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  • I have some bad news for you, so I hope you're sitting down.

  • The bad news is, is no matter what sector you're in, whether it's business, academia, government, nonprofit, whatever, most of the really smart people and most of the really good ideas are outside of your organization now.

  • I didn't make up this maxim.

  • It's a principle known as Joy's Wall of Management, and it may be the reason why these days, there is so much chatter about the importance of external innovation.

  • In a time when the idea that could transform the entire platform of your industry might be developing in someone's basement or dorm room, bringing in ideas from outside your company may be the only way to succeed.

  • It makes sense in theory, but is it really true?

  • So I leave the research and product development topic for, ah, large consulting firm.

  • So I think about innovation a lot, and I talked about it a lot.

  • These things do not make me the most fun at parties, but they do mean I have a perspective on the subject, and I'm here to tell you there's just one problem with all the hype.

  • External innovation doesn't work and it doesn't work because we're doing it wrong.

  • Let me show you some data.

  • The examples.

  • I'll use our pharmaceutical companies because that's the industry I focus on.

  • Now, If this is not your industry, please do not take.

  • This is a cute now glaze over for the rest of the talk I promised you the principles apply across industries.

  • Now.

  • Extra innovation is not a goal in and of itself.

  • It's just a means to an end of getting the most bang for your buck out of r and D.

  • What we call our Andy productivity.

  • And if that doesn't sound grandiose, Ooh, What it means is for a given amount of R and D in pharma Maurin, better medicines and technology, more better applications and consumer goods.

  • Maurin better designs.

  • You get the idea.

  • So it's the right objective function to measure so we can plot on the vertical axis here.

  • Already productivity, the value created per dollar of R and D spend and on the horizontal axis, we complied.

  • Each company's usage of external innovation essentially the share of there are $90 ago, extra only rather than internally.

  • And when we look at the relationship between these two.

  • There is no relationship.

  • I can see a couple of you right now squinting until to your head, trying to form a pattern.

  • Here.

  • Somehow you are the creative people in the audience.

  • Statistically, they are scared.

  • Here is about 1%.

  • There is no correlation.

  • And if you're not into statistics, you can think of this like, you know, eating doughnuts and running triathlons.

  • The two just are not connected now.

  • Maybe there's something else going on here.

  • Maybe there's a particular kind of extra innovation that matters well.

  • Here's a whole grab bag of different types.

  • Whether we look at licensing or acquisition or open innovation, any of these, none of them correlate with our Andy productivity.

  • In fact, they're all about as close to zero as you could possibly get.

  • So what's going on here?

  • Why does extra elevation have absolutely no effect?

  • So to answer that, first we have to understand what it is that really drives are Andy productivity, the vertical axis that just showed you and my team, and I have done a ton of work on this.

  • We've spent late nights, we've done all these calculations, and after all, this work, we have finally come up with the answer.

  • This took us millions of dollars of consulting spent.

  • Okay, you may have seen this before and thought it was a joke.

  • It's not a joke.

  • In fact, sadly, it is the central thesis of my talk today, which is what drives our Andy.

  • Productivity is the success rate, just like Wally here says.

  • And we were able to show in a 2013 paper that what drives our anti success is just two things.

  • It's having access to great scientific information, and then it's actually listening to that information when you make decisions.

  • So what does this mean for external innovation?

  • Well, we know these are the two things that drive our Andy productivity so we can look at these two factors and see how extra innovation stacks up against them.

  • So, first on the science side, we run right back into joys law.

  • Most smart people are outside your organization.

  • Even the largest pharmaceutical company might have 1000 biologist internally, but there are more than a 1,000,000 PhD biologists in the world that is well under 1% even in the largest companies internally.

  • To illustrate that Here's a map of all the publications in one disease area rheumatoid arthritis.

  • Each dot is a publication.

  • Each line is a shared co authorship, and the footprint of one large pharmaceutical company is shown in green.

  • It's a pretty significant single contribution, but you would be nuts to think all the good science is in that little green circle now.

  • The flip side of joys law is, unfortunately what I'm gonna call Joyce Corollary, which is most bad Ideas, are also outside your organization, and it can be pretty hard to tell the difference between the two.

  • And so, companies rely on their internal experts to make sense of these external ideas to sort through all the muck and also to know how to marry them with their internal ideas and capabilities.

  • Which brings me to the second of our two items driving RD productivity decision making because even once you have access to all the right scientific information, you still have to listen to that information when you make decisions which could not sound more obvious, but it's not.

  • In fact, it's the crux of where the breakdown happens between external innovation and RD productivity.

  • As I mentioned companies rely on their internal scientists to evaluate the extra ideas.

  • But sometimes those extra ideas are meant to replace the internal ones.

  • It is kind of like asking your current spouse toe, evaluate options for your next marriage and your company's air, absolutely oblivious to this dynamic in terms of how they treat their internal experts.

  • Usually, internal experts can become absolute heroes by developing their own innovation.

  • They're just a cog in the machine of evaluating extra ideas.

  • So where do you think they want to spend their time?

  • What gets them emotionally and intellectually excited?

  • Even worse, sometimes extra elevation is seen not just as a time waster but his outright competition.

  • I know examples where the internal EXP experts were reluctant to bring in external ideas because it meant they would have to kill their own internal one that was similar but inferior.

  • They only got credit for the internal one, so you can imagine how they reacted how any of us would react in these situations, often the expert to do the right thing.

  • Regardless of these issues, it is a bad idea to set up company incentives in such a way that it creates these issues and make it hard for people to do the right thing.

  • So if we want to get the benefits of extra innovation, we have to think of it not at the company level, but the love of the individuals responsible for doing the collaboration with the outside world and set up the incentives in such a way that it's in their own personal interest to want to take part.

  • I don't want to show you this chart again.

  • That dot is Jansen there, the pharmaceutical arm of Johnson and Johnson.

  • They make, among other things, Remicade, which is for rheumatoid arthritis.

  • The disease we looked at earlier, Jansen is not an extreme outlier.

  • I don't have an extreme outlier to show you because no one has yet successfully used extra innovation to drive tremendous value.

  • But they're on the right track.

  • They're already in the top third of both external innovation and RND productivity, and they're doing the right kinds of things.

  • The first thing you see when you go to dances website is a great big slogan.

  • We collaborate with the world, but their approach doesn't end with a slogan.

  • They work hard to address the issues on both science and decision making sides on science that connect with entrepreneurs, actually, by housing a facility that host 150 of them with all the equipment they need to get started and on decision making.

  • They give full credit to their internal scientists, regardless of where the idea originated.

  • Jansen has not figured it all out, but there are a great example of the kinds of things that companies need to be doing.

  • You need to be figuring out ways to access the science, and you just sort of the incentives in such a way that the individuals involved personally benefit by collaborating.

  • Only then can the internal and external has come together to form a more effective hole.

  • And only then, well, we actually see a benefit of external innovation.

  • Thank you.

I have some bad news for you, so I hope you're sitting down.

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B1 innovation external internal productivity extra pharmaceutical

External innovation basics from an R&D expert | Michael Ringel | TED Institute

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    林宜悉 posted on 2020/04/04
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