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 / Winter 2006 / Issue 45(originally published by Booz & Company)


The Weakest Link

Also, no matter how talented a company’s staff, there will always be limits to its perspective and ingenuity. It may overlook — or mistakenly dismiss — alternative solutions, or it may solve one reverse salient only to create another. Edison’s utility system was a work of genius, but in ignoring the benefits of alternating current, the Menlo Park team made an error that, in the end, proved fatal. Monomania has a price.

With an open approach, a company looks outside its walls for solutions to reverse salients. It’s an approach that can work particularly well for enhancing an established product or service — for overcoming a particular, well-defined obstacle that’s impeding progress. The owners of the Liverpool and Manchester Railroad used an open approach to great effect in 1829, just before they completed the construction of their 32-mile line. At the time, trains rarely went more than 10 miles an hour, making them little faster than horse-drawn carriages. Eager to recoup their big capital investment in the new railroad, the owners were desperate to enhance rail transport’s attractiveness by increasing its speed.

The reverse salient in the railway system lay in the design of steam locomotives. Locomotives were unable to sustain high speeds without breaking down. Instead of trying to fix the problem themselves, which would have been costly and risky, the owners decided to let others fix it for them. They organized a competition among locomotive manufacturers along a two-mile length of track in the town of Rainhill, near Liverpool. Each manufacturer could enter a locomotive, and whichever engine completed 20 round-trips on the track in the shortest time would win a prize of £500 — and could also expect a lucrative contract for supplying the locomotives used on the line.

The contest, which received a great deal of publicity from the English press, spurred a burst of innovation in engine design. The engine that won the competition, the Rocket, was able to top a speed of 30 miles an hour on the course. By tapping into the skills of a broad set of outsiders, the operators of the Liverpool and Manchester Railway were able to quickly overcome a debilitating reverse salient — and secure their business’s success.

Today, with global communication systems like the Internet, the open approach can be applied more broadly and more powerfully than ever before. The entire open source software movement, for instance, is founded on the ease with which a huge number of coders can identify and rectify reverse salients in complex software programs.

Eli Lilly and Company is pioneering a similar model for corporate research and development. In 2001, it launched a Web site called InnoCentive that allows companies to list problems that they need to have solved along with the reward that they’ll pay for solutions. Any scientist anywhere in the world can then work on the problem. Whoever discovers the answer gets the bounty. Some 100,000 scientists have signed up to contribute solutions, and companies as diverse as Dow Chemical and Colgate-Palmolive have found valuable innovations through the site, including a better way to incorporate fluoride into toothpaste. In a very real sense, InnoCentive creates a market for solving reverse salients. If it had been around 80 years ago, the O-ring might have come along much sooner than it did.

The open approach can correct a reverse salient quickly, but it, too, carries a price. By giving up control over a solution, a company may also sacrifice the financial rewards the solution generates. And because reverse salients can be so important to technological progress, those rewards may be quite large. Open source software development, for example, has proven to be an effective method of continually enhancing existing programs, but it also risks sucking profits out of the programs themselves and shifting the money toward related services, such as maintenance.

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