Essays

Essays June 2010

The Innovator’s New Dilemma

Neil Seeman

 

I know a fledgling healthcare innovator; let’s call him Prof. X. Before the World Wide Web gained force as a collaborative tool, Prof. X had co-founded companies and, more important, also had more than a few duds to his name. More recently, Prof. X created one patent-pending idea by himself, published on it, and the idea has spun off into a (small) company with a tiny team he trusts. With this software invention, he hopes to re-invent a multi-billion-dollar industry for 1,000 times better value than what the market leader can deliver, and at a fraction of the cost.

Prof. X has other ideas in the innovation hopper, some of which he and his colleagues suspect may be successful for-profit ventures based on the opinion of smart people with access to capital. However, Prof. X knows great ideas do not make money or global impact or drive innovation: opportunities (and aligned incentives) do.

Today Prof. X has in his quiver a new disruptive idea, still in its infancy; it has been tested but enjoys limited resources. To make this opportunity happen, Prof. X faces a dilemma. He can try to make the invention better by inviting many more people into his small tent: that is, he could “crowdsource” the idea transparently via the Web, collaboratively developing the IP with strangers across the globe. Yet, in this leap of faith, he would immediately lose the interest of risk-taking angel investors intrigued by his crude, early-stage idea. These investors get nervous about what strategists call ‘barriers to entry’ from companies that would compete with Prof. X if his market secrets were revealed. (He knows that acquiring a business methods patent now is highly unlikely in the current legal climate, and, at best, is just a right to sue and a windfall for patent lawyers). What’s more, these competitor firms have much deeper pockets than Prof. X. But, if the idea rockets to a stage of maturity through co-creation on the Web, bigger investors will flock to the idea, and they will help Prof. X get to the next stage quickly.

This strategic dilemma – for a small disruptor like Prof. X – is the opposite of what Clay Christensen was describing in his 1997 classic The Innovator’s Dilemma. In that book, Christensen explains that large well-managed companies can fail because the management practices that have allowed them to thrive (e.g., best-in-class customer relations management) also make it challenging for them to nurture disruptive technologies that might kill off their entire industry. That is, well-governed companies are excellent at developing the technologies that improve the quality of their products or services in the ways that matter to their existing customers in existing market conditions.

Christensen first coined the term “disruptive technology,” which is what open, collaborative innovation is meant to enable. But, for Prof. X and other small disruptors, is collaborative innovation the seed of disruption, or its nemesis?

Collaborative innovation, or crowdsourcing, presents a new kind of innovator’s dilemma. As Wikipedia explains, “Crowdsourcing is a distributed problem-solving and production model. Users – also known as the crowd – typically form into online communities, and the crowd submits solutions. The crowd also sorts through the solutions, finding the best ones. These best solutions are then owned by the entity that broadcast the problem in the first place – the crowdsourcer – and the winning individuals in the crowd are sometimes rewarded.”

Crowdsourcing, which can be easily criticized as outsourcing the risks of innovation, would not have been as simple as it is today without the Web. Consider, in this context, one of the most important new companies in the modern era of collaborative innovation: InnoCentive. If you haven’t heard of InnoCentive, then you do not mix with would-be innovators or entrepreneurs, who harbor strong feelings about it – either feverishly enthusiastic or derisory.

InnoCentive arrived in 2001, with seed funding from Eli Lilly. It presents R&D problems across many fields, from the maths to sciences, and positions them as ‘challenge problems’ anyone can seek to crack. It provides cash for the best solutions to solvers who meet the challenge criteria. In late 2006 the company inked an agreement with the Rockefeller Foundation to add a non-profit area to generate science and technology solutions to pressing problems in the developing world. For example, in 2007, InnoCentive’s Web site featured a $1 million award from the non-profit Prize4Life foundation for finding a biomarker that measures ALS disease progression.

The challenge I would pose to innovators is this: Is InnoCentive a success? One healthcare entrepreneur friend of mine, let’s call him Prof. Y, performed the following shotgun analysis (as of the time of writing):

  • Founded 2001
  • $16 million US of venture capital invested
  • Total Challenges Posted: 1,044
  • Total Solution Submissions: 19,346
  • Total Awards Given: 685
  • Total Dollars Awarded: $5.3 million [by third parties]

Prof. Y writes: “Better just to have the third parties post the challenges themselves on their own Web sites and issue the awards. This middle man (InnoCentive) seems to be adding the same value as VCs do (i.e., negative).”

Yet many believe InnoCentive and other open-innovation organizations (a rare phenomenon in healthcare) are creating a better world that would not have existed but for co-creation. It is also possible to consider InnoCentive as an intelligence-gathering machine in the disguise of an open innovation culture shift. Is this a company taking advantage, then, of other people’s collective wisdom under the illusion of promoting the beautiful promise of open innovation? Prof. Y says ‘yes’. “I, as an innovator, would be very careful about using such a service as this for the very reason that I would suspect that they are a disguised intelligence gathering machine!”

That being said, concedes Prof. Y, “open innovation can be useful to smart entrepreneurs in China or remote India if they have few other ways to access other co-creators in their own countries or beyond.”

What will be the future of the open innovation culture championed by InnoCentive? The market of Web usage statistics may help cast the final judgment (the daily Web reach for InnoCentive has been climbing). It seems the armies of open innovators in healthcare – many advocate for universal Creative Commons licences, and insist upon open-access publishing – are growing. And so, in the open innovation era, Prof. X may now need new people on his team. He needs more than elite ‘X-Men’ imbued with special, niche powers. He needs every man and woman.

About the Author

Neil Seeman is a writer, and Director and Primary Investigator of the Health Strategy Innovation Cell at Massey College at the University of Toronto.

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