You spent 29 years working in research and development at Eli Lilly before starting InnoCentive. Tell us how it came to be.
In my early days at Eli Lilly, I was assigned to develop new commercial routes to drugs, in order to make them more cost-effective. I would be handed a complex molecular structure, and my assignment would be to find a commercially-viable synthetic route to it. Having been given not-dissimilar problems in graduate school, my experience was that, if you give 20 smart people the same complex problem, they will come up with 20 different answers. As a result, I would often think to myself, “where are the other 19 possibilities here?” I knew that a rich collection of alternatives to my efforts existed. However, that wasn’t the way companies worked, so I just did my job and generally succeeded in finding solutions that were viable and workable—though I suspected that they were not necessarily optimal.
Towards the latter part of my career, when I was vice-president of innovation and research strategy, I was asked to put together a strategic R&D document for the Board. As I was assembling it and thinking about the intrinsic pitfalls of the current R&D process, those same thoughts began to circulate in my head. A colleague, Aaron Schacht, and I engaged in some brainstorming about how the Internet had changed the rules of the game, and potential solutions started to come to mind—different ways of approaching complex problems.
InnoCentive was basically sketched out at this point, and it was launched a couple of years later. In the beginning, it was a wholly-owned subsidiary of Eli Lilly. Then, as we realized that it wasn’t just a problem-solving tool for the pharmaceutical industry, we started recruiting customers from outside of the industry, and it was launched as an independent company.
You often use gambling terms when describing innovation. Why is that?
The fact is, every business is based upon probabilities and portfolio management. Bets are made every single day in every organization, whether it’s deciding on the next drug to develop, whether to build a new factory, or choosing a new CEO. Understanding how to best manage those risks and maximize options is fundamental to good management—particularly in a world where constant innovation and smart risk taking is the new normal. Open innovation offers an enhanced toolbox for accomplishing these things, and as a result, all leaders must engage in constant ‘meta innovation’—innovating on the way they innovate.
InnoCentive has embraced an approach called Challenge-Driven Innovation. Please explain how it works.
Challenge-Driven Innovation essentially recognizes that big, complex problems are really collections of lots of little problems. For instance, one of the many reasons that we don’t have better climate control is that we don’t have the ability to remove CO2 from the atmosphere, and we lack that for a host of reasons. The CDI approach first takes a big problem and deconstructs it into lots of smaller problems, and when you’re working on a huge problem like climate change or curing cancer, it can decompose into a thousand smaller problems. Once the problem is broken down, each smaller problem gets written up as a semi-autonomous, stand-alone challenge. At this point, each problem is ‘portable’: you don’t have to post them all on the InnoCentive website; you could work with a local university, hire a boutique research firm, assign it internally, or outsource it to China. The point is, it is now a module, and as solutions to the various modules are found, you assemble them as part of the solution to your bigger problem.
Talk a little bit about the importance of diversity of thought for solving wicked problems.
People start out with different assumptions, and they ‘hop onto’ the rocky problem-solving surface at different locations. Some of them might land near a ‘peak’, others in a ‘deep valley’, but they all begin navigating around the area they jumped in at. If you look at the results of that collective effort, you have many different ‘hoppers’ each mapping a different region of landscape, and consequently, it’s easier to identify where the peaks and valleys are—and not just relative ones.
We’ve done this 2,000+ times, and we have found that by injecting diversity into the equation, we get to solutions that are not at all in line with the way things have been done before. And when we find these unique solutions, about 90 per cent of the time, they come from someone with a resumé that wouldn’t even have qualified them to be hired or recruited to work on the problem in the first place.
Tell us a bit how this approach can actually lower costs for companies that are seeking to innovate.
No matter how you approach innovation, the quality of the solutions you find is a key aspect of managing costs, so the fact that you get more good solutions from this approach is one aspect of that. Good solutions are, in part measure, those that are ‘less inexpensive’—or at least, less-good solutions are often more expensive.
Another cost-saving aspect is the way these challenges are structured. The ‘seeker’ client doesn’t pay for the failures that result, and they don’t pay for results that might be simply nominal solutions. They only pay only for results that meet their criteria for desired success. Most of the problems we work on are ‘wicked problems’, so chances are that if a company’s internal staff members tried to tackle them, they would fail repeatedly, and then maybe abandon the project. In which case, it’s been a huge expense with no return. Or maybe they would eventually find a solution that is ‘good enough’ after five attempts, so four of the attempts were just a cost burden. In this sense, it’s about de-risking, which, in essence, is a cost-lowering mechanism (in that someone else pays for failure).
Today, about 80 per cent of organizational innovation is still done internally and only about 20 per cent is done externally in the open way you describe. But you foresee a time where those numbers will be reversed. How do you see that unfolding?
I am seeing more and more adoption of open innovation, and greater recognition that companies inevitably face significant variations in innovation opportunities at any given point in time. As a result, if they have a fixed expense for research—a specific research building filled with a certain number of staff and they spend a certain number of dollars every year conducting experiments—then they’ve got a fixed cost to deal with fluctuating opportunity. There will be some years (or months) in which they have more opportunities than they can possibly handle and the capacity of the system ‘browns out’, with projects moving too slowly, and at other times, when the environment is less opportunity-rich, those same assets and personnel are under-utilized. The point is, if you are facing fluctuating innovation opportunities with a fixed cost structure, you’ve got the wrong system in place. To operate optimally, you need to have a budget that is responsive to opportunities. Otherwise, you will blow it when there are lots of opportunities to grasp, because you will under-fulfill on the ability to execute against them. Whenever costs and opportunities are not aligned, it is costly to an organization.
Two of the main benefits of open innovation structures are that they offer flexible capacity and that diversity of thought that we talked about. Another benefit is that every channel is better-suited to certain types of problems, so you always want to take a multi-channel approach—and stay away from ‘one size fits all’. You can’t try to shove everything through the same innovation channel, including your internal one. Combined, all of these things suggest to me an evolution towards increasing amounts of open innovation.
Which InnoCentive project best personifies your vision?
There are too many to enumerate, but three come to mind. The first is a project we did for NASA. For many years, to protect their astronauts, they were trying to figure out how to predict solar particle storms. These are a type of ‘extreme weather’, where particles burst out of the sun. NASA worked on this problem for 30 years; and then they posted it on InnoCentive’s website. Within weeks, they had a solution—an algorithm that involved magnetic coupling between the sun and the Earth—that surpassed anything they had come up with before. To me, the best part is that the solution came from a retired telecommunications engineer living in upstate New Hampshire. This guy would never have been considered for a job at NASA, or even as a contractor for a problem of this type.
A second challenge I particularly love was a diabetes challenge that came out of Harvard. As most people know, as diabetes progresses, a whole host of other problems begin to occur in the health of a diabetic. They posted a challenge to all members of the Harvard community, as well as members of the general public, with a simple question: What do we not yet know about type 1 diabetes? Basically, the entire Harvard community—faculty, students, and administrators and staff of all levels and specialties—was invited to come up with possible new areas requiring exploration, regardless of whether they had the expertise or resources to answer the question. They ended up identifying 12 new pioneering ideas, and among the ‘winners’ were a patient, an undergraduate student, an MD/PhD student, a human resources representative and researchers who were not experts in the field.
My third favourite example was fairly recent. InnoCentive enabled a collaboration between the MIT Lincoln Lab and the Defense Threat Reduction Agency, which was seeking to improve its ability to identify pathogens in the event of a bio-terror event. Previously, it could take up to a week to analyze a sample of DNA, requiring the assistance of third party analysis. The challenge was announced, and nearly 3,000 ‘solvers’ participated. The winners—who received a $1 million prize—developed an algorithm that rapidly and accurately characterizes a complex clinical sample, reducing the analysis time from a week to tens of minutes. This solution will allow for informed medical intervention, enable targeted antibiotics and provide better results, keeping soldiers, Department of Defense personnel and friends and family around the world safer.
It never ceases to amaze me what people can come up with, if given the opportunity. The future holds great promise for those willing to adapt to new ways to tackle problems of all shapes and sizes.
Dr. Alpheus Bingham is the founder and a member of the board of directors of InnoCentive. He is the co-author of Open Innovation Marketplace: Creating Value in the Challenge-Driven Enterprise (FT Press, 2011).
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[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]