Strategic Sourcing of Innovations: A Strategic Capability

I gave the inaugural talk for the 5th Annual International Smart-Sourcing Conference
Los Angeles, CA. Sept. 21-23, 2006. The abstract of the talk is as follows:
Organizations are engaging in sourcing initiatives at an astounding pace. First, there was the sourcing of mundane and structured work; this was followed by the sourcing of knowledge work such as software development and call centers. Today, we are entering the era of sourcing innovation work. Sourcing of innovation can take many forms and types, and can vary in the level of intensity. For example, some organizations have outsourced their entire research and development functions, while others engage in the sourcing of problems on a need-basis. The challenge facing organizations today is severe – how to create, develop, and manage capabilities for sourcing innovation. Developing capabilities in sourcing of innovation is not the same as using outsourcing for conducting knowledge work or even low-cost manufacturing operations. The nature of innovation projects requires us to pay careful attention to several salient issues, for example the appropriation of rents from innovation. This presentation will describe the changing nature of outsourcing efforts from cost-focused to innovation-driven. A framework to manage the sourcing of innovation will be presented. Lessons learnt and best practices on the sourcing of innovation will also be discussed. Organizations that can leverage sourcing as a strategic weapon for innovation will have a decisive competitive advantage over their peers.

University of Illinois at Urbana Champaign - Being Innovative and Entrepreneurial: Lessons from the Trenches

I had a wonderful time at the University of Illinois at Urbana Champaign. My hosts, Tony Mendez (Director, Academy for Entrepreneurial Leadership) and Laura Hollis (Associate Director, Academy for Entrepreneurial Leadership) took good care of me. I had a rich set of discussions with a number of students, faculty, and guests of the University of Illinois. During dinner, I had a chance to meet a young CEO, Dan Moorehead. Dan heads up Visual 3D.net. In addition, my discussions with students from the Chinese Entrepreneur & Professional Club was stimulating and engaging. I thank all of you for welcoming me to your campus...

The I3M Symposium - October 10, 2006 - Enabling Innovation Across Boundaries

The fall symposium of the Institute for Innovation in Information Management (I3M)will be held on the University of Washington campus on Tuesday, October 10. The theme for the day, “Enabling Innovation Across Boundaries” reflects the members’ interests in discovering the key enablers behind organizations that have documented success in turning creative ideas into products and services contributing to the bottom line.

In order to compete, and even survive, in today’s marketplace, organizations must be capable of innovating. More specifically, organizations should be able to innovate in a highly effective and efficient manner. Failure to innovate can lead to several undesirable consequences from loss of customers to extinction from the marketplace. While these realizations are pervasive among organizations, many have not yet identified how to address the innovation problem.

For the past several months, Dr. Kevin Desouza has been undertaking a research project funded by I3M to investigate this area through field interviews with key executives in organizations recognized as leaders in innovation. These interviews have been analyzed and a model for successful innovation will be presented based on the findings at the symposium. More information on the project and the participants is available on Kevin’s research blog at http://ideas4innovation.blogspot.com/.

To provide more insight into the practices the model is based on, a panel of study participants from a variety of organizations will respond to the presentation, and a structured discussion among all symposium participants will provide ample opportunity to find ways to apply the findings in their own organizations. The day will wind up with a presentation by Mike Williams, CIO of Parsons Brinckerhoff, discussing the business impact of another recent I3M sponsored project (“Beyond Knowledge Exchange: The Case of Practice Area Networks (PANs) at Parsons Brinckerhoff- more information available on the I3M website, and a presentation of candidate projects for the next research round sponsored by I3M.

A complimentary reception will follow the formal sessions, with an optional dinner for those interested in continuing the conversation. The symposium will be invitation only, through one of the partner organizations(Parsons Brinckerhoff, Washington Mutual, Quellos Group LLC, or the Disaster Resource Network) or the University of Washington I3M faculty members.

Mapping Innovation

By studying and surveying HP LAbs, Rivas and Gobeli (2005) managed to identify enabling and risk factors for innovation in a large, research-oriented company. Employees reported that the most helpful enablers were: skilled people; people are helpful; management support; checkpoints provide focus; and people working together. These enablers were environmental factors that employees indicated increased their comfort level with and ability to innovate on a consistent basis.

The top five barriers Rivas and Gobeli discovered were not enough resources (such as money, time or access to management); hard to process experiments in the factory; lacking process-capable equipment; undefined market planning; and a project spanning multiple sites.

Rivas and Gobeli then create an easy-to-understand visual model mapping the enablers and barriers to innovation along a spectrum of how well known the innovation's technology is and how well known the market for the innovation is. Those two factors, newness or comfort with technology and market, Rivas and Gobeli define as the "level of innovation."

SOURCE
ACCELERATING INNOVATION AT HEWLETT-PACKARD
Rio Rivas; David H Gobeli
Research Technology Management; Jan/Feb 2005; 48, 1.

[Summary by: Caroline]

Being Innovative and Entrepreneurial: Lessons from the Trenches

I will be giving the following lecture at the Academy for Entrepreneurial Leadership, University of Illinois at Urbana Champaign - "Being Innovative and Entrepreneurial: Lessons from the Trenches". Here is the abstract: Successful entrepreneurs are those who can realize their visions by leveraging their resources and capabilities. Key to successful entrepreneurship is the ability to innovate and leverage ones know-how. Entrepreneurs who are successful in being innovative will be able to identify unique opportunities in the marketplace, position their products and services in unique manners, and will be able to disrupt positions held by incumbent firms. In this presentation, I will outline lessons that I learnt from several entrepreneurial endeavors. These lessons will be framed in the context of knowledge management and the calibration of organizational innovations.
Date: Sep 19, 2006
Time: 5:00 pm
Location: 1404 Siebel Center for Computer Science
Sponsor: Academy
Web: Link

Bounty Hunting for the Sake of Innovation

In an earlier post, i4i discussed Procter and Gamble’s connect and develop policy (see: LINK), where outside scientists and experts join a network to help P&G solve science problems.

Eli Lilly has adopted a similar strategy to tap into experts outside the company by bringing specific problems to virtual arenas (Breen, 2002). Eli Lilly founded InnoCentive, a wholly owned subsidiary, to take on the task of bringing outside researchers’ attention and energy to the drug development process through an incentive system (Breen, 2002). The process is similar to bounty hunting in the Old West: “Wanted” posters are put up describing a scientific problem and a reward, then bounty hunters can compete in an online project room to answer first and best (Breen, 2002).

Confidentiality was the first hurdle InnoCentive tackled, but even scientists who have won large bounties argue that the process puts undue risk upon the scientist, particularly when research must be conducted to get to a particular target or answer (Breen, 2002). The reward is only given to one scientist, so if another does quite a bit of work but comes up with the answer a day too late, they receive nothing.

But many scientists are signing up for InnoCentive: in 2002, “7,000 scientists have registered at InnoCentive, and there are 2,400 project rooms in use, organized around 33 problems” (Breen, 2002). In 2006, more than 95,000 scientists have registered with InnoCentive (Kramer, 2006). Scientists from India, Russia and other places around the globe have signed up with InnoCentive (www.innocentive.com), and companies like Boeing, Proctor & Gamble, Dow Chemical and Nestlé all have paid the membership fee and seek solutions using InnoCentive (Kramer, 2006). Open innovation seems to be working for the organizations, the scientists and the broker.

SOURCES:
Breen, B. (2002) “Lilly’s R&D Prescription.” Fast Company, Issue 57, April.

Kramer, H. (2006) “Brainy Website Takes Advances to Market.” New York Post, July 30. Available: LINK

[Summary by: Caroline]

Lilly Critical Care Europe and Business Customer Communities

Firms, such as Lilly CCE, have created online communities for their customers to interact with each other and share knowledge. Lilly CCE is a European business unit of Eli Lilly & Company and was founded in 1999 to oversee sales, marketing, customer and medical services for specialty products in the critical care setting. It had approximately 150 employees across Europe and an annual revenue of around USD 100 million. However, the majority of the income was generated by just one high-end, high-priced complex product, which had been in the market for several years. This drug was being administered in specialized centers.

Beginning in spring of 2001, Lilly CCE found the market getting increasingly competitive in most European countries. Competitors increased sales representatives and Lilly CCE's existing representatives found it difficult to provide necessary information to physicians and customers. This forced Lilly CCE to launch a project called the “Customer Community Project” to develop capabilities and infrastructure to facilitate development of BCCs. BCCs can be defined as groups of business customers, which are deliberately enabled by a firm and share a long-term need to exchange work related knowledge through online and offline interaction. Business customers form a community to fulfill a specific purpose. Firms deliberately enable BCC formation through technological (e.g. collaboration technology) and organizational (e.g. workshops and events) means. The type of knowledge exchanged within BCCs is always work-related. Self-organizing customer networks can become external BCCs at the point when they are given strategic attention and support by a firm. The purpose of external BCCs is to foster long-term knowledge exchange between its members. Accordingly, during the period 2002-2004, Lilly CCE initiated over 50 BCCs.

Erat et al. (2006) found that the formation process of a BCC can be divided into four major stages: preparation, planning, initiation, and sustenance. In the preparation stage, an organization should lay out the internal processes and structures that can support BCCs. During the planning stage, sales representatives together with the community leader lay the groundwork: identification of common needs, definition of purpose, and preparation of a kick-off event. During the initiation stage, members come together to launch the communities and generate critical momentum. Lastly, during the sustenance stage, the focus is on sustaining the momentum and keeping the BCCs viable. During this stage communities strive to transform shared knowledge into working practices.

The success of BCCs, measured by the number of customer communities, was surprising. More than 50 communities were formed during the first two years. Erat et al. uncovered that BCCs work best for firms with a superior new product and in a market characterized by information asymmetry. It was also found that knowledge sharing in BCCs depends heavily on the influence of the leader of the community, especially if the leader belongs to one of the participating customer organizations. However, it is critical that the sponsoring organization of BCCs (Lilly CCE) take a backseat and allow BCCs to be operated and governed by customers.

SOURCE: Erat, P. Desouza, K.C., Schaefer-Jugel, A., and Kurzawa, M. “Business Customer Communities and Knowledge Sharing: Exploratory Study of Critical Issues.” European Journal of Information Systems, Forthcoming.

Stay at Home!

At the University of California San Francisco's Carol Franc Buck Breast
Care Center, patients don’t need to come in for an appointment. Rather than waste time and energy in transit and wait passively to hear what the doctor has to stay, patients log in and have a toolbar of resources, are examined via webcam when possible and get both more frequent and more engaged treatment. The Center has a thriving online practice. Patients no longer have to fly to experts for diagnosis, making it easier for both patients and doctors to fit doctor consultations into their schedules.

Furthermore, in complicated cases like breast cancer, usually there are many trade-offs necessary during treatment. Patients sometimes let doctors decide, but increasingly are being pulled into the decision-making process. In an online consultation, resources can be personalized to the case at hand and given to the patient prior to meeting with the doctor online, letting patients make informed choices and ask questions based in research. Patients can also consult with multiple experts quickly and with a minimum of scheduling, allowing them to synthesize information from multiple sources.

And that’s not the only opportunity for wireless to enable communication. Texas Instruments has found that product development is smoother and elicits more participation from every member. Instant messaging combined with PowerPoint allows developers to fire off questions as they arise, without needing to remember them, and they can ask them in context. Texas Instruments found that this was particularly true for non-native English speakers, and in an increasingly global company that’s a vital consideration.

E-learning in companies is much debated, but at Accenture it’s a solid part of a blended program, where virtual and in-person learning are combined for best effect. Furthermore, most consultants work almost entirely online, with rare face-to-face meetings.

And Fleet Securities, Inc., a banking firm, has found that combined with the decrease in paperwork through virtual collaboration, they also have far better service to corporate investors. For instance, there are never any delays at the printer’s office because everything is posted online immediately. Revisions can occur quickly and with universal effects.

[Source: Overholt, A. (2002) “Virtually There?” Fast Company, Issue 56, March]

Testing Healthcare

To differentiate itself and better service patients, the Mayo Clinic has started having doctors and nurses act like designers (Salter, 2006). They shadow patients, interview them and develop prototypes to try to put new ideas before them. A dedicated corridor has real patients (who consent to the experiments) being treated by real doctors and real nurses, with experimental prototypes, interviews and questions. The area is called SPARC, or “see, plan, act, refine, communicate” (Salter, 2006).

The notion of changing patient service emerged because they realized that patient care hasn’t changed much since the 1800s—and maybe it’s time. SPARC features transparent walls and cameras that capture doctor-patient interactions, as well as removing some of the mystique and hallowed sanctity of the exam room, all in an effort to better serve patients (Salter, 2006). Personalized guides showing individual risks and risk factors tested very well by the third or fourth iteration, and successes like that help the doctors stay enthusiastic about the innovation process (Salter, 2006). Doctors or managers come up with questions about patient needs, then teams hit the ground running and try to search out how things look, feel and resonate with patients—for instance, the Patient Library was underused, and when they interviewed patients they found out patients didn’t know the computers for them (Salter, 2006). Minor changes in signs helped patients feel confident using the patient library. The teams reconvene in a lounge with a whiteboard after interviewing patients and examining physical spaces, and then they brainstorm.

Patient needs become the starting point for research, idea generation and prototypes like a single sheet of paper that SPARC urged experimental patients to imagine as a self-check-in station (Salter, 2006). Then, if results are encouraging, the doctors refine the prototype and continually elicit patient feedback. And top management is taking notice—SPARC was named one of the Mayo Clinic’s top priorities last year (Salter, 2006).

[Source: Salter, C. (2006) “A prescription for Innovation.” Fast Company, Issue 104, April. Page 83.]

[Summary by: Caroline]

Knowing when to gamble

Even horse-racing enthusiasts don't count solely on inspiration when making bets. So how can businesses, who must consider the emotional and financial costs for a multitude of stakeholders, afford not to understand and quantify risk?

Innovation requires risk-taking and faith. However, it also requires savvy. Taking risks without evaluating consequences and likelihoods is the mark of immature innovation programs, while more careful, considered business strategies of innovation have various ways of measuring, discussing and analyzing risks and their consequences.

CIO's top 100 innovating companies were interviewed by Christopher Koch, and the result was a blog entry entitled, "Make gloom part of your strategy," (Aug 22, 2006: Available: http://blogs.cio.com/node/420). What Koch is getting at is that somebody's got to be the analyst who warns, cautions and tells horror stories. Being innovative doesn't mean jumping without a net; contingency planning is as important as the innovation process itself (Koch, 2006). Innovation is a hopeful enterprise, but understanding and readying for the possible negative effects can vastly increase overall innovation. That way, if a single innovation project crashes and burns, someone's got a fire extinguisher and can put out the flames before they devour the organization.

Being committed to and excited about innovation must be matched with contingency planning. One potential tool is simply a red, yellow or green tag that correlates to the assessed level of risk for a particular idea, innovation or process (Koch, 2006).

Koch, C. "Make gloom part of your strategy," CIO Aug 12, web exclusive. Available:
http://blogs.cio.com/node/420

[Summary by: Caroline]

IT Innovation: The Nexus of Processes and Technology

For many organizations, technology is a necessary cost that sometimes provides a return on investment in the form of saved time, energy or resources. However, enterprising CIOs are changing that by focusing on how IT can generate revenue as well as decrease costs. Like any other department, IT must contribute not only to operational processes, but also by generating revenue (see Overby, 2006 for more on this ever-pressing need). To do that, idea generation and innovation processes must become entrenched in the IT department. Luckily, as Overby puts it, "IT is the gatekeeper of data across the enterprise and understands business processes intimately," and as technology becomes ever more embedded in business processes, IT is admirably well situated to seize the moment for innovative revenue generation. But as Overby (2006) points out, just like any other department, IT must interact with customers to understand customer needs. The organization mission must infiltrate and motivate IT as much as it does R&D or marketing.

Washington Mutual's organization-wide focus on innovation includes the IT department. In an interview with Deb Horvath, CIO of Washington Mutual, she told us that all executives are evaluated monthly on measures including revenue-generation and innovative ideas for services, processes or products. Using the same process as in the rest of the organization, Washington Mutual focused IT on revenue-generating innovation by setting goals and objectives. As CIO Horvath put it:
"In February I had 13% [of all projects] focused on revenue-generating, now 25% are focused and working actively on revenue-generating programs. IT's one of those things, you can manage what you measure and we decided we could measure focus on revenue-generated opportunities…We stated a goal to increase the percentage of revenue- generating projects..."

Overby, S. (2006) "Money: That's What They Want." CIO, August 15. Available:
http://www.cio.com/archive/081506/money.htm

Two Birds, One stone - Green Innovation

Sometimes, finding the impetus for innovation means asking what can be done to help the world. After all, to create an organization-wide culture of innovation, an unarguably believable and necessary mission statement like, "let's save the world" can come in very handy. Firing employees up about environmental initiatives is exactly what allowed five companies to reduce costs, improve productivity and contributed to being on CIO's (www.cio.com) top 100 list of companies who created value through IT-enabled innovation. Here, two of those companies will be briefly profiled to illustrate how a focus on sustainability can encourage innovation. To read more, see the full article by Levinson (2006), which is linked below.

Goodyear's (www.goodyear.com) experimentation phase with new tire designs has, in the past, meant subjecting tires to the road, over and over, under different conditions, to assess damages. In the past, this meant hours of driving cars around a track to see how tires held up because the math involved in computer modeling this process was notoriously difficult. This slow, expensive, environmentally damaging process has had no alternative--until now. Goodyear has developed a computer modeling system that virtually tests tire designs. The process is faster, cheaper and generally better than the old system. It has reduced the amount of tires tested overall and thus saved many hours of spinning tires that go nowhere. The environmental effect is gigantic because of the reduction in oil, emissions and reduced manufacturing demands. Now Goodyear can do most testing through computer software, which means they get products to market faster, cheaper and with less environmental damage. Engineers can also perform more tests and have developed far more products (see, for instance: LINK). (Levinson, 2006)

JEA, a Florida-based public utility that produces electricity by using natural gas and oil (www.jea.com), put into place an artificial intelligence based on neural nets. The software determines the optimal amount of fuel given current oil and natural gas prices to produce the optimal amount of electricity. It also ensures that emissions stay within government guidelines. Knowledge management greatly assisted this effort, as databases of historical decisions and operating data help to guide the software's decision-making process. The result was decreased operating costs, more consistently staying within emission requirements and dramatic savings in oil and natural gas purchasing. The sheer number of factors involved in the combustion process combined with the need to calculate the highest profit margins when oil and natural gas prices skyrocketed meant that company saved money while being environmentally friendly. The cost was $800,000 and within eight weeks that cost was recovered. Furthermore, the same software will be applied to JEA's water business. (Levinson, 2006)

For full details: Levinson, M. (2006) "Imagination at Work." CIO, Aug 15. Available:
http://www.cio.com/archive/081506/100_innovate.html

The full list of CIO 100 Award Winners can be found here: LINK

How would one know whether an organization is innovative?

Innovations rarely happen by chance, sustained innovation even less so. Drucker (1993) contends that he knows of no “flash of genius” that turned into innovation. Innovativeness requires systematic, disciplined approach. Organizational characteristics of innovative organizations are therefore different and distinguishable from non innovative companies (Subramanian, 1996). They out-compete their rivals by making them irrelevant through new products and new value (Dobni, 2006).

Davila et al. (2006) described a model of innovation with four elements of organizational innovation management: inputs, process, outputs, and outcomes. Inputs management is about finding suitable resources to drive innovation. Four broad categories of inputs are finance (R&D), human resource, physical resource, and ideation (Adams et al., 2006). Processes combine the inputs and transform them. Several factors go into the process of innovation management: strategy, organizational culture and structure, portfolio management, and project management (Adams et al., 2006). Outputs are results of innovation effort. A number of measures have been proposed to operationalize outputs: number of innovations adopted (Wolfe, 1994; Subramanian, 1996), mean time of innovation adoption (Subramanian, 1996), consistency of the time of adoption (Subramanian, 1996). Finally, outcomes describe the value creation, measure how the outputs of innovation management created value for the company.

For the purpose of Blog entry, which is to assess organizations’ innovativeness and not innovativeness management, we choose just the last element of innovation management (outcomes) to propose measures of innovativeness. Our job here is to appraise how well outputs of organizations’ innovativeness created value and not to understand the determinants or the process of attaining innovativeness. In doing so we may know if an organization is innovative or not.

Innovativeness is not a unidimensional construct, and therefore identifying an innovative firm may require assessment on more than one measure (Subramanian, 1996). However, based on past research, at present we propose following two related measures to identify whether an organization is innovative or not.

• What is the percentage of sales coming from products new within the past four years (Coyne, 1997)? This measure of innovativeness is adopted by 3M and in year 1996, 27% of their sales came from products innovated within previous four years (Coyne, 1997).

• Second, is the pattern of revenue increasing or decreasing throughout the range of product innovation orders (Prusa and Schmitz, 1994)? The authors found two major patterns in the PC software industry: (1) a firm’s initial product tended to be the most successful and (2) a declining trend in sales throughout the range of product introduction orders.

An innovative enterprise will have increasing percentage of sales coming from new products and also it will build on its initial success by launching products more successful than the previous ones.

[Posting by: Sanjeev]