Creation Nets: Getting the Most from Open Innovation
A typical large company can no longer rely solely on its own resources. Creation networks are a promising way to move beyond them.
Some executives may be familiar with the many variants of open innovation, a number of which stray a considerable distance from traditional "closed" models of innovation management. Despite the familiarity of these ideas, persistent doubts and misunderstandings often make it hard to generate value from them. At one extreme, many people ask whether distributed models of innovation aren't notoriously hard to control, manage, and commercialize. At the other extreme, open innovation may seem to be mostly about narrowly defined joint ventures or transactions to acquire intellectual property created by others. If so, what's all the fuss about?
In truth, except for narrowly scoped forays (such as the licensing of technology) outside the confines of the enterprise, few top executives believe that they understand how best to create value with the open model of innovation. This uncertainty prevents many of them from taking advantage of the very real opportunities it presents. That's why companies must visit the peripheries of today's commercial and scientific worlds to recognize the patterns that emerge across very diverse domains.
Such patterns reveal intriguingly promising "networks of creation" (or "creation nets"), where hundreds and even thousands of participants from diverse institutional settings collaborate to create new knowledge, to learn from one another, and to appropriate and build on one another's work all under the guidance of a network organizer. These diverse participants often work in parallel and then fight and learn among themselves when the time comes to integrate their individual efforts into a broader offering. The most widely publicized example may be the development of the Linux kernel by the open-source software movement. But creation nets are also visible in more unexpected fields and places, from the development of motorcycles in China and of consumer electronics products in Taiwan to the world's big-wave surfing beaches, where networks of sports enthusiasts push the technology and techniques required to ride 60-foot-plus waves, and the places around the globe where thousands of amateur astronomers operate telescopes tied together by the Internet to find and monitor celestial events.
Why Creation Nets Matter
Unlike information, which can be codified and disseminated more readily, knowledge tends to reside in individuals and is very context specific. You need close relationships with diverse sets of people and institutions when you want to create new knowledge jointly and deliver innovations to the market.
Narrower approaches to open innovation typically fail to create and encourage these rich, sustained interactions and collaborations. Joint ventures, for instance, typically involve a limited number of participants, but creation nets mobilize hundreds or thousands. The licensing of technology involves arm's-length transactions, but creation nets rely on long-term relationships. Some open-innovation initiatives focus on collaboration with lead customers; creation nets involve a broader range of participants, such as specialized technology providers, talented amateurs, suppliers, and customers.
As we shall see, the institutional mechanisms of creation nets help overcome these very real difficulties and provide for the diverse kinds of collaboration needed to support sustained innovation in a world of far-flung knowledge and talent.
How Creation Nets Work
Although creation nets thrive in many different parts of today's global economy, they may not be fully visible to casual observers. Many Western executives, for example, go to original-design manufacturers (ODMs) such as Lite-On Technology and Compal Electronics, which are based in Taiwan but have expanding operations in mainland China, to source designs for a wide range of consumer electronics and high-tech products. From the perspective of these executives, they are dealing with a single outsourcing provider. Yet behind the scenes, the ODMs are mobilizing large creation nets to push the performance envelope of the products they design.
Creation nets work by mobilizing hundreds or thousands of independent entities in the pursuit of distributed, collaborative, and cumulative innovation. The creation nets orchestrated by ODMs, for example, can bring together myriad highly specialized component and subsystem vendors from different business ecosystems, including disk drive manufacturers in Singapore, lens designers in Japan, semiconductor designers in Taiwan, and software engineers in Bangalore.
Creation nets typically organize their activities into modular processes, which make it easier to incorporate large numbers of participants and to give them the freedom to innovate within their own module of activity. Well-defined interfaces make it easier to coordinate activity across modules. The modularity of creation nets thus allows many participants to innovate in parallel and to pursue, simultaneously, a variety of ways of meeting a project's requirements.
While creation nets are loose in one dimension the freedom to innovate they are remarkably tight in another: defining clear "action points" when participants must come together and deliver outputs. Where inconsistencies or incompatibilities exist, participants must make clear choices to produce an integrated product or offer for use by others. If the design of the electronics in a digital still camera's sensor depends on the auto-focus functionality of the lens, for example, the two subsystem designers need to resolve any issues together.
Building and Participating in Creation Nets
To harness the institutional mechanisms that give creation nets their power, executives will have to master new management approaches. Four are particularly relevant: choosing appropriate ways to coordinate the activities of the network, balancing local innovation with "global" integration, designing effective action points, and establishing useful performance feedback loops.
Choose the right approach to coordination. Although creation nets share many characteristics, they differ in notable ways for example, the degree of diversity among their participants. Open-source software initiatives and extreme-sports networks, two of the best-known examples of creation nets, bring together participants who share relatively extensive sets of practices. Such groupings, which we call "practice networks," rely on looser forms of coordination.
Other types of creation nets mobilize participants with very different practices and experiences. As a result, these networks, though still far too loose for the comfort of most executives of large enterprises, require more active forms of coordination. We categorize this subset as "process networks."
Because of the diversity among the participants in process networks, their organizers play a more active role in mobilizing them specifically, the part of orchestrator: recruiting participants into the network and then deciding which of them will be involved in each creation initiative, the specific role they will play, and the performance requirements they must satisfy.
In contrast, practice networks are coordinated much more loosely, both for recruiting participants and for managing specific creation initiatives. Network organizers tend to focus their coordination activity on the integration stage of the creation process, when the contributions of the participants are brought together and incorporated into a consistent or compatible release.
The general point is that executives must carefully consider how great a diversity of skills and experiences their creation networks require and then tailor their coordination approaches accordingly.
Balance local innovation with "global" integration. Some creation nets of all types involve looser forms of management. Others are managed more tightly. To strike the right balance, it is important to differentiate among three primary challenges in the creation process:
- Accessing and developing highly distributed talent.
- Providing appropriate contexts for the participants to come together and engage in collaborative experimentation, tinkering, and innovation.
- Effectively integrating the creations of diverse participants into shared releases.
Often, a creation net's collaborative experimentation, tinkering, and innovation activities are the least actively managed ones perhaps the most challenging aspect for executives of traditional companies to embrace. After all, isn't the whole purpose of creation nets to drive innovation? If so, shouldn't the network organizers devote most of their time and attention to that? Surprisingly, the answer is no.
Design effective action points. The essential point is that diverse participants must confront and resolve any significant differences in approach. Rather than determine outcomes by developing blueprints, the designers of effective action points specify high-level performance requirements and give the participants a substantial degree of freedom in meeting them. Greater freedom means a greater opportunity for divergence, especially in those parallel innovation initiatives, involving many participants that modular approaches to management make possible.
When incompatibilities emerge across a product's modules or subsystems, the network organizer encourages the relevant participants to swarm the problem and resolve it on their own. Each participant understands that its designs will be included in the next release only if they work well with other parts of the product. Participants must therefore continually identify and make trade-offs between optimizing the performance of their own components and the broader performance requirements of an integrated product. On the margin, the ability to work effectively as part of a broader system determines which components are integrated into the final release.
Establish performance feedback loops. Although creation nets may use much looser management techniques than more traditional approaches to open innovation do, they operate successfully in some of the most demanding global markets imaginable, from fashion apparel to enterprise software. Loose management doesn't mean sloppy performance; on the contrary, these creation nets perform at a very high level. More important, they continually improve their performance at a faster pace than conventional enterprises can match.
How? In part, the answer is the tight focus on relevant performance requirements. But something more is involved. Successful creation nets build explicit performance feedback loops to give participants a much better idea of how they are doing.
To establish these performance loops, network organizers focus on three key design principles. First, they encourage rapid movement from concept to prototype. The faster participants can come up with prototypes, the easier it will be to test their performance, especially in concert with other components and subsystems. Second, the organizers define early and frequent rounds of performance tests so that participants gain early insights into performance issues and can make changes rapidly to solve any problems that arise. Finally, they establish broad-based communication mechanisms so that everyone in the creation net gains access to performance data quickly and easily.
Getting There from Here
The case for open innovation is clear: in today's rapidly moving world, companies can ill afford to retain outmoded closed models of innovation management. The case for creation nets as the best form of open innovation should also be clear: the institutional mechanisms embedded within them help to overcome its thorniest challenges. Furthermore, these networks focus solely on creation, so they promote innovation more than do stand-alone corporate enterprises, where executives must reconcile the competing demands of managing both innovation and routine operations.
Yet the case for creation nets does not extend to every corporate situation and endeavor. They work best in areas with three attributes: uncertain demand for goods and services, a need for the participation of many different specialists if creation and innovation are to occur, and rapidly changing performance requirements in the marketplace. In these areas, creation nets have their most distinctive value: the ability to mobilize dispersed and diverse talent for innovation in a flexible way, whatever the scale.
A creation net gives executives an opportunity to amplify open innovation's potential, but they can realize it only by challenging dominant ways of thinking. Those who do may, at long last, close the gap that has made open innovation a seductive mirage and an exercise in frustration for many of the companies that have tried to exploit its promise.