Foreword
Most likely, you picked up this book because you’re interested in innovation. You won’t be disappointed—you’ll find here a tightly reasoned rationale for the spread of open innovation, use cases in large corporations, not-for-profit, and government and practical guidance for employing this approach yourself. Your guides are two experienced entrepreneurs—one an accomplished big-company executive, one a serial startup veteran—who founded an open innovation business whose success required them to conquer one of the business world’s great challenges—get big companies to change their behavior.
But ten years from now Open Innovation Marketplace will be remembered for two broader contributions. The book describes the appearance of a new species in the evolution of an information-based economy: a global network of highly specialized expertise, on tap whenever, wherever, it’s needed. The authors then interpret the resulting operating changes in innovation processes in light of the new economics of information and labor. But that’s only the first act: In the second, the authors look through the other end of the telescope to see what these changes imply for corporate organizations beyond the innovation process. They don’t stop until they’ve described a new model of organization fit for the information economy.
Where does InnoCentive (the authors’ company) fit in this story of a new economy? In the 1990s, it was often repeated that “the Internet changes everything.” Clearly, though, it doesn’t change everything at once. New economies don’t spring full-blown from the head of Zeus—they follow a somewhat predictable life cycle, in which new science leads to new technology, which business eventually embraces. Nineteenth century work in the sciences of thermodynamics and chemistry, for example, led to technologies for steelmaking and petroleum refining, and then to new products, such as automobiles and air conditioners. And because the companies optimized for mass-production required thousands, not dozens, of people, new organizational forms arose to manage activity on this scale, creating the corporate organizational form we took for granted 20 years ago. To get full value from this book, keep this in mind: The corporate organization form that dominated the twentieth century was the solution to a particular challenge—create a structure that can attract capital at a large scale (hence limited liability), achieve the economies of scale the new technology enables (with assembly lines, three shifts, and so on), and coordinate the activities of large numbers of people (using functional hierarchies, cost accounting systems, and company towns).
These arrangements solved a problem that was pressing around 1900. Today we have a new one.
As Stan Davis and I wrote in BLUR,1 following the same cycle as industrialization, we’re now approaching the fourth stage of the development of the Information Economy. The fundamental sciences of semiconductors and information theory, explored prior to 1950, begat an information technology industry—microprocessors, fibers, routers, software, and the rest. Consequently, today’s businesses are learning to leverage information the way their industrial forebears leveraged energy. The result is a new infrastructure for the economy—just as railroads, national highways, and ubiquitous service stations composed a new “transportation sector,” we now have semiconductor fabs, ISPs, Geek Squads, and the rest of our information industries. The economy is “informationalizing,” the way it previously industrialized. And an important milestone: As autos and appliances distributed industrial technology to individuals, PCs, game consoles, and smartphones have equipped everyone—increasingly, globally, everyone—to participate in the information economy.
What we don’t have quite yet is an organizational form that solves the new challenges to create value in an informationalized world.
If the Information Economy is approaching its fourth “quarter,” we should now be seeing new approaches to organizing economic activity that depart from earlier structures and provide a leap in productivity as the large, functionally organized industrial corporation did. What are the challenges to which these structures must respond in this cycle? They include the reduced cost of communicating anytime, anyplace; the competitive need to accelerate innovation; and the existence of a talent pool distributed widely around the world. Perhaps most important: The unique economics of digitally encoded information that can now be reproduced at essentially zero marginal cost. And seeing them we are.
Linux, the icon of open source software development, became available in 1992.2 This, too, was a major milestone. First, it demonstrated the practicality of self-organization, creating valuable output through the group adoption of a set of rules rather than through the orchestrated operation of a formal organization. Second, it pioneered a definition of property foreign to the industrial economy: valuable stuff, shared for free.
Not surprisingly, this excited considerable resistance from people making money from digital property, and a decade later the IP wars are far from over in the software, music, movie, or pharmaceutical industries. Nonetheless, leading-edge companies saw the upside in the capability to economically involve skilled, motivated contributors around the world that the Linux community demonstrated. But it took some time to figure out some combinations of governance structures and commercial arrangements that could take advantage of the economics of networks without sacrificing the capability to earn a profit. Around 2000, Procter & Gamble started its “Connect and Develop” approach to innovation. And InnoCentive was founded in 2001.
It’s not coincidental that these developments both centered on innovation. One of the consequences of the connected economy is the acceleration of change itself.3 In the mature industrial world, the rule “if it ain’t broke, don’t fix it” made good sense, for business models and for machines. Change was something that happened seldom, was expected to disrupt an organization, and usually was driven by a single novel pressure—Japanese competition in the 1980s, say, or the Quality Movement. Now, innovation capability is coming to be seen as the most productive asset—for an individual, a company, or a country. In 1980, the question “What’s your business model?” would have made you sound like an idiot—now it makes you sound smart.
Because networks accelerate innovation, they also increase the need for it. And the information economy has responded: Innovation used to be a captive function, the purview of R&D groups and strategy officers. Now a new sector of the global economy has emerged, devoted to innovation: VCs, angels and angel funds; legal and accounting practices devoted to startups; corporate venture funds; specialized journals and conferences; and business plan competitions, patent exchanges, and even a new and prestigious profession: serial entrepreneur. (Prestigious, that is, in innovative economies. In Spain, failing at a venture brings shame on your family.)
InnoCentive is a part of this new sector. Its story is important because it is one of the early examples of applying the economics of connectivity, search, and self-organization to an established business function, finding a radically different solution and making it pay.
The authors here share their unique story, but they have a broader point. Networked innovation is indeed one of the new, needed solutions, but it’s more than that: It’s a pathfinder. InnoCentive’s success forces us to ask, how do its principles apply to every function of an organization? And when, collectively, we answer this question, what will be left of the organization form we’re used to? What can we learn from this case about the next organizational solution? In the second half of this book, Bingham and Spradlin take on this question as well.
In the late 1990s, Alph Bingham and I used to speculate about the economy as intersecting networks of capabilities: an “economic web” of companies, and an “organization web” of capabilities inside them. We discussed the increasing permeability of the boundary between the two webs, and the expectation that communications technology would eventually make it so porous that they would merge. The advanced economies remain far from that vision, but InnoCentive is poking new holes in this boundary every day—it is both the product of information technology and the agent of change in informationalized organization. Alph and Dwayne have an unmatched perspective on the fine-grained work it takes to make this kind of progress, a clear-eyed view of what will be possible next, and a deep understanding of the forces impelling the changes.
As William Gibson says, “The future is already here, it’s just unevenly distributed.” If it hasn’t reached you before, it’s arrived in this volume.