An Example: The Innovation Happens Elsewhere Strategy

FIGURE 4.1. The Innovation Happens Elsewhere strategy

Giving gifts of technology and tools initially spurs outside individuals to work on or with those gifts for their own benefit--perhaps one of the tools is useful to a software developer for one of his or her home projects. Later, that developer might bring the tool into his or her company, where colleagues start to use it for their own purposes. Because the tool was a gift (and perhaps its source is available), individuals and their companies send bug fixes, extensions, modules, and ideas back to the IHE company. The gift has been picked up--for selfish purposes--but it stimulates a gift in turn of work that is of value to the IHE company directly, which takes those tools, technologies, prototypes, and ideas back and uses them to enhance its own products. In the open-source realm, this is the fundamental expected payback for opening up software source. For the IHE company, this is only the beginning.

Next, an outside company using gifts from the IHE company recognizes that these tools, technologies, and prototypes can be combined with its own technology to produce products at lower cost, at less risk, and of great value to their customer base. Again, this is done for selfish reasons, but such outside companies are, by doing this, contributing to expanding the customer base for the IHE company. Sometimes a company or organization will think of an application or variation of the gift that will open it up to entirely new and unexpected markets. This is the sort of return gift the IHE strategy can provide.

Even further, the IHE company, by creating, building, and maintaining a set of communities around these gifts, can engage in serious conversations with outside companies, organizations, and individuals. Such conversations not only can improve the IHE company's products, designs, and directions, but also provides the IHE company with an opportunity to demonstrate leadership and vision, thereby putting it in a position to strongly influence the direction and structure of the competitive landscape. Because this is done in a context of gift-giving, culture exchange, and conversations, this is leadership and seduction, not control and power. If the IHE company exhibits learning in response to these communities, other members will continue to give gifts, work with the company, and help it maneuver through difficult competitive and market situations.

Communities are also a way to tell stories to the community while minimizing the effects of cynical write-off. When a company puts out white papers, advertising, and other public relations materials, the audience is likely to discount as hype statements made there. But within a community, where developers and engineers are talking to each other, the messages can be both smaller--too small for press releases--and larger: global visions and proposals for new directions couched in design and other engineering statements. By valuing the comments and ideas from outside community members--by showing respect--the IHE company can create a channel unlike any other.

The ability to communicate through communities such as this means that the IHE company can nudge the market in directions that play to its strengths. And by both demonstrating great innovation and respecting the innovation of others and by providing just the right gifts, the company can increase the size of its market and tune itself and its informal "partners" to that market, which is itself tuned through the vision of the company. That is, the market, the IHE company, and companies in the virtuous cycle of innovation co-evolve under the partial direction or influence of the IHE company.

The IHE company takes direct advantage of the returned gifts from others, both by using them in its own products and by using them to help its internal operations. The IHE company puts itself in the best position when it embraces at all levels the philosophy of Innovation Happens Elsewhere with people in the company always looking inside and outside the company for innovation they and their groups can use.

There are several keys to using this strategy. The first key is understanding and isolating the true proprietary value and technologies of the company. The more accurately this is done, the better able the company is to use its gifts and thrive. If what's proprietary and valuable to customers is too small, the company will have a hard time surviving as others crowd into its space. If what's judged proprietary and of value is too large--or too much of what the company makes or works on--then there will be few gifts available to get the cycle of innovation going.

The second key is the confidence that your organization can engineer products well and quickly enough to stay ahead of competition. Microsoft, for example, does not believe it has enough of an engineering edge over competitors to do other than hold all its source code proprietary. Perhaps this is why it tries to combat open source rather than embracing it.

The third key is a company culture that can embrace and celebrate innovations wherever they occur. In a sense, this is confidence and enthusiasm for ideas, but it is also respect and the right balance of pride and humility. Some organizations seem to fear ideas that originate from outside. Such organizations cannot use Innovation Happens Elsewhere.

Open Source and Innovation Happens Elsewhere

Companies that develop software can use open source as a basis for sharing tools, technology, and prototypes, and communities can be built around open-source projects. In this case, it's important to recognize both that such communities need to succeed as software development efforts and that the goal for such communities is to fuel the IHE feedback cycle.

Sun Microsystems's NetBeans open-source project is a good example of a community built to support the IHE strategy (see Figure 4.2). Recall that NetBeans is an open-source platform for building an IDE specifically for the Java language. Sun gets improvements from the open-source community and builds a proprietary version of NetBeans--called Forte for Java (now Sun Java Studio)--which is a tested version of NetBeans extended with proprietary modules. Other companies use the NetBeans technology in-house and as part of other products. Forte for Java is in addition positioned as a platform on which other companies can sell plug-in modules--that is, Forte for Java is the basis of a marketplace.

Lessons from the IHE Strategy

There are many advantages to using open source, but being able to engage the Innovation Happens Elsewhere strategy is especially compelling. Not only does it build the market size, but the tactics to make it work help companies that use it get to better products faster by directly involving the customer base in their design. Through direct conversations with customers, there is reduced guesswork in gathering market requirements. Moreover, there are some operational efficiencies to be gained through better testing, community-based support, and some significant product contributions.

Sometimes--no, usually--a surprise will happen; an innovation or application of the ideas and technology will come along that you have never dreamed of, never heard of, or couldn't imagine, done by a group or individual you have never heard of. And it could be a pivotal market for your company or could change how you view and develop your original technology.

What is most stunning, however, is the difference in the feel of companies that truly engage with their communities of customers, partners, and competitors. Morale is boosted, progress is constant, and it simply feels like something good is always happening.