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Opening Up the Innovation Process (continued)

Fiona MurrayFiona Murray

To help managers address these concerns, McCormack, Murray, and Wagner present a five-step process for how to run a competition: (1) frame the problem; (2) establish the prize; (3) select the participants; (4) define the process; and (5) build the platform. In addition, they list essential costs, some of which are more strategic than economic. For instance, businesses running competitions need to think about the disclosure risks involved. “In describing the challenge you seek to address,” they point out, “you are sharing important information with the world, which might be helpful to competitors.”

Both the benefits and challenges of opening up the innovation processes to the wider world are addressed in “Using Open Innovation to Identify the Best Ideas,” an article by two alumni of MIT Sloan’s doctoral program, Andrew King (a professor at Dartmouth’s Tuck School of Business) and Karim R. Lakhani (an associate professor at Harvard Business School and principal investigator of the NASA Tournament Lab). “Many of the best ideas for new products and services no longer originate in well-financed corporate and government laboratories,” they write, but in a wide variety of settings. “Increasingly, organizations are considering using an open-innovation process,” they note, “but many are finding that making open innovation work can be more complicated than it looks.”

King and Lakhani offer a framework for helping executives think through which aspects of the innovation process, if any, to open to outsiders. “When picking an open-innovation strategy, managers must choose whether to open the idea-generation process, the idea-selection process, or both,” King and Lakhani observe. In that choice, managers “can be reassured that their prior experience managing innovation is valuable; important elements of these processes remain the same. However, each element presents new challenges to managers.”

One such challenge stems from the way in which companies contract with outside idea generators. Contracting with outsiders who have ideas may seem straightforward, but it’s a significant departure from the way businesses typically operate: If a company hires a professional engineering firm to develop a new line of products and subsequently hires an advertising firm to create an ad campaign, there’s no question who owns the ideas created during the engagement. But with open innovation, idea ownership is less clear-cut, which can make outside idea generators hesitant to share their best ideas. What if a company steals their ideas? This lack of trust, the authors explain, is summed up nicely by a principle known as “Arrow’s information paradox.” It is named for Nobel Laureate Kenneth Arrow, who argued, as King and Lakhani explain, that “the value of an idea cannot be assessed unless it is revealed. But once it’s revealed, the potential buyer has it and can decline to pay for it.”

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