Innovation Middlemen Link Tinkerers, Firms

So-called open-innovation intermediaries give companies access to geniuses across the globe.
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BOSTON (TheStreet) -- As companies try to keep research-and-development costs under control without squelching newness, many are adopting a model of "open innovation" and seeking ideas from university labs, independent entrepreneurs and their own customers.

Yahoo

(YHOO)

hosts a series of "hack days," at which developers and designers gather for application-creation contests.

IBM

(IBM) - Get Report

garners new business ideas with a worldwide brainstorming session called "Innovation Jam." But when companies are looking for external sources to fill

specific

internal needs, many are turning to middleman organizations known as open-innovation intermediaries.

"If you're going to let everyone in, you need a process," says David Wallace, managing partner at GameChange LLC, a Boston-based company that advises companies on marketing and innovation communication. "You need to

establish a difference between an idea discussion and the 'now-what' phase."

Open-innovation intermediaries -- companies such as

Innocentive

,

Innovation Exchange

and

and yet2.com

-- help to define the problems of large companies and then post them as challenges for entrepreneurs to solve. Often these intermediaries employ scientists who are tapped into a global network of geniuses, and can help companies focus their search for problem solvers.

"It's a cost-effective way for these organizations to get innovators all over the world that they couldn't find on their own," says Dwayne Spradlin, chief executive officer of the Waltham, Mass.-based company, which was founded in 2001 as an idea-hunting subsidiary of pharmaceutical giant

Eli Lilly

(LLY) - Get Report

in 2001 and spun off in 2005. "In a pharma company, odds are that only 15% of the people you talk to will ever work on a product that goes to market," Spradlin says. "Innovation happens in the margins. It happens where you don't expect it."

Innocentive's clients, or "seekers," include major corporations such as

Procter & Gamble

(PG) - Get Report

, which pay the intermediary to help define and host business challenges. But the identity of the seekers generally remains anonymous to the network of entrepreneurs, who are known as "solvers."

Rather, the intermediary posts a description of a challenge, along with the amount of the cash award given to the person or group who best solves it. The winners may never find out the identity of the company whose problem they solved -- and they may never have to deal with licensing and negotiation headaches, either. It's simply a model of solve problem, get cash. "Solvers" tend to be tinkerers (individuals who like to make stuff, a la

MacGyver

), academics who wouldn't otherwise know how to bring ideas into a corporate setting, or retired scientists, Spradlin says.

Intermediaries can eliminate the chaos that can stem from opening up ideas to the public without a good vetting system, Spradlin says. (This is a

problem inherent in politics

as well.)

"Crowd-sourcing gets tarnished by everyone and his brother setting up a message board and calling it innovation," he says. "Most people understand what it takes to get this right."

In current challenges on the

Innocentive site

, seekers are looking "to automate an image file reformatting and manipulation process" (reward: $50,000); a method of reducing the placebo effect in clinical drug trials (reward: $25,000); and a new way to implant medical devices into a human heart ($25,000). The company also posts challenges from non-profit groups, such as Prize4Life, which is seeking a biomarker that measures disease progression in Lou Gehrig's disease (reward: $1 million).

Often, though, intermediaries are seeking "ongoing and incremental types of improvements," says GameChange's Wallace. "It's rare that open innovation leads to a gigantic new breakthrough product or service all by itself."

-- Reported by Carmen Nobel in Boston.