The end of this month will mark five years since Eli Lilly & Co.'s venture capital group launched InnoCentive, its first e-business operation. Lilly's idea was to use the "power of the Internet" to enhance scientific collaboration. It would link organizations having scientific problems with researchers who could solve them. Rewards of up to $100,000 were to be made for each satisfactory solution.
Although the dot-com investment bubble had already burst, doing business via the Internet was still novel. Attitudes today are more jaded, but the Internet nevertheless offers an unparalleled means of exchanging information and connecting people. InnoCentive has taken advantage of this, logging thousands of miles, literally and electronically, to build its network.
The company has partnered with 59 research institutions and scientific organizations in Russia (35), China (20), and India (4) to access more scientists. Its website now connects more than 95,000 registered scientists, called solvers, from 175 countries with nearly 40 seeker companies, reports Ali Hussein, InnoCentive's chief marketing officer and vice president of global markets. Boeing, Dow Chemical, DuPont, Lilly, Novartis, and Procter & Gamble are among the seekers.
The business has evolved from being a channel used largely by Lilly to one with a broad base of client companies. "The first 21 challenges we posted were 100% Lilly problems," says Alpheus Bingham, InnoCentive's president and chief executive officer. "Now they are just 3% of our seeker population." Bingham helped set up InnoCentive and has been its chairman from the start. He took on the new leadership roles in February after retiring as vice president of Lilly Research Laboratories.
At the same time, InnoCentive brought in its first outside investors and raised $9 million. Although Lilly's venture capital group still participated, new investors were Spencer Trask Ventures and Omidyar Network, an investment group founded by e-Bay creator Pierre Omidyar.
The new investments are an endorsement of the firm's success, Bingham claims, and will allow it to explore corporate development initiatives. The change gives it greater autonomy from Lilly and the ability to work more effectively with outside companies, especially in the pharmaceutical industry.
InnoCentive's growth has mirrored a developing trend in open innovation and external collaboration, a trend that has also spawned competitors such as NineSigma and YourEncore (C&EN, March 20, page 30). At InnoCentive, companies pay an annual $80,000 access fee to post problems anonymously on the website. They also pay the rewards for the best solutions and a commission of 20% or more to InnoCentive.
Seeker companies can benefit by finding answers to tough problems, solving them faster, and accessing wider ranging expertise than within their own organizations. Not only will more scientists be looking at a given problem, Bingham points out, but the ones who choose to tackle it will be those who believe they can solve it. Companies thus can add what he calls "spot capacity," increasing their R&D capabilities without making any fixed investment in personnel.
"Still, telling a company that we're going to take its treasured jewels, namely the assets in its R&D pipeline, and post them on the Internet sounds crazy," Bingham says. But he believes that the risks are actually limited; beyond the contractual fees, the payout is zero if the problem isn't solved satisfactorily. And through InnoCentive, the process of working with external individuals or organizations can be managed confidentially and securely.
One InnoCentive user is Dow's AgroSciences unit. "We look for a lot of options for how to make the most out of every dollar," says Dan Kittle, the unit's vice president of R&D. "For us to compete for technology and people, we have to leverage the entire global intellectual and innovation capacity, and so we have taken a very aggressive approach to external collaborations and interactions."
Since signing on in 2003, it has been posting about one challenge per month. The approach was a bit ad hoc at first, Kittle says, "but we learned quickly that we needed to put some structure around it and help drive it." Beyond educating employees about the opportunity and how to use it, the process for constructing challenges needs to be managed.
"You've got to be able to get a challenge down to something for which you rationally believe there are the expertise, understanding, and capability to directly approach," Kittle explains. This means reducing a problem to a clearly articulated, testable hypothesis. "You don't want to put all of your recalcitrant challenges out there, because that doesn't offer the greatest opportunity, and not all problems fit InnoCentive."
Although different companies approach working with InnoCentive differently, Dow AgroSciences created an internal support and peer review process. Meanwhile, InnoCentive's scientific operations group works with seekers to formulate challenges, and with solvers to evaluate promising solutions. The group monitors progress and handles the information flow between solver and seeker.
Acting as an intermediary—along with transferring and protecting intellectual property—has become a critical role for InnoCentive, Bingham says. "The art of asking good questions has always been very important in science and sometimes perhaps not emphasized to the extent that it should be," he remarks. "Many scientists think of themselves as problem solvers rather than question askers." And many researchers or companies find the idea of open innovation to be daunting.
According to Kittle, Dow AgroSciences' research success rate has gone up as it has learned how better to use InnoCentive. "We have seen some very clear examples where a critical path timeline has been cut in half and costs reduced," he says. "We have also had the opportunity to get technology that, quite honestly, we wouldn't have even thought about as being an option."
Honeywell Specialty Materials has used InnoCentive for about a year and has posted several challenges, says Raymond Stark, vice president of technology. He says employees see the site as an avenue for exploring technology options. "There are very few venues that allow you to approach finding a small technology operation, a laboratory, or an individual who may be tinkering with something that addresses your particular problem."
Speed in accessing those options is also key as global technologies and markets undergo rapid change. "If you are not willing to look outside your current business structure for new ideas, new markets, and new applications, you are not going to be competitive," Stark says. "There is just no way you can invest enough in your own R&D laboratories to generate enough technology to keep up.
"It also allows you to look outside in unrelated fields and for ways to solve problems that you wouldn't have traditionally used," he continues.
Registered solvers on InnoCentive represent more than 60 different scientific disciplines. About 35% are located in the Asia-Pacific region, 26% in North America, 15% in Western Europe, and 9% in Eastern Europe and Russia. About two-thirds of all solutions have come from the U.S. and roughly a quarter from academia.
The number and type of solutions offered are generally commensurate with the solver pool, Bingham says, although other factors can come into play. For example, solvers in countries with a strong scientific infrastructure are more likely to look at challenges that require a lab in which to execute the work, he explains.
Challenges are posted for a limited time, up to 60 days for ones requiring "paper" answers and up to five months for laboratory problems. Most challenges were initially in chemistry, but over the years they have branched into biology, biochemistry, and materials science. On any given day, InnoCentive has about 100 challenges on its site.
Over five years, more than $1 million has been awarded for the solving of 108 challenges. The overall success rate runs about 35%, according to Hussein, compared with the 12% rate at which he says research-based companies solve their own R&D problems.
"We have had two kinds of success," Stark says about using InnoCentive. "One was getting solutions back to solve a problem, and the other was not finding a solution for something we had been working on for a long time. This only convinced us that we were tackling the impossible, so we stopped, and that's just as much a success as continuing to go down a path thinking you can solve it."