Innovation Brokering

For many firms, innovation is a critical driver of growth and profitability. Excellent examples of firms that have grown and profited via innovation include 3M, Apple, and LG. Traditionally, the innovation process at most firms has largely operated as an internal function in which the planning, research, development, launch, and marketing of a new product is largely conducted by its employees. While this internal approach has produced many successes (e.g., Post-It Notes, iPhone, LED television), most new products developed via this traditional approach fail to deliver on their objectives. Thus, an increasing number of firms, including 3M, IBM, and Procter & Gamble are supplementing their traditional internal approach with external innovation efforts that incorporate the know-how and wisdom of millions of individuals across the globe.

This externalization initiative can come in many forms, ranging from bringing lead-users more actively into idea generation activities to turning the entire new product development process over to one’s customers. An intriguing middle ground is the recent rise of on-line innovation brokers such as InnoCentive, NineSigma, and IdeaConnection. In essence, these organizations serve as middlemen between firms seeking solutions (i.e., seekers) to specific innovation challenges and individuals interested in offering solutions (i.e., solvers) to these challenges. On average, online innovation brokers claim that their services solve nearly half the challenges posed by seeking firms. Thus, a growing number of firms across several industries (e.g., pharmaceutical, chemical, textiles, packaged goods) are employing these brokers. For example, the challenges currently posted on InnoCentive’s website include firms seeking innovative solutions for new uses for cotton, more sustainable packaging materials, and new insulin delivery systems for patients in developing countries.

Online innovation brokering services such as InnoCentive are a great example of the opportunities afforded by globalization. These opportunities are particularly exciting because they provide potential benefits to both firms seeking solutions with their innovation activities as well individuals capable of providing these solutions:

Benefits to Seekers

Access to an expanded knowledge base. Innovation brokers provide seeking firms with access to the wisdom and know-how of thousands of individuals, many of whom are well qualified experts in one ore more scientific disciplines. For example, InnoCentive currently has more than 160,000 registered solvers (across over 80 countries), 40% of whom have a PhD. Thus, there is a good chance that one or more of these experts will be able to generate a suitable solution to almost any innovation challenge.

Low cost solutions. The recruitment and hiring of a scientist or an engineer into a firm can easily cost tens of thousands of dollars in addition to the cost of his or her salary and bonus. Moreover, once hired, employees require substantial administrative and training costs and may be difficult to fire if they perform below expectations. In contrast, innovation brokering provides a considerably lower cost option, as most solvers are rewarded between $10,000 and $20,000 for a winning solution. In addition, seekers are typically under no obligation to pay this reward if none of the submitted solutions meet with their approval.

Anonymity. Because online knowledge brokers act as a conduit between seekers and solvers, firms concerned about protecting their privacy can remain anonymous. Indeed, most solvers have little or no knowledge of the identity of the seeking firm. This anonymity reduces the likelihood of competitive response and helps a seeking firm protect its intellectual investments.

Benefits to Solvers

Democratization of innovation. Under the traditional approach to innovation, solutions are largely generated by a small group of high-level managers, many of who attended elite universities. Thus, this process is somewhat totalitarian in nature. Online innovation brokering democratizes the innovation process by opening it up to the masses. Anyone with access to the Internet can become a potential solver, as registration at most online brokering services is free and easy. As a result, these solvers come from all walks of life and reside not only in advanced economies such as the USA and South Korea but also in such emerging economies as Ghana and Vietnam.

Obtainment of extrinsic and intrinsic rewards. As noted earlier, in exchange for a winning solution, solvers typically earn between $10,000 and $20,000. Although these amounts are rather incremental for most firms, they represent substantial earnings for many individuals. In addition to financial remuneration, successful solvers gain valuable additions to their resume and increase their employment value to other firms. On top of these extrinsic rewards, many solvers report that they intrinsically enjoy the process of formulating solutions and view their efforts as a means of improving society by helping create new products and improved processes.

As illustrated by this example, globalization is dramatically changing the economic landscape and empowering individuals to perform activities that were formally conducted within a firm. While some may view these changes as a challenge, they also represent a substantial opportunity for forward-looking firms and individuals.


Est. 2008 | Aric Rindfleisch | Wisconsin School of Business | Banner Image by Bruce Fritz