The President and CEO of InnoCentive, Inc. talks about opportunities a global workforce provides during the economic downturn.

A Discussion About Crowdsourcing and Open Innovation With Dwayne Spradlin.

Question: What is open innovation?

Dwayne Spradlin: Open innovation is a notion that organizations that are traditionally looked inward to create products, to create scientific breakthroughs, things that advance their business typically are using people that look and act in certain way, it’s the four walls of the enterprise, the traditional not-invented-here. Open innovation tries to smash that paradigm and says you should be dealing with individuals and organizations from all over the world. What’s important is pushing your business or your foundation or your mission forward. It’s less important how you get the innovations you need to do that.

Topic: Becoming an open innovation company.

Dwayne Spradlin: An organization that wants to be an open innovation style company, as an example, will typically look at all of the projects in our portfolio, all the strategies, all of the ways forward, and they will portfolio manage those into different kinds of initiatives and agendas that need to be pushed forward as a business. Then they’ll choose very strategically which of those will go to the outside world, which to the inside world. They may decide a new line of business, really needs to be acquiring another company. That’s been done more traditionally.

But when you get down to brass tax and you say, we need a new surface material for a product we want to take the market, or we want to invite our customers in to help us redesign the next generation wireless network routing technology--that’s when organizations typically fall down.

In this new world, these large organizations are saying, from the top down, a substantial portion of our innovation is going to come from the outside world. We’re going to look at every one of our projects and we’re going to look for opportunities to put those in the outside. Actually, if we did it right, we’d say we should look for opportunities to do it on the outside, and only do some of those innovation in the inside if we have to. The organizations would structure so they’re better product management, the financial management. They should be calculating ROIs on every possible project.

Essentially realize then that you have an organization that’s focused on doing innovation wherever it happens, wherever it’s the best place to do the innovation.

Companies should really decide whether the world is their laboratory or the laboratory is their world. For companies where the laboratory is their world, they tend to be inward thinking. For the companies where the world is their laboratory, it’s an entirely different mindset and structurally their organized to make that happen.

Question: How do business innovation and sustainability work together?

Dwayne Spradlin: A business, whether it’s a large business, a small and medium business, should be thinking about what’s profitable. Where is the product I should be taking the market? Who am I going to sell it to? Etcetera. How do I build the right communities? Customer communities, employee communities, partner communities and by the way all of those communities are sources of innovation.

That becomes part and parcel to this notion of a constant innovation model. In the open innovation world, these sustainable businesses are focused much less on having to invent every piece of what they do and much more in creating a sustainable structure with which they can constantly innovate. So, when you look at business that are now really learning how to tap their customer base user driven design.

Five years from now, everybody’s going to look back and say that was intuitive, but the reality is five years ago, which you actually had to do to have a user-driven design style business was not done very often. People really should try to get their hands dirty trying to make it work.

Today, companies that get the killer business model right can effectively mine their communities and can create constant innovation through the use of their communities and application of their business models will be the businesses that I think will strive in the 21stcentury, and it’s even more so because now we are living in a world where you can get to market instantly. You can outsource manufacturing and other structures instantly. So, it’s the better business model, it’s who are your communities and mine them effectively and creating a structure that you constantly innovate, that’s the wining ticket.

Question: How can open innovation companies leverage talent?

Dwayne Spradlin: From an organizational point of view, it really is about talent management. The tools are changing, but the words are often the same. It’s about attracting talent, developing talent, and retaining talent. So in this new world, we see much more of a shift towards variable talent models and certainly engaging open innovation is a structure that allows organizations to--maybe the next heads I hire, I don’t actually hire, I virtually hire them. I get access to them through some of the global open innovation networks, or I get access to them through finding the right partners to help me move ahead as a business and that may very well be a superior economic for me, as a business to manage risk and cost.

Looking at this through the open innovation lens, it’s also a way for me potentially to get the market better, faster and more cost effectively. It’s not just the offset of cost, but in a world where 7 billion people, 6 billion people, you’ve people all over the planet that may actually have better ideas to solve a problem. They may actually be able to bring to bear some kind of an idea from another industry that it would have never occurred to my organization.

Question: How does an open innovation company work with its partners?

Dwayne Spradlin: What InnoCentive does is we’ve got a network today of almost 180,000, what we call solvers from around the world, 200 plus countries, 60% of them have masters and PhDs. They have backgrounds in everything from aerospace engineering to civil engineering, chemists to doctors. And they’re available to work in problems.

To answer your question, in our style of innovation, it’s not about managing the workforce, we do that via the model we engage in for the enterprise. So, if the enterprise has been able to identify effectively that it needs a new kind of a material for a product it wants to take the market, and it’s been unable to develop that material, what it will do is it will work with InnoCentive, or another party, and develop what we call a problem statement.

That problem statement is a well-defined need and success criterion coupled with an inducement, call it a prize. So for $50,000 if anybody in the world can solve this problem for me, for $50,000, I’ll take that intellectual property and gladly pay you the prize. This is a really important model because what it changes the question from how do you manage your global workforce of smart, intelligent, creative people to, how do I get everybody in the world who’s capable, ready, willing and able to work in this kind of a problem going to work in a problem for me. And I really only want to pay for success.

So this prize-based or inducement-based model turns out to be incredibly powerful.

Question: What opportunities does the economic downturn present businesses?

Dwayne Spradlin: Companies this time around I think have been much more resistant to just fundamentally cutting their innovations spent. I think it’s a lot more mature way of looking at the world because what it’s saying is we can’t control necessarily demand for our products during the downturn, but we want to be ready and willing and able, with all the right products when the economy comes back, to capture the full opportunity. So we’re gong to be there to take advantage of this crisis if you will.

That’s important because organizations then that substantially cut head count, that substantially change their business models, that made other kind of changes in their business, they very well be the disadvantage so in a crisis like this, the reality is you may not have the money in a way the way you did. So, you’ve got to look at how do I do both? How do I continue to be innovative? How do I continue to get my products out to market, but I may not have quite the same in the way of resources to put towards innovation as I did before.

That’s where something like open innovation comes to bear because these companies know they need to continue to innovate. They simply can’t turn it off because they’ll pay for that for years, but they got to do more with the same or less than they ever have before.

The smart CEOs right now are using this crisis as a vehicle not only for looking to capture more market share when the economy returns, but is a fundamental pivot point in which to change the way their businesses operate, to make them more competitive in the future.

Topic: Crowdsourcing and the environment.

Dwayne Spradlin: An organization called the Oil Spill Recovery Institute, based in Cordova, Alaska was really formed as a partnership between not-for-profit interests, government and the oil companies, after Exxon Valdez spill. They were focused on was: how do you clean up oil spills in sub arctic waters? Which requires kind of a different way of thinking.

Oil in sub-arctic waters get so cold it’s almost like a solid, you can’t pump it. So what most people don’t realize is that there are still ~80,000 barrels off of Prince William Sound, off the coast of Alaska that still haven’t been cleaned up from the Exxon Valdez spill. So in the last couple of years, after really years of trying to figure out how to get the oil out, and running up against this problem of very viscous, almost solid, oil they put a challenge on the InnoCentive network to try to find a solution to this. In about three months this was put out all over the world and dozens and dozens of really interesting, innovative and creative solutions came in. But they awarded the winning solution to a construction engineer from the Midwest. What he recognized is that keeping oil liquid in cold waters is not so different in trying to keep cement liquid in pouring a foundation.

Again, organizations would have never thought to look there. That’s the power of diversity--getting everybody involved in solving a problem.

It turns out what he recommended is that if you will off the shelf construction equipment that vibrates the cement keeps it liquid, with slight modifications could be used in the barge systems that are trying to pump the oil off the bottom of the Sound. So, they’re doing that now.

What’s most exciting about this for me is the follow up. There was a $20,000 prize and this gentleman John Davis flies himself to Cordova, Alaska, using the prize money, to meet the people he was helping. And now he is doing pro bono work for them, and the Oil Spill Recovery Institute now runs challenges routinely over InnoCentive. They call InnoCentive their virtual laboratory. We are their laboratory.

But the real moral of the story for me is this, he didn’t do it for the $20,000. He did it to make a difference in the world and that passion is probably one of the most important currencies you can imagine.

Recorded on: June 3, 2009.