A Buyer’s Guide to the Innovation Bazaar
More and more companies are shopping outside their organizations for innovation, whether it’s raw ideas or market-ready businesses. Here’s how to choose what’s best for you from among the array of offerings.

by Satish Nambisan and Mohanbir Sawhney

Reprint: R0706H ...June 2007 edition HBR

This is one of those great articles that simplifies a very complex and evolving concept – Open Innovation. The models are simple and profound. They discuss in detail the different innovation intermediaries and how your company can chose its strategy. I highly recommend reading it in the June HBR edition or ordering its reprint. It will be a classic.

Acknowledgement: as broadcasters on business channels must acknowledge if they own the stock they are discussing, Mohan Sawhney has been my mentor at Kellogg and a good friend.

As companies discover the tremendous value to be gained from tapping into external sources of innovation, many seek to emulate the success of some particularly compelling and well-publicized initiative. It might be Procter & Gamble’s Connect + Develop, in which the company uses online R&D marketplaces and other intermediaries to identify and acquire ideas and technologies from independent inventors; or Intel Capital, through which the chip maker invests in technology start-ups and spurs innovation that enriches its business ecosystem overall; or Concept Lounge, an interactive forum set up by Nokia to find and acquire innovative and futuristic product concepts directly from independent designers.

But to seize upon one of these successful programs as a model is to misunderstand how to source innovation from outside your organization. There is no single best method for doing this. Numerous useful approaches—each with different attributes and benefits—are on offer in the global marketplace for new ideas, products, and technologies.

We call this marketplace the “innovation bazaar.” Like a traditional bazaar, it can be chaotic and bewildering. The dizzying array of wares ranges from raw ideas and patents to market-ready new products. And they are touted by all kinds of hawkers, from idea scouts to business incubators. Just contemplating a plunge into the hurly-burly of this space can be daunting.
Indeed, our conversations with senior managers at more than 30 major corporations suggest that although most companies have come to understand the importance of looking outside for innovation, they have serious misgivings about how to do it. The success stories notwithstanding, smart executives know that what works for a P&G or an Intel may not be appropriate for a DuPont or a Microsoft. But how should they shop for the innovation offerings that will work for them?

We offer here a conceptual guide to navigating the innovation bazaar and making wise selections from the various vendors. With this guide in hand, companies can meet their particular needs by putting together a balanced mix of offerings based on the external market context and their internal capabilities. We also introduce a new kind of intermediary that can help companies improve the effectiveness of their innovation sourcing efforts.

To stimulate your interest, the following is the continuum they defined

Companies can shop for innovation in various stages of development—from raw ideas to market-ready products—with the help of a variety of intermediaries. At the two ends of the continuum, however, there are trade-offs: Sourcing raw ideas costs less and allows a company to increase its reach (the number of options it is able to consider) but involves higher risk and a longer time to market. The reverse is true for acquiring market-ready products. The middle of the continuum offers balance among the four factor.