About 3 weeks ago I sat together with Andy Zynga, CEO Europe of NineSigma. For those that may not know the company: NineSigma is an open innovation intermediary that matches the technology needs and questions from companies (referred to as Innovation Seekers) with the possible solutions from a huge network of scientists, university researchers and technology incubators (referred to as Solution Providers). As such they directly compete with other intermediaries like Innocentive, TekScout and YourEncore. NineSigma claims to have the largest amount of Requests For Proposals (RFPs) on its platform and thus to be the market leader. Their clients include companies like P&G, Xerox, Kimberly-Clark and DuPont.

I had a very nice chat with Andy Zynga about their expansion strategy in Europe (NineSigma is headquartered in the US and has already expanded to Japan with a local office there). In order to broaden the current client base in Europe, they are now building up a European Office in the area of Louvain (Belgium). On average NineSigma plans to double its business year by year as more and more companies are adopting this kind of open innovation initiatives. If you are interested in their services or just want to know more, references to the newly founded European Office can be found here.

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The idea that companies will succeed in the 21st century by drawing in the brightest minds from everywhere, not just within their own four walls, has gathered momentum over the last five years.
The time when ideas were locked up in ivory towers and worked on by a handful of research and developers in white coats has passed. That approach may work well enough in an industrialising world, but it’s slow, insular, and wrecked by bottlenecks in this world, where knowledge is king.
I know most large organizations dismiss this as academic debate - one CEO told me last week that open source models are great in theory and disastrous in reality. I can understand his scepticism. Relinquishing control of product development to scores of unknown individuals? Talk about flying in the face of every business instinct.
But a couple of trends will force CEOs to rethink this resistance. Rising research and development costs and shorter product lifecycles mean that traditional innovation spending is becoming more expensive and harder to justify.
The centrally planned approaches will have to give way to more democratic and open models of innovation.
This isn’t just a warning for IT companies (technology companies are, for the most part, already old hats when it comes to open-source).
Open innovation “guru”, Harvard Business School Professor Henry Chesbrough, has written papers on the need to develop more flexible and open business models across the board. Companies need to get a lot better at bringing external ideas and knowledge in from the outside, while at the same time allowing internal ideas not being used to flow outside the organization. Here the summarised version:

1. Let external ideas in

Chesbrough runs workshops with executives and asks them to list the major innovations in their respective industries. He then asks them where each of those ideas came from.
Surprising to most executives is that a large number came from unlikely places. Not just the company or its major competitors, but from countries outside the US - China or India - or from universities or start-ups.
Given that acknowledgement, he then asks these executives whether they are willing to admit that this is a reality that’s likely to repeat. Will the most important innovations come from outside your company in the next 10 years? If so, how well connected are you to those external sources?
Most companies are at an immediate disadvantage here because R&D teams are usually hired and even credentialed on their ability to generate internal ideas. How many companies hire staff that are good at accessing external ideas and drawing them in?

2. Let ideas loose on the outside

Business units are used to hoarding ideas. If they can’t find a use for it, no one else will get a chance.
Chesbrough says this attitude is fostered by skewed incentives. Executives are assessed by the profits their division makes for the company. Why would you let ideas flow outside in the form of licenses, spin-offs, joint ventures if you weren’t going to get the credit for it?
GE, according to Chesbrough, credits its business units when ideas are used on the outside. Licensing revenues, for example, are attributed to the division they stemmed from. “Managers are much more likely to tolerate competition with the outside if they are credited on both sides”, Chesbrough says.

3. Business models need to be flexible

Rigid business models are one of the biggest hindrances to innovation, according to Chesbrough. After all, business models dictate which ideas are brought in or created then developed, and which are discarded.
Finding ways to open business models up is key. In most organizations, no person short of the CEO bears this responsibility. The managers of business units usually take these as a given.
IBM, Proctor & Gamble, and Air Products are three companies that used to operate with very internally focused, closed business models but have since adopted a more flexible approach.
What do you think of Chesbrough’s arguments? Do companies need to get better at relinquishing control of their ideas?

In the past, I have made a fairly simple assessment of patents, and their value. I want to revisit this conversation, because I have continued to think about this for months. What is a patent’s value? Copyright? Copying books used to be the norm. Patents are only valuable in a small number of countries. I pose these questions to our readers because I am conflicted in whether or not there should be these protections in the first place. We are in a new world where technology destroys all barriers, and information is shared freely, openly, and transparently. Information should not be the reason one company succeeds and another fails. It should be the perceived value it gives to its customers, something that directly reflects on a corporation’s operations and management. So I call upon our readers to help me answer these questions. Maybe I’ve lost a couple marbles, or maybe the world is changing directly under our feet.