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Borderless Innovation: Stretching Company Boundaries to Come Up with New Ideas

Published: February 17, 2010 in Knowledge@Australian School of Business
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A few years ago, researchers at Cincinnati-based consumer goods multinational Procter & Gamble (P&G) made a breakthrough that could revolutionize how food is wrapped and stored. But there was one problem, as Chris Thoen, director of innovation and knowledge management at P&G, recounted during a recent conference at Wharton's Mack Center for Technological Innovation. Despite a portfolio of more than 300 products worth nearly $80 billion, P&G didn't have a strong presence on supermarket food-wrap shelves, and it would take millions of dollars of marketing, packaging and other costs to change that.

The good news was that one of the multinational's biggest rivals, The Clorox Company, did have that presence, thanks to Glad food wrap. So P&G approached Clorox with an offer to collaborate. Seven years later, Glad's Press and Seal -- using P&G's technology, which embeds a kind of cement in small dimples in the cling film to increase its stickiness -- is a top-selling product and Glad is now a joint venture of the two companies, with P&G owning 20%.

"Glad had a great name in marketing and in manufacturing, and we brought a product technology in," said Thoen, describing just one of several approaches to collaboration that have had a dramatic impact on how the company has become more innovative over the past decade.

P&G isn't alone. As the conference -- titled, "Borderless Innovation: Management Practices, Promises and Pitfalls" -- highlighted, many of the world's top multinationals have been leveraging the latest technological developments, their expanding global business networks and even competitors' expertise to change the way they harness new ideas. But while these tools may make global collaboration easier than ever, there's plenty of work left to do to make "borderless innovation" deliver, as the seminar's presenters noted.

Indeed, the seminar's keynote speaker, Michael Mandel of BusinessWeek magazine, said most companies -- particularly in the U.S. -- suffer from what he called an "innovation shortfall." Part of the reason, he noted, is that it's one thing to develop new products and quite another to get them to market and make them commercially viable. That certainly was the challenge faced by the companies behind many of the widely hailed breakthrough technologies of the 1990s, such as gene therapy and alternative energy.

The Sum of the Parts

Yet Mandel and other innovation experts also expressed optimism about the new wave of web-based collaborative innovation, which helps companies overcome shrinking R&D budgets and brings together like-minded and creative problem solvers from around the globe.

"The network really changes everything," said Mohan Sawhney, director of the Center for Research in Technology and Innovation at Northwestern University's Kellogg School and author of a recent book on the phenomenon titled, The Global Brain. Tightening of R&D budgets is a major driver behind the change, he noted.  Western companies are looking toward Internet-based cooperation with technical experts in regions such as China and India because of the lower costs involved. Beyond costs, however, collaborative networks can develop superior products more quickly than the old "closed-loop," one-company model -- such as what Bell Labs has used -- "because the community is wiser than one individual."

As an example, Sawhney cited the success of Apple's iPhone, with an estimated 6.4 million units in use in the U.S. alone. The key, he said, was the ability of Apple staff members with different areas of expertise -- including music, phone and camera -- to work not only together, but also with outside innovators to develop more than 100,000 applications.

Success stories aside, however, "it's risky if you jump into [borderless innovation] and don't understand all the [internal] push backs," he said. Rather than racing to implement a program of borderless, networked innovation, companies should spend time understanding their culture, what they require from new products to deliver growth and the competitive landscape. To help companies get a better grip on their programs, he described several models that can be adopted to reflect their innovation needs:

  • The Orchestra Model, which is highly structured and centralized. It is typically focused on upgrading an existing product or service that dominates a market, with tightly controlled ownership of intellectual property. Examples include the iPhone, whose developers have been releasing roughly 10,000 applications a month for use with it, or India's ultra-low-cost Tata Nano car, which uses a localized network to manufacture units from a fixed design.
  • The Creative Bazaar Model, which is based on leading players in a particular market that want to acquire new ideas from small companies or individual inventors in order to broaden their range of products and market position. A case in point is Dial. The soap manufacturer aims to find 30% of its new ideas from outside the company through a program called "Partners in Innovation" that it launched with the New York-based United Inventors' Association, an organization founded in 1990 to foster education and support for inventors. 
  • The MOD ("MODification") Station Model, in which ideas come from a broad, global community, with the goal of coming up with new uses for existing products. One example is Mappr, a photo service developed by Stamen, a company in San Francisco. As users of Facebook and other social networking sites tag open-source photos, they help to build a database that Mappr uses to create photographic guides to different geographic locations.
  • The Jam Central Model has the loosest organizational structure and mission, often involving experts asked to solve problems that might not fit well into a large corporate profit strategy. For example, for the Tropical Disease Initiative, volunteer scientists are using open-source collaborative software to address Third World health problems, such as malaria and dengue fever. The medicine needed to cure these diseases does not have the recurring revenues that pills for chronic conditions have, so it attracts little attention from the big pharmaceutical companies.

Breaking News

As several speakers at the conference observed, borderless innovation has a variety of definitions, and in the case of General Electric (GE) -- the world's largest company with 323,000 employees in businesses ranging from jet engines to TV news -- it means breaking down internal "silos" to encourage collaboration. This is where Healthymagination comes in, said Trajan Bayly, director of the initiative launched by GE Healthcare in May 2009. Itaims to lower health care costs and improve how patients are cared for by 15% in more than 100 fields by 2015. One area of focus is the poor or non-existent medical record-keeping in rural, Third World locations. By using hand-held electronic devices developed or improved by GE, record-keeping in these areas could be made more efficient and reduce medical errors.

Part of the strength of the initiative lies in its ability to tap into the expertise of GE's numerous business units that have not been focused on health care issues previously. "When you think about [GE-owned] NBC, it's always in terms of news or things like how do we sell more advertising for The Biggest Loser," Bayly noted. But since the launch of Healthymagination, GE's television units have been promoting and providing coverage of free health care clinics in America's inner cities operated by Remote Area Medical, an airborne corps of doctors that specializes in Third World and rural U.S. locations.

One of the trickiest challenges for borderless innovation, however, is making sure global innovators understand local customers. In the case of Vodafone, the world's largest mobile telecommunications company with 303 million customers worldwide, "innovating is where the customer is," said Paul Davey, head of R&D at the U.K.-based company. "Because if they live the problem, they'll [understand] the solution." That can at times mean coming up with very specific, tailored approaches to address consumer concerns. For example, in under-banked parts of Africa, Vodafone recently developed a novel system for paying rural health workers via their cell phones.

Customers have another role to play in borderless innovation. Several other speakers at the Wharton seminar remarked how such innovation requires a much broader, richer dialogue involving not only experts, but also rank-and-file consumers. That's clearly the case with P&G's well-documented Connect + Develop program. Launched in 2006, Connect + Develop offers a website for members of the public and employees to visit and submit ideas, which then undergo a technical review and weeding process.

According to P&G's Thoen, a surprisingly large number of ideas -- about 4,000 in the last year alone -- come via the site. "Most of them are not what we're looking for," he said. "But about 8% are substantial things that we need to look into. Every business unit is looking into one opportunity -- some of them are things that we didn't even know we needed to figure out."

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