Opening the Playbook
In late August 2008, I was in Colorado for the Democratic National Convention, not as an official delegate or sponsor but, rather, as a guest of Governor Kaine alongside many others from his cabinet. With Virginia in Presidential election play for the Democrats for the first time since 1964, and in light of Governor Kaine’s early endorsement of Illinois Senator Barack Obama, we were receiving the royal treatment—prime seats at everything from former Charlottesville bartender Dave Matthews’ rousing concert at Red Rocks to Obama’s electrifying acceptance speech at Invesco Field.
It was a festive time for the Virginia delegation, even independent of the perks. Just days earlier, our work had been flatteringly profiled in the New York Times Magazine, with an article heralding the Virginia Model as a living example of how Obama’s vision for the country might unfold. Obama’s economic adviser, Austan Goolsbee, noted that Virginia validated an innovation strategy that called for investments in human capital, R&D, and modern infrastructure to transform a once bottom-of-the-pack state into an economic powerhouse. Over the past 50 years, no other state had hiked its per capita income higher.1
While in Colorado, I met Julius Genachowski, Obama’s former Harvard Law classmate and among his most trusted advisers on technology matters, and who—at a forum held on the sidelines of the convention—quipped that Senator Obama had mandated that his staff insert a default paragraph about the importance of harnessing technology into every speech. This resonated with me. After all, the integration of technology was an important element of the Virginia Model, whether investing in electronic health records and rural broadband or increasing government transparency and efficiency. I would draw from the lessons of Virginia when Genachowski asked me to assist in outlining responsibilities of a prospective new position in the White House, Chief Technology Officer.
Obama won the state of Virginia, and won the White House. A couple of weeks after the election, Genachowski invited me to serve on the Technology, Innovation and Government Reform (TIGR) working group of the transition team. Organized under Genachowski’s leadership, TIGR would advise the President-elect on implementing his campaign vision about modernizing government. The TIGR team was, in itself, an innovation. Presidential transition teams are typically designed to operate as a mirror of the existing government, with a bevy of advisers specializing in each of the respective cabinet agencies and departments to prepare briefing memos for the incoming appointees of those particular agencies and departments. TIGR couldn’t be assigned to a specific cabinet agency or department, because that agency didn’t yet exist. Rather, it undertook an assessment of the technology and innovation opportunities across each of the respective agencies, in order to deliver a twenty-first century government that is more open and effective.
TIGR benefited from a running start, because its membership reflected two important constituencies. Many were key holdovers from the Clinton administration, those who had embraced the REGO, or Reinventing Government, model. They offered history and context. Others, including myself, were on the front lines of the most innovative technologies deployed in the private sector, and in the public sector at the state and local levels. We could readily identify the growing gap in the use of technology between the federal government and the outside world. Together, we began fleshing out a concrete agenda for the Obama administration to execute over its first 100 days, highlighting the need for a Presidential memorandum that would set the tone for a new operating culture in Washington. The memorandum would direct the Cabinet and agency heads to take actionable steps toward more transparency, participation, and collaboration—utilizing Internet-based technologies from cloud computing to mobile broadband to meet those aims.
While writing our recommendations, we recognized the unique challenges of the moment. The country was firmly in the grip of a financial crisis, the national dialogue consumed by the severe recession that the President-elect would be inheriting, a consequence of a precipitous crash in housing values and the spectacular failure of risky instruments on Wall Street. On January 8, 2009, at George Mason University, a dozen days prior to his inauguration, Obama made his most direct statements to date about the sober state of the economy, the likelihood of a grueling slog toward recovery, and the need for swift Congressional action to pass a stimulus package.2 He made the case for complementing short-term stimulus measures with investments that could create “a foundation for long-term economic growth.” Understanding the citizenry’s skepticism of the federal government following its mishandling of recent natural and man-made disasters and drawing upon his experience as the cosponsor with Republican Senator Tom Coburn of the 2006 Federal Funding Accountability and Transparency Act, Obama pledged that “every American will be able to hold Washington accountable for these decisions by going online to see how and where their taxpayer dollars are being spent.” He called for the construction of a Recovery.gov website, to be ready for launch on whatever day he signed a recovery bill into law.
We at TIGR got that assignment with a defined mission: build on the foundation of spending transparency that Obama-Coburn had established. Vivek Kundra, my former deputy in Virginia, took the lead. TIGR operated under the President’s embrace of the famous quote from Justice Louis Brandeis that “sunlight is the best disinfectant,” while fully understanding that critics—in the spirit of former Wisconsin Senator William Proxmire—might produce their own versions of his infamous Golden Fleece awards for wasteful spending. We also understood that we could take two routes to improve upon previous data transparency efforts.
We knew that one option was to publish the most granular possible data, enabling the public to trace the flow of funds from, for instance, the Department of Transportation all the way down to a small town’s stoplight. But we also knew the challenges of that ambition and that it couldn’t be accomplished anytime close to Day 1, since it would require the accessing of hundreds of individual databases, introducing the increased risk of data inaccuracies as well as limits on the timeliness of reporting. So we determined that, in the near term, we should aim to better organize the data that we could immediately access and confidently publish. That decision informed the path toward Recovery.gov, the launch of which—overseen by Kundra, now in the capacity of U.S. Chief Information Officer at the Office of Management and Budget—coincided with President Obama’s February 17 signing of the American Recovery and Reinvestment Act, and its $787 billion in stimulus.3 That site would include maps, charts, and graphics, giving taxpayers a better sense of where the government was spending all of that money. While specificity was limited initially, we would keep pushing until users were able to drill down further and determine how the Recovery Act impacted their neighborhood.4
Meanwhile, President Obama continued planting the markers of open government. On his first day in office, four weeks prior to the Recovery.gov launch, he implemented the TIGR team’s primary recommendation, penning a memorandum that not only called for an unprecedented level of transparency, participation, and collaboration but also defined the responsibilities for the Chief Technology Officer, a position that had yet to be filled. He directed that person to provide a new set of recommendations that would inform a more detailed Open Government directive that the President would issue to the government through his management arm, the Office of Management and Budget.
Now, who would be taking up that task? We, on the TIGR team, suspected it would be Julius Genachowski, though he would instead become the Chairman of the Federal Communications Commission. Meanwhile, I was in discussions with Health and Human Services to create and fill a similar position for that agency. That was, until I met with the head of Presidential Personnel on a Monday in April 2009. It quickly became apparent that the White House was focused on something else: vetting me for the still-vacant U.S. CTO position. For the next two days, my personal, career, and financial history underwent extensive review. That Saturday, in his weekly address, the President announced my appointment to a role in which I would “promote technological innovation to help achieve our most urgent priorities—from creating jobs and reducing health care costs to keeping our nation secure.”5
A few hours after that aired, I celebrated at my 15-year college reunion with my closest friends and our families. Well-wishers from the tech community, including the publisher, thought leader, and entrepreneur Tim O’Reilly posted blogs and comments endorsing my nomination. The O’Reilly post best outlined our opportunity to build “Government 2.0.”6 That catchphrase drew upon the premise that government could be a platform, not unlike Amazon, Google, and Facebook—one that went beyond providing generic services directly to its customers, the American people, but invited and enabled those citizens to cocreate, personalize, and perhaps improve its offerings.
Still, my work could not begin until I received Senate confirmation. That hearing was Tuesday, May 19, and it was uneventful, but for the pace of activity that followed.7 I was approved by the Committee on Wednesday and by the entire Senate by Thursday. On Friday, I was sworn in. This came at a time when Obama appointees were averaging more than two months for approval. I believed this had less to do with me than with the promise of the position—one that was intended to make government better not bigger, through the application of technology, data, and innovation.
My confirmation coincided with the launch of two major open government initiatives, following months of testing and development. One was Data.gov, a centralized portal available to anyone without any burdensome cost or intellectual property constraints. For this project, Kundra leaned heavily on the experience he gathered before joining the administration, when he was Washington, D.C.’s Chief Technology Officer. For the District’s government, he had created a “data catalog,” giving its taxpayers, in Kundra’s view, “access to what was already theirs”; that meant everything from Metro bus and train schedules to school performance assessments to the credit card transactions of government officials to the addresses of companies that won government contracts. Further, that access was offered in a format that made it simple for software developers to create applications that would help citizens in their daily lives. One application, Stumble Safely, used crime data to offer suggestions about the safest bars to frequent; others gave users the nearest police stations, places of worship, and post offices.8 Kundra’s overall vision was loosely based on the ancient Greek concept of the agora, in which people congregated at a public square to socialize, conduct commerce, and petition their government. Only now, he was giving them the same opportunity through a digital public square, one that didn’t require venturing anywhere other than to a website on a personal computer or mobile device, in the privacy and comfort of one’s surroundings.
Kundra was convinced that by opening other data sets, on everything from health care to the environment to education to procurement, the American people would not only feel empowered as watchdogs, but would be inspired to create a fresh portfolio of services that blurred lines between the public and private sector, to the benefit of the broader economy or simply to the benefit of their fellow citizens. For instance, the Consumer Protection and Safety Commission had been compiling data on toys and other products used by children, out of the public’s sight. Once that data was set free, creative thinkers could step in and utilize it in ways that few had considered, such as the creation of an application that allowed a consumer to scan a crib’s bar code in a store and learn if the model had ever been recalled. And that was just scratching the surface of the potential of opening government data, as we will explore later in this book.
The second major initiative launching was meant to stimulate civic participation. The deputy Chief Technology Officer in the White House, Dr. Beth Noveck, conceived a three-part Open Government Dialogue, one that began with an online blank sheet, welcoming any ideas from the public that fit into one or more of the three categories from the President’s memorandum—transparency, participation, and collaboration. The public could then vote ideas up or down to provide a raw measure of popularity. This was a form of crowdsourcing, which entails “obtaining needed services, ideas, or content by soliciting contributions from a large group of people and especially from the online community rather than from traditional employees or suppliers.”9
That first phase, live for a full week, attracted more than 35,000 participants. Some of the requests weren’t quite what we expected: the legalization of marijuana, access to Area 51 files on alien life forms, and the disclosure of the President’s birth certificate, to name a few. Still, we managed to distill more than 900 ideas into 16 discrete topics worthy of further exploration. The second phase of Noveck’s consultation invited public comment on blog posts elaborating on each of the 16 ideas. All told, she would surface more than 1,000 comments over more than two weeks. That would feed into a third phase: Noveck handing the pen to the American people. Using a wiki tool that offered a bit more structure on collaborative editing, we fielded 300 drafts of specific, actionable language.10
That all led to December 8, 2009, when I joined Vivek Kundra in unveiling the Open Government Directive, informed by many of the public-generated recommendations. The White House Communications team allowed me to introduce the directive live, via the Whitehouse.gov site. It was 11 a.m. on a workday, so I wasn’t sure the broadcast would be viewed by many. Still, I was anxious, so anxious that I forgot my opening lines. The camera “red light” began to flash. I began to speak. My mind began to race. What am I supposed to say next? Can I get a do-over? This is . . . live! I began to laugh. And laugh. And I couldn’t stop laughing.
For what seemed an eternity, I stumbled through the opening segment, pausing just long enough to let Kundra take the lead. For the remaining 45 minutes, I would recover enough to emphasize the key points of the directive. We were ushering in a new era of openness across the federal government, which included an insistence on the publication of government data in machine-readable, accessible form. We would execute near-term milestones to demonstrate tangible results, with the White House directing cabinet agencies to publish three “high value” data sets on Data.gov. We would be requiring government agencies to foster an ongoing culture of openness, which included the publication of open government plans, with clear milestones to hold leaders accountable.
Few, if any, White House reporters covered the event. Only a few blogs are so deeply committed to government transparency that they had it on their calendars. In fact, it might have gone unnoticed, if not for my flubs, which amused someone on the ever-vigilant research staff of The Daily Show with Jon Stewart.
“Today, at the White House, it was hilarious!” Stewart said, during his opening bit. He played the clip of my endless, uncontrolled cackling, and ended with a quip that has followed me ever since: “What is so funny, Indian George Clooney?”
At the time, it didn’t seem so funny. I actually thought the President might fire me. But I would survive, and even come to appreciate the attention: there are worse things than being compared to international movie stars. Plus, my wife, Rohini, really didn’t mind the nickname.
The open government movement had gotten off to a flying start in the Obama administration, but we recognized that it was only one element of what needed to occur. The fate of the economy was still up in the air, and the administration’s assistance could not, and did not, cease with the Recovery Act.
Neither could mine. In fact, many of my priorities centered on creating more enabling ingredients for long-term, sustainable job growth. Those included initiatives to clear the path for entrepreneurs in the heavily regulated sectors of energy, health care, and education in particular; to encourage Internet commerce by strengthening privacy and security; and to double the capacity of mobile broadband across the country. And those specific initiatives became part of a larger effort, one constructed with my colleagues at the National Economic Council and called the Strategy for American Innovation.11
On September 21, 2009, I boarded Air Force One for the first time, to accompany the President to Hudson Valley Community College. The school was attended largely by adults, who sought the skills associated with the jobs and industries of the future, particularly in health care and clean energy. The future was squarely on President Obama’s mind, even as he dealt with the immediate pressures of the acute economic recession; he wanted to do whatever he could to avert such circumstances again. So, in his address, he offered a vision for an economy without bubbles, one established on a firmer foundation than rampant financial speculation and over-leveraged consumer spending, one in which prosperity would be paved by skilled, productive workers leveraging public investments in the building blocks of innovation. Traditionally, as we outlined earlier in the book, government’s infrastructure investment had been related to building roadways, railways, and runways. In the President’s conception of an innovation economy, that notion of infrastructure would be broadened to include R&D; human capital, especially training in the science, technology, engineering, and math (STEM) disciplines; and digital infrastructure such as ubiquitous broadband access.
To transition ideas from the lab to the marketplace, the President called for new rules of the road, including technology-based reforms to expedite the patent approval process, which would allow for the introduction of more new products and services; streamlining regulations for new companies seeking to raise capital for growth; and instituting a new framework for global cooperation in the Internet economy through an emphasis on voluntary, enforceable codes of conduct to protect privacy and secure data. Ideally, sound public investments and market rules would spark the private sector to scale innovations throughout the economy, creating new jobs and industries and lifting incomes across an ever-growing middle class.
The President’s vision even offered a path forward in solving some of the most seemingly intractable problems facing the country—bending the health care cost curve while improving quality; transitioning to cleaner sources of energy; personalizing the learning system so every child could compete. Calling for an all-hands-on-deck approach to catalyze breakthroughs in these national priorities, the President spoke of a renewed spirit of collaboration among the public and private sectors; companies big, small, and new; citizen innovators, corporate labs, and the nation’s leading research universities.12
Now we had a strategy. But we were missing an action plan. For that we needed to collaborate with business leaders from across the private sector. We needed some unusual, unexpected coalitions to emerge, in the name of shared progress. As noted in the prologue, we had gained some experience in this exercise in January 2010, when we gathered fifty of the most successful CEOs across a diverse set of industries for the White House Forum on Modernizing Government, to share their secrets for streamlining operations in a way that we could attempt to replicate in the federal government. At that gathering, President Obama gave a brief address, in which he called on them “to help us build the kind of government that the American people expect and the kind of government that they deserve—and that’s one that spends their money wisely, serves their interests well, and is fully worthy of their trust and their respect.” That meeting would result in several executive actions to close the IT gap between the public and private sectors, including initiatives to spur the use of cloud computing and mobile technologies in the name of improving access to citizen services.13
By December 2010, it was time to summon business leaders for another conversation. We congregated at the Blair House, right across from the White House, a place more commonly known as a site for housing and entertaining world leaders. This summit would require increased engagement from all parties, including the President, since even more was at stake. It was strictly about the economy, which was still slogging along at a pace that comforted no one, not with unemployment still above nine percent. This event came amid a great deal of noise, mainly from the Washington press corps, which had been harping incessantly and incorrectly on the President’s difficulty in connecting productively with the business community, with some dismissing the meeting as a “photo op.”14 In reality, no photos were taken. No lobbyists were allowed. None but a handful of administration staff could participate. And no members of the press secured an invitation, with access restricted to a formal statement and some post-event interviews.
Rather, this was a “collaboration op,” with the President seeking to strengthen the handshake between the public and private sectors to benefit the American people. For more than four hours, he spoke with—not at—twenty of the nation’s leading CEOs, including those from General Electric, Comcast, Xerox, and Pepsi, on a broad range of topics, dedicating a full hour to ideas that would spark innovation and entrepreneurship. The day was split into five discussions, each of which would begin with opening remarks from two of the CEOs, followed by an intensive round of debate and dialogue facilitated by the President himself. The few staffers involved took on the role of transcribers, capturing the key points and ensuring we had an effective follow-through plan. Many of the CEOs later publicly reported, through a variety of media outlets, that they were pleasantly surprised and largely impressed.
Contrary to the widely held perception of Washington, D.C., as a place where nothing ever gets done, we collectively accomplished plenty in three key areas:
1) On patent reform, the President brokered a handshake commitment between the CEOs of Eli Lilly and Cisco, companies from two sectors—pharmaceuticals and technology—that had been at odds on the issue but were inching closer. They agreed to work together over the next 30 days to produce a compromise. With that secured, the President could move forward. In 2011, he would sign into law the America Invents Act which, among other things, reduced the time to earn a patent decision by 40 percent, thus enabling innovators to focus on job creation and growth rather than bureaucracy and litigation.15
2) On startups, Kleiner Perkins venture capitalist John Doerr cited a research study that demonstrated the large proportion of job creation occurs after a company goes public, but that recent regulatory changes, including Sarbanes-Oxley, had the unintended effect of increasing the burdens of going public. The implication was clear—fewer initial public offerings meant fewer jobs. Could we better balance the need for regulation and disclosure with the economic benefits of more IPOs? In response, the President challenged his Treasury Secretary, Tim Geithner, to follow up this meeting by convening a broad set of stakeholders for the development of consensus recommendations to remove capital access barriers. This would ultimately lead to a component of the 2012 JOBS Act: extending the amount of time that a company had to comply with Sarbanes-Oxley, thus reducing the company’s costs. This essentially created an IPO on-ramp, which several high-profile companies used the following year. That included Twitter, which raised $1.82 billion when it went public on November 7, 2013.16
3) On innovation, the President heard a presentation at the Blair House from Eric Schmidt, the CEO of Google, about the importance of wireless broadband to the economy, as well as about the exploding growth in mobile device usage. America had already led in the Internet economy—AOL through the dial-up era and firms such as Google, Facebook, and Twitter dominating in the broadband era. Now those firms were transitioning to a more competitive market for applications and services in this new era of smartphones and tablets.
Would these firms, and others from America, hold their own against innovators from China, Japan, Korea, and other present and future digital powerhouses, countries that had taken a more active role in preparing for mobile broadband? Details on this topic were discussed at a CTO meeting the following day. The resulting details led to the design of a National Wireless Initiative the President would announce in his 2011 State of the Union address and sign into law by February 2012. The new initiative would authorize the use of “incentive auctions” to create a private market for spectrum (the use of airwaves to transmit information like television, radio, and the Internet), thus ensuring the cell phone industry would have the resources necessary to minimize dropped calls and maximize mobile economic benefits. It would also fund the last remaining request of the 9/11 Commission—to ensure first responders had access to communications systems that interacted with one another, reducing the risk of unnecessary harm on account of errant or incomplete information. And it would invest in R&D to make it more likely that the next generation of mobile computing would be invented in the United States rather than abroad. Better yet, it would contribute billions toward deficit reduction.17
Some of the technology leaders who participated in the productive Blair House meeting—and helped shape the subsequent policy initiatives—lent their expertise in other areas. Eric Schmidt was one such contributor, serving as an adviser to the President on his Council of Advisers on Science and Technology (PCAST).18 He would join his fellow PCAST members in drawing attention to the importance and opportunity associated with “Big Data,” the catchphrase that acknowledges the exponential growth in digital information related to everything we do, from social networking to advanced manufacturing. Their recommendation to the President was for each federal agency to conceive and execute a “Big Data” strategy.19 In March 2012, the President announced that six agencies, including the Department of Defense and the National Institutes of Health, were making $200 million in new commitments related to improving the tools and techniques needed to access, organize, and understand “huge volumes of digital data.” As the strategy evolved, the President would more explicitly link the Big Data initiatives to national priorities, including economic growth, improving health and education, and stimulating clean energy.20
Through these and other measures, we were progressing toward an innovation economy, which had been among my core assignments as Chief Technology Officer.
In early 2012, I informed the President that I would be leaving the administration to run for office in Virginia, as part of a longer-term vision to implement a more innovative government in a state that, at Jamestown in 1607, had served as the birthplace of American democracy.
Weeks prior to my departure, the President invited my family to the Oval Office, where he entertained my wife and two daughters with tales of the design touches that he and Michelle had added. Then he turned his attention to me, thanking me for my service, expressing enthusiasm for my upcoming political campaign, and outlining my final assignment. He wanted me to produce a memo that not only summarized what occurred during my tenure but also organized some of the core tenets in a way that the work could outlast not only my time in office, but his as well.
That homework was in keeping with the nickname (“Chief Memo Officer”) that my wife had given me during my tenure, as she watched me draft countless policy ideas and options for my White House colleagues. I framed the assignment in the form of a playbook, one that distilled complex concepts into a format that was simple to understand, with guidelines and principles to assist my successor, as well as the growing numbers of CTOs across federal agencies and at state and local levels.21
I had a head start, not just from my experiences inside government, but from the lessons learned during my parallel exploration of the private sector, where many of the principles not only had their origins, but had shown sustainability in their success. In fact, some could be directly traced to the professor Henry Chesbrough—with whom, in the fall of 2011, I had shared a lengthy lunch prior to speaking to his class at the Haas Business School at the University of California-Berkeley. Chesbrough had long been hailed as the godfather of “open innovation,” which he had defined in his first of several books as “a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.” Inside the Obama administration, I had been championing a public sector version inspired by what I knew of his private sector work, and I had been attempting to institutionalize that offshoot as part of the federal government culture. At our lunch, I explained not only how we had implemented some of those “open innovation” ideas, but how I viewed the roles of the private sector in connecting with our government work: as a contributor, a beneficiary, or a collaborator.
First, the private sector could extend the arm of government, helping us deliver services closer and closer, and faster and faster, to the place and time that citizens needed them. Second, the private sector could take a handoff from government, taking information that the public sector had previously collected for its own purposes and using it to create new commercial products and services, such as the multibillion-dollar weather industry. Third, in certain circumstances, we could join hands and remove barriers to improvements in areas of paramount importance to the American people, such as health care and education.
Throughout the rest of this book, I will further flesh out the elements that animate these three private sector roles in solving public problems. But at the outset, let’s explore the origins of the private sector’s use of open innovation.
According to Chesbrough, open innovation was the offshoot of a series of management innovations designed to strengthen U.S. competitiveness.
In the 1960s, Robert McNamara, the former president of Ford Motor Company who had become the Secretary of Defense, brought the concept of “systems analysis,” the allocation of priorities and resources across projects based on total costs and benefits, from the Ford factories into the Defense Department. In the 1970s, the soaring success of NASA’s Apollo missions to the moon surfaced innovations in program management to better identify the critical path toward completing a project and how to make the necessary adjustments when the most important activities along that path fell behind schedule. In the 1980s, the Japanese model for total quality management found American academic champions in W. Edwards Deming and Joseph Juran. That led to very intricate processes such as Six Sigma, which was attributable largely to Motorola, and relied upon specialized teams that targeted the reduction of defects, variability, and waste.
By the 1990s, the supply-chain management approach flourished through the use of software and data to strengthen the ties that bind suppliers and producers and squeeze out inefficiencies. As the Internet scaled, so, too, did the ability of firms to better manage inventories, reacting to changes in customer demand, to the point where Amazon and Dell would accept customer orders before even assembling the final product. These advancements facilitated, among other things, globalization, with the declining cost of communication creating greater cultural and economic exchange between countries. At the turn of the century, the Internet seized an even greater role in interconnecting a firm’s product development assets—from customers, suppliers, universities, third parties, and individuals—along the innovation process. It even resulted in firms repurposing ideas that couldn’t quite make the cut but might lead to value creation in the hands of another partner.
Procter & Gamble, as much as any entity in the corporate sphere, has embodied the evolution of management practices toward what Chesbrough labels open innovation. The company’s transformation accelerated in the 2000s, catalyzed by A. G. Lafley’s elevation to CEO and his mission to go beyond in-house tinkering through the customary corporate actions: more meetings, organizational shuffling, executive recruiting, or increasing demands on those already employed. Transformational change required knocking down walls, to allow for the contributions of innovators who weren’t part of the payroll. It meant taking note of all the strategic, targeted innovations that raw materials suppliers had brought to P&G as well as recognizing that the company as a whole would be better off if it moved beyond those limited successes and pursued outside contributions even more broadly. It meant admitting, according to company CTO Bruce Brown, that “sometimes the best and brightest may not be employed at your company,” or even in the country, and that products originating in places like Japan could lead to partnerships to produce P&G applications.
All of that ambition meant the need for something else: a culture change. “Getting people to look outside,” Brown said. “Getting people to realize that there might be somebody outside of my walls who has a better idea than I do. And an organization that had traditionally always done things internally, to begin looking externally, and then also saying there might be some people who can do this better or faster than we can. Then we’ll bring our expertise, with the global reach of our brand, to our ability to execute, and other strengths, to make this happen faster and better.”
That meant bold leadership and a clear message that this “open” philosophy would be central to the company’s operating strategy. Lafley established a goal that 50 percent of innovations would include a significant external component within the decade, and created metrics to monitor and accelerate that progress.22 In 2002, Lafley even instituted an official apparatus to drive that innovation, one that has since served as the company’s signature. It was called Connect + Develop, and it assigned 80 members of the R&D staff to take on the new title of “technology scout.” They were charged with exploring externally to create a network of ideas and people that might augment or improve P&G’s portfolio of products and stable of innovators. The aim was to replicate the success of the electric Spinbrush. A small group of entrepreneurs had initially developed that dental hygiene product, sold it to P&G for more than 300 times their initial investment, assisted P&G in the launch under the company’s Crest name, and watched as it catapulted Crest back to the top spot in its market.
The company encouraged innovators of all types and sizes—independent entrepreneurs, government laboratories, contract laboratories, research institutes, suppliers, academicians, communities of practice, subject matter experts—to “connect” with P&G through a chance to collaborate and develop. To be considered, an idea needed to address a major, unmet consumer need; offer a new benefit to an existing P&G category or brand; or feature such elements as proven technology, a demonstrated packaging solution, or evidence of consumer interest.
The results? You might see many of them inside the cabinets or on the countertops of your home. For some of the products, P&G collaborated with companies that are competitors in other spaces. For instance, while Clorox is one of P&G’s biggest competitors in the cleaning products sector, the companies share an interest in Glad, and jointly developed Glad Press’n Seal, with P&G developing plastic film technology and Clorox taking the lead in commercialization. The private sector powerhouses joined together on another initiative that ultimately led to Glad ForceFlex trash bags.
Some of the products came to the P&G family from other countries, such as the Swiffer duster, purchased in a fully formed state from a Japanese competitor; or the antiwrinkle cream Olay Regenerist, which emerged out of a technical conference in Europe, where P&G’s skin-care researchers learned of a new peptide technology developed by a small cosmetics company in France for the healing of battlefield wounds.
A few of the collaborative products have allowed P&G to return to its roots. Originally a soap and candle company, P&G had not sold candles for more than eight decades, before partnering with a candle company to produce Febreze candles. Other collaborations, sometimes involving P&G taking technology and knowledge in and sometimes sending technology and knowledge out, have led to frequent expansion or improvement of existing product lines.
One collaboration stood out, not just because P&G’s partner was the public sector, but because of the unlikely source of the solution. That is the story that I wanted Bruce Brown to share with President Obama when I recommended they meet in June 2011 at Carnegie Mellon University in Pittsburgh, Pennsylvania, on the heels of the President’s new Advanced Manufacturing Partnership aimed at facilitating greater R&D collaboration for creating the jobs of the future and increasing global competitiveness. A few years earlier, P&G had worked with Los Alamos National Laboratory in New Mexico, tapping into the laboratory’s data on nuclear physics to improve the development of diapers. Yes, diapers. Diapers are made at a rate of about 1,000 per minute. Due to that speed, the sand particles that absorb liquid are sprayed all over the place, rather than where a child would typically urinate. “You’d like to have as much of it in the crotch as you could,” Brown said. “The ability to do that—in this violent reaction—that’s basically you are just blowing this stuff around to lie it down in a precise pattern. It’s a great technical challenge. Well, Los Alamos had all this code for how particles behave in a nuclear explosion.”
Together, they applied that code to develop a software tool and then a superior product. P&G then announced that it would provide its high-performance computing models for free to small- and medium-size businesses, sparking a new industry of “on-demand” manufacturing tools.23 Brown estimated savings of more than $1 billion over the years, including the software applications and related professional services, as a result of this Los Alamos collaboration.And the collaboration continues with a Los Alamos scientist now embedded with P&G.
Brown described the U.S. national laboratories as a “treasure trove of expertise.” The Connect + Develop program, as a whole, has proven to be a treasure trove of cash for P&G. Yet even as it has spurred billions of dollars in annual sales growth, according to company disclosures, executives have been careful not to take the innovation culture for granted, with expediency always alluring.24 “I would say it remains a challenge,” Brown said. “You have to avoid greater value being placed on internal development rather than external development. That’s a constant watch-out. You have to make sure you reward people who are doing external work in addition to internal work. Making sure you are clear on what’s important, that you reward it correctly, that it’s strategic and that it’s valued and you invest it and you organize for it and you operationalize it on an ongoing basis. We fooled ourselves for a little while thinking it was Connect + Expand. It really is Connect + Develop. You usually have to do some work to make things work. This isn’t something you just put in place and leave it. The Los Alamos story is a great example. They didn’t have a computing program to make a diaper; we had to take it and adapt it.”
The necessity of never-ending supervision and aspiration, even at one of America’s most pioneering companies, left an indelible mark on Chesbrough. “What I’ve learned from companies like P&G and many others,” he said, “is that before you can really effectively innovate in any open way beyond the boundary of your own firm, you have to become more open internally within your firm.”
The respect for internal talent was embodied in the widely told stories of Jeff Bezos, the founder and CEO of Amazon.com. Bezos didn’t want his employees operating in a culture where they were concerned about getting the approval of superiors for every decision, fearful of stepping out of their boxes, out of line, and into trouble. Rather, he espoused the corporate value of Bias for Action. He encouraged initiative and risk taking with his Just Do It awards, through which he would honor employees for implementing their thoughtful ideas without seeking permission—even if the resulting project didn’t succeed. Their reward? He would read an employee’s accomplishments aloud, invite the employee onstage for a handshake, and then hand that employee a used Nike shoe—a symbolic prize for having just done something well.
That, I would learn, wasn’t all that Amazon did internally.
Bezos was participating in the company’s Customer Connection program, in which executives work with the employees in the customer service department to get a taste of that experience. He took a call from a customer whose table had arrived with its top scratched. The course of action was clear enough: send out a replacement, move on to the next call. Except that, in this case, an employee nearby revealed to Bezos that this same complaint had been lodged by different customers several times before. The consistency of those complaints hadn’t been shared with anyone up the Amazon chain, simply because there was no mechanism to report such issues.
Armed with this information, the managers discovered that the problem wasn’t the product itself, but what it had been wrapped and sent in. Amazon reached out to the vendor, which expeditiously improved the packaging.
That was just one issue, however. What about all the others that might crop up across Amazon’s extensive assortment of available items for purchase? After all, it did not serve the overall health of a service-oriented company for critical information to stay siloed in customer service, hidden from others along the Amazon chain, who, if they knew about it, might take action.
Inspired by that single customer call, Bezos set out to improve Amazon’s feedback loops by empowering all of its customer service reps, modeling efforts after the lean manufacturing principles that Toyota used on its factory floor. The automobile giant had given every assembly line worker the right to pull an andon cord when confronted with a defect, effectively stopping production until the problem was resolved, and allowing for the recording of the episode in a database so it would be reviewed for possible patterns that might be preventable. Now Amazon would give its customer service reps the authority to remove from the online catalog any product causing consistent issues for customers. That decision would prompt the distribution of a report to the manager of that retail category and motivating that manager to move on it, since sales of the product were stopped until the defect was fixed. Additionally, the company would give its customer service reps something almost as important: cover. The reps merely needed to offer their reasoning to demonstrate that they had exercised good judgment. They didn’t necessarily need to be right.
Without question, making this option available to frontline workers, regardless of title, required a great deal of trust. In the process, it engendered good will, with those workers feeling their voices were heard and they had a tool to perform their jobs better. And while the retail managers may not have initially appreciated the removal of items from inventory, the benefits eventually became clear through fewer customer service contacts and fewer returns and replacements.
The message of the andon story is unmistakable. Why should an organization reserve the sourcing of innovative ideas to only a select few deemed worthy of offering such input? Why would an organization cultivate a culture in which those with knowledge to share would feel marginalized?
Amazon is a shining example of open innovation in another sense: it has produced what Chesbrough calls “a force multipler element,” a phrase that has military roots and business applicability. It has done so through its visionary business decision to open its e-commerce platform to external retailers—from used-book dealers to electronic shops to clothing companies to major department stores. It has invited those merchants, some of them competitors, to use that platform to provide an Amazon-like customer experience, in terms of content hosting and order fulfillment, in exchange for a fee.
Other companies have created their own force multipliers, including Apple, which has done so through its iPhone app store, inviting hundreds of thousands of web developers to offer new services that can be monetized at attractive rates. The business prospects for those developers were strong enough to convince venture capital firm Kleiner Perkins to establish a $200 million iFund. “When a professional investor decides it’s a great decision to invest their own money in startups that are going to be building things that are going to be making your platform more valuable for you, it’s the most valuable business model of all, because it harnesses other people’s money, talent, ideas, and so forth,” Chesbrough said. “It’s other people’s money making you and your business more successful.”
These examples aside, I found the concept of a platform providing a force multiplier to be best crystallized over a week in August 2011.
The President’s Council on Jobs and Competitiveness held a town hall–style meeting in Silicon Valley to share an update and invite public feedback.25 The event attracted a bevy of technology’s elite, including Facebook COO Sheryl Sandberg, a former Treasury Department official in the Clinton administration. Sandberg explained how, early in its rise as the world’s most utilized social network, Facebook chose to unleash the power of its platform to the public. It published an application programming interface (API) to extend access to a user’s data to third-party developers, accompanied by the appropriate privacy and security permissions and protections. As with Amazon, this decision would serve as a “force multiplier,” inviting entrepreneurs and innovators to invest their time and resources to enrich the customer experience for Facebook’s customer base, in a way that would generate revenue for their company as well as for Facebook.
Sandberg shared the latest accounting, in aggregate, of the job impact of this new “Facebook economy.” While the company’s official head count was approximately 2,500 employees—most based in Palo Alto, California—she found over 30,000 Facebook Developer openings on a popular job search board. None of the people filling those positions would ever appear on Facebook’s balance sheet or Human Resources list. Rather, they would come from, and remain at, firms like the gaming startup Zynga and its smaller kin, focused on building services through the Facebook API.
This sort of job explosion was unconstrained by geography, meaning that, while the bulk of those jobs were in the United States, the apps economy as a whole is as global as the Internet economy, making it America’s race to win or lose. The tech industry trade association, TechNet, published a study in 2011 estimating the size of the apps economy at almost $20 billion and 466,000 jobs—which just scratches the surface of its potential. The study also included a map of America to demonstrate the dispersed nature of these jobs, with all 50 states represented.26
It didn’t take long for me to find some of them. Four days after Sandberg’s insights at the Silicon Valley event, I was on Main Street in Blacksburg, Virginia, for a stop on the administration’s annual Rural Tour. My colleagues fanned out across the country, participating in state fairs or, in my case as CTO, visiting university towns with a hunger for growing new industries. Blacksburg is home to Virginia Tech, a world-class research institution with the motto of “Invent the Future” and a welcoming place for entrepreneurs engaged in the Internet economy. That included the dozen firms headquartered in TechPad, a startup incubator on the second floor above a popular Main Street bar.
During my visit to TechPad, I encountered a Virginia Tech sophomore, Nathan Latka, who had already begun hiring in the Facebook economy for Lujure, later to be renamed Heyo, which developed fan pages for small businesses. Latka had started the service in his dorm room and, to that point, had one employee. The following March, after leaving the White House, I would return to TechPad to check in on his progress. It was remarkable. By tapping into a real need, Heyo was on pace to generate $1.7 million in revenue by year’s end, making his company profitable. He was up to 14 employees and, to meet the insatiable customer demand, was in the middle of a funding round to raise another $500,000, for hiring more employees, aligning with strategic partners, and empowering small business owners. One partner was David Clark, an Idaho man who had quit a high-paying job with Yellow Pages to launch Social Media Gurus, which consulted with small businesses on social, mobile, and web strategy. He leveraged the Heyo tool to support well over 200 small businesses in the development of their fan pages, mobile apps, and websites.
By September 2012, just over a year to the day Sandberg shared her insight on the jobs impact of Facebook’s decision to open its social graph API, staff of Heyo would be standing side by side with Virginia Governor Bob McDonnell, announcing a commitment to hire 50 workers in Blacksburg over the next two years, dramatically outgrowing the office space at TechPad.
There’s another promising phase of open innovation, one in which the lines between company and customer blur, as customer engagement along the chain compels the rapid design of service features to meet clear needs. This trend, in Chesbrough’s view, is another element that differentiates open innovation from earlier management innovations, in that “customers, voters, citizens, users are not simply passive recipients.” Rather, they are “prosumers, producer-consumers, or people who are actively engaged in cocreating.” Chesbrough covered this phenomenon in our conversations and in his most recent book, Open Services Innovation, as it related to digital music and the shrinking distance between artist and audience. In the old days, captured in many a movie, traditional record companies would send talent scouts to smoke-filled clubs in search of the next big act and, after uncovering performers with promise, would sign those artists up to long-term deals, create their packaging and marketing, promote them to radio stations, release their albums, and send them on multicity tours.
“Most of the time these bands didn’t make much of a dent, but sometimes one would break through, and that one breakthrough would kind of cover the cost of all those who didn’t,” Chesbrough said. “But in the digital music environment, that vertical chain of value added between the artist and the consumer has really been disaggregated.”
The music production chain is now disrupted at each step by new websites, applications, and companies that serve as a loose confederation of music services, all aimed at aligning the interests of those who create music and those who influence and enjoy it. The public doesn’t need to wait for a compact disc and a marketing campaign; it can now unearth new songs and styles through the likes of Last.fm, Pandora, and YouTube, and spread the word through social media and trendsetting sites. The public can even help fund the rise of musicians on sites such as Kickstarter or ArtistShare, with sponsors allowed to watch recording sessions and gain access to extra material that the artist has produced. Ideally, when the two parties are in it together, artists will get better feedback and audiences will get better music.
While Chesbrough’s description of the music industry was in reference to, and in the prism of, private enterprises, I was struck by how much this philosophy of looking and getting beyond boundaries animated a view that President Obama had articulated in shaping our open government vision. That was the principle, borrowed from Austrian economist Friedrich Hayek, of knowledge being “widely dispersed,” and that, to solve problems, we should harness the power of technology and innovation to tap into it.27
Mitch Kapor, the legendary founder of Lotus Development Corporation, saw these concepts clearly, and spoke of them in the context of an important public policy issue—health care reform. He had come to the same core conclusion about health IT that Chesbrough had drawn from his study of the legacy music industry: that value could be created through a more active consumer. He had come to another conclusion: that there was “a yawning chasm” in mindset and capability between those participating in the lightning-fast Internet economy and those operating in the health IT space.
He tried to bridge that gap while keynoting the Health Information Technology Platform symposium on the Harvard Medical School campus in September 2009.28 A group comprised of nearly 100 health IT leaders gathered to propose practical, actionable steps to create a health IT platform. From Kapor, they heard that to improve health through the use of IT, “It would have to be along the open innovation lines, because it was just never going to get there otherwise. Just never, ever happen.”
He left the audience with clear takeaways, centering on the need for open standards, decentralized architecture, and even a role for government—all concepts that fit neatly into the open innovation framework. Concerning that government role, he envisioned a light federal approach, similar to the one that governs the Internet, with no single government entity running it from up top. The Internet operates through a decentralized multistakeholder network comprised of leaders in the public, private, and academic communities. The U.S. government simply serves as a facilitator, to insure that information flows across boundaries. It does so through its support for the Internet Corporation for Assigned Names and Numbers (ICANN)—essentially the address book for the Internet. Kapor believed that the government could build on the foundation of the Internet and serve as a facilitator for the safe, secure, free flow of health information. That meant using its convening power to achieve consensus on a set of technical standards and encouraging an early “critical mass” of users from the private sector to participate.
Even more important than the government’s role on the technical front was its responsibility to alter the payment system in health care. More specifically, it needed to shift the reimbursement model to reward providers who focused on keeping patients healthy, rather than just treating them after they are sick. Such a change would create market opportunities for new products and services that can assist providers in identifying patients who should be prioritized, because of their risk of illness, and then find better ways to reach and monitor them. (That payment reform authority would become law when the Affordable Care Act was passed in March of 2010.)
This health Internet would be different and better from what was widely available already: the hundreds of health apps downloadable on app stores but lacking access to full personal medical records. It would capitalize on the freeing of that data to unleash a prosumer model, in which patients not only provide the data but also constructively interact with medical professionals along the chain. That could alter the way in which health care is delivered. For instance, a patient might wish to share lab results from the emergency room with his personal doctor for better care coordination, reducing the need for unnecessary additional tests.
The vision of a health Internet marketplace was a natural extension of Chesbrough’s open innovation framework, applied in government. After participating in the Harvard meeting, I returned to Washington with Todd Park, then the Chief Technology Officer of the Department of Health and Human Services, as its advocate. As we will recount in depth in Chapter 5, it led to the birth of the Health Data Initiative and contributed to the creation of more than 200 products and services (according to a McKinsey & Company estimate) in its first three years.29
Through my experience, I accumulated considerable evidence that the open innovation model, so effective in the private sector, also works in what Chesbrough dubbed “the mother of all services,” the government. And it works in much the same manner that culture creation, maintenance, and expansion advanced P&G; that tapping into frontline workers assisted Amazon; and that the force multiplier of standardizing open interfaces propelled Facebook. Just as the private sector achieved more with less and then replicated and scaled those achievements, the government could use those same open innovation principles to achieve more innovation and better outcomes, with less taxpayer investment. It could cut through some of the tired debates about the size of government.
“A more open, innovative government isn’t really described as either big or small, but rather how government can be effective . . . as a partner to the private sector, not as a replacement for it,” Chesbrough said. “This isn’t an argument for going from 2,000 to 50,000 government workers. It’s using 2,000 government workers to create a platform that invites 50,000 external participants to build on top of it.”
Government’s role in the economy should be, in Chesbrough’s view, to “do enough to liberate or harness the energies of the private sector”—and in doing so, bring the two together.
“These [open innovation] initiatives have the effect of giving more information to more people sooner,” Chesbrough said. “Instead of distancing people from government, they have a way of connecting people to government, and, indeed, empowering people through data and information from the government to improve services in their own lives, from the local city block to the regional and national levels.”
But how would we give some permanence to these connections, specifically at the federal level, so they would outlast any administration? How would we institutionalize a culture change, taking a page from, among others, Procter & Gamble? How would we guide successors on choosing and shepherding open innovation projects, whether that meant freeing data, fostering collaboration for the lowering of barriers to entry, or engaging third-party application developers to act as force multipliers?
Those were the questions that I attempted to answer in crafting the aforementioned, in-house memo that President Obama assigned—and in the related version that was released to the public. I called that version the Open Innovator’s Toolkit, a compilation of case studies where government agencies had successfully applied these open innovation principles through the use of four different policy tools. The four tools represented not an expansion of government, but an expansion of the available options—often within existing authorities and resources—for policymakers to deploy from any level of government, anywhere in the world. They were designed to give policymakers the license, impetus, and ability to break down the walls between the government and the best and brightest entrepreneurs, so all parties could speak a common language.30
These four tools are:
Open data. This entails enabling the public to access more of the information that is stored in digital file cabinets throughout the government, not simply for the sake of transparency, but so it can be incorporated in new products and services to help businesses grow.
Impatient convening. This refers to government’s role inviting the private sector to work collaboratively on standards that lower barriers to entry and increase competition, especially in public and regulated industries such as energy, education, and health care.
Challenges and prizes. This involves casting a much wider net to solve a particular problem than available through traditional, often cumbersome and wasteful government procurement; and paying for actual results rather than flashy proposals.
Attracting talent. This includes recruiting entrepreneurs into the government, to team up with similarly skilled public officials in a startup setting, to produce breakthrough results in a tight time frame.
These four concepts, collectively, open the way for a new paradigm in American government, not the small agrarian state matching the early republic, nor the bureaucracy that grew after the Civil War, nor the inefficient relic of the New Deal, but a twenty-first century government that elevates the role of everyday Americans.
The open innovation story is, at its core, about those everyday Americans, those worthy of the “wise and frugal government” that Thomas Jefferson envisioned in his first inaugural address.31 They deserve a way of thinking that empowers rather than divides, that confronts challenges rather than creating them, that solicits all types of expertise rather than espousing tired approaches. They deserve an American democracy that isn’t defined by the playing of political games, but by the way it allows its citizenry to play a constructive role.
Open innovation is about handshakes and handoffs: the handshakes between powerful, enabling entities that allow for the handoffs to those with the hope, ambition, inspiration, and ideas to make our country better, in every conceivable way.