Open Innovation: The Open Secret in Marketing

January 2019

Every consultant and B-school professor will tell you that the linchpin of success in marketing is the right consumer insight. Breakthrough products and award-winning brand communications all depend on breakthrough insights, and that’s why brands invest millions in developing consumer empathy. 

Understandably, these efforts consume massive quantities of an organization’s time, talent, and funding (more than $530 billion was spent on research and development in 2018 according to R&D Magazine¹), a seemingly endless cycle of ideation informed by research reports, focus group transcripts, and the like — all part of the hunt for that gut feeling that signals an organization has found a viable human truth. 

TRADITIONAL APPROACHES ARE FILLED WITH RISK 

Despite these investments, the task of finding the right insight isn’t getting any easier, nor are positive outcomes any more assured. The vast majority of new products fail² and half of startups go belly up within five years³ in part because marketers face an overwhelming number of real-time data signals and fickle customers (Apple Newton, Microsoft Zune, Google Plus, anyone?). 

How does a brand really know if an insight will fly? Based only on the information available at the time, how could Nike have known whether its sponsorship of Colin Kaepernick would resonate with consumers or motivate them to burn their Nike shoes?⁴ How might Pepsi brand managers have anticipated that the Kendall Jenner public rally ad would miss the mark⁵, trivialize the Black Lives Matter movement, and push people into the hands of Heineken? Instagram just introduced IGTV to help spur growth, not to disappoint consumers.⁶ 

Pepsi, Nike, Instagram, and other leading brands all have unfettered access to a vast portfolio of tools for insights — focus groups, syndicated data sources like MRI, even employee suggestion boxes — so what’s stopping them from achieving real, sustainable breakthroughs? 

A BETTER WAY 

One reason why traditional approaches to innovation are increasingly inadequate is that they share a common design flaw: They rely almost exclusively on internal domain experts to prioritize, select, and commercialize promising ideas. Unwittingly, firms are limiting their chances for success by placing their faith in a tiny group of experts who are subject to innovation-limiting human flaws like group-think, cognitive homogeneity, and solutionism⁷. These cognitive biases act like invisible and pernicious filters, limiting the field of view, fixing the mind on established methods and received definitions, and rejecting the unorthodox and the truly novel (those places at the margins where breakthroughs live). 

The paradigm of digital changes the innovation playing field fundamentally. In fact, the traditional “closed” model of innovation might increasingly seem like an anachronism in the connected age. Recent real-world experience and longitudinal studies of crowdsourcing have shown that shifting the locus of control for innovation to outside the firm (or to a hybrid/collaborative model) opens the aperture of discovery paths, leading to unprecedented solutions.⁸ Often, breakthroughs can be achieved in dramatically shorter timescales compared to traditional “closed” research and development approaches. The advantage of crowd-powered or open innovation is that … “[t]he collective insight of a large number of individuals is superior because of the diversity and breadth of ideas and knowledge these people bring.”⁹ Thus, the crowd is not simply a large collection of eyeballs; the crowd is many different ways of seeing.¹⁰ 

This new model of distributed innovation enables firms to “harness the creative and competitive spirit of people all over the world, enabling them to solve big problems as well as small ones.”¹¹ This new model also means that the next big idea critical to your company’s growth isn’t likely to come from someone you currently employ (see the sidebar Crowdsourcing in Practice). 

With regard to expertise, the overwhelming scientific consensus is that crowds outperform elite technologists at some of the best scientific institutions in the world, like NASA, Pfizer, and the Scripps Institute.¹⁹ GE has completed over 175 crowd-powered projects that have realized $5 billion in savings for the firm that GE’s internal experts missed.²⁰ NASA has conducted over 300 crowd projects, and more than 80 percent of those initiatives resulted in cost savings.²¹ “Crowdsourcing allows for multiple shots on the goal, multiple eyes on a singular problem, inviting an outlier perspective and the potential to generate extreme value outcomes.” As the examples with solar flares and potato chips demonstrate, the most innovative solutions come from the least-expected sources (viz., non-experts). Message to marketers: You aren’t as hot as you think you are. 

Concerns about intellectual property are also readily handled through clever formulation of the challenge language. In the potato chip case, the challenge given to the crowd didn’t reference a brand or the product category. The challenge obliquely asked, “How can a viscous fluid be removed from a delicate wafer?” In the solar flares example, the challenge was posed in such a way as to broaden the base of potential solvers to include anyone who had a mathematical and data-analytic background (not only astrophysics). This practice of benign obfuscation (known as “decontextualization”) can easily protect sponsor identities and other bits of sensitive information. 

Message to marketers: Nothing new here. We have always had access to sensitive information, and this open innovation movement can fit in with the standard practices we all follow to protect clients’ IP. 

Finally, culture change is often the undoing of many promising technological innovations. We get it: Change is hard. But we think it’s important to recognize that crowdsourcing is neither a panacea nor a threat; it’s a set of tools and a way of approaching problems. Open innovation provides a means of addressing challenges, it’s not the end in itself. Therefore, the role of the marketer simply evolves and expands to include problem owner (responsible for decontextualizing the challenge and stewarding the process), solution curator (for curating the many potential solutions generated by the crowd), and finally, implementer (moving proposed solutions from idea to reality). 

OPEN INNOVATION IS HAVING A MOMENT 

Crowdsourcing is a familiar concept to most people. Many of us use open-source software, reference Wikipedia, or maybe contribute to Kickstarter or GoFundMe campaigns. In each of these cases, we are the beneficiaries of the unique power of crowds and the efficacy of distributed problem solving. Less familiar to many is how mature crowd-powered methodologies have become and how our empirical knowledge of their applicability has grown. 

Precisely because of this maturity and applicability, we believe open innovation in one form or another is here to stay. Breakthrough insights are evermore critical, increasingly expensive, and harder to find. The companies that win will be the ones that are able to do more, faster, and with less.

The power of the crowd is the future. As marketers, our organizations rely on us to have our fingers on the pulse of what consumers want so that we can ensure our organizations thrive. Crowdsourcing can be our secret weapon. 

¹https://www.machinedesign.com/industrial-automation/rd-spending-trends-more-innovation-horizon/ 

²https://www.cbinsights.com/research/corporate-innovation-product-fails/ 

³https://www.fundera.com/blog/what-percentage-of-small-businesses-fail/ 

⁴https://www.businessinsider.com/nike-advert-with-colin-kaepernick-has-people-burning-products-2018-9 

⁵ Pepsi admitted that the blunder “could create further losses in the value and strength of its brand,” beyond the 4% brand value drop to $18.3bn that it experienced in 2016, according to Brand Finance. 

⁶https://www.adweek.com/digital/instagram-users-are-disappointed-with-igtv-now-what/ 

⁷ Hila Lifshitz-Assaf. “Applications of Problem Decomposition.” Presented at the Crowd Academy Conference, Laboratory for Innovation Science at Harvard, Cambridge, MA, July 2018. 

⁸ State of Crowdsourcing. Open Assembly Quarterly, November 2018. 

⁹ WSJ article: https://www.wsj.com/articles/benefits-of-crowdsourcing-1414625224 

¹⁰ Nicholas Carr (2007). The Ignorance of Crowds. https://www.strategy-business.com/article/07204?gko=6c4ad 

¹¹ WSJ article: https://www.wsj.com/articles/benefits-of-crowdsourcing-1414625224 

¹²https://hbr.org/2011/08/henry-ford-never-said-the-fast 

¹³https://www.scribd.com/doc/43945579/Playboy-Interview-With-Steve-Jobs 

¹⁴https://www.forbes.com/sites/chunkamui/2011/10/17/five-dangerous-lessons-to-learn-from-steve-jobs/#7453e4123a95 

¹⁵https://www.nasa.gov/centers/johnson/news/releases/2010/J10-017.html 

¹⁶ Open Assembly Quarterly State of Crowdsourcing Report. “Co-Creating the Future of Work. (Fall 2018) 

¹⁷https://www.hyve.net/en/news/rescue-mopeds-life-savers-from-the-crowd/ 

¹⁸ Assembly: Jin Paik & Karim Lakhani (November, 2018). Economic Impact of Large Scale Software Projects: The Case for Centers for Medicare & Medicaid Services Provider Screening Challenge. Laboratory for Innovation Science at Harvard, Cambridge MA. https://innovationscienceguide.org/resources/economic-impact-of-large-scale-software-projects-the-case-for-centers-for-medicare-medicaid-services-provider-screening-challenge 

¹⁹http://lish.harvard.edu 

²⁰ Open Assembly Quarterly State of Crowdsourcing Report. “Co-Creating the Future of Work. (Fall 2018) 

²¹ Dyan Finkhousen. “Internal and External Crowds.” Presented at the Crowd Academy Conference, Laboratory for Innovation Science at Harvard, Cambridge, MA, July 2018.