Realizing The Power Of Innovation Webs
Wikinomics:
Competing in the Age of Collaboration
by
Don Tapscott
Traditional enterprises give way to new models where
innovation is collaborative, distributed, and open
by Don Tapscott and Anthony Williams
There's a fundamental change occurring in how companies
innovate and create value. For most of the 20th century, innovation happened
inside the business. Companies worked internally to turn the latest scientific
and technological breakthroughs into products and services the market wanted.
They rarely looked outside for new ideas or inventions—and they didn't need to.
All innovations were fiercely protected through patents, trademarks, and
copyrights. When anyone infringed on these rights, the lawyers came out
swinging.
This classic model worked fine so long as innovators worked
alone on discrete and entirely novel inventions. But it's no longer reality.
Industrial-economy knowledge monopolies are breaking down. The means of creation
are proliferating, and open, interoperable standards and infrastructures are
beginning to replace proprietary systems and technologies. In turn, companies
are rethinking how they create and manage intellectual property (IP).
Some businesses are resisting the changes, but smart
enterprises recognize that innovation increasingly begins at the fringes.
Science and technology now evolve at great speed and delve into ever more
complex domains. Even the largest companies can no longer research all the
fundamental disciplines that contribute to their products. Nor can they control
an end-to-end production process or seek to retain the most talented people
inside their boundaries. In most industries, innovation increasingly depends on
dense networks of public and private participants and large pools of IP that
routinely combine to create end products. Firms can even tie into
self-organizing networks of value creators like the open-source movement to
co-create or peer-produce value.
To realize this innovation potential, companies need an
ecosystem that includes lots of partners, and people developing designs and
putting them together as customer solutions. That's why vertically integrated
R&D is yielding to joint ventures, licensing, outsourcing, and peering. And it's
the reason hierarchical enterprises must adopt business-web models, where
innovation is collaborative, distributed, and open.
Sound futuristic? It's not. Dozens of emerging enterprises
like CollabNet and NineSigma are making strides in this area, as are giant
pharmaceutical companies and established brands such as BMW, P&G, and Lego. They
all realize the potential benefits of innovation webs (I-webs).
Value innovation drives the unbundling of the vertically
integrated corporation, as authors Don Tapscott, David Ticoll, and Alex Lowy
argue in Digital Capital: Harnessing the Power of Business Webs (Harvard
Business School Press, 2000). The book explains how business webs (B-webs)
enable firms to conceive and create new value where vertically integrated
corporations typically can't. Thanks to the Internet and plummeting transaction
and collaboration costs, the global market of abundant knowledge and capability
is becoming available to every company.
What B-webs we weave
In the most elegant of B-webs, each participant focuses on a limited set of core
competencies that it does best. Some B-webs focus on integrating value:
facilitating the production of specific product/service offerings—cars,
computers, and consulting services, for example—by orchestrating value
contributions from multiple sources. Others, like retailers and financial
markets, aggregate discrete value offerings from a variety of sources.
Our new "Information Technology and Competitive Advantage"
investigation (see
Methodology) shows that through the lens of innovation, the parameters of
economic control and value integration define a taxonomy and new lexicon of four
primary types of I-webs: ideagoras, aggregations, peer-production communities,
and value chains (see chart below). Each is discussed in detail as follows.
Ideagoras. In ancient Greece, agoras were public
commercial centers where citizens assembled to debate and barter. Modern-day
agoras such as eBay enable buyers and sellers to freely negotiate and assign
value to goods.
Ideagoras, on the other hand, are open markets for
innovation. Early-stage ideagoras are springing up in many industries,
presenting an unprecedented opportunity to harness innovation outside the
enterprise. Consider, for example, the increasingly active trade in technology
components and IP rights. Companies used to seek patents to protect their
physical products. Today, growing numbers recognize that new and potentially
lucrative revenue streams can flow from IP as intangible as E=mc2.
That's
why patent licensing is evolving into a high-margin and highly scalable
business. Worldwide licensing revenue in 2002 was estimated to exceed $150
billion. And with a growth industry emerging to facilitate patent licensing
across industries and regions—including many new online marketplaces, such as
NineSigma, Yet2.com, and IP management advisories—revenue will grow even more.
Many companies are taking advantage: mining their portfolios, looking for
out-licensing opportunities, and taking technologies off the shelf that can
bring in revenue. At the same time, businesses are searching the world for the
greatest and most complementary technologies. Even the fiercely competitive
pharmaceutical industry is taking advantage of licensing opportunities to
develop complex biogenetics. (See the sidebar,
When To Open IP, When To Say No.)
This new marketplace for innovation has tremendous
competitive and economic advantages. An organization that can't successfully
market all the good ideas it creates can license them. Companies with no
competitive advantage in innovation can access leading-edge technologies for
much less than it would cost to develop them in-house. With the right approach,
industries can cross-fertilize. One industry's technologies may create
unanticipated efficiencies in another industry. The licensor gains a virtually
free revenue stream, and the licensee gains a welcome efficiency.
Aggregations. In an aggregation B-web, one
company—say, Amazon.com—leads in hierarchical fashion, positioning itself as a
value-adding intermediary between producers and customers. The lead aggregator
takes responsibility for selecting products and services, targeting market
segments, setting prices, and ensuring fulfillment.
I-web aggregations are similar—they're what you might call
innovation supermarkets. A central aggregator collects ideas, innovations, human
capital, patents, and other relevant resources, then offers them for sale with
or without a fee.
Consider, for example, the growing number of human-capital
networks that seem set to revolutionize the way most companies conduct R&D. Many
companies now realize that they can no longer rely solely on their own employees
to keep up.
New online services like InnoCentive meet the challenge by
aggregating human capital and making it accessible to innovation-hungry
companies. This visionary matchmaking system links experts to unsolved R&D
problems, allowing companies to tap the talents of a global, scientific
community without having to employ everybody full-time. Companies anonymously
post R&D problems, and successful problem-solvers receive a cash prize.
CollabNet, on the other hand, lets companies integrate self-organizing
communities into their rigorously structured product-development processes. It
provides work-flow and collaboration tools to harness the contributions of
thousands of open-source programmers.
Aggregations also provide shared infrastructures for
collaborative activities. Consider the growing adoption of an idea we call the
"pre-competitive information commons"— a common pool of knowledge and processes
upon which new innovations are built. Sometimes these knowledge pools get
clouded and dammed up by blocking patents that hinder the ability for ecosystem
participants to observe, learn from, and build on the work of others. But when
companies make efforts to aggregate some of this knowledge in the public domain,
they can considerably boost the productivity of downstream product development.
New Paradigm has looked extensively at the life-sciences
industry, where pharmaceutical companies abandoned their proprietary projects to
back open collaborations such as the Alliance for Cellular Signaling and the SNP
Consortium. Both projects aggregate genetic information culled from biomedical
research in publicly accessible databases. And they both use their shared
infrastructures to harness resources and insights from the for-profit and
not-for-profit research worlds. These efforts are speeding the industry toward
fundamental breakthroughs in molecular biology.
While these collaborations aren't producing end products,
they are providing the scientific infrastructure that will enable companies to
get there faster than they could alone. Better still, they help focus
proprietary efforts downstream, closer to the ultimate source of customer value.
Similar collaborative infrastructures can be found in the software industry and
even in financial services—for example, the Open Invention Network.
Value chains. In value chains, the context
provider structures and directs an I-web to produce a highly integrated value
proposition. The output meets a customer order or market opportunity—it can
range from a company buying office furniture, or an individual purchasing a Jeep
with custom trim, to Procter & Gamble manufacturing 20,000 case lots of Crest,
or IBM implementing an e-commerce infrastructure for a client.
The value chain I-web resembles the old vertically
integrated model of innovation in its command-and-control orientation, except
that a mix of open and proprietary collaboration is replacing the earlier
emphasis on ownership and integration.
In the current, more complex marketplace, everything from a
Nokia mobile phone to an Airbus A380 or an Intel chipset combines components
from multiple enterprises. Developing and bringing innovations to market now
means working with a business web of companies with complementary skills and
capabilities.
Businesses in an upstream-downstream interaction, for
instance, may produce complementary goods and have different but highly
complementary expertise. Airframe manufacturers, for example, cooperate with
electronics companies and engine manufacturers to design and develop aircraft.
Biotech businesses blend their strong research capabilities with the
complementary production and marketing machines of established pharmaceutical
companies.
Even ardent competitors can collaborate on certain areas of
research, especially where results are hard to keep proprietary or where certain
objectives are widely shared. When companies see past their rivalries,
industrywide I-webs let participants identify and act on scientific discoveries
with commercial potential more quickly, share the costs and risks of
pre-competitive research, and lower the transaction costs associated with
technology exchange by placing these cooperative development activities under a
unified governance structure.
Naturally, there are barriers to overcome. Problems related
to ownership and exploitation of IP can make proprietary research consortia and
joint ventures difficult. Participants may find it tough to clearly define the
boundaries of their intellectual contributions. Concerns about public disclosure
of proprietary information and disputes over future patent rights can create
friction. Avoiding these problems—not to mention trouble with the antitrust
authorities—is one reason a growing number of companies are embracing more open
models of collaborative innovation.
Peer-production communities are I-webs that
self-organize to create tightly integrated value propositions. They strive for
high-value integration with limited or no hierarchical control: Participants
design goods or services, create knowledge, or simply produce dynamic, shared
experiences. In a growing number of cases, customers or users play a prominent
role in value creation, as contributors or product designers.
We like to illustrate peer production with the story of
Second Life, currently an anomaly among multiplayer games. Most multiplayer
games are centrally architected with tightly controlled assets. Linden Lab, the
company behind the concept, has gone to the other extreme, opening up Second
Life's gaming environment in radical new ways. It produces almost none of the
game content (less than 1%). Instead, it makes powerful content-creation tools
available for users to create characters, environments, and actions.
The company estimates it gets up to 6,000 hours of "free"
development effort from its users every day, roughly equivalent to the work of
100 engineers. Participants own all the IP in their creations and can buy and
sell game assets to earn real money. Total traffic in virtual goods created by
users of games is valued at more than $100 million per year.
The Second Life collaborative approach offers advantages
that traditional, hierarchical models can't replicate. It makes a big impact
with fewer resources. It scales in ways that centrally designed systems cannot.
It benefits from positive feedback loops that are difficult for competitors to
reverse. And it innovates more rapidly, and engages stakeholders in loyal
communities because the players create the rules of the game, own their IP, and
even volunteer to provide customer support. Meanwhile, creators at Linden Lab
make money by taxing the virtual real estate owned by game "residents" and
selling "newly issued land" to new residents as the community of users grows.
Lego toys with Mindstorms
Then there's Lego Mindstorms. Best known for making little interlocking plastic
bricks, Lego increasingly focuses on high-tech toys. When Mindstorms made its
debut in 1998, marketing officials were surprised to discover that the robotic
toys were popular not only with teens, but also with adult hobbyists eager to
improve on them. Within three weeks of their release, user groups had sprung up,
and tinkerers had reverse-engineered and reprogrammed the sensors, motors, and
controller devices at the heart of the Mindstorms robotic system—and sent their
suggestions to Lego.
The company, at first uncertain about how to respond,
threatened to launch lawsuits. When users rebelled, however, Lego finally came
around and eventually created a Web site where customers can co-create products.
Now each time a customer develops and posts an application for Mindstorms, the
toys become more valuable.
In another case of peer-production communities, BMW
released a toolset on its Web site to encourage customers to design telematic
features for future cars. Thousands responded and shared ideas with company
engineers, some of which are now turning into valued initiatives. In fact, 15
participants were subsequently invited to work with BMW engineers.
Ideagoras, aggregations, value chains, and peer-production
communities define ideal types. Real-world I-webs, however, often blend features
of several types. Our research suggests there's no single winning model for
managing innovation. Business design entails crafting a competitive I-web mix
that draws on the many shades of this typology, and in fact, a portfolio of
models works best. Diverse innovation challenges and industry conditions require
diverse configurations of human, financial, and intellectual capital. Strategic
business factors drive companies to adopt one model or another in different
circumstances.
CIOs and chief technology officers (CTOs) can lead in the
shift to collaborative innovation. We suggest starting your planning process
with a comprehensive map of your innovation ecosystem that positions your value
creation and assesses the interdependencies that will determine the flow of
benefits and your ability to capture a significant share of them. This is not a
traditional competitive landscape or value-chain analysis, but an analysis of
the participants creating knowledge pertinent to your existing and future
business. While this includes business partners and competitors, it extends to
academia, public research institutes, think tanks, creative communities or
communities of practice, and contract research organizations. The map needs to
be global and cover all relevant disciplines that intersect with your strategy.
This map will help resolve important questions. For
example: Are there potential patent thickets or fences that could block our
entry into key markets or increase our R&D costs? Where are our competitors
innovating, and how should we focus our R&D resources to increase freedom of
action across our business lines? Are there potential partners we should be
cross-licensing? Are our employees plugged into the right knowledge-creating
networks? Could we invest in open infrastructures or academic partnerships to
reduce R&D costs and enhance our access to knowledge resources?
Next, balance your IP portfolio. Opening up IP can provide
a powerful tool for spurring innovation. Sometimes valuable follow-on
innovations will come from customers, the way Lego's Mindstorms products became
more valuable after the company opened up the source code. Other times,
innovations will come from collaborators in a community of practice, the way IBM
and others leverage contributions from the open-source community. None of these
innovations will occur if all IP is hidden.
Remember: Just as good personal-investment strategies
diversify assets across a range of low- and high-risk opportunities, good
innovation strategies diversify IP holdings across a range of open and closed
offerings.
Use IP licensing and cross-licensing opportunities to play
to your core strengths and harness external innovation. Concentrate R&D in areas
where you have the greatest competitive advantage, and use partnerships and
cross-licensing to acquire the rest. Plugging into Internet-enabled marketplaces
such as Eureka Medical, Pharmalicensing.com, and Yet2.com will ease the process
of finding buyers and sellers of IP. But bear in mind that internal R&D and
external acquisitions are complements, not substitutes.
Sustaining
an open-innovation ecosystem also means cooperating to supply the open
standards, shared IP, and collaborative infrastructures that will kick-start the
open-innovation process. Cooperating means overcoming the problems of motivating
and coordinating collective action. The secret to collective action and
collaboration webs is building a critical mass that will attract more
participants. Indeed, research shows that behind just about any successful
instance of collective action are a few highly interested and highly resourceful
actors who contribute to a common resource.
This investment may take different forms—for example,
large, IP-rich companies with the incentive and resources to make contributions
to the public domain such as IBM's recent nonassertion pledge for 500 patents,
or companies that invest in startup costs and adopt ongoing administrative and
maintenance responsibilities. These actors provide the social capital and
technical infrastructure on which other participants build. To extract long-term
benefits from shared resources, you may need to identify or help create this
critical mass yourself.
Strategies rooted in collaboration and self-organization
succeed because they're uniquely attuned to the current technology and business
environment. As more economic value shifts to information and
information-enhanced products and services, collaborative business webs will add
value and alter the dynamics in all industries. Companies that ignore this trend
will find themselves behind the curve, unable to innovate fast enough to keep up
with competitors—or, on occasion, with their own customers.
For many managers, the new, networked age of collaboration
will seem complex and uncertain. However, embracing openness and collaboration
doesn't mean companies must abandon control of their destiny. What it does mean
is having well-developed and well-understood internal goals to guide external
engagement strategies. Companies will need unique capabilities to work in
collaborative environments: capabilities to develop relationships, sense
important developments, add value, and turn nascent knowledge into compelling
customer-value propositions.
Don Tapscott is CEO of New Paradigm and author of 10 books
about IT in business and society. Anthony Williams is a senior analyst at New
Paradigm who's teaching at the London School of Economics. They're writing a new
book, Wikinomics: Competing in the Age of Collaboration (Portfolio,
2006).
How extensive are your collaboration efforts? Tell us at
optimizeletters@cmp.com.
See Related Articles:
The Power Of Shared Knowledge, May 2005
The Shifting Industrial Landscape, April 2005
The Invisible Hand Of Commerce, July 2004
How Exposed Are You?, December 2003
Selling Soap, Razors—And Collaboration
Wanna know what companies are already ahead of the pack
when it comes to collaborative innovation? Read the full
lists.
Sidebar: When To Open IP, When To Say No
Though the general trend and imperative is to pursue open, collaborative use of
intellectual property (IP), there are situations where core competencies and
business protections overrule. Consider the following rules of thumb:
Open IP when:
It can boost demand for complementary offerings and
provide new opportunities to create additional IP.
You need to lower barriers to entry or enlarge the
pool of talent addressing a particular R&D problem.
The advantages of pooling competencies and reducing
R&D costs outweigh the benefits of having exclusive rights to the knowledge
produced.
A shared infrastructure will encourage innovation and
interoperability with ecosystem partners.
A latent pool of knowledge could be tapped with a
modicum of organization.
Reciprocal-sharing relationships will develop
relationship capital with collaborators.
Pre-empting the property rights of competitors shifts
the locus of competition or enhances your freedom of action.
Openness removes unnecessary friction in
collaborative projects.
Keep your IP closed when:
Your end products—and particularly your crown
jewels—are at stake.
Proprietary IP gives you needed leverage in
cross-licensing and trading relationships.
IP rights are essential to stimulate and reward
investment, particularly when investment in the next generation of technology
would otherwise be underfunded.
Your technology or IP alone provides the gold
standard for your industry
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