percent to 15 percent of their time to dedicate to innovation. To give structure to the program, the selected employees are given an innovation challenge to address. BT expects that employee efficiency will increase as employees aspire to be part of the Time to Innovate program. Engagement

BT uses a variety of methods for maintaining employee engagement with innovation initiatives. The organization publishes an internal print magazine with profiles about employees that have generated exceptional ideas. An online version of the magazine is maintained on BT’s intranet site and features additional content. Employees are also sent top-down communications about the organization’s innovation efforts in order to highlight the support and involvement of senior managers. Process

BT divides its innovation initiatives based on the source of innovation (customers, partners, employees, research, or academic partnerships). BT’s innovation initiatives



are listed in Figure 1. Many of its initiatives involve external sources such as customers or academic institutions. Each initiative has its own process for sourcing ideas. Innovation Sources and Initiatives at BT

Figure 1

Once ideas are sourced from an initiative, they can be further qualified through the organization’s Innovation Central program before entering BT’s formal process for bringing concepts to market. Innovation with Customers

BT has established two primary processes for innovating with its customers: hothouse events and innovation showcases. Hothouses are three-day competitive events that BT adopted from the software industry. These events bring together about 80 to 90 individuals from across business units and external groups with an interest in a particular product or service. In addition to BT’s customers, participants can represent BT’s marketing, customer support, and engineering groups and include external suppliers and partners. BT has dedicated facilities to hold these events and assigns two hothouse facilitators to each event.



During a hothouse event, attendees are split into cross-discipline teams. BT’s optimal number of teams for a hothouse is five to eight, but at least three teams are needed and a maximum number of nine to 10 is acceptable. A facilitator gives teams a problem statement to solve. The second hothouse facilitator ensures that each team has the technology, data, and files that it needs to develop a solution. At the end of each day the teams present their developments to a judging panel made up of senior executives for the business unit that will own the product or service. If possible, BT has customers on the judging panel as well. The panel awards points to each of the teams based on their work results, with the winning team being the one with the most points at the end of the three-day period. The teams are encouraged to steal ideas from other teams so that the winning idea is the combination of the best ideas developed during the hothouse event. The solution developed during an event can vary from a prototype of a software or service offering to a customer experience design for a product or service. A hothouse can also yield a delivery plan for getting a product or service to market quickly and competitively. After the event, BT's Applied Technology Centre works with the business unit that will own the product to ensure that deliverables for the product rollout are met. The team that developed the solution is kept informed or engaged in the development process. Hothouses can occur at any time from when an idea is first introduced to the completion of its business case. The purpose of the hothouse changes depending on the extent of development done on the idea up to that point. That is, early in the idea development process, a hothouse event could be held to further refine the idea, whereas later in the development process, a hothouse could be held as a way to accelerate a business case and product trial. Planning for a hothouse takes from four to eight weeks and involves identifying individuals that should participate, making sure that travel is arranged for those individuals, and making sure that the appropriate technologies are available for the event. Once individuals for a particular hothouse event have been identified and invited, they are given relevant reading material so that they have the background information needed to participate. BT holds about 40 to 45 hothouse events per year, with about half run by staff dedicated to organizing and running the events. BT has also developed a self-run hothouse kit that allows any business unit to create and run a hothouse on its own. The success rate for hothouses at BT is 30 percent to 40 percent. To ensure that maximum benefit is obtained from each hothouse, the organization will stop the planning an event if there is a lack of available individuals with the necessary skills or a lack of sponsorship. Two examples of successful hothouses at BT are related to the products BT Trace (a supply chain visibility service) and BT Pharma Cloud (a computing platform that



conducts drug analysis in the cloud). The development of both products was accelerated through hothouses, with 12 months passing from the hothouse event held for BT Trace to the product’s rollout. BT holds annual innovation showcases for its customers that present a blend of current BT services, offerings in development, and thirdparty innovation from around the world. BT creates displays that put the featured services in context; for example, the health care showcase looks like a hospital. Demonstrations are held in each of the showcase areas. BT uses its innovation showcases to test innovations with customers, as well as to present BT as an organization that customers can use as an innovation partner. At each innovation showcase, BT hosts 150 to 200 customer account events, as well as influencers and stakeholders such as government representatives and members of the press. Customers are often invited to attend if they are in the deal making process with BT. Customer representatives are generally at the C-suite level. In recent innovation showcases, BT has featured technologies by Idomoo Ltd. and Seculert. Both are Israeli-based companies, with Idomoo specializing in personalized advertisement videos. One of BT’s customers became interested in this company after attending an innovation showcase and is now preparing to initiate a trial of the service. Seculert provides a service for detecting hidden malware and viruses. Another of BT’s customers is currently trying this service after seeing it at a BT innovation showcase. Innovation with Partners

BT’s primary means of innovating with business partners is through external innovation scouting and through its applied technology and rapid prototyping program. The scouting initiative at BT focuses on finding organizations that have technologies that BT can then package and offer to its customers. It generally does not provide funding for outside organizations, but on a case-by-case basis it will provide funding to bring a specific innovation to market. This group primarily acts in Silicon Valley because of the concentration of innovative companies in the area. However, scouting staff members also focus on London, Israel, the Boston area, and Asia when looking for potential partners. The scouting group maintains a set of technologies that BT is interested in but also looks for technologies that BT could expand into. Each scouting staff member researches about 300 companies per year. Staff members often meet with representatives from these companies so that they can qualify them with regard to their business models and technologies. Many of the companies evaluated by BT come to the organization on their own because partnering with BT would give them



exposure in Europe. However, BT also finds potential partners at conferences, meetings, networking events, and through recommendations from venture capital groups and industry blogs. The scouting group captures data on every company it evaluates and stores the information on a Microsoft SharePoint site. For each company selected as a potential partner, the scouting group creates a one-page description that can be circulated within BT. The group organizes a monthly call during which three to four potential partners are presented to BT staff, with the companies’ one-page descriptions provided to call attendees. The group also maintains documents that discuss broader trends in BT’s lines of business. Each member of the scouting group has access to the C-level of BT because these senior-level employees want to stay informed on trends in the industry and potential opportunities for expanding BT’s service lines. Members of the scouting group also prepare presentations for the board of BT and participate in business unit strategy meetings. Senior managers often come to the scouting group with a particular need they want to address with new technologies. Staff members within the scouting group conduct background research to understand what needs to be addressed by the solution, as well as the key players and trends in the area. Scouting group staff members then identify and meet with various companies that may provide a solution for the need, narrow the group of potential companies down to a core group, and present the core group to the senior managers. For every company the senior manager is presented, scouting group staff members have investigated five to 10. Once the potential partners have been presented to senior management, the senior managers and scouting staff members discuss the potential impacts of partnering with the companies. An example of a new BT service offering that came through the scouting group is Dolby Voice. This service was conceived when BT’s scouting group learned that Dolby Laboratories was developing surround sound technology that could be used in a phone call. BT wanted to license this technology to differentiate itself from other audio conferencing services. A deal was then completed, and BT began offering the Dolby Voice service in March 2013. To keep informed of new developments in the telecommunications industry, the scouting group conducts benchmarking with BT’s peers. This allows the group to track new developments among North American telecommunications organizations that can then be applied to BT’s European markets. In addition to serving BT’s internal customers, the scouting group conducts innovation sessions by request for some of the organization’s external customers. The group also does contract consulting for external organizations that are interested in telecommunications innovation. This consulting can involve



presentations on potential customers, meetings about trends in the industry, and visits to customers. The scouting group limits the number of external consulting arrangements so that it can adequately serve internal customers. The Applied Technology Centre at BT provides rapid prototyping services, generally before the business case for a new product or service is approved. Specifically, it provides the following services with regard to new offerings:  concept demonstrators,  working prototypes, and  early market testing.

Concept demonstrators are early-stage visualizations of potential products or services to show to customers and internal staff. It is a mechanism for quickly and cheaply visualizing a concept to demonstrate potential customer experience and benefit. Working prototypes or proofs of concept provide the technical feasibility of the potential product or service. These build confidence within the business units for a particular offering and provide early insight into implementation. The Applied Technology Centre also conducts early market tests of potential products or services with customers. This usually involves 20 to 50 customers testing a service within their homes or, in the case of a service offered to other organizations, a group of 50 people in a company testing out the potential service. The testing allows BT to see which features customers use and how the customers use the product or service. It also allows BT to determine whether customers are willing to pay for the product or service and whether the customer experience is what BT wants it to be. Two products that were developed with partners through the Applied Technology Centre are fiber-sensing technology and Facelook devices. Fiber-sensing technology was adapted from a sensor that is attached at the end of an optical fiber line to detect disturbances. However, BT worked with external organizations to apply the technology in the oil and gas industry to detect leaks in pipelines. The Facelook product connects a webcam to a television using a wireless router. This technology is currently being tested in the United Kingdom to connect elderly patients with their doctors to provide better access to health care and is also being used to connect homebound patients with family members or local Red Cross volunteers to combat loneliness and isolation. Innovation Through Employees

BT enables employee innovation through its New Ideas Scheme and My Customer Challenge Cup programs.



BT’s New Ideas Scheme is a crowd-sourcing initiative aimed at its employees. All of BT’s employees have access to the initiative’s platform (Figure 2), through which they can submit an idea, vote, or comment on ideas. Idea submissions identify ways to run the business more efficiently, ways BT can save money, new products, and new features for existing products. BT’s New Ideas Scheme Platform

Figure 2

New Ideas Scheme has a four-stage process for the acceptance and launch of ideas: 1.

submission,

2. evaluation, 3. adoption, and 4. launch.



A staff member is responsible for reviewing idea submissions and removing duplicates. About 40 percent to 50 percent of the ideas submitted through the portal are removed as duplicates. Ideas are also removed at the submission stage if rework must be done before they can be further evaluated or if they are already under development elsewhere within the organization. A group of about 100 evaluators review the remaining idea submissions. Evaluators are BT employees that come from different units within the organization and are typically experts in their fields. Ideas that progress past the evaluation stage are prepared for adoption, which involves identifying a product manager or operational manager who will own the idea. About 3 percent of submitted ideas make it to the adoption stage. New Ideas Scheme has dedicated staff members that keep employees engaged with the initiative and also notify idea submitters of the status of their submission. If an idea is rejected, then these staff members provide guidance to the submitter on how to improve future submissions. The staff members also run idea “campaigns” that present a specific problem to a select group of employees for solution generation. Participating employees may be selected based on their business units or job functions. BT’s Broadband Boost program and Frame Circuit Identification program are two success stories from New Ideas Scheme. Broadband Boost is a program in which field engineers upgrade old wiring and replace routers and hubs for end users on behalf of their communications providers. The program originated from the idea that BT could have its field engineers provide additional services to maximize service time. The program now results in 5,500 visits per week related to upgrades and improvements. The Frame Circuit Identification program originated with a pen designed by a BT employee for testing dead circuits. The pen was inexpensive to make and resulted in10 times faster testing (as well as more accurate testing) than was achieved with previous equipment. My Customer Challenge Cup is a competitive event for BT employees that runs for several months at a time. Teams of four to eight employees address a specific issue that usually involves improving the customer experience. Each team develops a solution for the issue and produces a presentation that describes the idea and the deliverables for implementation of the solution. Teams progress from quarter finals to semifinals to a grand final, and at every level the advancing teams present their ideas to increasingly senior managers. Innovation Through Research and Academic Partnerships

BT’s global engineering headquarters is at Adastral Park in the United Kingdom, which is a facility the organization shares with 44 other companies. Much of BT’s research and subsequent development is conducted at this location.



Core research at BT is in partnership with the customer-facing teams and covers the full range of products and services BT offers. Research is divided in practices such as security, consumer applications, network services and infrastructure, operations, and information and communications technology. BT’s research staff are encouraged to keep track of technology developments and trends, as well as conduct applied research. Research staff members stay up-to-date so that they are able to evaluate the feasibility and potential benefit of new technologies developed by suppliers, which aids BT in determining whether to invest in a new technology. All research staff are encouraged to publish scientific papers externally and regularly lead industry and technical standards bodies. BT also conducts research through its partnerships with about 25 universities around the world. It has partnerships with universities in the United Kingdom, the United States, China, and the Middle East. BT sponsors specific research projects at these universities related to subjects of interest to BT, such as big data projects, data analytics, and improvements to BT’s technical offerings. BT has a large patent portfolio generated by its research organization, which it continues to enrich, maintain, license, and use defensively. Qualification of Ideas

Once ideas have been sourced from external or internal sources, they may be shared with BT’s Innovation Central group, which creates a case study for the idea to determine whether it would succeed. This allows BT to evaluate the feasibility of an idea before much time is invested in its development. The Innovation Central group works on approximately 40 projects per year, with project times ranging from 2 weeks to 6 months. The group also receives ideas from business units that need help developing a business case for a new technology or service. These ideas are usually not on the units’ road maps, so the units want to know if it is reasonable to pursue an extra project. In this scenario, the Innovation Central group conducts research to determine the potential market for the technology or service offering. The group is also approached by members of the scouting group that have identified a new opportunity for BT. In these situations, the Innovation Central group looks at the commercial case for the opportunity and then obtains input from senior management to decide whether to take the opportunity to the next stage. During these projects, the Innovation Central group may create prototypes or conduct customer trials. For BT to determine whether or not to act on an opportunity, the Innovation Central group must determine if the opportunity lines up with organizational strategy, if the opportunity fits with BT’s operations, and if BT has the channels to pursue the opportunity.



Moving Ideas Forward

The sourcing of ideas from external organizations and internal employees is part of BT’s larger idea development process called C2M (i.e., concept-to-market). As Figure 3 illustrates, the process has four stages: 1. idea, 2.

proposal,

3. business case, and 4. delivery. BT’s C2M Process

Figure 3

The idea stage is open ended and is the stage in which ideas are sourced and filtered. The idea stage encompasses both internal and external sources of innovation. A concept moves into the proposal stage when it is deemed worth consideration for a business case. During the proposal stage the idea is articulated and validated, which can include conducting early customer trials, hothouse events, and proof-of-concept development. This stage takes 60 days or less to complete.



Once the proposal stage is complete and the relevant BT business unit has validated the idea, it can move into the business case development stage. During this stage BT conducts trials of the product or service. These can be small-scale trials that evaluate how the product or service will work or large-scale trials that evaluate how customers will use the product or service. This stage lasts 120 days from business unit validation to customer trial. Once trials are completed and a full business case is developed, the business unit responsible for the technology provides written confirmation that the project has been approved and accepted. The concept can then move into the delivery stage. During this stage BT completes any development necessary to get a quality launch for the new product or service. The process ends with a full commercial launch for the product or service. BT has also established an accelerated development process called C2M Lite (concept-to-market lite) for ideas that do not need complex validation processes. Figure 4 illustrates the C2M Lite process. BT’s C2M Lite Process

Figure 4

An idea is selected for acceleration if BT needs to verify that it is not infringing on intellectual property owned by another organization, that it has the security needed for a service to be put through a trial, or that the idea is compatible with mainstream architecture. BT created C2M Lite to facilitate a “fail fast, fail cheap” environment that makes product market trials more efficient. The process involves testing and



validating minimum marketable features of potential products and services using early market testing. The results of the testing and validation are then used to support decisions on creating business cases for potential products and services. With the accelerated process, trials can be shortened to 60 to 90 days. Protecting Intellectual Property

BT primarily uses patents as a way of protecting itself against infringement from other organizations, although anyone at BT can hold a patent. BT has over 4,300 patents and patent applications covering approximately 1,100 inventions. When working with existing or potential partners in a hothouse event, BT develops agreements with these parties that outline the intellectual property that existed prior to the hothouse. These agreements specify that any new intellectual property developed in the hothouse belongs to BT, but this may vary depending on whether a partner is being paid to participate in the Hothouse or if the resulting idea is an improvement on an existing technology owned by the partner. Tools

Overall, BT does not rely heavily on tools for its innovation sourcing. Its technology scouting group uses Microsoft SharePoint to store information on companies that the group has researched. BT’s New Ideas Scheme uses Brightidea software as the platform for employee idea submission and evaluation. EVALUATING THE SUCCESS OF OPEN INNOVATION

BT uses return-on-investment measures across its innovation initiatives, although the organization recognizes that balancing short-term successes with long-term thinking is a specific challenge when it comes to measuring innovation. BT has a balanced scorecard approach to its innovation measures, with both leading and lagging measures at the different stages of the innovation process. BT tracks the revenue generated from new services, as well as revenue generated from contacts made at BT’s innovation showcases. BT also tracks cost savings resulting from new services, systems, or technology generated as a result of its innovation initiatives. It does not separate these savings by innovation initiative. BT tracks cost avoidance resulting from ideas submitted by BT employees through New Ideas Scheme. The organization also tracks the pipeline resulting from companies that went through an innovation showcase. BT also monitors the number of ideas that progress to each stage of its C2M idea development process, although certain milestones are of more importance to individual innovation initiatives. For example, the number of ideas progressing to the business case stage is of more significance to New Ideas Scheme, and the number of concepts progressing to the delivery stage is of more significance to the hothouse and innovation showcase programs. On the 2013 scorecard, BT had 20 ideas cross into the business case stage and 10 projects move to the delivery stage.



BT also tracks the time for ideas to transition to each stage of the C2M process. Although the organization has established target time frames for each stage to be completed, it aims for a 5 percent improvement in cycle time for each stage over the prior year. BT’s centralized innovation group also has a softer measure related to what the organization has termed thought leadership nuggets. These are ideas proposed by members of the centralized innovation group that are new to a particular business unit. These ideas could be new technologies or services, new applications of a particular technology or service, or the ending of BT’s investment in a particular technology that may become obsolete. Thought leadership nuggets must be approved by the CEO of the affected business unit. The centralized innovation group has a target of five to 10 Thought Leadership Nuggets per year. Lessons Learned

After BT’s initial venture fund was set up in Silicon Valley, it became apparent that an external innovation function at BT could not be successful without a function to sell the benefits of external innovation within the organization. This is particularly true for the external scouting group, which must not only be able to identify technologies that could benefit BT but also present these to the business units. Overall, the centralized innovation group has established credibility with BT’s business units and has gained senior management support. The group also has the support of BT’s CEO, which has been integral in gaining acceptance across the organization. CONCLUSION

BT has a broad innovation program that seeks to source ideas from a wide variety of both internal and external sources. Once ideas are generated, BT has different methods of evaluating and refining ideas before they are moved through the development process. Through the organization’s C2M and C2M Lite processes, BT ensures that viable ideas are developed and launched as quickly as possible. Although the organization conducts research, it focuses its innovation efforts on technology adoption and repackaging rather than materials design. BT’s centralized innovation group facilitates the discovery of new ideas that can help the organization provide superior service to its customers at the lowest cost possible.



Case Study Cisco Systems Inc. OVERVIEW

Cisco Systems Inc. is a leading global organization in networking, with solutions for how people connect, communicate, and collaborate. As of the third quarter of 2012, Cisco’s revenue was $47 billion. With 75,000 employees located in more than 150 countries, Cisco primarily sells its products in a business-to-business model to global firms, governments, and service providers. Almost half of Cisco’s sales are generated outside of the United States. Cisco’s growing services organization represents more than $10 billion in annual revenue. There are three main parts of Cisco’s services organization: technical services, advanced services, and consulting services. Cisco’s innovation strategy is, simply stated, to build, buy, and partner. The company builds products and solutions, partners with innovative companies, or acquires new technologies and companies. Cisco has purchased more than 150 companies to access new technologies—and more importantly, to the people who developed those technologies—in order to accelerate its growth in key markets. Cisco believes in retaining and integrating entrepreneurial leadership from its startup acquisitions in order to gain a competitive advantage. Cisco positions this talent to help the organization grow into new business areas. At the same time, these employees’ backgrounds influence Cisco’s overall culture in an entrepreneurial direction. Innovation and Open Innovation

One of the things that has been constant in Cisco’s history is that we’ve connected things that haven’t been connected before. —Sharon Wong

Cisco sees the world moving toward “the Internet of Everything” that has all people, processes, and things (e.g., mobile devices such as smartphones and tablets) connected. As of 2013, the majority of the world is not connected to the Internet. However, Cisco estimates that by 2020, 2.5 billion new people will come online, and 50 billion devices will be connected, thus providing a large growth opportunity for a networking company like Cisco.



As a decentralized enterprise, Cisco has many groups and stakeholders for innovation. This case study primarily focuses on innovation from two perspectives at Cisco. The first is presented by Sharon Wong, director of business incubation in Cisco’s emerging technology group, part of Cisco’s development organization. The business incubation program has an external focus and looks for new markets to enter. This group incubates new technologies and partners with Cisco’s corporate development group to scout for technologies and startups in new areas. The second perspective comes from Lisa Voss who leads innovation leadership and capability development in Cisco’s services organization and focuses on connecting innovation to the people side of Cisco’s business. Innovation also happens as Cisco employees design new products. From an engineering perspective, Cisco spends $5.8 billion on R&D globally with 22,000 employees in this area and more than 10,000 patents. There are development centers in China, India, Europe, and the United States. Cisco collaborates extensively and co-develops new products and services with its partners and customers. Cultural Support for Innovation

Innovating globally is critical to Cisco’s future. —Lisa Voss

Cisco is considered one of the early pioneers in the technology boom from the 1980s to 1990s. The desire to “get out there and solve problems, create and build, and change things” is deeply engrained in the organization’s culture and beliefs, according to Sharon Wong, director of business incubation in the emerging technologies group. Cisco originated at Stanford University and began with a handful of people building routers in a living room—a classic Silicon Valley story. Stemming from that origin, Cisco employees have a high degree of independence, and the company believes innovation is part of everyone’s job. The company values are on employee badges, and innovation is one of the core values. “We all have it. We all carry it,” said Wong. Although there is a lot of diversity in the business models used within Cisco, there is also a lot of internal collaboration to enable employees to learn from each other and draw on the best, said Lisa Voss, lead for innovation leadership and capability development in Cisco Services. STRATEGY Implementing a Strategy for Open Innovation

Cisco is seeking to balance the acts of focusing and leveraging its assets and energy in existing markets with the acts of continuing to push into new areas in targeted



ways. The CEO and Cisco’s operating committee have defined the top five priorities for Cisco, and the organization focuses and aligns its resources with a clear strategy around desired opportunity areas. This focus lays the groundwork for the organization’s innovation efforts. If Cisco did not focus on innovation, then from a business standpoint it would not survive in this fast-moving industry. From an employee engagement perspective, the feeling is that employees would not remain with the company if they did not have the opportunity to do “cool stuff.” In the services organization, the feeling is that without these programs, there would be little consistency, and efforts would be isolated instead of tied into the larger enterprise operations and strategic priorities. In development, innovation would happen but likely be slower and smaller without the emerging technologies group and its programs. It would also be harder to retain key engineering talent in a competitive market. Although Cisco has a well-established services organization, at its core the company has historically been a product business. However, in mid-2013 its business models are changing as a result of the market shifting more services to the cloud and products increasingly being offered as services. Cisco is therefore expanding its services focus with new models that allow it to deliver new services to its customers. Emerging Technologies Group

Since there are more opportunities than time, people, and money available, emerging technologies group leaders frequently review if they are putting Cisco’s money in the right places. Would they be better off redeploying those resources to other places? How do they maximize their odds of success? Philosophically, Cisco believes it is easier to disrupt an existing market than to create a new one. Because it is more expensive to create a new market, that is not a way to achieve fast growth. Cisco is seeking returns within a few years from its new investments. For market disruptions, Cisco looks at where opportunities exist; for example, changing the user experience (e.g., via Telepresence) helps transform the growth rate of a market. In addition, disruption can occur within an adjacent market. Services Innovation Excellence Center

To better respond to its changing customer environment, leaders in Cisco’s services organization are driving a culture change and greater employee engagement in innovation. Cisco’s senior vice president of technical services within the services organization, Joe Pinto, chartered a small program in 2010 as an employee



engagement effort. The resulting Services Innovation Excellence Center 1 provides a vehicle for employees with valuable knowledge to showcase their ideas. He brought Kate O’Keeffe to Cisco to lead the program, which leveraged the emerging technologies group's work to incubate ideas including the process, graphics, and even the back-end platform. Within two years, the program has grown to having three senior vice presidents as sponsors, with other senior vice presidents watching its progress. The services organization promotes the mantra “Strategy x Capability = Results,” and the Services Innovation Excellence Center targets the capability-building part of that equation by building and strengthening Cisco Services’ innovation capabilities globally. Through a combination of training programs, targeted innovation initiatives, customer engagements, and the Smartzone idea generation platform (described later in this case study), the center strives to accelerate the success of the services organization. Philosophically, the Services Innovation Excellence Center focuses on empowerment of the enterprise. It does not “do” innovation, decide which ideas to fund, or seek to uncover new opportunities. It instead enables organizations within Cisco to do that for themselves. There are four ways Cisco targets services innovation: build capability through a maturity pathway, ignite the base with recognition at the grassroots level to excite employees and drive participation, imagine the future via targeted innovation that focuses employee efforts, and change the customer conversation. Cisco sees its strength in technology-enabled collaborative innovation and wants to help customers leverage their technologyenabled collaboration. Open Innovation Model/System Cisco established its emerging technologies group in 2005 to find new avenues for growth. As the market share leader in many markets, Cisco must find new markets in order to grow. The mission of Cisco’s emerging technologies group is to cultivate a steady stream of new businesses with billion-dollar revenue potential, achieve architectural integration with the rest of organization, and provide growth engine opportunities for Cisco’s foundation and other businesses. The bar for new revenue potential was set high because, for an organization of Cisco’s size to see a material impact on overall revenue, a new business needs very large aspirations.

The emerging technologies group incubates some startups within Cisco as it seeks large new markets to enter with the goal to disrupt those markets and generate revenue for Cisco. These internal startups help retain the entrepreneurial discipline within Cisco. Second, this incubation process helps shields the innovating groups 1

For additional information on Cisco’s Services Innovation Excellence Center, please read “Unleashing Inclusive Innovation at Cisco” at www.mixprize.org/story/unleashinginclusive-innovation.



from existing businesses that may end up disrupted by the new technology. Third, it creates an exciting place to work for Cisco employees who want to be simultaneously in a startup environment and at Cisco. Figure 1 shows where the emerging technologies group fits into Cisco’s overall innovation efforts in the upper right quadrant. By focusing on new technologies for new markets, the emerging technologies group is similar to a venture capital partner investing in new ventures.

Our math is a lot like venture math. —Sharon Wong

Emerging Technologies Group Growth Model

Figure 1

Approach Cisco bases its go-to-market strategy in new areas on Geoffrey A. Moore’s Crossing the Chasm 2. The emerging technologies group looks for markets adjacent to Cisco 2

Geoffrey A. Moore. Crossing the Chasm . HarperBusiness, 2006.



and areas in which other parts of the business are not necessarily investing. That being said, the group hands over business plans to other parts of the business to incubate when appropriate. The emerging technologies group tries to focus on new ideas not on Cisco’s road map already, which is not easy, according to Wong. Figure 2 shows Cisco’s opinion on why large companies often struggle with innovation when entering new markets and how the emerging technologies group has responded to those challenges. Challenges with Innovation in New Markets

Issue

Implication and Cisco’s Approach

Too much money

Cisco purposely starts lean when it incubates in order to create a sense of urgency. When projects are in startup mode, the team has to think fast and only has enough money to get to the next milestone.

Too much time

Markets move very fast and seem to be going faster. Cisco tries to get an idea to market in 12 to 18 months. The goal is to execute quickly by using prototyping and piloting to hit the mark.

Too many people

Cisco has large, internal teams working on various technologies but wants to avoid slowing down innovation projects with too many people. Cisco instead creates small teams and empowers them to move quickly by mimicking a startup. Cisco wants to have fewer than 50 people on a team before the first customer shipment.

Too much love

Cisco has found that when internal groups discover colleagues developing something “cool,” they all want to be a part of it. With a 10-person team, the startup does not have time to handle requests from dozens of Cisco internal organizations. Therefore, new technology startups operate in stealth mode for the first 18 months. This cocoon allows the startups to get to market as fast as possible. The emerging technologies group takes projects out of stealth mode when getting ready to go to market in order to involve the sales and service organizations. The group then lays the groundwork to move the new technology into the mainstream organization.

Too much hate

Many of these startups are potentially disruptive to other parts of Cisco. To mitigate this effect, the emerging technologies group leverages senior executive champions and tries to keeps startup units together while incubating.

Black sheep

To avoid being considered negatively, the emerging technologies group only focuses on incubation and what it does best.

Figure 2



Funding

The senior vice president for Cisco’s video and collaboration group, Marthin de Beer, owns the budget for the emerging technologies group. Therefore, he is the primary person that needs to be convinced to invest in each opportunity. The funds in the group’s budget must cover the new projects that are being invested in, as well as those already invested in (with 100 percent Cisco ownership). The reality of the funding situation diverges from a true venture capital firm because it has to fit into the corporation’s budgeting process. The emerging technologies group has decided it is easier to get money from one source instead of trying to “tin cup” and seek money from multiple other sources within Cisco. Some companies might fund a function like the emerging technologies group from a CTO fund, but Cisco does not. As a large, functional organization with 75,000 employees, Cisco is not organized around vertical markets or lines of business. Within that structure, the emerging technologies group fits under the development organization where it has a small portion of the almost $6 billion that Cisco spends on R&D. Intellectual Property

When it comes to intellectual property, Cisco has a broad patent portfolio with approximately 13,000 patents that may be used defensively against organizations that aggressively seek (often through lawsuits) to make money from patents they hold. Cisco actively rewards engineers for filing patents to help protect its intellectual property. With crowdsourcing for open innovation, intellectual property issues are complex. In the case of its external innovation challenge, the I-Prize® global innovation contest, Cisco has evolved in its approach to intellectual property over time in partnership with its lawyers by recognizing that Cisco has to protect itself while balancing the needs of the business. The company’s approach has shifted from initially wanting to own all the intellectual property to wanting a broad license for all of it, to just looking at the ideas with the possibility of future licensing for selected ideas. Cisco excludes certain countries and regions from its external innovation competitions due to local legal restrictions such as export controls that affect intellectual property. Cisco requires all participants to read and agree to the terms and conditions, which lists those excluded regions. Cisco employees and their households are welcome to vote on ideas, but they cannot submit ideas in external contests. Once it gets to the small percentage of ideas it wants to invest in, Cisco conducts additional due diligence on each idea. In some countries, Cisco may even have a local team review ideas submitted in the local language to determine if the idea can be legally shared with Cisco. In partnership with the emerging technologies team, the legal team conducts risk assessments related to intellectual property. At the first phase of its innovation



contests, Cisco conducts a high-level intellectual property risk assessment for each idea. During this review, Cisco double-checks to see where submitters are located and rejects submissions from excluded areas. Beginning in the semifinal stage, Cisco’s legal team conducts a deeper intellectual property risk assessment on each idea. If an idea raises a major red flag for risk, then it does not move on to the next round of the contest. Cisco also resends the terms and conditions to each team that makes it to the finals and has them again accept them. When licensing intellectual property from I-Prize, Cisco does not always seek exclusivity for a number of reasons. First, the company believes that the onus is on itself to execute new ideas as quickly as possible relative to competitors. Second, Cisco believes that entrepreneurs will be more likely to contribute ideas if they do not feel that Cisco is going to take their ideas away from them. Last, most of the ideas Cisco receives require a significant investment to bring to market. Most entrepreneurs do not have that level of funding, which leads to a desire to partner with Cisco and its strong marketing and sales channels. Getting Started Leadership of the emerging technologies group has been relatively stable over its seven years. The two executive sponsors are the senior vice president for the video and collaboration group (representing 23 percent of Cisco’s total business) and the vice president/general manager and chief technology officer for the group. Wong said these are strong champions for innovation who are well respected at Cisco. Third-Party Assistance Cisco has hundreds of university relationships that it actively leverages for technical challenges or to find the frontiers within various disciplines. OPERATING THE INNOVATION ECOSYSTEM

People Emerging Technologies Team - Business Incubation Team With only five people in the business incubation team within the emerging technologies group, it must partner with others in Cisco as it looks at new technologies and markets. The business incubation team members are responsible for scouting, writing business plans, and serving as advisers to Cisco’s startups as an advisory, consulting, and support organization. The startups themselves are part of the larger emerging technologies group. The incubation team has to sell the value of what it does to the rest of the company.

Hiring the right people into the business incubation team is difficult, said Wong, even though there is no shortage of talent that wants to work in this group. Being an entrepreneur is a great background because they know how to grow a business.



Another valuable background is as a strategy consultant because they can think differently about a problem and understand how to influence others to invest in new ideas. Services Innovation Excellence Team

Cisco Services has 14,000 employees, and the Services Innovation Excellence Center team is only five full-time employees, plus four contractors. Therefore, the nine team members must operate through internal partnerships with HR, Cisco’s learning organization, strategy and planning, and Cisco’s operating groups.

Cisco does not operate by decree. —Lisa Voss

Because Cisco operates by appetite and by building energy, the center needed to build momentum, energy, and allies to be successful. Its approach has focused on starting with the executives who are most ready to achieve some early wins and supporting passionate grassroots innovators to drive their ideas to incubation. Startup Teams

To staff its startup teams, the emerging technologies group strives for a mix of internal Cisco employees and external people. For innovation to be successful, the organization wants the right set of diverse skills working together with different viewpoints. The internal Cisco employees are usually fairly senior and know the Cisco systems. These employees tend to have connections and credibility within the organization. The external people on the team help bring in outside viewpoints, energy, and expertise Cisco may not have. Mixing the two groups on the startup teams has been successful in getting fresh thinking to challenge the status quo while maintaining critical organizational relationships that help get things done, said Wong. Being on an emerging technologies group startup team is a full-time job. The core leadership team of a startup is a general manager, a head of engineering, and a head of product management or business development, depending on the business model for a given initiative. This set of three leaders hires the rest of the team members and collaborates with the emerging technologies group's business incubation team as they develop strategy. Internal Connections

In general, a major way in which progress is achieved at Cisco is via personal connections and contacts in the organization. The most effective employees at Cisco are those who have a wide personal network of contacts. The connections



help smooth the way against obstacles. Cisco also likes to leverage these contacts to promote new ideas by creating “proof points” with success stories that go viral inside the organization from contact to contact. At the most senior level, the executives meet to look at company-wide innovation. At the grassroots level, there are several vehicles to bring people together around innovation including Cisco’s innovation summit and innovation leadership forum. By being in the same conversation space, connections happen, people share practices, and they often think in compatible ways. Incentives for Innovation

In 2012, Cisco instituted a technology fund targeted at its distinguished services engineers and fellows (i.e., the highest rank for engineers on the technology track, not the management track). These employees can propose and receive funding for innovative projects that are either not on the road map or are in areas where the company wants to learn more about particular technologies. Cisco has seen some success here with cross-unit innovations already in pilot testing. This fund has helped generate ideas that resolve the challenge of development groups in silos. Because of the positive early results, this program will be expanded across the entire development organization. In terms of incentives for innovation, Cisco has surveyed its engineers to find out what would drive them to engage in innovation. The top two choices were: 1) having the time to work on innovative ideas and 2) having that innovation work affect their career (i.e., recognition). Therefore, Cisco is trying to carve out more time and space for its engineers to work on ideas for Cisco. Cisco’s emerging technologies group has experimented with monetary incentives but its experience has shown that it is not difficult to interest employees in the work the group does. Because Cisco retains employees from its acquisitions, it has many entrepreneurs who want to be back in a startup environment. These individuals are especially excited to be in a startup environment that is housed within the comfort, safety, and security of Cisco, said Wong. Incubation allows the startups to have the best of both worlds: freedom and flexibility while alleviating angst about not having enough cash. In the services organization, there is an innovation catalyst award (for a significant contribution, not a competition), and the people who have won it report receiving social benefits that were initially unintended: feeling that they are more respected by their peers and seen as innovative, while receiving different opportunities they might not have had before. This positive outcome encourages these employees to volunteer again and recruit others. Also in the services organization, at the grassroots level, the Services Innovation Excellence Center provides a technology platform for employees who have an idea, the tools to flesh out the idea, and coaching to enable the employee to drive that



idea forward. The center does not drive the idea; it empowers the employee to do so. This requires more persistence and creativity than typically required from an engineer; so once an idea gets into incubation, the catalyst award recognizes this initiative, regardless of whether the idea succeeds. The award recognizes initiative, persistence, and skill building, but not the idea itself. Cisco has other venues that recognize the ideas. Market and Customer-Driven Innovation

Cisco starts with customer pain points in its approach to innovation, regardless of whether those needs are actually articulated or known. There are many techniques for figuring out what the customer pain points are. For example, when prototyping, Cisco tries to evaluate if its new product is satisfying an unmet customer need. It also tries to assess whether interest will translate into a buying decision, how much customers would pay for a new offering, and whether the buyer and the user are the same. Cisco tries to avoid building things no one will buy or that customers expect to get free. There is a process and tools for its startups to gather and report customer insights since ultimately the startup is accountable for revenue. Increasingly, Cisco will hold a facilitated session with customers to co-create and brainstorm ideas to solve customer challenges. Cisco brings in partners and representatives from other parts of Cisco to help. Process Emerging Technologies Group In Figure 3, the emerging technologies group’s framework begins with its team looking for new ideas for new businesses (using an open innovation approach). The next step is to filter and shape the idea by developing a prototype and a proof of concept to decide if Cisco should make next the level of investment and, like a venture capital firm, put in seed funding to create that new business. During the incubate phase, Cisco has a set of milestones to manage the process needed to start a business. Cisco brings in the founding team or creates the team and then gives it considerable freedom to refine the idea.

Cisco’s experience has been that when a technology emerges from the incubator, it will look different than the original concept. Technologies that move successfully to the initiate phase receive hands-on guidance from the business incubation team. First customer shipments are usually between the initiate and accelerate phases. One of Cisco’s critical success factors is that a member of the business incubation team stays with the startup businesses even when they go to market in the accelerate phase and start selling. When entering a new market, Cisco has found that startup teams often lack some of the expertise needed to achieve the scale necessary for a billion-dollar business. To help the startup, the emerging technologies group forms “tiger teams” composed of senior members of other functions including marketing, sales, services, channels, finance, and supply chain operations to help the startup



team refine and execute its go-to-market strategy. The tiger team helpers can also guide the startup to make changes that leverage Cisco’s strength in the sales channel. The size of Cisco’s investment in these startups can be substantial. Seeking the next billion-dollar business, Cisco invests millions in starting these units. And although they may start with three or four people, some of the startup teams have 50 to 100 people by the time they are in the accelerate phase. At any given time, the emerging technologies group tends to have three to four startups operating. However, Cisco does not expect a 100 percent success rate on these new businesses. In cases where the project is cancelled, the people are redeployed to other projects. Cisco’s Emerging Technologies Group Incubation Framework

Figure 3

After the accelerate phase, the emerging technologies group either places the startup into another mainstream Cisco business unit or suggests exiting completely. Graduation of a new business is a great experience for the emerging technologies group. Cisco TelePresence, for example, was a success that came out of the emerging technologies group and was handed off to a different business unit. When the emerging technologies group decided to invest in converged buildings (i.e., buildings where the major systems like heating, cooling, and lighting would be run over an Internet Protocol (IP) network instead of via different proprietary systems), it learned a major lesson. That investment led Cisco to take on too many new things it had to learn: new technology, new channel, and new buyers with varied decision-making processes. Now, Cisco strives to pick new markets that are a little closer to where the organization understands what it takes to be successful. The emerging technologies group invests in one to 2 percent of the ideas it sees while seeking breakthrough ideas. Since the goal is scale, the emerging technologies group may combine several ideas or uncover a sentiment around trends in a market. The group will: take a deeper look at a market from a business and technology perspective; ask for help from inside Cisco regarding technology; and seek market



knowledge from customers and the sales and marketing functions. Given that Cisco makes a multimillion investment when it pulls together teams during the incubate stage, only one or two ideas a year pass from the filter and shape stage into the incubate stage. To put context around Cisco's anticipated results, nine out of 10 Internet startups fail. And for the remaining Internet startups that survive, the average time to reach $100 million in revenue is seven to nine years. There is not a typical pattern, other than it is not a fast or easy goal to achieve. Sources for Breakthrough Ideas

Cisco casts the net wide for breakthrough ideas. The emerging technologies group scouts for ideas by talking to customers and other external parties, scans for sentiments in employee and eternal groups, talks to venture capitalists, and follows market developments. Cisco seeks opportunities to create transformation with its technologies through partnerships. For example, in the retail industry Cisco works with partners to write software to gather behavioral data on in-store customers using Cisco’s cameras, which yields greater insight and analytics than a point-of-sale system. Combining technologies such as Cisco’s high-definition video cameras and digital signage systems can leverage gaze detection to change what is displayed on digital signs in real-time. The landscape is changing for early-stage investments, and Cisco sees more of the venture budget moving to earlier-stage investments. Therefore, Cisco is developing relationships with several early-stage business incubators and accelerators in order to stay current on new formative developments and offer some mentoring. Cisco also runs its global I-Prize contests to learn the latest around the world in places and people it is not currently seeking out (explained in more detail later in this case study). Tools Sharon Wong’s philosophy around tools for innovation is to first figure out what goals she wants to achieve and then find the right tool to help do the job. She emphasizes that it should not be the other way. As a decentralized organization, Cisco has many homegrown tools to support innovation; however, it also uses some commercially available tools, specifically Brightidea and Spigit, for idea capture, generation, and evaluation. The tools are similar but not the same, and Cisco selects the platform for contests based on requirements such as the need for local language options.



I-Zone for Internal Idea Capture

Cisco gathers ideas from internal employees via its I-Zone platform. In 2006, IZone 1.0 began in the emerging technologies group as a wiki, representing one of the first times the entire employee population at Cisco was invited to submit ideas for innovation. In its first year, employees submitted about 800 ideas, with almost half coming from Cisco’s sales teams and many from outside the United States. The conclusion was that many of people submitting these ideas did not know how else to bring their ideas to headquarters, thus proving the platform to be valuable. Because I-Zone was successful internally, Cisco decided to replicate it externally in 2007 with the launch of the first I-Prize for external ideas. Cisco chose a tool from Brightidea for the first I-Prize. After using the Brightidea tool for I-Prize, Cisco decided to bring it internally in 2008 with I-Zone version 2.0 to take advantage of the social nature of the tool and to better collaborate (including voting) around new ideas that were submitted. Once other groups within Cisco heard about I-Prize (external) and I-Zone (internal), they started asking to use these tools for their own purposes (including sales, HR, operations, services, and others). In 2008, Sharon Wong opened the use of the I-Zone platform on a limited basis to other parts of Cisco. In 2010, she opened up I-Zone broadly and enabled any Cisco group to go directly to Brightidea to establish a new community under the I-Zone umbrella. Cisco links all these communities, allows ideas to be moved from one to another, and puts all collaboration tools in one place. To make it easy for people to find, Cisco puts links to these tools from many different places. Cisco operates with federated innovation communities where each community is free to run innovation campaigns in any way it wants for any duration and manage them itself. This freedom works well at Cisco, said Voss. Although there is no formal central management, best practices are shared though bimonthly innovation leadership forum meetings for innovation leaders across Cisco. Lisa Voss from the Services Innovation Excellence Center described the federated approach: “It can be messy and inconsistent and still deliver a lot of value.” A Cisco employee can do three things in I-Zone: submit an idea, vote on an idea, or comment on an idea. A senior leader typically promotes new ideation challenges by sending out broad communication to drive employees to I-Zone. There are four distinct roles in I-Zone that can be community-specific. 1. Users can enter almost any community on I-Zone. Most of the communities are open to any employee. Cisco does not assign a set amount of time for employees to use I-Zone. 2. Evaluators are assigned by the community owner to evaluate ideas. Each community may have different evaluators.



3. A moderator or community manager oversees each community, usually with these privileges only in a specific community. Cisco does not mandate how to run a community. 4. The site administrator (of which there are fewer) is traditional back-end IT support with responsibilities to set up the site, assign user privileges, and perform similar administration activities. Smartzone in the Services Organization

In 2010, Cisco launched Smartzone, which took open innovation for employees, especially in the services organization, to the next level using the I-Zone platform. Cisco has created self-service videos to show employees how to use the system to submit ideas, which can be in English, Japanese, or Mandarin. Cisco uses substantial internal marketing campaigns to encourage employees to submit ideas. In Smartzone, each employee who submits an idea is charged with championing that idea. If the idea originator does not promote it, then that idea does not progress. When an employee submits an idea, he or she categorizes it as related to technical support, people and training, a game changer, or another category. (Incorrectly tagged ideas can be manually rerouted to the appropriate semimonthly review committee.) After the initial submission, an idea’s potential is evaluated based on votes received from other employees plus the review committee’s feedback. If an idea is judged valuable, then the originator will be encouraged to submit a more detailed business case. Cisco’s services organization has one employee whose job is managing the Smartzone platform, shepherd ideas, coach idea originators, scrub ideas, and identify duplicates. Because this setup is not scalable, the services organization is working to enable Cisco stakeholder organizations to manage their own versions of this process. In Smartzone, there may be duplicate grassroots ideas. The employee who manages Smartzone encourages all employees to comment on ideas when they see duplicates. Cisco’s typical approach to duplicate ideas is to bring the groups together to find a better solution, especially when competing for scarce resources. Distinguished services engineers within Cisco, with deep institutional memory, often serve as informal links across organizational silos and can also help identify duplicates. Innovation Summit

On May 8, 2013, Cisco held its fourth innovation summit. It had 2,500 employees participate in 21 physical locations and online across 35 countries. Cisco engaged over 90 stakeholders to create and produce the event. As part of the innovation summit, Cisco has a Launchpad competition as a talent development effort and a means of generating innovative customer solutions. In each of the four hubs, a six-person cross-functional team (with high-potential,



manager-level employees) is assigned a challenge to solve in six weeks. There are two challenges, with two teams working on each. The team works with an internal Cisco consultant during the process, and the teams present to senior vice presidents “shark tank” style on the day of the innovation summit. The winning team receives personal money plus seed money for the project itself. Having senior vice presidents as judges helps the projects get sponsorship as they move forward. These competitions expose senior leaders to others in the organization who are focused on innovation, which helps drive culture change from the top down and bottom up. I-Prize for External Innovation

Cisco’s I-Prize is a global innovation competition seeking great ideas from outside the company 3 . Initially, Cisco hoped to replicate the successful launch of its internally focused I-Zone. With top senior visibility within Cisco, the CEO launched the first I-Prize competition in 2007 and 2008, and the second time he helped announce the winners. But I-Prize has evolved over time. Cisco is now running regional contests in various countries, which helps other entities build their own open innovation capabilities. One example of Cisco’s regional I-Prize competitions took place in Russia. Cisco helped run an open innovation contest to attract investment and ideas for Skolkovo (www.sk.ru), a planned high-technology business area near Moscow. The first Skolkovo innovation award attracted 10,000 people and 2,000 ideas from across Russia, which Cisco had not expected. Judges for the first contest were primarily Russian entrepreneurs and government officials with only one Cisco representative, the general manager of Cisco in Russia. Russian television featured the winners. In 2012 Cisco ran its British Innovation Gateway Award program in conjunction with the London Olympics. This I-Prize investment focused on innovation in the United Kingdom within government, schools, and entrepreneurs. The second innovation I-Prize in the United Kingdom launched in March 2013. The corporate emerging technologies group ran the first I-Prize contests and over time has begun to empower local Cisco teams to run the regional contests, with assistance. This allows Cisco to build a broader capability to run innovation challenges. As of March 2013, one full-time program manager oversees the I-Prize. Cisco PR teams in the local countries help with marketing and communications. Cisco has gained expertise in managing innovation challenges through its work with the I-Prize. It has gotten experience in framing the problem to solve, targeting the challenge, communicating about the event, finding participants, securing judges, helping people collaborate, and leveraging its own technology.

3

Cisco has an I-Prize video case study on YouTube, viewable at: https://www.youtube.com/watch?v=24QK8cOfO9c.



There are several tangible and intangible benefits to Cisco from the I-Prize contests. First, the company sees interesting ideas that can leverage Cisco technologies and help build innovation capabilities outside of Cisco. By reading all the submissions, Cisco gets insight into trends and sentiments. These contests also expose Cisco’s technologies to contestants and the media as well as sales opportunities. And Cisco receives media exposure as the challenge sponsor. Rewards for I-Prize were initially cash; but in the regional contests, Cisco provides mentoring and in-kind services such as legal and marketing help that will help winners move forward. Cisco gives contestants sample videos to help with their pitches. In addition, a Cisco mentor is assigned to each of the teams in the final round to help prepare the business case, which contestants have said is very helpful. Cisco also gives contestants presentation templates that are similar to what would be used with a venture capital firm. Over time, Cisco has morphed its contest design to attract more companies and entrepreneurs rather than individuals or students. As a result, in more recent IPrizes, Cisco received fewer ideas but they were higher in quality and more developed, making them more interesting to Cisco. In a recent Cisco I-Prize global contest, there were categories for changing the way people live, work, learn, and play. Cisco received 824 ideas from 2,675 participants representing 156 countries, and the winning team received $250,000. Cisco has found that clearly laying out who is responsible for activities in each phase helps recruit new participants and ensures clarity (Figure 4).



Cisco I-Prize Roles by Round

Figure 4 Gamification

Cisco has primarily used gamification (i.e., the use of game mechanics and game design techniques in non-game contexts) for external challenges, but the concepts are starting to appear internally as well. Cisco chose Spigit as the platform for its second I-Prize because the prediction market capabilities of the tool could drive engagement. Cisco gave participants “I-Prize points” to invest in ideas in the virtual market similar to a stock market. Cisco saw that participants deeply cared about what happens to the things they invested in, and many returned daily to check on their “investments.” Participants earned points for activities on the site (e.g., submit an idea and vote on ideas), and there was a leader board for both ideas and people’s investments. Cisco allowed the crowd to select a small percentage of the ideas that would move forward. This gave idea originators an incentive to get others to rally behind and invest in their ideas in order to advance to the next round. On a regular basis during the contest, Cisco gave away prizes to the people at the top of the leader boards. EVALUATING THE SUCCESS OF OPEN INNOVATION

Innovation Portfolio Cisco’s culture fosters a high degree of autonomy, and it is not the Cisco way to come up with a highly structured, rigid portfolio management approach, according



to Wong and Voss. As a result, there may be duplication of innovative efforts at the grassroots level. To address this challenge, there is a concerted push to terminate projects that should be stopped, and Cisco strives to get better at this. For the services organization, there are top-down and bottom-up components to its innovation portfolio. Cisco is not tracking a directed portfolio for the bottoms-up component because that effort is more about employee engagement and customer satisfaction. For the top-down part, however, targeted innovation is evaluated from an investment perspective by Cisco’s existing portfolio management process at the services level that identifies key priority areas. Measuring the Emerging Technologies Group The emerging technologies group focuses on building new markets and driving specific innovations forward faster; therefore, it sets measures set for each phase in its framework (see Figure 3). When a startup goes through the emerging technologies framework, there is a rough set of timelines that help determine if it is on track to graduate.

There are different metrics by phase since what gets measured should change for emerging businesses as they develop. To avoid killing them too early, startups’ initial measures are not the same as measures used in the core businesses. Over time, that shifts until graduation when the startups need to be ready to be managed by the same corporate metrics for revenue, margin, and operating expense as they drive toward profitability. Additionally, there are measures at each stage for customer satisfaction and product quality. Cisco worked with consultant Geoffrey A. Moore to create its model for accelerating and scaling. The emerging technologies group splits the accelerate stage into two phases: the first phase focuses on acquiring initial customers and shipping the first customer orders, and the second phase is about scaling early wins into a broader set of customers. In the second phase, Cisco is looking for traction within a market and an increase in the number of customers within given markets. Because these startup teams are small, Cisco seeks to provide these early solutions by market instead of scattering resources across one-off customers in multiple markets. I-Prize Measures Cisco has three categories of measures for its I-Prize program.

1. Brand and participation —Did the program position Cisco as a company focused on innovation around globe? 2. Level of participation —Did the program get Cisco exposure to people it may not have met otherwise? 3. Insights into the case for investment in large new opportunities —Did the program results help Cisco decide in which new areas to invest?



Cisco has relied on social media and viral marketing to promote its contests, leveraging YouTube, Facebook, LinkedIn, and Twitter. When possible, the I-Prize team takes advantage of existing Cisco assets to publicize the contest. For example, Cisco’s chief technology and strategy officer has more than a million followers on Twitter so she was asked to tweet about the contest. Cisco’s Networking Academy, which provides the ability to become a Cisco certified engineer in 165 countries, was also asked to help publicize the contest to its more than one million students and its half a million Facebook network. Additionally, Cisco produced several videos for YouTube about entrepreneurship and innovation, which were posted at regular intervals during the contest to give people a reason to come back and contribute to building a community. Measurement in the Services Innovation Excellence Center The Services Innovation Excellence Center at Cisco focuses on building organizational capability so its metrics are different from those for the emerging technologies group. Although its measures differ, the center maintains a focus on the business impact of innovation.

The center's key metrics include financial and non-financial impact of implemented ideas, as well as innovation maturity level and progress from awareness, to competence, and then to excellence. This maturity is the foundation for a certification program being developed with components for the level of organizational maturity and an individual certification program based on individual skill mastery and business impact. To evaluate the Smartzone idea pipeline, the center tracks metrics such as:  number of participants per organization size,  number of active participants,  number of ideas submitted per quarter,  number of ideas incubated,  number of ideas implemented, and  number of ideas graduated in the last two quarters.

Participation is also important for the Services Innovation Excellence Center. To drive participation, Cisco has offered training about the Smartzone process to 1,500+ employees. In addition to WebEx-based training and upcoming e-learning (which helps with scalability), face-to-face sessions have been offered in multiple locations around the world. LESSONS LEARNED

Cisco’s emerging technologies group strives to stay aligned to the businesses’ priorities; so as business priorities have shifted, so has the emerging technologies



group. The group has learned how to assemble the right teams with the right people for its startups. Moreover, it has learned how to navigate the Cisco culture to get initiatives and startups launched—that is, balancing being a good corporate citizen with the need to function as startup entrepreneurs. One of the challenges Cisco faces is getting managers to release already-busy employees to work on innovation projects. These employees are typically staffed on existing projects with tight deadlines tied to their managers’ priorities. To address this, the expansion of Cisco’s technology fund in 2013 will provide funds for a contractor or other employee to backfill someone moving to an innovation project. These technology funds may be used in other ways to give employees who submit ideas time to work on their innovation projects. In the services organization, the team documents the ideas submitted and the resolution for each. It is considered a positive outcome when one of the ideas from this system is incubated elsewhere within Cisco. In each step of the way, Cisco’s legal team has been completely involved and supportive. It has not always been easy, but it has been a positive partnership, according to Wong. Now Cisco’s legal team members are seen as experts in structuring terms and conditions for innovation contests. Every time Cisco conducts an I-Prize contest, leaders first ask what can be done better or changed from the last iteration to make it better. The lessons learned in figure 5 from Cisco are applicable to both internal and external innovation challenges.



Innovation Challenge Lessons Learned

Consideration

Best Practices


Goals



Clear objectives



Follow-up actions defined



Create internal enthusiasm for innovation, new ideas at all levels of company



Lift visibility of innovation within venture capital, technology cluster, and academic communities

Contest Design



Decide: broad vs. specific



challenge 



Must be clear about what you are asking people to contribute

Thoughtful framing of



Not all incentives need to be c ash;

challenge

recognition, visibility to senior

Incentives line up with

executives, and impact to career are

objectives and promote

powerful motivators

desired behavior 

Designed to produce desired outcome

Participant Roles and Desired Behaviors



Promote collaboration (80



percent will help develop idea rather than submit idea) 

and judge roles 

Moderator communicates frequently to participants to

Define participant, moderator, evaluator, Ask participants to comment, vote, and refine ideas, not just submit ideas



Active moderator/sponsor participation



Executive sponsor launches challenge

show that someone is listening 

Provide positive and negative feedback

Executive Stakeholders





Executive sponsor visibility crucial

and participates as judge (or picks

Funding/Resources for

winning ideas)

implementation of winning idea identified Evaluation Criteria



Defined during campaign



design and clearly

Make evaluation process quick and easy for evaluators and judges

communicated to



participants and judges

Decide how and who is going to pick winning idea(s)



Innovation Challenge Lessons Learned

Consideration

Best Practices


Resources



Dedicated program manager



Judges for each phase identified and they



marketing, and rewards 

understand evaluation criteria 

Budget for program includes tools, Provide resources to help develop most promising ideas



Determine what resources and assistance to provide participants to refine/develop promising ideas

Marketing Plan



Communication plan



Use social media to drive



Promote culture of innovation and desired new behaviors

participation 

Share success stories after completion of campaign




Bring legal function into



planning process as partner 

Be clear about intellectual property w ith partners and suppliers

Intellectual property due diligence built into evaluation process

Tools



Enable collaboration;



connect people who can help 

Tools support collaboration and facilitate team creation



Enable viral marketing

Social/Gaming elements built in



Aids with evaluation and communications processes

Figure 5 CONTINUOUS IMPROVEMENT

Self-examination forces Cisco to look at its investments to see if it is investing in the right mix in light of its strategy, which is used as a decision-making guide. In an ideal world, Cisco would like to stop undesired projects more frequently than realistically happens. “Projects are easier to start than they are to stop,” said Wong.



There is a concern that cancelling projects affects morale so that may cause greater hesitation to even start a new undertaking. Also, given the nature of Cisco’s business, commercializing a new product means the organization has made customer commitments far into the future, possibly even after the product’s end of life. So it’s not a decision to be made lightly. Both of the groups discussed in this case study—the emerging technologies group and the Services Innovation Excellence Center—have changed as needed over time. They did not proceed along one path that proved unworkable; rather, the entire experience has been a process of learning and adaptation. Cisco’s biggest takeaway is that shifting to a greater focus on innovation is fundamentally about change and doing things differently in the organization. It is about finding a different path through the existing organization that requires creativity, adaptation, employees to drive the change, and the willingness of leadership to transform the organization.



Case Study Corning Incorporated OVERVIEW

New York-based Corning Inc. is a manufacturer of specialty glass and ceramics. In 2012 Corning reported $8 billion in sales and employed 29,000 people worldwide. Corning manufacturers and creates products in six market segments: 1. Display technologies (LCD glass substrates, glass substrates for OLED, and high-performance LCD platforms) 2. Telecommunications (hardware and equipment) 3. Environmental technologies (emissions control products) 4. Life sciences (cell culture and bioprocess, assay and high-throughput screening, genomics and proteomics, and general laboratory products) 5. Specialty materials (Corning Gorilla® Glass, display optics and components, optical materials, optics, aerospace and defense, and Corning specialty glass) 6. Other products and services (emerging display technology, drug discovery technology, new business development, and equity companies) Within the six market segments Corning also makes keystone components (e.g. honeycomb substrate in catalytic converters on automobiles) that enable hightechnology systems for consumer electronics, mobile emissions control, telecommunications, and life sciences. Corning credits much of its success to its sustained investment of approximately 8 percent to 10 percent of its sales into RD&E, its 160 years of materials science and process engineering knowledge, and its distinctive collaborative culture. There is a strong organizational belief that the interactions among researchers, developers, and engineers lead to innovation. According to James Scott, director of knowledge management, Corning is committed to innovation, which is ingrained in the company’s culture. Description of Innovation and Open Innovation Program

Corning has a formal enterprise-wide innovation program embedded within R&D. Innovation projects are funded by operating divisions. They fund extensions,



renewals, and earlier stage projects for development funding. Its science and technology division has its own budget for new research and development projects. Business development units at Corning constantly explore new business lines that will provide both growth and stability to the company. The company’s corporate strategy is to expand through global innovation and to provide stability and balance to its market segments. As business grows and matures, Corning prepares with new innovations to feed its product pipeline. Next level innovations like those illustrated in Corning’s video, “A Day Made of Glass”, offer an idea of the scale of research it hopes to do. Corning has $6 billion in cash on hand, which can carry it through times when their products are not providing a quick return on investment. A key change to how Corning does business came in the late 1980s with shifts into new market areas, as well as the increased use of external partners that brought diverse knowledge to the company. This diverse knowledge compliments Corning’s efforts and propels new products to market at a faster rate. Since technology develops so quickly, said Bruce Kirk, director of corporate innovation effectiveness, Corning knows it is unable to hire all of the smartest people in the world; so it collaborates with other entities to distinguish the company from its competitors. Corning has a formal innovation process that requires a core team to track innovation through a five-stage stage-gate process. A corporate innovation process group is its core team of innovation process owners and facilitators that train and oversee a community of practice that has innovation experts that are internally referred to as innovation Black Belts. Both its corporate technology council and the growth and execution Council provide governance, which allows for bottom-up innovation with top-down guidance from senior leadership. Corning created the external technology collaborations group to progress open innovation efforts by managing relationships between Corning and external entities. This is a group within R&D that supports the open innovation function by going after emerging and attractive markets. This group consists of senior long-term employees who work on long-term projects that have a long time to market at scale. According to Dan Vaughn, manager of the external collaborations group, Corning does not have a formal open innovation program. However it does practice the concepts and principles of open innovation. Vaughn states that one of Corning’s most successful open innovation projects was the creation of Corning® Gorilla® Glass. Corning looks for partners to collaborate with in order to bring new products to market. The collaborative nature of how Corning invents and innovates is deeply embedded in the organization’s culture. The company’s first experience with open innovation was when it worked with the Dow Chemical Co. to develop silicones in 1934.



STRATEGY Implementing a Strategy for Open Innovation

For Corning, market dynamics are changing such that collaboration is of increasing importance. Collaboration with partners, customers, and universities throughout the supply chain business can be a requirement for doing business. A company that wants to keep up and even surpass competitors must have a strategy to support collaborative efforts. Corning realized the need to focus on collaboration early in its business history, and it has since been focused on establishing new relationships and expanding global innovation. Global Innovation

We have a strong belief that the way we grow is through global innovation. —James Scott, director, knowledge management Corning’s central R&D facility in Corning, N.Y., was designed to integrate technical capabilities and create keystone components. Corning uses a centralized R&D facility because it allows researchers, developers, and engineers to have an increased number of creative interactions that lead to innovation. Corning maintains a network of research and technology centers around the world, which provides them with a local presence that offers a much better understanding of the local markets. Corning has centers in California, France, Russia, India, China, South Korean, Japan, and Taiwan. In Europe, collaboration is managed by staff at regional research centers. Technology and scientific centers in Asia are managed by staff at the corporate office or sometimes at the regional research centers. Corning established its West Technology Center in 2007 and staffed the Center with technologists to engage with key universities, customers, and leading technology companies on the West Coast that are leaders in technologies or markets of interest. It has been a success from an idea generation standpoint, as well as in terms of identifying opportunities to collaborate with others.



Collaboration with Universities and Government Entities

The biggest benefit of collaborating with universities is the interaction with great people who will make great employees one day. —Dan Vaughn, manager, external technology collaborations group Since January 2007, Corning has collaborated with different universities and government entities on various research projects. About one-third of the universities that Corning collaborates with are outside of the United States. With certain key universities, Corning has negotiated long-term agreements which enable more rapid interaction and which lower the barriers to starting new projects. Corning collaborates in order to access expertise, equipment, and facilities that it does not have. The benefits of university collaborations are new knowledge, accomplishing objectives faster, reduced costs, avoided capital expenditures, and the identification of prospective employees. The vast majority of such collaborations are focused on early-stage research. Third-Party Assistance

In the past, Corning has worked with third-party groups that address R&D problems through open innovation. It is not currently working with any vendors. Corning does intelligence gathering internally, but also uses external groups to gather intelligence gathering and analyze best practices. OPERATING THE INNOVATION ECOSYSTEM People External Technology Collaborations Group

Project success depends on identifying competencies that Corning does not have. Typically, technologists identify collaborators based on the needs of a particular project. Occasionally, the external technology collaborations group assists technologists in identifying potential collaborators. The external technology collaborations group manages government and university relations and collaborates within the R&D function of Corning. The group connects Corning scientists with outside entities. This work initiates from requests from scientists, project managers, and program managers. Based on the objectives, group



members select the best method of collaboration and assist in selecting collaborators. Requests are also received from internal customers when scientists know what entity they would like to collaborate with. The group also manages contracts through the life cycle of collaboration and conducts post collaboration interviews to measure and track the benefits of the collaboration. Emerging Market and Technology Group

The members of this group are long-term staff located in R&D, not within a business unit. Using Corning's “Magellan” process to track emerging market trends, they handle long-term and burgeoning projects that require the ability to function with uncertainty and ambiguity. Their focus is more on learning rather than on delivering financial results quickly. Projects handled by this group do not typically provide immediate results and take about two to four years to understand the job. Corporate Innovation Process Group

The corporate innovation process group owns the innovation process and facilitates a community of practice that creates Innovation Black Belts. The facilitators try to create innovation effectiveness by helping the entire organization to understand the innovation process, and when to take certain steps. Innovation Black Belts

Corning has created an innovation expert role similar to a Six Sigma Black Belt. Business units select employees focused on innovation for additional training. The corporate innovation process group provides a five-day course to certify innovation expertise. Research Fellows

Corning’s research fellows are well-published senior scientists that encourage organizational learning and sharing. They encourage the company’s scientists to continue to share and generate ideas. They also coach and mentor young scientists. Recognition and Incentives for Innovation

Corning has formal and informal recognition and reward systems for its employees. Corning recognizes its scientists for idea generation, the publication of papers, presentations to the community, and the presentation of scientific posters. Display details on patent holders are placed in common spaces. Quality is very important to Corning, and they have a quality initiative that utilizes Six Sigma and Lean for process improvements Individuals in the company are recognized for participation in this initiative. Engaging Employees in Innovation

Employee engagement is extremely important in an innovation ecosystem. Organizations which engage with internal and external stakeholders are likely to be



more innovative than organizations who do not offer engagement opportunities. Research reviews are conducted at the Corning, N.Y. research center annually. Team members conduct a two- to three-hour presentation about their research. The presentation is followed by a poster session, which provides rich dialogue. Corning also has long-running communities of practice that allow scientists to share problems with projects. These meetings also involve scientists presenting posters, while other scientists walk around and contribute ideas and solutions. The communities of practice have a long history of internal collaboration. Technology “poster sessions” and “peer reviews” are widely attended activities for sharing ideas and getting feedback from peers. Corning subscribes to outside publications so that scientists have the latest literature, and the organization provides an internal magazine for its scientists. The magazine allows the scientists to post questions and problems for others to help with. Scientists are also able to provide thoughts on previous issues in the magazine Process Innovation Effectiveness Oversight

Corning monitors its innovation effectiveness in order to convert opportunities into dollars through commercialization, by applying a customer and market understanding. Figure 1 provides a high-level overview of the innovation effectiveness process. This process guides the innovation process and consists of four process steps Innovation Effectiveness

Figure 1



The first process is to create a roadmap to identify attractive markets and screen opportunities, which Corning calls the “Magellan” process. The emerging market and technology group identifies a particular area of opportunity and helps to bring in academics, and business or industry specialists. They brainstorm, work in smaller teams, and sometimes spur the investigation of the opportunity or creation of a whitepaper. This process requires cross-functional participation from marketing, commercial, manufacturing, and individuals from different business units within R&D. Open innovation occurs during this step. Figure 1 provides a high-level overview of the innovation effectiveness process. The second process reduces the number of opportunities identified; this is a preliminary portfolio selection. This step requires that project managers sort through and select projects. They look at the resources available, and they start to manage the idea. The third process executes the selected projects through innovation project management (Figure 2). Each opportunity is moved to the stages of innovation so it can be commercialized or stopped The final process is realizing the benefit of the opportunity. If the process is followed correctly then the company makes money. Innovation Process

Corning’s innovation process was launched in 1987. Managed by the corporate innovation and process group, the innovation process uses five stage-gates to accelerate time-to-market and ensure project teams proceed efficiently. The process keeps investments and risks in check by continuously prioritizing projects. By funneling projects through the five stages, the group helps ensure that projects have clear goals and guidance. Meetings are held at each gate to determine how the company should proceed with the project.



Corning’s Innovation Process

Figure 2

The innovation process is run by a cross-functional team from marketing, technology, manufacturing, and R&D. A small number of individuals oversee the health of the overall Innovation process (Corporate Innovation Process Group) The five stages of the innovation process follow. Projects are evaluated at each gate. 1. Build knowledge —This stage focuses on ideation and evaluating all opportunities. To proceed through the first gate and receive funding, the corporate innovation and process provides a series of questions to assess the project readiness to proceed to the next stage. 2. Determine feasibility —This stage focuses on establishing the solution's feasibility, the concept, the value proposition, and customer pull. This stage is driven by the level of investment. 3. Test practicality —The focus of this stage is on optimizing the product and process, as well as confirming its value proposition and customer enthusiasm. 4. Prove profitability —This stage focuses on lowering manufacturing costs, reconfirming the value proposition, gaining a longer-term commitment from customers, and understanding capacity.



5. Manage the life cycle —This gate focuses on commercializing the product. Corning launches the product and then proactively manages its life cycle. Research and Development Pipeline

The R&D pipeline is managed centrally, with the R&D research facility working closely with the operating divisions. Figure 3 displays how ideas are screened and filtered through the R&D pipeline (as part of process step 1) and also, visually, how the investment commitment grows as projects move through the pipeline. Ideas are gathered from external/internal sources (see reference to “Magellan”, in Figure 1 above). R&D then identifies the high-value ideas by researching the ideas and tries to develop the ideas. The next step requires that the highest-value opportunities be selected to engineer the value proposition. The idea then must be scaled up for commercialization. The investment gets bigger as it moves through the development phase. Research and Development Pipeline Management

Figure 3

Tools

Corning uses the following tools to support its innovation efforts: Microsoft SharePoint – The company has forums where scientists can submit

ideas or post project issues needed input. It also uses Microsoft SharePoint to distribute recorded After-Action interviews with principal investigators and to document project failures.



Electronic Collaborative Lab Notebook – Corning’s scientist use electronic lab

notebooks that track R&D progress in the lab. This tool is used to help bridge knowledge gaps and increase collaboration by providing a virtual notebook space. iPlace – Corning’s iPlace is an online system that provides an innovation team workspace, as well as a reference library with process tools. Patent Mapping Tool - A patent mapping tool creates graphical models that

identify the patents in a technology space. Cisco Tele-Presence Rooms - Corning utilizes Cisco Tele-Presence Rooms to

help maintain real-time. connectivity among its research centers and collaborates. Technical Report Repository - This online tool allows access to internal technical

reports. THE SUCCESS OF OPEN INNOVATION Measures for Evaluating Success

Corning has found that using metrics to evaluate the success of open innovation has both an upside and a downside, because it may take a longer period of time to see results. Evaluating open innovation success is handled by the operating divisions. Some divisions within Corning track innovation funding and resource utilization using a number of tools. Aside from evaluating the percentage of new products introduced to the market in the last three years and the number of patents filed, Corning mainly concentrates on improved efficiencies and product success in the marketplace. Lessons Learned

Although Corning does not have an aggressive or formal open innovation program, it does have a history of identifying partners that can fill its talent gaps to meet a window of opportunity in the marketplace. Corning sees an increased demand for companies to aggressively approach open innovation. With innovation efforts moving at a faster pace, Vaughn said it is important that Corning also move at a faster pace in order to be the first to the market with technology solutions that have outstanding value propositions. Corning is making every effort to leverage its history, culture, and tenure while being adaptable and agile enough to keep pace and sustain.



Case Study General Mills Inc. OVERVIEW

General Mills is one of the world’s largest food companies. It has about 39,000 employees and its products are marketed in more than 100 countries on six continents. The organization had $17 billion in sales in 2012. Although in the past the organization focused primarily on the U.S. market, since 2000 it has been aiming to have a more global presence. It now has about 30 percent of its annual sales outside of the United States due in part to acquisitions the company has made to increase its global market. Innovating in all aspects of the business is one of General Mills’ core values. Innovation is also one of the organization’s core strategies, along with building its portfolio, leading customer growth, margin expansion, and international expansion. Innovation at General Mills occurs throughout the company. Product development takes place within the organization’s “Innovation, Technology, and Quality” group. This group is organized into global development platforms based on product type (cereal, meals, snacks, dairy, and baked goods). General Mills’ Innovation, Technology, and Quality organization had previously been organized based on lines of business, such as food service or Pillsbury products. The reorganization of the Innovation, Technology, and Quality group has the goal of maximizing scale, eliminating redundancies, and repurposing insights and technologies. Description of Innovation/Open Innovation Program The Innovation, Technology, and Quality group has centralized capabilities available to all of the global platforms. These capabilities are:  Shared Services group (centralized support services such as sensory, pilot plants,    

etc.), General Mills’ Quality and Regulatory Organization, Technology Creation, The Bell Institute of Health and Nutrition, and Strategy & Innovation (centralized innovation support team).



The innovation strategies of the Innovation, Technology, and Quality group are to deliver high-impact innovation, create advantage technology, leverage connected innovation (the term General Mills uses for open innovation), build global scale, and maintain strong product quality and food safety. The centralized innovation support group (Strategy & Innovation) consists of subteams with specific expertise:  iSquad (new product strategy development),  X-Squad (external innovation, which includes the General Mills Worldwide

Innovation Network—G-WIN),  Sparks (conversion of insights into product opportunities), and  ICE (or In-Context Experimentation).

Development Process and Innovation Review

For product development, General Mills uses a standard stage-gate process that it has adapted to meet the organization’s needs. The process emphasizes the need to ask the right questions at the right time, have the right individuals involved, and maintain alignment within the organization. The process begins with strategy development and ends when the product has been in the market for six months. General Mills classifies its new products into three categories:  line extensions,  brand expansion, and  new platforms.

The Strategy & Innovation group is not usually involved in product line extensions, but instead focuses on helping General Mills’ businesses create robust, differentiated new products. The organization’s ultimate goals for a new product are for it to have incremental sales (or new sales) and to be sustainable and profitable in the marketplace. In 2005, General Mills began conducting Innovation Reviews twice per year. During these reviews, executives from the organization meet with leaders from each business to discuss their new product pipeline and evaluate performance via new product metrics. These reviews give executives visibility into product development projects, the ability to prioritize projects as needed, and the ability to disseminate insights from product development projects across the business. During the Innovation Reviews, executives are shown a new product dashboard for each business, which includes metrics such as new product sustainability in the marketplace, incremental sales, and key data on profit/margins.



During the Innovation Reviews, executives are shown a new product dashboard for each business, which includes metrics such as new product sustainability in the marketplace, incremental sales, and key data on profit/margins. The new product dashboard provides General Mills with a sense of how quickly a new product is developing a consumer base. Although most of the new products currently developed at General Mills build quickly, the organization is also focusing on product innovations that will build a consumer base over time. The company refers to these types of projects as “emerging scale innovation.” So far, new brands acquired by General Mills have made up the majority of the organization’s emerging scale innovations. Business Drivers of Connected Innovation

One of the main drivers of General Mills’ Connected Innovation Program is to become the partner of choice with external organizations looking to partner for innovation. Even if a potential innovation project is not carried out, General Mills still wants to have created value through its interactions with a potential partner so that the partner will come back to General Mills with future innovation opportunities. For General Mills, becoming the partner of choice means that other organizations are willing to trust General Mills to bring innovations to life. Being the partner of choice can lead to three benefits for General Mills:  access to differential technology,  new connections that were not actively sought out by General Mills, and  being considered by potential partners that may not have previously considered

General Mills.

STRATEGY

General Mills’ attitude toward connected innovation has evolved within a relatively short period of time. The organization shifted from a culture that primarily created innovations internally to one that actively seeks innovation both within and outside the organization. Implementing a Strategy for Open Innovation General Mills had a successful year in 2004 in that it launched a record number of new products. However, when those items were charted and the size of each product launch was measured, the organization found that many of the products launched that year were small, close-in line extensions. These products most likely were not sustainable in the marketplace and reflected the organization’s focus on quantity of innovation rather than quality of innovation.



In addition, General Mills had a company policy not to review, accept, or fund any submitted idea from outside the organization. The organization relied on Innovation, Technology, and Quality group employees for the development of innovation internally. A team began benchmarking and conducting research on a variety of innovation programs outside of General Mills and identified best practices that were eventually adopted. The Strategy & Innovation group created its current organization of smaller catalyst teams to support implementation of the best practices. These teams were designed to be small groups of well-respected people within the organization who would be change agents. The group set goals for the teams to have members that were experts in their areas, with an ultimate goal for each team to be best in its class. Once the catalyst teams were formed they took on pilot projects to gain experience and to demonstrate value to the broader organization. In 2005 members of the X-Squad worked to change the organization policy against using outside innovation. Now innovation at General Mills has shifted from an internal focus to an external one. OPERATING THE INNOVATION ECOSYSTEM

People The catalyst teams within the Strategy & Innovation group have specific requirements for their team members. For example, the X-Squad seeks team members who are entrepreneurial, can scout for new sources of innovation for the organization, determine the needs of their designated lines of business, articulate the needs in writing or to others, and identify the talent needed to address the needs. The iSquad looks for team members from a variety of backgrounds. Team members take continuing training to enhance their ability to develop consumer empathy. Some team members are trained in improvisational acting due to the amount of time they spend in front of groups facilitating. Other iSquad team members take sabbaticals to observe other organizations that are leaders in innovation. Rewards for Idea Contributions The rewards for external partners that provide solutions to General Mills vary depending on the nature of the innovation. Rewards could be monetary or service based (such as a package design for a contributing organization).

General Mills employees are also rewarded for innovations. Employees that obtain patents are honored at an annual dinner with company executives and receive a plaque and cash award. The organization is seeking to create a similar recognition program for employees that leverage connected innovation.



Process iSquad

When exploring an opportunity area, the iSquad uses what the organization has named the I3 process (Figure 1). The first two stages in the process (immersion and interaction) involve conducting research to both understand a problem from a business point of view and to experience the problem from a consumer’s point of view. General Mills’ I3 Process

Figure 1

An example of how the iSquad follows the I3 process is a project focused on creating products to help consumers lose and/or manage their weight. The team began its research by immersing itself in reports on the subject and deliverables from previous projects related to the topic. The team also talked to experts on weight loss, read blogs, and spent about 75 hours talking to consumers who were actively trying to lose weight. To build empathy for the consumers, the team went on a diet. The team members experienced the limitations of grocery shopping while on a diet to learn how buying habits have to change and the difference in grocery spending for a consumer looking to lose weight. Being on a diet also helped the team learn the emotional effects of dieting, especially when family members were not dieting. The third stage of the I3 process is idea creation, or developing solutions to the problem. For its project on weight loss, the team identified 19 ways to facilitate



growth related to products directed at consumers looking to lose weight. The team worked with the Betty Crocker Baking Division to develop a dessert product that was lower in calories and maintained portion control but satisfied the desire for a dessert. It also worked with Progresso to develop soups that contain very low or zero Weight Watchers points, and to prominently display the number of calories in the product as well as the number of Weight Watchers points, which is information that is of interest to consumers watching their weight. A completed iSquad project can be refreshed after a few years. For example, the iSquad team revisited the weight loss project after six years to see if new solutions could be found. X-Squad

The X-Squad manages General Mills’ Connected Innovation Program along with other collaborative initiatives. With the organization’s movement away from an internal invention focus to a connected focus, the X-Squad developed a three-part model for partnering for connected innovation. The first part looks at internal collaboration, the second looks at collaboration with trusted partners, and the third part looks at collaboration with new partners. This team focuses on finding solutions rather than ideas; a solution could be a technology that results in a new benefit for General Mills or technical expertise that could bring a solution to General Mills. The Innovation, Technology, and Quality group holds a two-day technical conference annually. Representatives from across the Innovation, Technology, and Quality organization present work from the product lines and share best practices. The conference features keynote speakers and eight to 10 tracks with 400 presentations or posters authored by 800 individuals. The conference is open to anyone within General Mills, but the majority of its approximately 1,400 attendees come from the Innovation, Technology, and Quality organization. The X-Squad facilitates virtual internal collaboration with its “Tech Connect” platform, through which developers can submit questions or development challenges. Other users can provide suggestions or potential solutions through the platform, which helps facilitate the creation of relationships within the organization. General Mills also has “Connect,” which is an internal social networking platform. Employees can create profiles and become involved in online communities of practice. Employees can also post in forums to further communicate and collaborate. For collaboration with trusted partners, the X-Squad began by focusing on General Mills’ suppliers. In 2009 the team initiated “Supplier Summits,” which are held every two years with the goal of deep sharing of the technical or innovation needs of General Mills with strategic suppliers. At these summits there is discussion of how these suppliers can collaborate with General



Mills to address those needs. Each summit also features an awards presentation. The Supplier Summits have resulted in increased collaboration between General Mills and its strategic suppliers. The team also organized a “Big Splash Event,” which was an informal meeting with key suppliers on the lawn of General Mills’ headquarters. The goal of the Big Splash Event was not to focus on supplier capabilities, but to generate new product innovations. For example, at one event, one supplier of frozen sauce chips for Green Giant products indicated that it could also provide sweet chips. Collaboration with this supplier led to the creation of smoothie kits for at home preparation. The Big Splash Event has led to additional opportunities for collaboration between the organization and its suppliers. Some businesses are now bringing in key suppliers monthly to have discussions and to generate new product opportunities. Other key suppliers now have research staff at General Mills’ facilities, which helps facilitate collaborative relationships with these organizations. General Mills is piloting additional ways of enhancing its ability to form collaborative relationships with suppliers and existing innovation partners. The organization rates its suppliers not only on cost, performance, and other relevant supply chain metrics, but also on potential for innovation. The goal is to identify suppliers that have the most potential for innovation but also the most reliable performance. General Mills also plans on creating innovation communities with external partners, which are focused on specific platforms. The goal is to allow individuals at a partner organization to interact with key individuals at General Mills regarding innovation projects. However, when General Mills initiates an innovation community with a partner it will establish guidelines on the types of information that can be shared. The X-Squad has created the position of “Innovation Entrepreneur” within General Mills. Innovation Entrepreneurs are employees tasked with defining the needs of their business or function and then identifying solutions to these needs. The Innovation Entrepreneurs not only look for organizations across the world that can provide General Mills with new technologies, but also look for new talent that can provide the organization with new solutions. General Mills also works with Innova Market Insights, a Netherlands-based organization that maintains a database of potential sources of innovation. General Mills uses this organization as a resource for introductions to new products and technologies. It also works closely with China Materialia to help it scout for innovation in China.



The X-Squad is looking at other ways of connecting with new partners for collaboration. On occasion, it conducts “indigenous innovation tours” to identify innovation that is unique to several regions across the globe, most recently focusing on China and India. General Mills is also using software to map expertise across the globe from universities and other organizations. The goal is to get a visual representation of where talent is located across the globe. The General Mills Worldwide Innovation Network (G-WIN) seeks to find novel technologies to address the needs of General Mills. The G-WIN Innovation Portal on the General Mills website provides a way for outside groups to submit proposals in response to non-confidential needs that General Mills posts online. Outside groups can also use the portal to submit ideas that do not specifically address an identified need. When creating summaries of the needs that it would like to address, General Mills aims to ensure that the briefs are crafted in a way that will generate the best submissions. Ideally, briefs are abstract enough to solicit a wide variety of potential solutions from both inside and outside of the food industry. When a submission of interest is identified, General Mills contacts the outside group and initiates a nonconfidential exchange of information to determine how the technology will work before the organization begins collaboration with the outside group. General Mills sometimes uses its relationship with the organization YourEncore for a third-party evaluation of a submission. General Mills conducted events across the globe to get exposure for the G-WIN program. It had booths at trade shows and conferences that include visuals to help explain General Mills’ innovation needs and the potential benefits of partnering with the organization. General Mills also held “town hall meetings” to present its innovation goals and the G-WIN portal. The organization used its r elationship with Innova Market Insights to generate a list of organizations to invite to the town hall meetings. X 3 Process

The X-Squad has developed a process called X3 that it uses to assess a particular need and find a solution to that need (Figure 2). This process focuses on finding a technology rather than developing new products.



General Mills’ X3 Process

Figure 2

In the first stage of the process, the problem is identified and refined so that the solution will adequately address the need. Hypotheses are developed in the second stage of the process, and in the third stage talent that can find a solution to the problem is identified. The entire process can take about six months to complete, so the full X3 process is not always pursued. However, individual projects that address a specific phase of the X3 process (known as X3 a La Carte) can be completed. These can take the form of internal alignment sessions, problem definition sessions, the creation of a talent list to address a particular problem, or a direct on-site connection to a potential solution to a problem. Use of Connected Innovation in the “Global Meals” Group at General Mills

The Global Meals platform provides innovative solutions to General Mills’ meals businesses around the world, which include Old El Paso, Wanchai Ferry, Progresso Soup, and more. The meals line of business has a wide variety of products and thus needs a variety of technologies to address various needs. Global Meals looks at new ingredient technology as well as manufacturing technologies that can help bring products to market quickly. Global Meals has used various methods of connected innovation in an initiative to reduce sodium in General Mills’ products. A five-step process was used for the project. During the initial phase, a staff member was sent on a sabbatical to obtain more background on the science of sodium taste perception. This individual came back from sabbatical with hypotheses for the project that were then prioritized. The organization used a consultant to help General Mills find outside groups that could aid in reducing sodium in products without compromising flavor. The organization then developed relationships with the external groups identified by the consultant as well as a university that had conducted research related to the problem. General



Mills identified two suppliers that could provide ingredients that would be an alternative to sodium. So much data was generated during the project that an outside software vendor was needed to assist with the project. Although outside connections were used in developing a way to reduce sodium, the Global Meals platform also used connections within the organization. General Mills’ sensory division and toxicology group were involved to ensure that the resulting solution provided safe but adequate flavor. The External Partner Development group was also involved to discuss intellectual property issues and to facilitate the commercial development of the technology. Sparks

General Mills’ “Sparks” team is tasked with turning insights into business opportunities. This is a relatively new group that often leverages the work of the iSquad and the X-Squad to develop ideas into actionable product opportunities. The Sparks team holds online and in-person idea generation sessions. The team seeks to generate as many ideas as possible and then quickly weed out ideas that will not work. It uses convergent and divergent thinking in its process for generating and refining ideas (Figure 3). General Mills’ Sparks Process

Figure 3

For some businesses, the Sparks team coordinates a global new product expo in which 30 to 50 ideas are presented to business teams. The ideas are represented as tangible new product items. The Sparks team often works with graphic designers and product and packaging developers to provide business teams with a representation of the potential product. These expos can enable the business teams to take action on some of the presented ideas. Smaller expos are also held for individual business teams. The Sparks team also seeks consumer feedback on potential new products.



External Partner Development

The External Partner Development group within General Mills is located within the organization’s Sourcing Function but plays an important role in establishing connected innovation partnerships. New partnership opportunities are first identified by the Strategy & Innovation group. However, before an opportunity is commercially developed, the External Partner Development group meets with the external party to further develop the relationship and discuss intellectual property issues. The mission of the group is to enable growth through strategic partnerships. The External Partner Development group has four areas of focus:  brand licensing and partnerships,  innovation and technology,  marketing solutions (which supports General Mills’ marketing services group),

and  corporate sourcing solutions. The group is organized into teams with diverse sets of skills. Each team is essentially a community of practice and could include individuals with backgrounds in procurement, finance, licensing, business development, law, or other relevant areas. The group works to establish win-win relationships with external groups. It provides the Strategy & Innovation group with commercial perspective in relation to external partnerships, complex deal-making, risk management support, and training on processes and tools related to partnership establishment. These services were created to support General Mills’ goal of becoming the partner of choice for innovators. The group feels responsible for ensuring that partners find value in every interaction with the organization. Even if a particular project does not move forward, the group wants to ensure that the partner will return to General Mills in the future with additional innovations. To educate other groups on ways to support the partner of choice initiative, the External Partner Development group also conducts training on ways to interact with partners and potential partners and how negotiations with these groups are conducted. The External Partner Development group typically becomes involved with a potential innovation project after an early-stage technology has been identified. The group then structures a deal with the external group that includes precommercial rights and development. In-Context Experimentation

General Mills’ In-Context Experimentation (ICE) group facilitates fast development of a potential product so that early consumer learning can be done. This method of new product development provides early learning on “hunch” ideas for a potential



product. Innovation entrepreneurs and a support system lead the development, but the ICE group finds both internal and external groups that can move the early development along. Traditionally, General Mills has operated under a written concept testing model for new product development in which an idea was generated, a concept model was developed, testing of the concept was conducted, further development of the product was done, and then the product was launched (Figure 4). This method could take years to go from idea generation through product launch. However, the organization has adopted a new focus on creating a saleable product that meets legal and safety regulations before testing the product with consumers. If the testing is successful, the product development project is chartered and then proceeds to full development. The goal for this new model is to move from idea to consumer in about 100 days. Concept Testing Model vs. Saleable Product as Concept Model

Figure 4

General Mills’ One Global Dairy group used ICE to develop and evaluate a Greek yogurt product. The ICE team used a method called a “lemonade stand” to test the new product with consumers in a retail setting. Members of the group brought the product to various stores and set up sample stations where consumers could taste the product before being offered a carton of the product to purchase. Members of the group interacted directly with consumers. General Mills has adopted the method of quickly creating saleable products as a means of understanding new product concepts. About 20 lemonade stands have been conducted by groups within General Mills over a two-year period.




General Mills focuses on the creation of relationships with potential innovation partners before discussing intellectual property. For G-WIN portal submissions, General Mills begins with a non-confidential exchange of information with the submitter before any work begins. If a submitter asks for a confidential disclosure agreement, General Mills asks for the basics of the concept or technology before any work is agreed upon. Once the organization accepts the submitted idea, it can negotiate the ownership of intellectual property with the submitter. Negotiations of intellectual property are conducted by the External Partner Development group. This group negotiates pre-commercial rights with potential partners as well as the ownership of intellectual property and the ownership of the output of the partnership. EVALUATING THE SUCCESS OF OPEN INNOVATION

Measures for Evaluating Success General Mills uses a variety of measures to evaluate the success of its connected innovation efforts. The organization monitors:  the percentage of launches enabled by external innovation,  the percentage of sales enabled by external innovation,  the percentage of cost savings enabled by external innovation,  sales per headcount (with the recognition that innovation is not the only factor

that can affect this measure), and  cost savings per headcount. General Mills is also developing measures to assess its innovation partners. These measures will evaluate the quality of a partner’s service and its innovation potential. Lessons Learned General Mills has had to make changes to its culture to gain acceptance for connected innovation. The X-Squad’s initial projects focused on the pain points for business units, which made the benefits of connected innovation tangible for the organization. Connected innovation has support from senior management, which has helped the teams within the Strategy & Innovation group to gain credibility for innovation strategies that were not familiar to the business units. Although the External Partner Development group aims to facilitate innovation partnerships with outside groups, it does not aim to change the failure rate for innovation products. The goal for this group is to enable General Mills to take the risks that the organization should take to result in truly innovative developments without concern for the number of failed projects.



The Strategy & Innovation group takes inspiration for its methods from the Senior Vice President of Innovation, Technology, and Quality, who provided the following advice about innovation: “When in doubt, move too fast, share too much, move into discomfort, and ask for forgiveness instead of permission.” This statement is indicative of General Mills’ approach to connected innovation. CONCLUSION

The teams within General Mills’ Strategy & Innovation group use a variety of methods to encourage collaboration both within the organization and with external partners. The group is willing to test many different methods and tools for connected innovation to find those that yield the best results. Team members also go beyond traditional consumer research to determine the needs of consumers and evaluate potential new products. The more global, wide-reaching focus of General Mills’ connected innovation initiative mirrors the organization’s greater goal of building a more global presence for its brands.


open innovation idea-generation-collaboration.pdf

Recommend Documents