Open Innovation Network - The new trends!

Interestingly, I had a chance to look at two Open innovation networks sites of P&G and Innocentive last week are raised a question on the longevity, impact and value of these networks on my blog article: http://insightful-journey.blogspot.com/2008/06/open-innovation-networks-does-it-have.html

It was interesting to see Mckinsey Quarterly article on "The next step of open Innovation article" yesterday taking an agnostic view of Open network and potraying an Uncertain future. I really believed Mckinsey had a foresight on what will be the next step of Open Innovation networks! While, I was disappointed on not getting the right answer from Mckinsey :-) (as usual) but atleast it provoked me to think ahead on what trends can emerge out of Open Innovation networks

1. Consumerism and mass customization will reach a tipping point. This will force companies to produce unique product/service that caters to needs and wants of just one customer at a time (Read the latest Prahalads book on Co-creation where he mentions this as N:1 scenario)
2. Companies will be forced to reshape/redesign/realign their resource and capabilities dynamically to meet "A" customer need & want (R:G case in Prahalads co-creation model)
3. Shifting of paradigms where value capture will be premised on how networked and closely knit a company is in its eco-system and how quickly it can leverage it to deliver on customers need & want (My own thesis!)
4. Shifting of organizations P&L centricity from product/service lines to customer (Similar to what is happening in Telcos & Utility companies)
5. Emergence of new sets of business laws & practices: stakeholders, privacy, ownerships, contracts, IP....??? (My own thesis)



Any more trends that you think of and can suggest?

Is outsourcing initiative directed to capture maximum value without assuming ownership for its costs & risks?

I happened to read the ITIL V3 publications on Service Strategy recently. A really well-defined article and came across this very interesting quote that client wants to capture value by passing on the ownership of costs and risks of deriving the value. The focus of due-diligence hence is to evaluate the degree of ownership in assuming the risks and costs for delivering the value for the service provider.

I thought that the former argument was carrying the idea too far, while the latter was too shallow a definition of due-diligence.

This is why I say so:

clients always carry risk of outsourcing critical functions and pay a price to a service provider for acquiring the value of it as well. No matter the degree to which the functions are outsourced. There may be several ways in which the client may protect himself from the costs and the impacts of risks through stringent contracts, SLAs and so on but still carries the risk of loosing the utility and gaining the warranty.

On the topic of due-diligence is too superficial and here is why I say so:

The due-diligence exercise intends to firm up the service offer to a client by not only assessing the risks and costs but also the validating the assumptions, clarifying the issues and firming the scope of work.

Any agreements/disagreements/PoVs....

Madness in the methods!

4.3 trillion combinations possible in a rubic cube. If one knows what he/she is doing it can be solved in 25 moves....

Isnt the above a amazing method to solve the Rubics madness.

But you can't apply the same method to winning a chess game, can you?

Methods have their limitations when applied to a problem. Not all problems can be solved through methods. Typical failures can occur under following circumstances:

1. Incorrect definition of problem
2. Applying the wrong methods or methods wrongly
3. Deriving the wrong conclusions of resolution
4. Underestimating the complexity and power of execution
5. Carrying rationality of thoughts too far!
6. Underestimating the intangibles!
7. Many other countless reasons.....that I've not listed

Dont you think a typical undergraduate can apply collection of methods to solve worlds hunger then?

Innovation in Monopolistic market

Microsoft is (almost) operating in monopolistic Corporate/business users market for its Windows operating system. Conventional theory would say that in a monopolistic market the incumbent are better-off not innovating as there are no new entrant who pursues innovation as an entry strategy (lets forget Linux for now as it have very limited presence in Business user/corporate market). Why so?

1. Diverting the precious resources (capital, people, etc.) in innovation endeavor, when instead they can be reduced to increase their margins.
2. Innovation resulting in new product version may lead to cannibalizing their existing products
3. The new version may lead to losing their captive customers due to the cost involved in upgrading/learning/supporting the new version

It seems that is not true for Microsoft, which has been a non-disruptive innovator. Being a monopolist, Microsoft has successfully managed to move their installed base to the latest version of the OS every time, though the product can be frustratingly buggy :-)...How do they do it? By withdrawing support, patches (mean to fix bugs) to the product base and frightening good souls out there of pernicious virus and Trojans that can exploit the loop holes leave aside the fact they never mention that they had more bugs that can harm you then those viruses/Trojans.

However, we don’t seem to see the same pattern when it comes to tangible products (esp. hardware). Here it seems the innovation has mostly been disruptive. Do you recall what ever happened to the 5.25 inch disks? Reading innovators dilemma gives us countless organizations that have failed by releasing new versions of their archaic products. This was due to new innovations that had not only introduced better features but at lesser cost. This has resulted in monopolists always loosing out due to disruptive innovation by new entrant.

I was reading the "Loyal servant" prototypical game in game theory and realized the above pattern was unique where theory didn’t exactly apply. It prompted me to think on these lines and raised few questions:

1. Is there any disruptive innovation in the software product market?
2. How do we spot them if they are already available? (Remember more convenience/features & lower cost for tangible products)
3. What are the right things that these corporations have to do to bring faster adoption of the innovative product (same time faster obsolescence of their existing product)?

Open Innovation Networks: Does it have commercial value for its stakeholders?

Interesting that I caught up on the innovation network sites recommended by my good friend Navneet recently. It was amazing to see Innovation networks where one can solve problems and in the process make money. Some of the sites I visited:

1. www.pgconnectdevelop.com: Connectors who bring together partners, innovators and P&G lines of business
2. www.innocentive.com: Plays as an aggregator of Innovators and businesses (who want science problems solved)

I'm sure there are more such sites, but I restricted the above two worthy of mention as they provide incentives for innovators for solving their problems. The concept of open networks for a business value is not new. Linux sort of revolutionized this idea where software programmers contributed to the development of the OS (carefully monitored by expert who decide what goes into the production version). It was seen that very quickly businesses such as Red-Hat encircled them by providing support/services and eventually also ending up doing R&D.

But is the open innovation network models really provide business value?

This is one large question difficult to answer as these models evolve. But one can use the benefit of hindsight for software products like Linux. Interestingly so, being in sales and business development in the IT landscape, I can tell for sure the product is difficult to sell to businesses and make a commercial business out of it. Several reasons afflict them and we will not even try and enumerate them here. (you can mail me if you like and I'll share my perspectives on it for a price :-)). Going by the above I feel these networks will die as the savvy scientists and technologists would not like to sell their intellectual capital for free. The best of the ideas will often surface outside these networks and find commercial value outside these networks. Imagine what it will do to the sponsors of research in large universities, commercial organizations that recruit scientists and pay them huge sums for breakthrough ideas/products and so on...Lets not even think about the legal challenges these may pose (I am a novice in IP laws).

My hypothesis:
a. Companies cannot think these networks to replace the R&D divisions yet.
b. Nor will the best of scientists and technologist openly throw away their intellectual capital for pennies.

What fact do you have to prove or disprove above hypothesis? Please share with me...

Busting Business complexity: Shannons Entropy, Constraint theory and Game Theory

Business ecosystems are becoming increasingly complex. The ability of an organization to forecast and achieve growth and profitability in the complex business ecosystem is more than an art. Imagine how complex this would become for a new entrant in Hi technology industry. In the previous blogs we've seen how value networks can be used as an effective tool to model businesses, analyze, and define strategy. (We are not even talking about executing them! Will leave it to art for now!!!)

Complexity is not unique to business, several technologists and scientists (I've deliberately chosen to separate them) have traversed down the path and created techniques and tools to bust them. A business therefore isn’t so unique except that the factors are many and the dynamism of the factors themselves is uncontrollable. But if we can model an ideal business (assuming limited factors and controllable state) we can converge on strategies.

In this space one can consider some of the existing techniques/tools that have been used in several disciplines: defining a value network, using Shannon’s entropy to determine complexity of the ecosystem within which the business operates, using constraint theory to maximize revenue and growth KPI for organizations and of course use game theory (Stackleberg/Nash games) to model the dynamism in the business. There are several interesting articles I came across recently in this field and itching to apply them in real-life scenarios!

Is there a strategy problem out there for piloting these ideas?

Is your competitor also your best complement?

There are very businesses that have their greatest competitor as their complement as well. One can see this more pronounced in the Enterprise software segment that I looked at. Let us look at some interesting successful organizations that are both competitor and complement:

1.Windows-Oracle
a. The largest market share for Oracle database is on Windows platform, but Oracle competes aggressively with Microsoft in the database segment MSSQL Vs Oracle.
b. Oracle Accelerate solution competes with Microsoft NetDynamics, Axatpa, & their insignificant other acquisitions
2. Windows-SAP: They sing a duet with SAP enterprise software running on Windows, but they compete as well Microsoft NetDynamics, Axatpa, & their insignificant other acquisitions and SAP Business One.

Seeing the above some interesting question arose:

1. How can you uncover the complement in your competitor?
2. How do you nurture such relationships for economic value while fighting in the market place?

To answer the first question maybe it helps to look at the ecosystem and value networks in which these organizations operate.

For the second question, it is about execution of well strategized Go-to-Market initiatives (as we popularly call them in the Partners & Alliances world).

Any thoughts/experiences you want to share on this….