New emerging business models - Outsourcing Innovation

Mass collaboration is revolutionizing the corporation, the economy, and nearly every aspect of management. Web-enabled teams numbering in the thousands or even millions are creating encyclopedias, jetliners, operating systems, and many other things that used to be produced by conventional firms.
- DON TAPSCOTT & ANTHONY D WILLIAMS 

    The late-19th century chemist and microbiologist, Louis Pasteur, famously said that chance favours the prepared mind. The same could be said of innovation. Companies face tough dilemmas everyday for which there is a uniquely prepared mind somewhere in the world who possesses the right combination of expertise and experience to solve that problem. Conventional wisdom says firms should hire and retain such people. But today, thanks to the new web, a new marketplace for ideas, innovations, and uniquely qualified minds is changing everything. 
    Consumer goods giant Procter & Gamble is a perfect example. Until recently, P&G was a notoriously secretive company. It didn't look outside its walls for anything, and it certainly didn't let anyone look in. In early 2000, P&G had a near-death experience. Its business lines were atrophying, and profits were down. Putting more money into internal R&D wasn't attractive—its innovation success rates were flat lining. So A G Lafley (CEO) and Larry Huston (innovation head honcho) led the company on an ambitious campaign to restore its greatness by sourcing up to 50% of its new innovations from outside. 
    At the time, P&G had an army of over 7,500 world-class researchers so why would the company choose to look externally for great ideas? Larry Huston put it this way: "Most mature companies have to create organic growth of 5% to 7% year in, year out." Relying on internal capabilities to produce that growth rate may have worked when P&G was a $25 billion company, he argued. But today it's worth $70 billion. Organic growth of 6% for example, is the equivalent of building a profitable new $4 billion business every year! 
    In addition to broadening and deepening its own proprietary networks, P&G searches for innovations in web-enabled marketplaces such as InnoCentive, NineSigma, and yet2.com
    These combined efforts led to hundreds of new products, some of which turned out to be hits. In the process Lafley and his managers transformed a lumbering company into a limber innovation machine. 
    Today there are thousands of companies that participate in "ideagoras" where millions of ideas and uniquely qualified minds change hands in something akin to an eBay for innovation. Companies can leverage a global pool of talent and ideas that vastly exceeds what they could ever hope to marshal internally. 
    Indeed, if you're a retired, unemployed or aspiring scientist, a new world of opportunity awaits you. Some 100,000 scientists from 175 countries have already registered with InnoCentive, a matchmaking system that links experts to unsolved R&D problems. Launched as an e-business venture by US pharmaceutical giant Eli Lily in 2001, the company now provides ondemand solutions to innovation-hungry titans such as Boeing, Dow, DuPont, and Novartis.

Tapscott is the founder and chairman of New Paradigm, a technology and business think tank and part of the BSG Alliance. Williams is an author, researcher and former lecturer at the London School of Economics. He is vice president and executive editor at New Paradigm