How Your Small Business Can Leverage Open Innovation And Crowdsourcing

Open innovation and crowdsourcing promise to revolutionize the way companies innovate and develop new products. Here's how.
June 15, 2011

Open innovation and crowdsourcing promise to revolutionize the way companies innovate and develop new products, create marketing campaigns and solve problems of all kinds. Unfortunately, there is more confusion than clarity about how to best utilize these approaches. Recently, I had the opportunity to interview Dwayne Spradlin, CEO of InnoCentive, one of the early pioneers in the open innovation market. He is the co-author of a new book on open innovation and he shared his perspectives with me.

Q: Your book is called The Open Innovation Marketplace. From my experience, there are many definitions of open innovation. What's yours?

A: Open innovation (OI) is essentially not traditional or closed innovation, the latter having been the dominant mode for companies throughout the 20th century. In the closed innovation model, innovating relies on internal resources, problem solvers and experts to solve problems or capitalize on opportunities, whereas in OI, problem solvers and knowledge are widely dispersed and may reside outside the company. Additionally, closed innovation is often practiced by rigid “not invented here” cultures that focus too much on who solves problems, whereas companies that have embraced OI tend to have more open and collaborative cultures that embrace external ideas with the focus on finding solutions to key opportunities and challenges.

It’s the notion of challenges, in fact, which lie at the center of OI from our point of view.  Challenges are specific, detailed, and actionable problems or opportunities. Via rigorous methodology, problems that matter are defined, prioritized and converted into discrete challenges. These challenges are then formulated and configured for specific channels (e.g., internal groups or divisions, external crowdsourced communities). The tail end of the challenge process involves submission evaluations and triage, legal and intellectual property treatments for the chosen solution, and awarding winner(s).

Q: Large companies like P&G, Eli Lilly, and even NASA using open innovation. How do you see open innovation being used by small businesses and startups?

A: From our experience, some of the best examples come from the nonprofit arena. These organizations are small and have limited resources similar to that of any small business. Nonprofits such as the Chicagoland Chamber of Commerce, Oil Spill Recovery Institute (OSRI), and Prize4Life have leveraged open innovation to great effect by focusing their efforts on specific challenges or a series of challenges that, with their limited resources, they could not tackle and solve alone. The beauty of open innovation is that it enables all companies, big and small, to leverage the same diverse global communities of problem solvers.

One of my favorite examples of a small business leveraging challenges is Precyse Technologies, a firm that specializes in radio frequency identification (RFID) technology. Like many emerging high tech companies bringing cutting edge products to market, Precyse sought to improve the performance and battery life of its mobile computing products. A challenge was posted to and more than 500 problem solvers from 64 countries contributed their ideas and technical expertise to help solve it. Within 90 days, Precyse received 33 relevant submissions—several which offered novel, innovative solutions. The winning solution, which was truly a breakthrough, entailed harvesting energy from radio waves to significantly extend the battery life of Precyse’s RFID tags. The overall experience for Precyse was extremely positive, as the solution enabled the company to get to market faster, lower costs and improve overall utility to its clients in what is a highly competitive market.

Q: What are the mistakes that many companies make when implementing open innovation?

A: The biggest mistake we see is when companies try to “bolt it on” to existing innovation practices and processes. They try to dip a toe in the water and often achieve mediocre outcomes as a result. Or, they approach OI only tactically, and in some cases myopically, as they don’t understand the broader implications of what OI can do to transform their cultures and their businesses. It’s particularly hard for companies that are very rigid and set in their ways. It’s a corporate mindset issue more than anything. The companies that tend to use OI successfully are those that are willing to embrace and combine both traditional modes of innovation (i.e., internal innovation, stage-gate) with newer forms (e.g., open innovation, crowdsourcing), but do it with an integrated set of new processes and reward mechanisms. You can’t keep rewarding people only for solving problems when their job should be finding solutions (inside or outside).

Q: Imagine that you are an owner of a restaurant, a dry cleaner or a similar small business. How would you use open innovation and what would be its benefits?

A: I would recommend small businesses start with a couple of key challenges and create some grassroots and viral buzz around the challenges by promoting them to their customers and at their storefronts. Make it fun, and leverage social media like Facebook and Twitter to get the message out about the challenge(s). If you’re a restaurant, place an insert on your tables, in the menus and on your website to generate excitement around the challenges. By getting your customers involved and also tapping into a global community of solvers, open innovation can be a powerful mechanism for not only solving your key problems and challenges, but expanding and promoting your brand as well.

Q: Does open innovation offer any unique opportunities for small businesses?

A: Absolutely. Small businesses are able to innovate better and with lower costs than ever before, often challenging their larger established competitors who are burdened with inflexible and incredibly costly organizations. Furthermore, small companies are able to use these tools in powerful and ingenious ways to propel their businesses: new applications and markets for technology, breakthrough marketing strategies and even identifying potential partnering opportunities for their businesses. These are all valid applications of open innovation and the time is right for small businesses to integrate these concepts into their businesses.