Innovative Matchmakers

Left to its own devices, Apple might never have come up with the iPod. The now-ubiquitous music player was the brainchild of one Tony Fadell, a former employee of Philips, whose concept failed to raise sufficient funding, prompting him to hawk it around established corporates.

Less game-changing innovations also owe their existence to outsiders. The military came up trumps when a microwave manufacturer wanted to develop methods of heating more evenly "the soldiers' system had been tried and tested with blood plasma on the battlefields.

"Not invented here", or plundering technologies and innovations across disciplines and geographies, is the mantra increasingly heard in boardrooms and on factory floors. Pooling resources alleviates pressure on squeezed R&D budgets, puts products on shelves faster – thus, at least in theory, boosting sales and profitability. "That's where the money is," says Steve David, senior adviser at The Boston Consulting Group.

Procter & Gamble, the fast-moving consumer goods company, aims to triple sales resulting from such research partnerships to $3bn by 2015. The US business employs about 8,000 researchers in 120 fields. "But in the outside world there are something like 1.5m researchers in those areas. So the numbers are pretty simple: by a ratio of nearly 200:1, there are more people on the outside," says Mr David.

P&G, like its peers, encourages open innovation through building relationships with a wide network of partners – in academia, industry and among entrepreneurs.

P&G refers to this process as "open innovation", but the phrase has come a long way since it was coined by Henry Chesbrough, a professor at the Haas School of Business at Berkeley, in 2002. Then, it was baby steps: relationships with local universities, or cross-industry R&D. Today, it is all of that plus a slew of matchmakers who broker relationships between those seeking ideas and those providing them, in areas including venture capital funds, farming communities and, as the microwave maker discovered, the military.

One outfit that has tracked the changes – and growth – is NineSigma. The self-styled matchmaker set up shop in Cleveland in 2000. It now boasts additional regional headquarters in the UK and Japan.

"It's all about collaboration," says George Vincent, a former telecoms executive who now runs NineSigma's UK operation. Automobile manufacturers were early adopters, he says; partly because of the need for different components and suppliers, they created networks almost by default.

But other sectors lagged behind. Telecoms operators, he says, remained fixated on internal research and development based on building portfolios of patents "with a view to preventing competitors from getting there first".

Today there are 50-60 companies acting as innovation research brokers. The key to these companies' success is their contacts. Remuneration for these services vary but typically brokers get paid a transaction fee, for carrying out a search, and a royalty-type fee.

Mr Vincent observes that these networks are viral. Every time a new search is launched, new providers are brought into the network – and remain on the database for the next search.

In addition to spawning new business lines, open innovation has made champions of smaller companies. Between 2000 and 2005, patent registrations in consumer packaged goods were predominantly filed by smaller companies and start-ups – 95 per cent in the case of the laundry and home care category, according to McKinsey & Company, the management consultancy.

But open innovation is not simply proliferating, it is also going deeper into the corporate psyche.

Emma Hughes, managing director of Yet2.Com, another innovation broker, detects a shift away from straightforward problem solving – how do I prevent leaks in my shampoo bottle – to bigger strategic issues such as sustainability.

"Now companies are thinking: 'We need to be more strategic about scouting. Just making this incremental change is not going to be that big an innovation and bring us in the money and revenues,'" she says.

This is especially true as the boundaries between industries blur: food companies are increasingly encroaching on pharmaceuticals; consumer electronics and cosmetics are nudging up against each other (Philips' laser hair removal gadgets being a case in point).

Consumer goods companies are at the forefront of the charge, which is attributed to their desire to have products to market within a short space of time. "They don't want early stage stuff," says Ms Hughes. "They want to get products to market in 18-24 months, so things have to be proven."

But others are hot on their heels, including food groups – some of which are collaborating on issues such as salt reduction – and electronics companies that once focused on patent accrual.

For the research institutes and academia, brokering companies can give life to research withering in the test tube. "You would be surprised how much R&D goes on in labs that never sees the light of day," says Mr Vincent. "A lot of innovation ideas are sat on a shelf and not being exploited. And that's our job."

However, going outside brings its own challenges. Companies casting the net wide risk everything from being deluged with random solutions to competitors stealing a march by making off with the commissioned innovation.

"The key in generating ideas is to have the right problem and to define that problem," says Roger Leech, who was drafted in to Unilever's open innovation group 18 months ago.

NineSigma likes to quote Albert Einstein: "If I had an hour to solve a problem I'd spend 55 minutes thinking about the problem and five minutes thinking about solutions."

An ill-defined problem can attract shoals of solutions, all of which have to be sifted through and none of which may ultimately fit the bill. And the numbers are big. Mr Vincent says a client request may go out to between 10,000 and 20,000 individuals in what he calls the "global innovation community".

Another concern is rivals snatching ideas. The last thing Mars, say, would want would be for Nestlé to snatch away the non-calorific chocolate recipe it obtained from an Ghana agronomist.

Mr Leech says Unilever gets around this by launching its searches anonymously and managing them via third parties to avoid breaches of confidentiality.

Not everyone, of course, welcomes anonymity and "open" innovation. Thousands of engineers, entrepreneurs and others remain nameless long after their inventions have passed into everyday use.

Though not quite all: Mr Fadell at least boasts his own Wiki page.

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