FAST Search Founders Hope to Repeat Success with Induct Software’s Innovation Management Portal
Henry Chesbrough, the UC Berkeley business professor who wrote the influential 2003 book Open Innovation, argued that companies need to do a better job of incubating, cataloguing, and licensing the knowledge and inventions they have in-house, and of bringing in intellectual property from outside, if that’s what’s needed to jump-start product development. But while many companies would like to adopt Chesbrough’s principles, most lack a systematic way to track their ideas and figure out which ones are worth implementing and selling. By borrowing a few ideas from the worlds of social networking and hosted Web 2.0 services, a new Norwegian startup called Induct Software thinks it can help solve that problem.
Today, Induct named its CEO. It’s David Burns, a Boston-area resident who was also the founding CEO of Norway’s Fast Search & Transfer (FAST), a maker of search software for large enterprises. In one of the biggest technology acquisitions of 2008, Microsoft bought FAST last January for a whopping $1.3 billion—a deal that “made people sit up and say, ‘Hey, Norway can have some IT success,'” according to Burns. With Induct, he says, “We’re trying to push the big green ‘copy’ button and do it again.” His appointment coincides with the opening of Induct’s Boston office and the international launch of its Web-based “Innovation Community” software, which has been tested only in Norway so far.
Burns and Induct’s founder and chairman, Alf Martin Johansen, took some time out from their pre-launch rush this week to show me how their portal, called Innovation Community, is supposed to work. The main idea is to help companies set up customized online communities where employees can record ideas, upload illustrative media, collect comments and survey responses, and then shepherd the strongest concepts through a process of decision-making and implementation. Everything’s accessed via a Web browser, and both the software and the content generated by users is hosted on servers at Induct, which charges a subscription fee (about $15 per user per month). You might think of it loosely as a Facebook or a MySpace for innovators—but with product ideas, rather than personal profiles, as the central objects of attention.
Burns puts Induct’s value proposition to customers this way: “You have an accounting system, and a cash management system, but when it comes to innovation, you have a bunch of hodgepodge pieces. Our solution is to say, let’s take the best pieces from a book like Open Innovation, and implement a management system that’s seamless from the beginning of the innovation process to the end, and that’s open because it’s Web-based.”
Induct’s software is open both in the sense that it’s built to encourage participation by everyone involved in the innovation process—even people outside a company, if they’re given the right passwords—and in the sense that it’s easy to tinker with. For example, companies can quickly upload customized checklists of criteria that they think should be used to evaluate ideas, then invite users to fill out survey forms ranking incoming ideas using those criteria.
Burns says the Induct system is a response to what Johansen, who was also the chief financial officer at FAST, gleaned in interviews with hundreds of companies in Norway. He found that they had adopted a variety of tools to manage innovation, including groupware, wikis, and social networks, but that departments and divisions were often using incompatible systems. Many companies hired consultants to help them get a handle on their innovation processes, but often these consultants would leave their clients with “a PowerPoint presentation and a three-ring binder full of recommendations” rather than a long-term solution, Burns says.
Johansen thought there could be a market for a centralized innovation management platform—a Software-as-a-Service offering that would have some of the collaboration features of groupware like Microsoft’s Groove or IBM’s Lotus Notes, some of the document-management features of enterprise content management systems like EMC’s Documentum, and some of the community features pioneered by open-innovation organizations like Innocentive.
The challenge, Burns says, was that “no two companies, or even divisions or departments for that matter, have exactly the same innovation process. Each one defines their own innovation types and subtypes, and each one in practice was using a different ranking algorithm or scorecard in the evaluation process.”
So Johansen and a team of four programmers in Norway came up with a system that’s extremely customizable. At its core is a system for submitting and roughly classifying new ideas (as, for example, product ideas or organizational ideas or process ideas), then inviting community members to review and rank these proposals, along whatever criteria the Induct’s customers think are important. The system comes pre-programmed with a number of innovation types and a unique set of criteria for each type—but as Burns and Johansen demonstrated for me, it’s easy to add new types and new criteria.
The companies Johansen interviewed also said they needed help after the ideation and evaluation stages, when it came time to actually pick ideas that deserved to be commercialized and then get them to market. So the Innovation Community portal also has customizable flowcharts and task lists to help teams stay focused during the implementation part of a project. If a company subscribes to a particular school of quality management—say, Six Sigma—they can easily add in what Burns calls “subroutines” to match their own strategy or process. The software also offers an “Idea Portfolio” or dashboard screen where managers can see how many ideas are being evaluated and developed, and how each is faring.
A key part of Induct’s own business strategy, according to Burns, was to design the tool to appeal to consultants as well as companies. “We understand how to bring out very good software, but we don’t have PhD’s in innovation,” he says. “The way we’d work is we’d go to a partner—a big consulting company or a boutique firm that’s expert in innovation, like a McKinsey, an Accenture, or a Booz Allen—and we’d approach the end user jointly. Then they can go in and determine what’s the right innovation process for a department or a company, and rather than delivering their analysis using three-ring binders and PowerPoints, they can deliver an actual, working innovation management platform.”
Induct hasn’t announced any actual consulting partnerships, but Burns says such relationships are going to be a major part of the company’s distribution strategy—which will save it from having to hire a large direct sales force, the way FAST had to.
But in most other respects, Burns says, Induct is being patterned directly after FAST. That includes its roots in a small team of Norwegian software engineers, its sales strategy (“close some big ‘lighthouse’ accounts in Norway and then leverage those accounts to take it to the U.S. market”), and its financing (all from Norwegian venture capital firms, private-equity firms, and friends and family, although Burns himself has invested as well).
But does Induct have a shot at the same kind of spectacular exit that FAST achieved? It’s too early to tell. “My feeling is that this market for open innovation is at the same stage now that the market for corporate search was at 10 years ago,” says Burns. “It’s gone from the ‘phenomenon’ stage—which means no revenue—to a market that’s in its infancy.” The hope is that Induct will grow to the point that it attracts a suitor. But it might take time—FAST was 11 years old when Microsoft came calling.
And the buyer probably won’t be Microsoft this time. “A large consultancy, an Oracle, an IBM Global Services, and other companies out there might see potential revenue in this type of thing,” Burns says. “But first we’re going to solve the problem of getting this to the point that it has the revenues and market share for someone to be interested in.”
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