Innovation inside out

Computerworld - Aided by the Internet and advanced search techniques, a handful of companies is leading a revolution in the way new products are designed and developed. By looking beyond their own R&D labs -- to suppliers, universities, freelance inventors and even competitors -- they are accelerating the pace of innovation while sidestepping the costs and risks of in-house research.
"The R&D model that most companies are following is broken," says Larry Huston, vice president for research and development at Procter & Gamble Co. in Cincinnati. "There's a drive to increase innovation budgets beyond the [revenue] growth of the firm. That's not a sustainable business model."
But P&G, which spent $1.7 billion on R&D last year, has found a new model, called open-market innovation. Indeed, the consumer products maker has embraced the idea so enthusiastically that it no longer refers to its product-innovation process as R&D; it's now C&D, for "connect and develop."
P&G makes the connections among its employees and external sources with a variety of tools and techniques, including an intranet, Web sites, commercial and homegrown search engines as well as several "innovation networks" -- intermediary companies that match innovation seekers and suppliers. In just two years, the company has boosted the percentage of product innovations that come from outside sources from less than 20% to 35%. P&G's CEO wants to raise that to 50%.
"This is a classic application of the Internet, going back to its origins," says Darren Carroll, CEO of InnoCentive Inc., one of the innovation matchmakers. "For those of us on Arpanet in the beginning, it was all about scientists and engineers sharing problems and solutions."
Innovation Networks
The following are some of the resources P&G uses to connect and develop:
• InnovationNet. InnovationNet is an intranet Web portal for 18,000 P&G innovators in R&D, engineering, market research, purchasing and patents. Nabil Sakkab, a senior vice president for R&D, calls it a "global lunchroom" for the exchange of ideas.
• InnoCentive. Founded by Eli Lilly and Co. but operating independently, Andover, Mass.-based InnoCentive claims to be the "largest virtual laboratory in the world." It posts scientific problems from its 30 "seeker" members to a proprietary network of 70,000 registered "solvers" around the world. Each posting includes a promised cash award for the solution. (The problems, which are well defined and typically have provably correct answers, can also be viewed at www.innocentive.com/servlets/project/ProjectInfo.po). "The success rate so far has been around 50%," Sakkab says. "Not bad for problems we failed to crack in-house."
• NineSigma Inc. This Cleveland-