Strategic Direction

Implementing an open innovation strategy: lessons from Napoleon

Stuart Read, David Robertson,
Article information:
To cite this document:
Stuart Read, David Robertson, (2009) "Implementing an open innovation strategy: lessons from Napoleon", Strategic Direction, Vol. 25
Issue: 6, pp.3-5, https://doi.org/10.1108/02580540910952127
Permanent link to this document:
https://doi.org/10.1108/02580540910952127
Downloaded on: 04 August 2018, At: 04:48 (PT)
References: this document contains references to 4 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 3270 times since 2009*
Users who downloaded this article also downloaded:
Downloaded by Management Development Institute At 04:48 04 August 2018 (PT)

(2013),"Will business model innovation replace strategic analysis?", Strategy &amp; Leadership, Vol. 41 Iss 2 pp. 31-38 <a href="https://
doi.org/10.1108/10878571311318222">https://doi.org/10.1108/10878571311318222</a>
(2011),"The TV game: how will Apple, Netflix, Hulu and Time Warner play?: Behind the scenes at the most complex
show on earth", Strategic Direction, Vol. 27 Iss 8 pp. 5-7 <a href="https://doi.org/10.1108/02580541111146795">https://
doi.org/10.1108/02580541111146795</a>

Access to this document was granted through an Emerald subscription provided by emerald-srm:415309 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please visit
www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than
290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional
customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE)
and also works with Portico and the LOCKSS initiative for digital archive preservation.

*Related content and download information correct at time of download.

 Viewpoint
Implementing an open innovation strategy:
lessons from Napoleon
Stuart Read and David Robertson
Downloaded by Management Development Institute At 04:48 04 August 2018 (PT)
Stuart Read and
David Robertson are both
Professors, IMD
International, Lausanne,
Switzerland.
DOI 10.1108/02580540910952127
Not if, but how
There is little doubt of the executive focus on innovation. Despite the current financial crisis,
an October 2008 McKinsey study reported that about two-thirds of executives across
industries still identify innovation as one of their top three priorities (Chan et al., 2008). And
there is little doubt that innovation stakes are high. Global corporate spend on innovation has
only increased since its 2006 level of US$879 billion (Jaruzelski and Dehoff, 2007). The real
executive question is not whether, but how to implement an effective and efficient innovation
strategy.
The wisdom of the crowd
With this kind of pressure, executives have been very innovative about implementing
innovation strategies. And one of the approaches attracting recent interest is open
innovation. The idea is simple. More people will have more ideas, and the best ideas will be
the most popular ones. Engage the crowd both to generate and sort. In his book The
Wisdom of Crowds, James Surowiecki validates the perhaps unlikely expectation that the
masses can outperform expertise with his research into the trivia television game show
named Who Wants to Be a Millionaire? In the show, contestants are asked questions and
have the option of answering the question directly, consulting the audience or calling in an
expert. Calling in an expert comes up with the right answer 65 percent of the time, while
asking the audience provides the right answer 91 percent of the time (Surowiecki, 2005). So
there exists potential in open innovation, but how to achieve it?
The Napoleonic approach
Napoleon himself may not have been much of an innovator. But the cult film Napoleon
Dynamite created an innovation problem that offers relevant insights to effectively implement
an open innovation strategy. The problem is that it is hard to guess who is going to like the
film. For the movie rental firm NetFlix, movie matching is a serious challenge – if they can
help their subscribers find movies they like, they will stay with Netflix longer. In 2000, NetFlix
introduced a service named CineMatch in order to make good recommendations to its
customers based on statistics of what other users like them enjoyed. However, CineMatch
could not reliably predict unusual films like Napoleon Dynamite, and Netflix’s internal team
had run out of ideas for how to increase CineMatch’s accuracy. So, in 2006, NetFlix opened
the problem to the community, offering a prize of $1 million to the individual or team who
could create an algorithm that would improve customer/movie match by 10 percent over
NetFlix’ own CineMatch system. The NetFlix approach has four interesting attributes that can
offer a generalized view into open innovation:
VOL. 25 NO. 6 2009, pp. 3-5, Q Emerald Group Publishing Limited, ISSN 0258-0543 j STRATEGIC DIRECTION j PAGE 3
 ‘‘ It is our view that open innovation is a powerful tool which is
likely to be more than a fad. And while it may not be the
perfect solution for everyone, it is something that any firm
committed to innovation should be experimenting with. ’’

1. Make the challenge clear and important. When it launched the challenge, Netflix carefully
and publicly articulated the inputs, the outputs and the rules. As the input, Netflix
presented a test database of 480,189 customer ratings based on 17,770 Netflix movies.
The data were openly available for download from its web site. The challenge for
contestants was to improve CineMatch’s ability to predict whether a customer would like a
movie by at least 10 percent, using the test database and a standard test measure of
match accuracy. Ten percent may not sound like much, but the value to Netflix was far
greater than the $1 million investment. And the rules, also posted online, clearly defined
Downloaded by Management Development Institute At 04:48 04 August 2018 (PT)

the evaluation, eligibility and judging criteria.

2. Make the reward meaningful. A million dollars is a lot of money. But creating a movie
matching algorithm that’s 10 percent better than what the professionals use is a hard
problem. The numbers on the NetFlix web site suggest that the reward they are offering is
sufficient to get people’s attention. There are currently 42,977 contestants on 35,317
teams from 180 different countries, and those innovators have already presented NetFlix
with 33,418 valid submissions (NetFlix, 2008). The insight here is not that it takes a million
dollar prize to create successful open innovation, but that the scale of the prize must be in
line with the amount of effort required to generate a good solution.
3. Make the challenge competitive. In case a chance at a million dollars is not enough,
NetFlix has made the competitive aspect of the challenge completely transparent. On
their contest web site, NetFlix lists all the teams competing for the prize, ordered by their
best score and their percent improvement. The Leaderboard effectively keeps the
pressure on the teams. At the writing of this viewpoint, 26 of the top 40 teams had posted
an update to their solution for evaluation by NetFlix within the last 30 days.
4. Protect the core. Around open innovation, stories of intellectual property theft and loss
abound, and as with any new field of endeavor, the risks are still being discovered.
The current rules around the NetFlix prize stipulate that the winner must give NetFlix an
irrevocable, royalty free, fully paid up, worldwide non-exclusive license to the
algorithm. By not demanding exclusivity, NetFlix makes the challenge more appealing
to people who might want to commercialize the algorithm, but opens itself to a winner
who could potentially turn around and sell the same solution algorithm to Blockbuster
or some other competitor.

Provide opportunities for collaboration

The surprising dynamic in the Netflix competition is the amount of collaboration that has
occurred. Even though only one team will win the prize, the top teams all regularly share
strategies and post algorithms that they found effective. This collaboration has moved the
top teams toward the goal much faster than if they had acted alone.

Renovating your innovation approach

It is our view that open innovation is a powerful tool that is likely to be more than a fad.
Keywords: And while it may not be the perfect solution for everyone, it is something that any firm
Innovation, committed to innovation should be experimenting with, incorporating guidance from
Corporate strategy Napoleon.

j j
PAGE 4 STRATEGIC DIRECTION VOL. 25 NO. 6 2009
 References
Chan, V., Musso, C. and Shankar, V. (2008), ‘‘Assessing innovation metrics’’, McKinsey Quarterly,
October, (survey on innovation metrics).

Jaruzelski, B. and Dehoff, K. (2007), ‘‘The customer connection: the global innovation 1000’’, strategy þ
business, Winter, special edition.

NetFlix (2008), ‘‘NetFlix prize’’, December 9, available at: www.netflixprize.com

Surowiecki, J. (2005), The Wisdom of Crowds, Anchor Books, New York, NY.

Corresponding author
Stuart Read can be contacted at: Stuart.Read@imd.ch
Downloaded by Management Development Institute At 04:48 04 August 2018 (PT)

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints

j j
VOL. 25 NO. 6 2009 STRATEGIC DIRECTION PAGE 5