The Next Wave of Open Innovation

How InnoCentive aims to exploit sophisticated technology and networking capabilities to connect problems with their potential solvers

By John Hagel and John Seely Brown

Open innovation has become an important management trend over the past decade. Yet, despite great initial success, some of the most prominent examples of open innovation have had serious limitations. We are now on the brink of a major evolution of open innovation.

Henry Chesbrough, a professor at the University of California at Berkeley, coined the term "open innovation" to describe a growing number of initiatives by companies to reach beyond their own walls to use talent and ideas from others. Perhaps the poster child of open innovation, inevitably mentioned in any discussion of the topic, is InnoCentive, a Waltham (Mass.) company spun out from Eli Lilly (LLY) in 2001.

InnoCentive was the brainchild of two Lilly executives, Alpheus Bingham and Aaron Schacht, who were seeking to exploit the power of the Internet in discovering solutions to challenging research problems. InnoCentive, which now has 32 employees, became the first global Internet-based platform designed to help connect Seekers, those who had difficult research problems, with Solvers, those who came up with creative solutions to these problems.

Matching Questions to Answers

There were many keys to the early success of InnoCentive. First, it carefully defined a governance structure designed to protect intellectual property from both the Seeker and the Solver perspective. Second, it reduced barriers to participation so that it could scale quickly. Third, it reached out to a very diverse group of Solvers, increasing the likelihood of solutions coming from very unexpected directions.

At the outset, InnoCentive was designed to connect individual Solvers with Seekers in short-term, standalone transactions. Seekers would post a high-level problem statement. Individual Solvers would volunteer to explore the problem and they would be provided additional information under a non-disclosure agreement to help them search for a solution. Solvers would then submit a proposed solution to be evaluated by the Seeker. If the Seeker was satisfied that the solution worked, a pre-specified monetary award ranging from $5,000 to $1 million would be awarded to the Solver, and the intellectual property associated with the solution would be transferred exclusively to the Seeker.

Since 2001, more than 170,000 participants from over 175 different countries have registered as Solvers. More than 800 problems have been posted, and almost 400 solutions have been found. This represents almost a 50% success rate on problems that had stumped internal research and development staffs. Almost $20 million in awards have been posted, while almost $4 million in awards have been paid out to successful Solvers. Given this success rate, InnoCentive has attracted a large and diverse set of organizations as Seekers, including Eli Lilly, Procter & Gamble (PG), Avery Dennison (AVY), Janssen, and the Rockefeller Foundation.

Assuring the Reward

InnoCentive basically acts as a facilitator, providing a platform that helps Seekers and Solvers to connect and defining a set of protocols for how the relationships will be built. It remains entirely at the discretion of the Seekers whether they select a solution, or what criteria they might use in making that decision. At the same time, InnoCentive does protect Solvers against the possibility that a Seeker might use a proposed solution without offering the stated reward to the Solver. Intellectual property protection is clearly defined for both Seeker and Solver from the outset.