Appunti per il secondo parziale dell'opzionale New Product Development and Open Innovation

New product development and open innovation

The role of collaborative innovation

The second part of the course is devoted to collaborative innovation. Collaboration with customers, suppliers, and players that companies usually involve to innovate because they are used to having contact with them.

Examples of collaborative innovation

- Lead user = user that leads and anticipates the needs of a specific target market. It is usually a customer in B2B. A specific customer that is so expert and creative in the field that they can suggest some new insights of innovation. If you intercept lead users as a company, they could help you develop a better product.

- Creative consumers = in the B2C market. Consumers that find solutions by themselves. They invent their solutions, like snowboards, which were developed by snowboarders.

Customers = downstream

Suppliers = upstream → Centralized innovation collaboration with the suppliers. The company is in the center and tries to collaborate with each point outside the company. Single points are single customers or single suppliers.

Collaborating with suppliers is useful because they have their own core competencies, they know what they can offer, and they have existing know-how. Suppliers have a wider point of view compared to the company; they serve other companies. Collaborating with suppliers could help in putting together more data, more insights, and more information to understand, for example, which are the new materials, the new technologies available, and which will be the new trends in some fields…

Open innovation vs closed innovation

• Closed Innovation refers only to the innovation developed in-house, within the boundaries of the company. Own research team, own marketing team… people that work and develop ideas starting from a brief, passing through different stages, and arriving at the end of the process with solutions that are created internally.
• Open Innovation means distributed innovation or anything that could exploit external sources of innovation in any phase (idea stage, development phase, launch phase).

These two options are just the extremes of a continuum: organizing the process in an open innovation means that you have to understand which are the possible external sources of innovation that you can use in the process and how you can help others in their innovation process. Bidirectional relationship: not only gather information, ideas, and technologies from the external source of innovation, but also offering to external players our competencies, our technologies, our brand… creating the interrelationship.

→ Distributed innovation in the centralized innovation you can have different offices collaborating with its own network of possible collaborators. The distributed innovation is a model that is completely distributed: Open Source.

→ Example: Wikipedia (a community of users can update or modify the information to create value by users for users themselves), Linux, Python.

Model of innovation: open innovation

Distributed innovation at the intersection of different disciplines combines a lot of subjects:

• Marketing: Who are our lead users? Who are our creative customers? How to engage and involve them? How to select external channels? Example: influencers, they are really important to companies because they draw attention thanks to social media towards a particular brand/product. They can be contacted by the company in order to promote or discuss the product or target a specific type of customers that are the followers of the influencer. Nowadays influencers work better than TV advertising.
• Technology management: If you have to develop something complex and you don’t have all the competencies in-house, then you have to find somebody else that helps you and combine their competencies with yours. Technology management is a matter of understanding which are the technological needs and knowing where to find the solutions to the needs. Divide the project into what we can do in-house and what we need externally.
• R&D management: Developing new materials, new technologies, and new processes that are not yet new products involves the combination of different knowledge, different competencies… Research: collaboration with external players or not? Collaboration with different companies in a pre-competitive environment because we are far from the market, we are exploring the different possibilities of innovation.
• Organizational science: How to govern the relationships between different players, how to organize process, people, and team. For example, how to organize a team half made from internal people and half made with external players, or a team that involves multiple subjects (universities, private labs, competitors, suppliers…). It is a matter of combining the different cultures of the companies involved: not all players reason in the same way, not all have the same risk propensity… how to handle the interactions with others.

The governance continuum for models of distributed innovation

The complexity of open innovation increases when the control is not only yours. Governance means who controls, who organizes the rules of the game of collaboration. There is a continuum between:

• Hierarchical approach organized, managed, and controlled by the company.
• Etherarchical approach comes from others, comes from outside. For example, Wikipedia does not have a boss, you don’t have to ask permission from anyone. There are the rules of the game indicated in the community and by the community used to regulate the behavior of each single user. There is no one that checks, controls, and gives permission. The governance is distributed among the players.

Along this continuum, we will have different models:

→ Collaborative innovation is the most hierarchical approach: you have a company that organizes the relationships with external players. If you want to involve a customer, a supplier or you want to collaborate and co-create something with a competitor (coopetition = collaboration + competition), you go towards a collaborative innovation process. You have few external players (or just one). You and the partner established the rules, who is the owner of what, who is putting on the table what (competencies, people, funds…) and you regulate the collaboration. Governance from the top, usually of the company that searches for the external collaboration. Rules are governed and controlled by the company itself.

Improving new products/services thanks to the collaboration with customers:

• In Business to Business (Lead Users)
• In Business to Consumers (creative customers, innovative customers, …)

How:

• On an individual basis
• Through focus groups

Organized and directed (type of governance) by the firm.

→ Communities of creations that could be completely etherarchical (such as Wikipedia) or managed or moderated by the company (for example, a forum on the official page of the company). In general, all moderated groups are communities of creations.

• The locus of innovation is within a community of individuals and firms that collaborate to create joint intellectual property: knowledge is created by people and for people. You are not the owner of the knowledge; creative commons rights: is a way to allow others to use your pieces of information.
• Knowledge is socially constructed and enhanced in «communities of practice».
• In order to function effectively, a community of creation requires a specific set of ground rules for participation.

Example of community of creations:

Community of practice: you find solutions for problems in the website.

A virtual community works if:

• Size: it is big enough. Minimum critical mass of users to make the community attractive. Larger communities are more helpful.
• Continuous connection (temporal element): interaction cannot be occasional contacts. Continuous update and connection among users.
• Conscious and active participation: developing a sense of belonging. You have a community of people if people interact with each other.

→ Virtual knowledge brokers are players that intermediate, connect knowledge, and competencies… Thanks to the internet, you can transform this type of business model into the virtual space. So virtual knowledge brokers are players that intermediate between suppliers of technological solutions and demand for solutions for innovation.

Virtual knowledge brokers are the virtual manifestation of knowledge brokers, third parties who connect, recombine, and transfer knowledge to companies in order to facilitate innovation.

Why companies could collaborate with virtual knowledge brokers?

Example of virtual knowledge broker

→ Open source systems not only open source software but systems (software + hardware). We already mentioned them. The first etherarchical approach in innovation was managed and created by open source software: the open source started with software at the beginning because software is easily adaptable… Collaboration on software means that all the players can be connected with their own device and modify the platform. Collaborating on hardware is more difficult.

• Open-source systems (OSS) represent a specific evolution of virtual communities, completely run by and for users to mutually provide technical advice and create new products or services.
• Joint development of knowledge
• Free use of what has been (freely) shared by a community of contributors
• New license called GPL (General Public License, Free Software Foundation) => from «free» software to «open» software

Example of OSS:

Software Hardware: Arduino, Thingiverse.

→ We can add another dimension to the nature of collaboration: the collaboration is between each single player (individually) or based on a community (community-based)?

Classifying models of distributed innovation

The tools supporting collaborative innovation with customers

There is a continuous approach in order to create something new. First of all, you have to have some knowledge that refers to what you can do by yourself, which are your core competencies and the knowledge about how you can better serve the external environment and in particular your target customers. The cognitive approach to product innovation envisages a continuous interaction between company knowledge and the knowledge of numerous actors in the outside environment (customer, suppliers, researchers, universities, …).

Model of Daneels

This model reviews the creative and innovation process thanks to the interpretation of the external environment. Steps:

• You start from the insights, that in the organizational studies are called Environmental stimuli: which are the activators of something that could be interesting.
• Then you have the Interpretation: you have to interpret the customers’ needs. What can create value?
• Organizational perceptions: organizational translation of the environmental stimuli. For example, in a structured way thanks to the QFD.
• Organizational decisions: what we decide to develop, what to include in the product or service.
• Organizational actions: is the execution phase. Implementing what you decided, you give and provide and answer the market.

The role of internet in customer behavior

What customers can do in the innovation process? How did the internet change customers’ behavior?

• Self-inform on product features and prices: website information.
• Self-compare product features and prices: comparison between the same product of different brands or different versions of the same product. Comparison websites, for example, Amazon.
• Self-police to verify quality before purchase (online reputation).
• Self-organize and share their experience (communities of interests). Feedback about a product and help others. Easier to get in contact and share information.
• Self-advise providing feedback on their experiences

All of these characteristics have a big impact on companies because the information asymmetry is reduced a lot: more information, easy and quickly available for customers. Importance also of the online reputation. Customers tend to share more the bad experiences than the positive ones. Also, if you have a really positive experience, thanks to the role of the internet and the potentiality of social networks, if correctly managed, they could spread the word really quickly. Very useful tool to be correctly used and managed by companies. The online reputation nowadays is much more important than two decades ago.

→ Customer knowledge potentialities «as customers begin to expect customized consumption experiences, they are more willing to co-create unique value for themselves». Customers can customize the product, can personalize products, and combine products depending on the need.

→ Examples of products that can be customized: shoes, computers, t-shirts… There are some processes that combine modules already prepared in a finished product. So the fact that customers prefer to customize the product influences the production in what is called mass customization = the company customizes products for the mass, a large number of people, through the configurators.

Three dimensions for customer knowledge absorption

1. Customer knowledge codification: the knowledge from the market can be explicit or tacit. Marketing research tools that allow obtaining/receiving explicit knowledge from the customer:
   • Surveys
   • Reviews
   • Focus group: you gather people, in line with your target customer, around, virtually or physically, and you have a sociologist or a psychologist that conducts the focus group
   Which are the marketing researches that could extract tacit knowledge from customers (= they do not express it in words)?
   • Customers’ behavior: the research is the observation. Example: check how the customers behave in a supermarket, in the store, what they do in front of the shelf, in front of the products.
   • Attitudes
   • How customers use the product
   Customer knowledge codification is important to understand how to collaborate with customers.
2. Customer knowledge source: the source can be
   • Individual: if you are interviewing a single person in order to gather information depending on the goal of the research.
   • Social: social space that could be physical or virtual. For example, focus group. The answer of a person can influence the perceptions and the opinion of others.
3. Customer knowledge breadth: from the company’s point of view. How much the company wants to go deeper in the knowledge of its customers:
   • Core: what the company wants to know related to the core of the business. The point of observation is related to the core product. → Example: Ducati core knowledge: the different features of the motorbikes, everything related to the core of the product.
   • Peripheral: something broader. Not only the core business. I want to analyze better which are the habits, the living style, the hobbies, the studies of my customers. The company wants a peripheral view of what customers do in their life. A lot of more information about the customers. Also in order to better advertise the product.→ Example: Ducati not only preferences about the motorbike.

Collaboration mechanisms through virtual environments

There are different perspectives: the individual analysis and the community analysis, managed by the customers or managed by the firm.

1. Knowledge import: there is no interaction with the firm. The firm sends out questionnaires to the customers, who only fill them in. It is only an import of knowledge.
2. Individual dialogue: it is an interview with a marketing person of the company. An interview has an exchange of information, creating a dialogue. The customer can also absorb some knowledge. Exchange of opinions, points of view, clarifications… The customer can ask if they do not understand the question. Co-creation of value. For example: people are stopped in a supermarket by a person that wants to conduct an interview.
3. Mediated dialogue: the company delegates another firm (knowledge broker) that is a marketing researcher company to conduct different social analyses with different target groups. The company does not get in contact directly with the community, but only receives a report about the key information.
4. Social dialogue: virtual room in which researchers talk with each other to arrive at a common solution. Or the firm organizes a social dialogue between customers, like a page of the company that gathers the opinion of the consumers.

Some examples:

• Listening techniques: consumer reviews. Charmin: toilet paper. There is a page in the company web page to gather the preferences of the customer among the different products.
• Social dialogue with the external community through their website. Ben & Jerry’s: the customer can suggest a new ice cream flavor and the other customers can evaluate the ideas of others. Starbucks: Starbucks launched the My Starbucks Idea website, where customers submit, view, and discuss ideas along with employees from Starbucks. GoPro: in their website, they have a community internally managed and moderated. Community.gopro.com. There are community guidelines to guarantee the best use of the platform.
• Configurator: often used in the car industry. Boeing: design your own plane. For direct customers of Boeing, so airplane companies. They can choose some features, engineering features, disposition of seats, business class, and economy class…

The role of the web in supporting collaboration with customers

• Reach: the company can reach a lot of people.
• Interactivity: the company can interact with people, can create easily dialogue and social dialogue.
• Scalability: you can create it for the Italian market and replicate it for others.