5 recommendations for successfully implementing distributed innovation and shared value

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Chapter 5 from Living Networks, on Distributed Innovation – Intellectual Property in a Collaborative World, is still immensely relevant today. We are still relatively early on in working out the implications for innovation of distributed value creation.

Here is a section towards the end of the chapter which provides 5 recommendations on managing innovation in a networked world. While some of the tools have changed since this was written, the principles haven’t.

IMPLEMENTED DISTRIBUTED INNOVATION AND SHARED VALUE

At a scientific convention in Hawaii in 1972, Stanley Cohen from Stanford University and Herbert Boyer of the University of California met for the first time in what proved to be the beginning of a long friendship and collaborative partnership. Their joint work on a process for cloning genes in microorganisms resulted in three patents that formed the foundation of the nascent biotechnology industry. Stanford University ended up as the sole owner of the patents, reaping over $150 million in royalties as a result.

The real reason for distributed innovation is simply that you can no longer be self-sufficient. You must bring together more and better resources than you can hope to have inside a single organization. This means that distributed innovation models must address how you attract the best people to collaborate with you in your projects. In order to attract this elite to participate in creating intellectual property, it is essential to offer them an appropriate share of the value created. Those that can best implement new models and approaches—both to organize work effectively, and share in the value created—will be the most successful in the network economy. There are five key action steps companies and individuals must take to implement distributed innovation, as shown in Table 5-1. We will examine these issues from the perspective of the individual in more depth in Chapter 10.

IMPLEMENTING DISTRIBUTED INNOVATION
1. Design processes to match the type of innovation required
2. Create structures to access and coordinate top global talent
3. Provide a share in the value created
4. Negotiate based on differing objectives, risk appetite, and power
5. Be open throughout the process
Table 5-1: Action steps to implementing distributed innovation

1. Design processes to match the type of innovation required

What are you trying to do? Do you need to come up with startlingly new and different ideas, or do you have to develop the seed of an idea into something useful and workable? Clearly both phases are necessary elements of innovation, but it is important to understand what you want to achieve, and then apply the appropriate approaches.

As you have seen, the collaborative structure of the open source model can be perfect for developing robust and refined products, but only once the initial core has been defined. MIT’s ThinkCycle begins by establishing clearly formulated problems. Every open source project starts with an idea, an intention, and some code. Once a basic idea is in place, distributed development processes can bring a wide range of expertise to bear.

Idea generation is by its nature more unstructured, but systems and processes can help to create better results. British telecom firm BT implemented “BT Ideas” in 1996, providing a process and online forum for staff to submit ideas. This is being used in many ways, including focused idea generation campaigns around specific needs. When the CEO and directors spoke at one internal event, all were asked to end with a request for ideas on their chosen issue. The CEO received 100 sorted responses to his request within a few hours. BT now intends to get participation in the system from its partners and suppliers.

2. Create structures to access and coordinate top global talent

Pharmaceutical giant Eli Lilly established InnoCentive LLP in order to tap outside talent in its research and development initiatives. InnoCentive takes research tasks that have been clearly defined by its “seeker” companies, which include Eli Lilly and other large firms, and posts them to a global community of thousands of scientists. Each problem has a specific reward attached. One graduate student at the University of Georgia won $30,000 for synthesizing an amino acid, while an Indian scientist earned $75,000 for his solution to another synthesis problem. Problem solvers must sign a confidentiality agreement, which gives them access to complete data and specifications on the problem, and hand over all intellectual property rights to the solution. The seeker companies can access global talent to address specific research problems, match the reward to how much a solution is worth to them, and only pay if they get precisely what they need.

The heart of open source is bringing together vast global expertise in focused projects. Companies are now trying to implement similar approaches in their commercial research and development, and coming across the same challenges as open source. You need to attract the best participants. SourceForge, the largest site for open source software development, lists over 40,000 current projects. There is immense competition to get top developers to work on your project. In a commercial environment, getting the best people involved should be centered on financial rewards. However other issues can be highlighted, such as the opportunity to work with the best people on the most exciting projects, and personal career development. Innovation exchanges like InnoCentive will develop further, so it often makes most sense to access the largest pools of innovators rather than trying to create your own.

In addition you need to create structures that allow diverse groups to collaborate on projects. Fixing software bugs is eminently suited to distributed projects. In order to apply similar approaches in other domains, you need to be able to break down a project into clear and distinct tasks. For example, drug synthesis is usually a multi-stage process, so Eli Lilly and its peers in InnoCentive can isolate specific issues within the overall drug development process, and get outsiders to participate in these.

Leadership is critical both in establishing the structures for the innovation process, and often in running projects. Linux and every other successful open source project has had a combination of a good leader or leadership team, and straightforward processes. The less that a distributed innovation team depends on an individual—usually working largely by force of personality—the more that clear structures and processes are required. CollabNet, mentioned earlier in this chapter, does very well by performing exactly that role for hire in software development.

3. Provide a share in the value created

There are basically two ways of getting rewarded for work. You can get paid for your input, for example by a salary, hourly rate, or fee for service. Or you can be rewarded for the value of the final output, such as a commission, profit share, or success fee. Things are relatively straightforward if you pay contributors to intellectual property by their input. Most R&D employees must sign over to their employers the rights to everything they create, and in return get paid a salary with probably a bonus if their efforts result in the company hitting the jackpot. Magazine journalists get paid salaries, or if they’re freelance, by the word. However for distributed innovation, you are specifically trying to get the best to participate. They may want payment for their time and effort, but if they believe in their ability to create value, they will also demand a share in that to get their participation. Be prepared to offer specific reward models.

In the dot-com heyday, everyone wanted stock options. That was the way to get rich. But this is a very indirect way to profit from your contribution to intellectual property. As many discovered, it depends not only on the vagaries of the stockmarket, but also on the ability of the management team to run the company. Increasingly, top innovators are asking for a stake in the intellectual property itself. This means that if the company goes down the gurgler through no fault of their own, they still own a potentially valuable asset.

4. Negotiate based on differing objectives, risk appetite, and power

Money isn’t always everything. Actor Keanu Reeves chose to forgo part of his profit-share in The Devil’s Advocate in order to get the chance to work with Al Pacino. Negotiation is based on the fact that different people and organizations have disparate motivations. This is what allows you to find win-win solutions. The greater your flexibility in creating value sharing agreements, and the more you recognize the different situations of the parties involved, the greater your ability to attract the best players to participate in your ventures.

The reality is that in any negotiation, the primary variable is relative power, which is basically how much one party needs the other. Today, many government organizations that issue tenders for consulting work specify that any intellectual property generated in the engagement is owned by the client. Take it or leave it. If you’re a run-of-the-mill actor, musician, consultant, or programmer, you need the gig more than the project director needs you. However if you’re a star in any of those fields, you can pick and choose between offers according to how much it pays and how well it progresses your career.

Any endeavor is risky. But when more than one player is involved, each has something different at stake, varied perceptions of how risky the venture is, and unequal appetite for that risk. Balancing participants’ different attitudes to risk can allow the creation of innovative value sharing models.

5. Be open throughout the process

Humorist Art Buchwald sold the idea for the film Coming to America to Paramount Pictures in 1983. The agreement gave Buchwald a share of the film’s net profits, as defined in the contract. Since the film grossed $350 million, but booked an official loss of $18 million, Buchwald felt he hadn’t received his share of the rewards, and took Paramount to court. He lost the case, but the judge found the contract to be “unconscionable” in not representing the true profitability of the film. The studio’s costs had been defined in the contract, and it was impossible to know its true financial situation.

One of the most dramatic trends in a connected economy is towards transparency. Information always escapes, and attitudes around the world are rapidly shifting towards expecting and demanding transparency in all things. In the case of distributed innovation, it is essential to provide transparency in order to get the best people to participate. Trust is invaluable, but transparency can be almost as good. For example, the SKA Global consulting network, discussed in detail in Chapter 9, provides full disclosure of all accounts to its members. Patent pools are completely transparent to their members. Agreements must be unambiguous at the outset, so all participants are fully clear on what their responsibilities and potential rewards are. The more precise the contracts, the easier it will be to attract the best people to participate. Over time, it will become standard to have complete accounting transparency in any collaborative project.

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