April 26th, 2005
Harnessing customer and lead-user innovation
I’ve been hearing about people hacking, modifying, and even improving their Sony PSP, iPod, FireFox, etc. For most products, these actions would void the warranty but that doesn’t seem to curb these practices. It’s more like an after-thought. This is similar in effect how tuners raised the stock in Honda, and increased OEM and after-market volume of parts and accessories.
This Economist article states companies like Staples and BMW are increasingly looking to their customers for innovative product ideas.
With the rise of online communities, together with the development of powerful and easy-to-use design tools, seems to be boosting the phenomenon, as well as bringing it to the attention of a wider audience, says Eric Von Hippel of the Massachusetts Institute of Technology, who is about to publish a book, “Democratizing Innovation” (MIT Press). “User innovation has always been around,” he says. “The difference is that people can no longer deny that it is happening.” Indeed, it is “very likely that the majority of innovation happens this way,” says Mr Von Hippel. Such innovation, he says, has a “much higher rate of success”.
“…in the past firms have mostly resisted customer innovation or not known what to do with it. American farmers were lobbying manufacturers to make cars with detachable back seats as early as 1909. It took Detroit more than a decade to “invent” the pick-up truck. Even now, carmakers respond to customer modifications such as performance-exhaust systems by voiding the warranty. Within three weeks of launching “Mindstorms”, a build-it-yourself robot development system, in 1997, Lego was facing around 1,000 hackers who had downloaded its operating system, vastly improved it, and posted their work freely online. After a long stunned silence, Lego appears to have accepted the merits of this community’s work: programs written in hacker language may now be uploaded to the Mindstorms website, for example.”
Harnessing customer innovation
- BMW allows its customers to develop ideas showing the firm could take advantage of advances in telematics and in-car online services. Of the 1,000 customers who participated, 15 were chosen and invited to meet BMW engineers in Munich. Some of their ideas are still under wraps and have since reached the prototype stage.
- Westwood Studios, a game developer now owned by EA, first noticed its customers innovating its products after the launch of a game, “Red Alert”, in 1996: gamers were making new content for existing games and posting it freely on fan websites. Soon Westwood was shipping basic game-development tools with its games, and by 1999 had a dedicated department to feed designers and producers working on new projects with customer innovations of existing ones. The fan community had a tremendous influence on game design and the games are better as a result.
- Staples is selling a gadget called a “wordlock”, a padlock that uses words instead of numbers. This idea was raised by one of its customers.
- Bell, the American bicycle-helmet maker, has collected hundreds of ideas for new products from its customers, and is putting several of them into production.
Harnessing ‘lead user’ innovation
Traditionally, firms have innovated by sending out market researchers to discover “unmet needs” among their customers. These researchers report back. The firm decides which ideas to develop and hands them over to project-development teams. Studies suggest that about three-quarters of such projects fail. Harnessing customer innovation requires different methods. Instead of taking the temperature of a representative sample of customers, firms must identify the few special customers who innovate.
- Researchers call such customers “lead users”. Lead users are highly motivated individuals or companies who are on the leading edge of technology use. The premise is this, these lead users will in turn have leading edge needs. This motivates them to look for and prototype solutions, which also becomes their incentive. And often develop solutions that the market will want in the future. As we know, necessity is the mother of invention.
- Lead users tend to develop functionally novel services, for example SMS in mobile phones was a lead-user innovation that caught the industry by surprise but integrated nicely into the market.
- GE’s healthcare division calls them “luminaries”. They tend to be well-published doctors and research scientists from leading medical institutions, says GE, which brings up to 25 luminaries together at regular medical advisory board sessions to discuss the evolution of GE’s technology. GE then shares some of its advanced technology with a subset of luminaries who form an “inner sanctum of good friends”, says Sholom Ackelsberg of GE Healthcare. GE’s products then emerge from collaboration with these groups.
- Staples found its luminaries by holding a competition among customers to come up with new product ideas. It got 8,300 submissions, says Michael Collins, boss of the Big Idea Group, a start-up firm that helped Staples to organize its competition.
Many believe innovation has a price and people expect to be paid for their creative work: hence the need to protect and reward the creation of intellectual property. One really exciting thing about user-led innovation is that customers seem willing to donate their creativity freely, says Mr Von Hippel. This may be because it is their only practical option: patents are costly to get and often provide only weak protection. Some people may value the enhanced reputation and network effects of freely revealing their work more than any money they could make by patenting it. Either way, some firms are starting to believe that there really is such a thing as a free lunch.