Interview with FRANK PILLER Aachen University, Germany / MIT Media Lab, USA

Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013

Open Innovation 2.0
Co-creating with users

This issue of C&S analyses the thematic of open innovation with a focus on co-creation with end-users

Summary of this issue: Innovation has always been a central element of competition dynamics. During the last decades, globalization, deregulation, internet, new technologies, the digital revolution, and consumers' behavior have radically modified the innovation process and the competition structure. In many areas, the offer is rich and diversified: innovation is a unique opportunity to create competitive advantages necessary for growth. Among the general topic of open innovation, this special issue focuses on users' involvement in the innovation process. It offers a collection of papers providing interesting opinions, experiences, advances and evidence.

Exclusive:
Interview with FRANK PILLER
Aachen University, Germany / MIT Media Lab, USA

Conducted by Anna Maria KOECK
ZBW – German National Library of Economics, Hamburg, Germany

C&S: Why are you interested in open innovation?

Frank PILLER: We today know that the time of the sole Schumpeterian entrepreneur is over. While there still are examples of individuals making great innovations on their own, today successful innovation is a team game.

This is not new per se. But with the internet, a number of new tools and interaction possibilities have been made possible supplement traditional forms of external partnerships in the innovation process. When I refer to open innovation, I am not talking about contract research, supplier innovation, research alliances, or market research. Open innovation in my understanding builds on new, crowdsourcing-based methods that connect an innovating firm with "unobvious" other, people that are not in its regular list of partners or in its own industry.

The core idea of open innovation is to work with an organization or with someone you didn’t know previously. When you have a problem to solve, you make it known, circulate it - whether on a large scale or by going through specialized channels like Innocentive or NineSigma.

And thanks to large network effects, going through this type of channel is not expensive any longer, we are talking about project fees of 20,000$ or less.

Is open innovation more relevant than ever?

Definetly, I’d say yes. Technologies have evolved so much that companies need help if they want to keep up. You know, whether you are a very large or a small company, customers now ask for solutions, not just products. But when you sell solutions, you need more expertise and knowledge. The outsourcing mentality is well established in the manufacturing sector. In Germany, for example, open innovation is becoming popular the moment, as we have a lot of trouble recruiting engineers.

What type of company can open innovation apply to?

Most of the present users are manufacturing companies, particularly multinationals. Companies like Unilever and Procter&Gamble, which constantly have to bring out new products and have been pioneers in open innovation. Similar in the pharmaceutical industry where research is very expensive and highly complex. Car manufacturers have been reluctant for a long time, but I think this is slowly changing. The sector which, in my opinion, would benefit from using open innovation is small and medium enterprises. SMEs have far fewer resources for innovation and often lack the time to tackle it. And I strongly recognize a growing interest from this sector today.

Is open innovation a business imperative yet? What would happen if companies continue to remain closed and locked into the traditional way of generating ideas and products without external collaboration at the society level?

Well, I would say truly closed innovation is not possible anyway. All innovation built on existing knowledge and some form of networking. But the term open innovation suggests that a company build dedicated practices to make the connection with the best external knowledge for a given innovation task better and more efficient. So for me, open innovation is not a business imperative, but a set of practices and organizational capabilities to connect with a firm's periphery for innovation.

Having said this, however, our research finds that companies need a dedicated balance between openness and closeness (Look for more at http://ssrn.com/abstract=2164766). Being too open also comes at a cost, and firms need to build dedicated internal organizational practices to become more open.

Customers are often considered the most important source of external input for innovation. But is this really true? As proven in many idea contests, great ideas come from the "common man" or outsiders. How can a company engage with these users?

Here we have to make an important distinction. Research, originating by the path-breaking work by Eric von Hippel at the MIT, has shown that many commercially important products or processes are initially thought of by innovative users rather than by manufactures. Especially when markets are fast-paced or turbulent, so called lead users face specific needs ahead of the general market participants. Lead users are characterized as users who (1) face needs that will become general in a marketplace much earlier before the bulk of that marketplace encounters them; and (2) are positioned to benefit significantly by obtaining a solution for those needs.

But lead users are NO average customers or users. There are only very few lead users. Average customers are in general neither innovative nor do they want to engage in innovation. Hence, it is the task of a company to identify these lead users by specific search and screening methods. There is not enough space here to describe these methods, but they are very well documented (look at Eric von Hippel's MIT homepage for some examples).

And ideation contests indeed are a great way to engage with "unobvious" users and idea providers. A company broadcasts a task or challenge, calling for ideas, and users self-select to participate. In this way, it are not representative customers like in market research or focus groups who provide input, but people that really have a problem or already a solution.

In a way co-creation can be defined as outsourcing idea generation to the society. What is your exact definition of this concept? And what is the main benefit for companies?

Customer co-creation has been defined by us as an active, creative and social process, based on collaboration between producers (retailers) and customers (users). Customers are actively involved and take part in the design of new products or services. Their co-creation activities are performed in an act of company-to-customer interaction which is facilitated by the company. The objective is to utilize the information and capabilities of customers and users for the innovation process.

The main benefit is to enlarge the base of information about needs, applications, and solution technologies that resides in the domain of the customers and users of a product or service. Examples for methods to achieve this objective include user idea contests, consumer opinion platforms, toolkits for user innovation, mass customization toolkits, and communities for customer co-creation.

The main benefit for companies is to enhance the "fit to market", but also to engage in a more interactive, engaged relationship with their customers and users – with great effects for relationship marketing!

Being open about problems are not yet a norm in the market place, where companies are conversing predominantly about what they know, more than what they do not know. What are your comments?

Good question! This indeed is one of the largest challenges we see in the field today. Many companies know about the tools or methods to co-create that I named previously. But they are not ready to internally exploit the knowledge generated with their customers and users. Here I believe we still need plenty of change management to change this mind-set you mention!

This is a field where I believe we also need more research. Firms need more information and better guidance on how to assess whether their organization and branch is suited for customer co-creation. This information is crucial in order to build specific competences that aid firms in identifying opportunities and ultimately in using the right method. Managers need a clear picture of their own organizational settings and capabilities before being able to answer important questions during the implementation of one’s own customer integration initiative. This could include answers to questions like how innovation projects have to be reorganized, which kinds of projects are suited for customer integration and how the internal development processes have to be adjusted in order to allow optimal customer integration.

The internal readiness of companies – such as having a co-creation team/department, methodology, etc – is often lacking in companies that spend huge sums on co-creation projects, which are mostly managed by corporate communication departments or marketing departments. Do you advocate the formation of a multi-disciplined co-creation team that can do the job of creating, running co-creation projects? Is it not an exclusive, specialized professional/managerial skill – like branding, marketing, finance – by itself?

Yes, you already provided the answer by yourself. The problem, however, is that there are still very few companies that have such a co-creation team in place, many even don't have one functional manager taking care of the initiative. But this will change, and I think that the first organizations are building exactly these interdisciplinary teams you are talking about.

What is the link between the success of a co-creation project and the performance of the base product or initiative?

To answer this interesting question, we only have anecdotal evidence that co-creation provides value. But large scale quantitative research is lacking. However, I know that several researchers are just in the progress of conducting this research, and so I hope that in a few years or so, we will get a better answer on the performance effects of co-creation. A very first study recently has been published by Martin Schreier from WU Vienna, and he found together with a team from Japan, using data from a large Japanese retailer, that indeed user-generated products are much more profitable than internally created products (more at http://tinyurl.com/ae2bu6a). And I personally have seen many companies profiting from co-creation, if it is executed correctly and the results are used internally in the right way.

Biography

Frank PILLER is a professor of management and the director of the Technology & Innovation Management Group at RWTH Aachen University, Germany. He also is a co-director of the MIT Smart Customization Group at the MIT Media Lab, USA. His research focuses on innovation interfaces: How can organizations increase innovation success by designing and managing better interfaces within their organization and with external actors. This stream of research includes topics like value co-creation between businesses and customers/users, strategies to increase the productivity of technical problem solving by open innovation, and models to cope with contingencies of the innovation process. Frank Piller's research is supported by grants from the European Commission, the DFG, BMBF, and other institutions. He has consulted and delivered executive workshops for many Dax30 and Fortune500 companies. As an investor, member of the Board of Directors or as a scientific adviser of several technology companies, he transfers his research into practice.

Published in COMMUNICATIONS & STRATEGIES No. 89, 1st Quarter 2013

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