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Frank Piller: Open Innovation & Customer Co-Creation

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Frank Piller: Open Innovation & Customer Co-Creation

  1. 1. Co-Creation of Value with Companies Customers State of the Art, Research Perspectives, and Managerial Implications Frank T. Piller Chair, RWTH Technology & Innovation Management Group, RWTH Aachen Co-Director, MIT Smart Customization Group, MIT, Cambridge, MA, USA www.open-innovation.com
  2. 2. 2 About us tim.rwth-aachen.de
  3. 3. The RWTH-TIM Group is a large group of researchers, and many of them have contributed to the research providing the basis for this presentation. With about 15 full time research positions plus many graduate student assistants, tutors, and research affiliates, RWTH-TIM is one of the largest groups of its kind in the German-speaking academic landscape. © tim.rwth-aachen.de 3
  4. 4. 5 RWTH-TIM Group: Selections of Recent Research Project Clusters Open Innovation: Increasing the productivity of technical problem solving by external search Customer Co-Creation: Integration of customers and users in the innovation process in form of a firm-initiated strategy. Focus on toolkits for customer innovation, user innovation contests, and innovation communities Intra- and interorganizational technology transfer: Absorptive capacity, managing ambidexterity, and preventing "NIH" (not invented here) Customer Co-Design in Mass Customization Environments: Strategies to profit from heterogeneities in the customer domain Modeling the contingencies of the innovation process: Database of 300 methods for the innovation process and matching tool to corporate challenges of managing innovation Managing ramp-up: Connecting the new product development process with the manufacturing system
  5. 5. Objective of this talk • Introduction into the idea of open innovation and value co- creation – and the underlying principles • Discussion of some basic frameworks and structures • Selected insights into recent research • A competence-based framework: What are capabilities and competences required to co-create? • (Sorry.) Research in the field exploded recently, so I probably will not mention many interesting issues and results worth to discuss. © tim.rwth-aachen.de 6
  6. 6. 7 Two problems that make new product development difficult
  7. 7. 9 Every innovation process requires two kinds of information, influencing the efficiency and effectiveness of the process. Solution Need Information Information ef ea In sticky s fic sin cr sin nes e th ie g information nc th ea e g cr ctiv y e I n fe ef market Ideation launch Doing things Doing the right rights things Realization concept ("R&D", development Inc ffici product es e en th rea enc e develop.) s iv g sin y ct i n fe s ef rea gt he c In
  8. 8. 10 Sticky information “The stickiness of a given unit of knowledge or information is defined as the incremental expenditure required to transfer that unit from one place to another, in a form that can be accessed by the recipient. When this expenditure is low, information stickiness is low; when it is high, stickiness is high. By implication, sticky information is harder to move.” (von Hippel 1994) Some reasons: • Information needed by developers may be tacit – Can you tell your child how to ride a bike? • A lot of information is often needed by developers – “You didn’t tell me you were going to use the product that way!”
  9. 9. 11 Every innovation process requires two kinds of information, influencing the efficiency and effectiveness of the process. Solution Need Information Information ef ea In sticky s fic sin cr sin nes e th ie g information nc th ea e g cr ctiv y e I n fe ef market Ideation launch Doing things Doing the right rights things Realization concept ("R&D", development Inc ffici product es e en th rea enc e develop.) s iv g local sin y ct i n fe s ef rea gt search he c In bias
  10. 10. 12 Local search reduces problem solving effectiveness (Lakhani 2007) Local Search Problem Evidence Problem-solvers have different local Experiment (psychology lab): individual knowledge stocks (Hayek 1945; von problem solvers have difficulty adapting Hippel 1994) to new problems (Luchins 1942; Duncker 1945) Problem solvers use their own local Team-based problem solving negatively knowledge stocks and solution effected by prior experience and new algorithms even when not appropriate: problems being different from old (Allen & Marquis 1964) Bounded rationality (Simon 1957) Firm & Industry level findings of negative effects: - Routines in problem solving (Nelson & Winter 1982) – Photolithography (Henderson & Clark 1990) – Semiconductor Manufacturing (Stuart & - Competency Traps Podolny 1995) (Levitt & March 1988) – Medical Imaging (Martin & Mitchell 1998) – Biotechnology and Semiconductors (Sorensen & Stuart 2000)
  11. 11. 13 Known measures to reduce the local search problem (Lakhani 2007) More effective external search Gatekeepers (Allen & Colleagues) Special boundary roles (Tushman & Colleagues; Ancona & Colleagues) Absorptive capacity: establish bridging strategies (Cohen & Levinthal 1990) Change search style Cognitive search (Levinthal & Gavetti 2000) Partner with organizations with different knowledge Alliances and acquisitions (Stuart & Podolny 1996; Mowery et al 1996; Rosenkopf & Nerkar 2001; Chesbrough 2003; Laursen / Salter 2004) Informal organizational arrangements (Nonaka & Takeuchi 1995; Hansen 1999) Find people with different knowledge “Knowledge flows with people moving” (Lakhani 2006; also: Saxenian 1992; Almeida & Kogut 1999; Rosenkopf & Almeida 2003)
  12. 12. An important disclaimer I always stress in presentations for executives: "Conventional", "known", or "established" does not mean that it is not important Today we will talk about "new" forms of integrating external information in the innovation process But that does not mean that "conventional" (established) forms are outdated or should not be used any longer. The tools and methods of co-creatioan and open innovation supplement the established forms, but do not substitute them. The task of a manager is to know which form of interaction with external partners is most effective in a specific situation -- and when an organization should better rely on its internal capabilities only. © tim.rwth-aachen.de 14
  13. 13. 15 The proposition of open innovation as a set of supplementing practices addressing the problems of sticky information and local search
  14. 14. The background of open innovation Central R&D (German Chemical companies, Edison Labs (became Bell Labs; now: AT&T Labs); DuPont, Xerox Parc ...) The fall of centralized R&D in most organizations Research versus development Market driven innovation -> Profit center controlled R&D Stage-gate thinking Distributed R&D via Venture Capital Portfolio thinking in innovation management as dominating pattern "Radical" versus incremental innovation High risk, low risk Near term, long term Basic research, applied research Internal versus external sourcing of ideas and technology © tim.rwth-aachen.de Source: David Feitler 2010 16
  15. 15. 17 Three (plus one) intellectual schools of open innovation and value co-creation
  16. 16. Innovation in the periphery of the firm: The development of open innovation (I) If information for problem solving is „sticky“ and distributed, strategies to transfer this information make sense. First school: The traditional approach: Innovation networks with competitors, suppliers, universities, etc. (Brockhoff 2003, 2005; Brown / Eisenhardt 1995; Chesbrough 2003; Freeman / Soete 1997; Laursen / Salter 2004; Lundvall 1992; Hirsch-Kreinsen 2004; Rosenberg 1982; Tidd et al. 2000) = “Open Innovation” according to Chesbrough (2003) © tim.rwth-aachen.de 18
  17. 17. The term "open innovation" has been made popular by Henry Chesbrough, UC Berkeley Open innovation: A system where innovation is not solely performed internally within a firm, but in a cooperative mode with other external actors. Companies are using external ideas as well as those from their own R&D departments, and both internal and external paths to the market, in order to advance their technology. Open innovation is characterized by cooperation for innovation within wide horizontal and vertical networks of customers, universities, start-ups, suppliers, and competitors. Open innovation is opposed to closed innovation, in which companies use only ideas generated within their boundaries, characterized by big corporate research labs and closely managed networks of vertically integrated partners. © tim.rwth-aachen.de Figure from: Chesbrough 2003. Definition building on Lausen & Salter 2006; 19
  18. 18. What is open innovation? The formal discipline and practice of engaging the world for problem solving ... Licensing out External technology (knowledge) acquisition and sourcing Consortia and other cooperative ventures Lead user innovation Co-creation with customers ( Today also: Inter-functional / inter-divisional knowledge exchange and idea generation within large corporations ) But: IIbelieve there is more than just the sheer fact But: believe there is more than just the sheer fact THAT we interact with external actors. THAT we interact with external actors. For me, open innovation is about the "HOW" For me, open innovation is about the "HOW" we interact with them !!! we interact with them !!! © tim.rwth-aachen.de 20
  19. 19. 21 Background of our research on the "how" of collaboration with external actors is different in "open innovation": Diener 2010; Diener & Piller 2009, 2010: Study of Brokers and Intermediaries Facilitating Open Innovation
  20. 20. RWTH-TIM Study comparing open innovation intermediaries (Diener / Piller 2010). Strong growth of special intermediaries for open innovation. We coined them "open innovation accelerators". Research idea: By studying the underlying business models and models of value creation of these "specialists", we will gain a better understanding of the phenomenon First study comparing these intermediaries 65 companies identified, 43 met our definition Extensive analysis and profiling of these 43 OIAs Self reports, interviews, survey, secondary sources, client interviews Download ($$$): study.open-innovation.com (contact me for an academic version) © tim.rwth-aachen.de 22
  21. 21. OPEN CALL also has been called "Crowdsourcing" (Interactive Value Creation) "Crowdsourcing represents the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call. This can take the form of peer-production (when the job is performed collaboratively), but is also often undertaken by sole individuals.“ (Howe 2006) Other terms, same idea: Commons-based Peer-Production of Innovation (Benkler 2002; Lakhani 2006); Interactive Value Creation; (Reichwald & Piller 2006, 2009; Piller 2004), Wikinomics (Tapscott 2007) © tim.rwth-aachen.de 23
  22. 22. The Challenge [of doing open innovation alone]: Or why firms often face difficulties in going outside for innovation (Andy Zynga 2009) Global Industry x Global Innovation Community Large / small companies Universities Private / Government Labs WHY Individuals Venture Capital • Knowledge disaggregation • Tacit Knowledge • IP Considerations (protection/pollution) • Leading Edge Knowledge Not in Public Domain • Need for translation and Disguise • Leakage of Competitive Information • Culture/Policies/Authority • Processes Efficiency © tim.rwth-aachen.de 24
  23. 23. The number of OIAs is increasing strongly since 2000 © tim.rwth-aachen.de Source: Diener & Piller 2010 25
  24. 24. How do the intermediaries differ? We find three core elements which "define openness" The most distinguishable Open Search Open Call Initiation difference of open Facet I Contracting innovation seems to be to Task Self selection avoiding the active assignment Constitution search for information / solutions with a clear presumption about its location and Informalized composition Facet II formalized Collaboration (self organization) Along the dimension of openness, companies give away the ‘control’ over parameters of Facet III IP Exploitation Open license knowledge acquisition processes, and, (partly) about the exploitation of the generated results. © tim.rwth-aachen.de Source: Diener & Piller 2010 26
  25. 25. Conceptual Framework of Openness in the Innovation Process © tim.rwth-aachen.de Source: Diener & Piller 2010 27
  26. 26. We found three core characteristics to structure the market of open innovation providers © tim.rwth-aachen.de Source: Diener & Piller 2010 28
  27. 27. Configuration Types 8 dominant patterns of collaboration between manufacturer and external actors Openly search for solutions. There are just a few presumptions about where to find the concrete solution and how it is maybe composed. 1 No direct interaction with external actors. Commonly search takes place on the internet. Observing communities. e.g. Netnography Search for a certain solution openly with a few presumptions. Integrate the external holder of the solution and work collaboratively 2 on solving the problem. e.g. LU method, innovation communities Post a problem or task to an undefined big heterogeneous group and get many ideas back 3 e.g. typical online brainstorming © tim.rwth-aachen.de Source: Diener & Piller 2010 29
  28. 28. Configuration Types 8 dominant patterns of collaboration between manufacturer and external actors Post a challenge or a problem to an undefined big group of experts. Potential solvers select themselves and solve the problem 4 independently from each other. e.g. open expert communities Posting ideas tasks to a broad unknown heterogeneous community. 5 Collaboratively working on innovation tasks. e.g. user communities etc. Post an innovation task openly to an own pre-defined group of potential solvers. 6 The external actors solve the task independently or collaboratively. e.g. Innovation challenge/contest Posting a problem to an unknown pre-defined external network of experts. 7 Potential solvers select themselves and solve the problem independently from each other. e.g. restricted expert communities Posting a specific problem or idea, start a contest to a known pre- defined group. 8 External actors must be qualified as potential solver. e.g. community with restricted access © tim.rwth-aachen.de Source: Diener & Piller 2010 30
  29. 29. 33 What is open innovation? The formal discipline and practice of engaging the world for problem solving ... Licensing out External technology (knowledge) acquisition and sourcing Consortia and other cooperative ventures Lead user innovation Co-creation with customers ( Today also: Inter-functional / inter-divisional knowledge exchange and idea generation within large corporations ) ... using new forms of organizing the collaboration with external actors. Crowdsourcing / commons-based peer production Beyond formal contracts and networks Beyond autonomous user innovators
  30. 30. Innovation in the periphery of the firm: The development of open innovation (I) If information for problem solving is „sticky“ and distributed, strategies to transfer this information make sense. The traditional approach: Innovation networks with competitors, suppliers, universities, etc. (Brockhoff 2003, 2005; Brown / Eisenhardt 1995; Chesbrough 2003; Freeman / Soete 1997; Laursen / Salter 2004; Lundvall 1992; Hirsch-Kreinsen 2004; Rosenberg 1982; Tidd et al. 2000) = “Open Innovation” according to Chesbrough (2003) Second school of earlier literature: task of firm is to capture autonomous lead user inventions (e.g. Anderson & Crocca 1993; Ciborra 1991; Enos 1962; Freeman 1968; Urban & von Hippel 1988; Ramirez 1999; Rice & Rogers 1980; Rosenberg 1976; von Hippel 1976, 1978a, 1978b, 1982) lead users are a “product feedstock for manufacturers” (von Hippel 2005) © tim.rwth-aachen.de 34
  31. 31. 35 Innovation in the periphery of the firm: The development of open innovation (II) New perspective (third school) that firms are organizing the process of distributed / open innovation (Gassmann/Enkel 2004; Jeppesen & Molin 2003; Lakhani 2005; Ogawa & Piller 2005; Piller & von Hippel 2005; Piller 2004; Prahalad & Ramaswamy 2000, 2004; Ramirez 1999; Reichwald & Piller 2009) Going beyond formal innovation networks with customers, suppliers, universities, etc. Open Innovation metaphor to summarize practices building on the notion of distributed sources of innovation, organized in a very different way to the conventional Coasean way of assigning and contracting work: Utilizing "crowdsourcing" ("peer production", "interactive value creation") as a mean to organize the exchange, building partly on open source software production (Benkler 2002, 2006; Lakhani et al. 2008; Piller 2004; Reichwald & Piller 2006, 2009; Tapscott 2006, von Krogh et al. 2002, 2006 and many other recent voices ...) Open innovation as a new paradigm to organize the division of labor within the innovation process
  32. 32. Open innovation can start inside and outside the organization How SIEMENS structures its open innovation initiative Source: Lackner 2009: Open Innovation at Siemens © tim.rwth-aachen.de 36
  33. 33. Recently, the term "co-creation" has been introduced to address open innovation with customers and users, while "open innovation" is focused on technology acquisition in the realization stage Solution Need Information Information ef ea In s fic sin cr sin nes e th co-creation ie g nc th ea e g cr ctiv y e I n fe ef market Ideation launch Doing things Doing the right rights things Realization concept ("R&D", development Inc ffici product es e en th rea enc e develop.) s iv g sin y ct i n open fe s ef rea gt innovation he c In Co-creation and open innovation are two sides of the Co-creation and open innovation are two sides of the same coin -- but demand different tools and responsibilities same coin -- but demand different tools and responsibilities © tim.rwth-aachen.de 37
  34. 34. 39 And we may have to add a fourth school of value co-creation: Autonomous user communities (with a little bit of firm support)
  35. 35. 40 Innovation in the periphery – without a firm: The development of "open innovation" / co-creation (IV) Customer communities acting without any firm collaboration or firm initiation Open source software development as a key example (also the original Benkler focus) More recent literature on value creation and innovation of user communities in e.g., outdoor markets (e.g., Fueller et al. 2008, 2010) Recent interesting development: Upcoming of specialized firms just focusing on supporting user communities in creating value General purpose internet platforms Free CAD like Sketch-Up Quirky and other "crowdsourced companies" Open, localized manufacturing system (e-machineshop)
  36. 36. © tim.rwth-aachen.de 41
  37. 37. © tim.rwth-aachen.de 42
  38. 38. © tim.rwth-aachen.de 43
  39. 39. © tim.rwth-aachen.de 44
  40. 40. User Manufacturing Users (customers) are becoming not only co-innovators, but also manufacturers, using a new infrastructure provided by some specialized companies. (1) Easy-to-operate design software that allows users to transfer their ideas into a design without much experience in how to operate a CAD software. (2) (Open) Repositories of designs, often under creative commons license. (3) Easy-to-access flexible manufacturing technology. Add (4) Easy-to-access distribution capacities: (Expert) users are now enabled to set up an “instant company” that designs, makes and globally sells physical products (as easy as starting a blog or creating an eBay store). [ More information: http://tinyurl.com/yofu2y ] © tim.rwth-aachen.de 45
  41. 41. © tim.rwth-aachen.de 46
  42. 42. An online marketplace that offers sellers complete e-commerce services to independently create and sell a wide variety of products • Average 15 million unique visits per month • Approximately 1500 new, independent shops join the network each day • Roughly 45,000 new, unique products are added each day • Hundreds of "power sellers" making their living by exploting niche opportunities they sense, understand, transfer, and serve. © tim.rwth-aachen.de 47
  43. 43. Companies like Zazzle, Ponoko, e-machineshop etc. created a new (?) way for innovation and value creation. These companies provide a new ecosystem to create, test, build, and distribute. "Users" (entrepreneurs) can create their own assortments ... and there own market ("niching the niches") Manufacturers no longer have to understand what customers want ... they are just producing what people tell them to do (and not "why they need it") User manufacturing closes a missing link of open innovation: Some innovative users create new products (often to profit from using them), but also are being enabled to share their developments (at larger quality) with a larger group. © tim.rwth-aachen.de 48
  44. 44. 49 But let's return to a firm focused perspective (if we ever left it)
  45. 45. A closer look on open innovation practices to acquire "solution information" Solution Need Information Information ef ea In s fic sin cr sin nes e th ie g nc th ea e g cr ctiv y e I n fe ef market Ideation launch Doing things Doing the right rights things Realization concept ("R&D", development Inc ffici product es e en th rea enc e develop.) s iv g sin y ct i n fe s ef rea gt he c In © tim.rwth-aachen.de 50
  46. 46. 51 Increasing the productivity of problem solving
  47. 47. 52 52
  48. 48. InnoCentive is not alone: NineSigma and Yet2 are seen as core competitors, but have a slightly different business model Network Size 2m+ 160K+ Solvers, 175 120,000 registered users, 650K+ individuals Countries, 40 Disciplines 70+ brokers, 200+ 120+ Affiliates consultants How they make money Posting Fee Posting Fee Membership fee $4,000 to $12-19,000 $6,000 to $15,000 posting $30,000 Success fee = % of final fee* Consulting service fee contract or fixed amount Success fee = 40% of $30,000 to $40,000 (Retainer) contract or award Success fee = % of value of the deal Solver/Solution Provider $5,000 to $50,000 plus $5,000 to $1m Contract or licensing value awards follow-on contract value ($1.5m average) Growth 500 RFPs to end 2006 2008 postings nearly 25+ deals in 2008 400 RFPs in 2007 double 2007 postings Expansion of broadcasting large growth in 2008 and Opening of European office services 2009 in 2010 © tim.rwth-aachen.de 53
  49. 49. Piloting open innovation via broadcast search in German industry association among SMEs Starting situation FVA, research consortium of approx. 150 German SMEs in mechanical engineering related technologies (driving systems) as part of VDMA (one of Germany's largest industry associations with 2000+ members) FVA funds own research program (contract research, pre-competitive, shared IP) Need to improve productivity of R&D spending on consortium and firm level Idea to pilot open innovation: Research contract to RWTH-TIM First stage Getting of commitment of members and corporate education (took 12+ months !!!) Evaluation of legal situation of working with problem solving platforms in Germany Second stage Piloting of six challenges (two company challenges, one that failed on the consortium level before, one that just had been contracted externally, two from up-coming research agenda) Decision to partner with NineSigma RFP drafted, search ongoing ... (today) Third stage If evaluation of pilots is positive, establishment of OI platform as membership service for association on VDMA level © tim.rwth-aachen.de 54
  50. 50. VDMA Project to Pilot Open study of Explorative Innovation: Research Agenda existing applications of Identification of suitable OI in domain problem statements Comparing different tools and methods Piloting: Contracting of platform and formulation Legal constraints and of RFPs requirements 2. 1. 1. Identification of Evaluation of results Evaluation and open innovation platform of approach Development modification of OI to measure efficiency of OI methods for industry Definition of incentives domain Market study and comparison of OI platforms ("beauty 3. contest" of OIAs) Recruiting "problems" Piloting of platform and 4. evaluation of efficiency and Development of effectiveness of approach as Final reports to executive business model compared to conventional board and "checklist" for SME members means of organizing R&D for future operation of platform on the Development of operating & pricing FVA level model for association ("NineSigma inside") © tim.rwth-aachen.de 55
  51. 51. 56 For university researchers (and TLOs), this corporate trend towards open innovation bears tremendous opportunities
  52. 52. Traditional pattern of university-firm technology transfer University Wissenschaftler scientists 1 2 3 Unternehmen Companies Search for Suche nach interesting Bestandteilen document results stellen Wissen ein Transfer- Transfer technologies der Lösung database Datenbank Motivation durch: Incentives for transfer Search for research inLösungsweg: etc. Annahme über einen universities • Externe grant contract - Part of “Zwänge“ - Screening ofauf bekannte Wissensbasis • Zugriff nur usual suspects • Erwartungswert einer potentiellen Abfrage - Using existing networks bias“ bei Suche / - Expected value of potential • Unterliegt „local search der Informationen durch by a firm demand of knowledge ein Unternehmen Evaluation - Local search bias • Reputationserhöhung - Increasing reputation • Motivation durch „Not Invented Here“ - Transfer often stopped by begrenzt "Not-invented-here" © tim.rwth-aachen.de 57
  53. 53. Using Open Innovation for Technology Transfer: A project for the German National Academy of Science (DFG) University Wissenschaftler scientists 3 2 1 Unternehmen Companies Plattform für Open Broadcasting Broadcasting screening of of search Broadcast problems Open innovation problems der Probleme platform Innovation e lt mrittf hlag r o Übe fevorscion ns aungssolut tr s Lösible pos Activities on research site: Probleme • Wissenschaftler screenen • Unternehmen übermitteln Fragestellung an Activities on company site: Plattform - •Screeningnurproblems Reaktion of wenn Lösung bekannt oder - Transfer of problems Lösungsweg “einfach“ • Screening und Bewertung der Lösungen - Reaction only when problems seems to be - Screening and evaluation of problems •known and cost to answer affordable Übermittlung konkreter Lösungen • Belohnung des "best" solution - Transfer of besten Beitragenden - Transfer of solution idea - Contracting of further directed research - Transfer of suggestion for contract research © tim.rwth-aachen.de 58
  54. 54. Piloting open innovation via broadcast search as an innovative measure of technology transfer (DFG project in the material sciences and EC funded project for the nano-technologies) Starting situation: The European Paradox Europe is leading in basic research in the material sciences (and especially "nano" research) ... ... but is lacking behind North America and Japan in exploitation of research results Same on German level fro DFG: Plenty of initiatives, but no large impact in transferring research results from basic research into practice Idea to pilot open innovation: Research contract to RWTH-TIM First stage Background research on state of technology transfer system Empirical research and broad qualitative research (today) TAM study on level of researchers Second stage Piloting of open innovation for technology transfer Idea is to complement traditional transfer channels, not to substitute them Third stage If evaluation of pilots positive, establishment of OI platform on level of DFG / European Community © tim.rwth-aachen.de 59
  55. 55. 60 Co-Creation with users and customers to get access to need information Solution Need Information Information ef ea In s fic sin cr sin nes e th ie g nc th ea e g cr ctiv y e I n fe ef market Ideation launch Doing things Doing the right rights things Realization concept ("R&D", development Inc ffici product es e en th rea enc e develop.) s iv g sin y ct i n fe s ef rea gt he c In
  56. 56. 62 Theoretical foundation: lead user theory
  57. 57. The other stream of open innovation research: The user innovation concept by Eric von Hippel, MIT "I need it but it doesn‘t exist, so I‘ ll have to make it myself." Lead User innovate here Manufacturers innovate here # of users with need First commercial product available “Voice of the customer” methods of conventional “Lead User market research Method” to discover autonomous lead user innovation Time © tim.rwth-aachen.de Source: von Hippel 1988, 2005 63
  58. 58. 65 An important differentiation (II): Lead user research is NO market research – and often lead users are NOT customers of the manufacturer
  59. 59. 66 There are two fundamental ways to profit from the lead user idea: (1) Search for LU innovations and (2) Co- create with lead users/experts 1. Search for LU innovation – Broad open search for existing (prototype) innovations out there in your (target) market by lead users (more "observation" than "co-creation") – Focus is on access to latent need information – Examples: Sport equipment, machinery, medical equipment 2. Search for lead users and lead experts in (analog) markets – Search for persons with lead user characteristics for a given problem definition – They face the same need, but often to a higher extreme (in analog markets) – Focus often is on access to technical solution information – Invite them to innovation workshop to co-create with your R&D team
  60. 60. 67 That we have to integrate customers into value creation seems to be out of question today. 67
  61. 61. 69 The question is "how" 69
  62. 62. 71 Three paradigms to integrate customers in the innovation process
  63. 63. 72 Three modes of customer participation in NPD (Piller 2004; Fredberg & Piller 2009, building on Dahan and Hauser 2002)
  64. 64. 74 How can companies interact with their customers
  65. 65. 75 Three modes of customer participation in NPD (Piller 2004; Fredberg & Piller 2009, building on Dahan and Hauser 2002) Mode 1 - Design for customers ("observe"). Products are designed on behalf of customers. Firms use customer information from diverse input channels to explore needs: Listening into the customer domain by analyzing sales data, internet log files, or surveying sales personnel; Netnography; Quality Function Deployment.
  66. 66. Another form of observing customer: Netnography Netnography [interNET & ethNOGRAPHY] is a qualitative research approach to analyze the consumer dialogue in online communities in order to gain valuable consumer insights especially in the early stages of the innovation process (Kozinet 2007). The empathic and non-obtrusive online observation allows the qualitative assessment of explicitly verbalized and implicitly existing needs, whishes experiences, motivations, attitudes, and perceptions of consumer towards products, services and brands. © tim.rwth-aachen.de Source: Michael Bartl, HYVE AG, 2010 76
  67. 67. 77 How can companies interact with their customers
  68. 68. 78 Three modes of customer participation in NPD (Piller 2004; Fredberg & Piller 2009, building on Dahan and Hauser 2002) Mode 1 - Design for customers ("observe"). Products are designed on behalf of customers. Firms use customer information from diverse input channels to explore needs: Listening into the customer domain by analyzing sales data, internet log files, or surveying sales personnel; Netnography; Quality Function Deployment. Mode 2 - Design with customers ("interact"). Display solutions or concepts to customers so they can react to proposed design solutions: Pilot customers or beta users. Concept testing, focus groups; Output-Driven Innovation method.
  69. 69. Example: CoCreation Master Class by Dialego AG, Aachen 1 2 Participants Consumers introduction & are asked to recruited comment directly from within on the image the Dialego presented – Panel or a including a scaled partner list evaluation Preparing analysis: 5 3 Pre-defined analytical areas Analysis, 4 Management Summary & recommen- Results dations for in Online furture actions Report including statistics Dialego AG - Market Research Online 79
  70. 70. 82 How can companies interact with their customers
  71. 71. 83 Three modes of customer participation in NPD (Piller 2004; Fredberg & Piller 2009, building on Dahan and Hauser 2002) Mode 1 - Design for customers ("observe"). Products are designed on behalf of customers. Firms use customer information from diverse input channels to explore needs: Listening into the customer domain by analyzing sales data, internet log files, or surveying sales personnel; Netnography; Quality Function Deployment. Mode 2 - Design with customers ("interact"). Display solutions or concepts to customers so they can react to proposed design solutions: Pilot customers or beta users. Concept testing, focus groups; Output-Driven Innovation method. Mode 3 - Design by customers ("build" / "Co- creation"). Active integration of customer participation in NPD (Ramirez 1999; von Hippel 2005; Reichwald & Piller 2006), often with tools that are either provided by the firm or by customers themselves. The manufacturer is either empowering its customers to co-design a solution or is implementing methodologies to efficiently transfer an innovative solution from the customer into the company domain.
  72. 72. 84 Co-creation is an active, creative and social process, based on (voluntarily*) collaboration between producers (retailers) and users, that is initiated by the firm to generate value for customers. * different to selve service!
  73. 73. 85 Co-creation is between the manufacturer-active paradigm (MAP) and the customer-active paradigm (CAP) (Source: von Hippel 1978, p. 40).
  74. 74. 92 A typology of "mode 3" arenas of interaction of customer participation in NPD (Piller & Ihl 2009, 2010) High Idea (Creative & open contests / Idea contests Communities of Communities of creation task) lead user Co-Creation theory Degrees of freedom Low Idea screening Product-related (predefined Product-related & narrow &Idea screening refinement forumsforums discussion and task) Back end by customers communities (design, testing) NPD progress Front end dyadic (ideation, concept) network (single customer) (customer community) Degree of collaboration
  75. 75. 93 A typology of "mode 3" arenas of interaction of customer participation in NPD (Piller & Ihl 2009, 2010) Communities (Open / embedded) of co-creation for Toolkits for Toolkits for user Peer production; Toolkits for innovation problem solving / crowdsourcing user innovation user innovation High (Creative "lead user & open workshops" task) Virtual Degrees of Toolkits for concept freedom Toolkits for user co-design Virtual concept user design testing and and customization testing & trading & customization idea Low markets (predefined & narrow task) Back end (design, testing) NPD progress Front end dyadic (ideation, concept) network (single customer) (customer community) Degree of collaboration
  76. 76. 94 A typology of "mode 3" arenas of interaction of customer participation in NPD (Piller & Ihl 2009, 2010) High (Creative & open Idea Idea contests Communities of Communities of creation task) contests Co-Creation Degrees of freedom Low Idea screening Product-related (predefined Product-related & narrow &Idea screening refinement forumsforums discussion and task) Back end by customers communities (design, testing) NPD progress Front end dyadic (ideation, concept) network (single customer) (customer community) Degree of collaboration
  77. 77. 95 Open Senior Innovation Integrating senior citizens into new product development to improve your firm's capability for innovation Project funded by NRW.ZIEL 2 Program senior.open-innovation.com
  78. 78. 96 Our idea: "Open Senior Innovation": A new approach to reduce the NPD risk and increase NPD efficiency Picture: Age Simulator by duke HealthCare Communication Objective: To develop a method which enables senior citizens to directly transfer their needs into an artifact that highly corresponds with their needs. This means to shift some specifications of the product into the domain of the user. The idea is to isolate the source of uncertainty, i.e. sticky information about user needs, and to place it entirely outside the boundary of the manufacturer. This is a fundamental break with the current understanding of the innovation process (Piller & von Hippel, 2007). The idea is not to try to understand what older consumers may think and want, but to enable them to co-design exactly what they want. Open Senior Innovation Platform: Provide platform and supporting infrastructure so that senior consumers can participate in defining fitting products for their needs, but also in solving technological problems along the innovation process.
  79. 79. 97 Objective of project is a feasibility study to build our understanding of senior innovation platforms. Main objectives of project: (1) Create proof of feasibility for internet platforms for open senior (service) innovation (2) Understand technical and economic principles. (3) Build an exploratory prototype of platform and pilot it. (4) Generate business model how to operate platform sustainable. Stay tuned ... project has start in Jan 2010 ... First idea contest online since March 10, 2010: Design the best cell phone for senior citizens (www.einfachtelefonieren.de)
  80. 80. 98 The Open Senior Innovation Platform shall combine both methods to access need information and methods to utilize distributed solution information. Open innovation starts Users Users at two levels: Providing better Firm Firm access to need Partners Partners information about the customers' OSSI OSSI preferences. Community Community Providing better access to solution Web Web information how to Problem Problem transfer this need into Solvers Solvers a new product or a new service.
  81. 81. 99 Such a platform promises a broad set of benefits and advantages – their realization however still has not been shown. Overcoming the sticky information problem of accessing need information. Providing direct access of older users to manufacturers and service providers (firm partners). Initiation to innovation project can be user community, but also firm. Ideas can be generated by individuals or groups of users Utilizing resources of experienced contributors with heterogeneous set of experiences Transfer of idea to (offline) senior expert networks. Utilization of large untapped labor source (matching requirements on corporate level). Special requirements of designing platform with regard to usability and incentive structure Special focus on service development
  82. 82. 100 We know much about the tools and methods to integrate users in the innovation process – but what are the underlying principles?
  83. 83. 101 Competences of firms and customers to co-design successfully in NPD (Piller & Ihl 2009) Necessary competences of For a full report of this argument, the customer please refer to the working paper Product "open innovation with customers", for competence download at tim.rwth-aachen.de/piller/ Technical competence Leadership competence (+) (+) (+) (+) (+) Success through Characteristics of Degrees of Degree of Progress in Open open innovation freedom collaboration NPD process Innovation with (-) (+) (+) (+) (-) (+) (-) Customers Disclosure competence Appropr. competence Integration competence Legend: Necessary competences of (+) if characteristic A is high then competence X tends to be more relevant the company (-) if characteristic A is high then competence X tends to be less relevant
  84. 84. 119 Conclusion
  85. 85. 121 Further questions • Today no one needs to be convinced that user and open innovation is important. How to innovate with external actors is the key question. • (Building on Peter Drucker, 1988) • Who is the user? • Capabilities and competences of innovating participants (-> service marketing, mass customization research) • Capabilities and competences of firms to innovate openly with their periphery ("Absorptive Capacity 2.0") • What is happening in the interactions of users and firms along the innovation process? • When is there enough of a good thing? ´Firms start to exploit users for their innovation process. Do we need user innovation governance? • User entrepreneurship ... when do users start to organize themselves? • What is the core of an organization?
  86. 86. 122 Contact Frank T. Piller TIM-Group at RWTH Aachen University Kackertstraße 15-17, 52072 Aachen, Germany Tel.: +49 (0)241-809-3577 piller@tim.rwth-aachen.de tim.rwth-aachen.de/piller www.open-innovation.com mass-customization.blogs.com scg.mit.edu

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