Lead User Innovation Report
-
Upload
maramhazimeh -
Category
Documents
-
view
219 -
download
0
Transcript of Lead User Innovation Report
-
8/8/2019 Lead User Innovation Report
1/20
1
LEAD USER INNOVATION
Prepared by:
Anissa Moeini
Shawn Goldmintz
Selim Alamgir
Date:
November 23, 2006
Course:
MKTG 4560A- E-Commerce and the Art of High Tech Marketing
Institution:
Schulich School of Business, York University
-
8/8/2019 Lead User Innovation Report
2/20
2
TABLE OF CONTENTS
Executive Summary........3
Lead User Definition...4
Historical Context...4
Motivations for Innovation5
How Businesses Are Beneficial to Users...5
How Users Are Beneficial to Businesses..6
Finding Lead Users
In Communities.7
Through Intermediaries10
Using Contests..11
Other Issues With User Innovations
Marketable Value..11
Policy Structure.12
The Changing Business Model.13
The Lack of Resources ....14
The Future of User Innovation.15
Endnotes.16
Appendices
Crossing the Chasm A-1.....18
Range of Lead User Contributions A-218
Nespresso Contest A- 3 ..19
-
8/8/2019 Lead User Innovation Report
3/20
3
EXECUTIVE SUMMARY
The lead user concept, developed by Erik Von Hippel, is defined as users whose needs
significantly anticipate requirements of the broader market. These users then innovate around
the existing products to satisfy their unique requirements. This class of users represents a
valuable asset, which has always existed, but is only now becoming more recognized by
business public, mainly through the miracle of internet communication channels.
The diversity of backgrounds and skill sets facilitates endless specific needs generated
by lead users, some incremental, some breakthrough. Break-through innovations prove to be
most valuable, because they represent entirely new product offerings, wherein a company
would have the first mover advantage. These lead users have many motivations to take part in
the production process with the most influential being: Status, Monetary Reward,
Employment, and Enjoyment.
Lead users are useless to companies unless they find a way to communicate and form
relationships with this valuable intellectual capital. The phenomena of organic and facilitated
internet networks have made the lead user concept more widely accepted and exploited.
Additionally, communities form traditionally, and can be skimmed from an esteemed portion
of professional networks.
We will discuss issues pertinent to businesses seeking to find and utilize this important
asset, including: Marketable Value, Policy Structure, lack of resources and also the effect on
the modern business model. Finally we confirm and strengthen the importance of lead user
innovation to the future of the business world.
-
8/8/2019 Lead User Innovation Report
4/20
-
8/8/2019 Lead User Innovation Report
5/20
5
cater to this need simply because it forced them to step out of their comfort zones and invest
in the exploration of a riskier unknown.4
Motivations for Innovation
Since users are so different their innovations provide a solution to their own specific needs. A
survey by users of Apache Web Server found that 19% of users had written new code to tailor
the software to their specific purposes.5 The principal motivation for a lead user innovation is
to satisfy a personal need and increase personal quality of life. However, there are other
motivators for user innovation, which can be leveraged to encourage those users who have the
ability to predict needs ahead of segment members to bring forth their ideas. The most
common secondary motivators are: Status: people love to be recognized for their
achievements; Monetary Reward: getting compensated with a portion of the companys
profit; Employment: recruitment and job stability; and Enjoyment: they have fun creating
new things and contributing to brands and companies they love.6
How Business Are Beneficial to Users
Businesses are beneficial to lead users because they provide resources such as technical
infrastructure, back end support, customer bases, marketing expertise, field experience, and
brand image to effectively commercialize their innovation. This is especially true for highly
capital-intensive innovations, which require manufacturer support for any kind of production
growth. Businesses can assume economies of scales much faster than individual lead users,
thus allowing for the total price of the innovation per product to decrease. As a result, the
product can be offered to a greater amount of the lead users community members, allowing
the interest group to grow and to further develop. Businesses offer users the potential to take
their innovation to a higher level. This can result in augmented status, monetary reward, the
-
8/8/2019 Lead User Innovation Report
6/20
6
chance of employment or enjoyment.
How Users Are Beneficial to Businesses
Lead users have a higher rate of incremental breakthrough innovation compared to firms due
to the natural access to information to their own segment, and the insights that they have for
the future trends of their industry. This is also attributed to the fact that they have a tendency
to obtain free assistance from fellow community members, an expensive proposition for
manufacturers, taking the shape of formal market research and focus groups.7
A study by 3M, a successful advocate of encouraging lead user innovation, confirmed
that product ideas from lead users generated eight times the sales of ideas generated
internally. The company noted that this is the generally the case because lead users are more
likely to come up with ideas for entire new product lines (breakthrough innovations) rather
than minor improvements.8
Moreover, the adoption of new innovations may be complementary to the resources
already in place in the organization including infrastructure, established brands, existing
manufacturing facilities and distribution channels. This makes the innovation less risky and
more logical to adopt. However, the most attractive aspect of lead user innovation to firms
must be that users ideas have the potential of being effective differentiation tactics, allowing
firms to not only charge premium prices and be industry leaders, but also to prevent
premature commoditization.
9
Firms that realise the benefits of lead users innovations may
decide to allocate market researchers time to developing the methods necessary to find lead
users, to give them the propensity to innovate and to see if anything has to be modified to
make it market worthy instead of pursuing traditional market research techniques.
FINDING LEAD USERS
The breakthrough of recognizing lead users and all they have to offer is but a small part of the
-
8/8/2019 Lead User Innovation Report
7/20
7
battle. There are many other aspects of the lead-user innovation phenomena that are integral
to reaping the benefit of this trend. The first step in tapping into the benefits of lead-user
innovation is actually finding them. Knowing where to look, or how to draw in lead-users so
the co-production process can be facilitated is a critical success factor of harnessing lead-user
innovation.
Finding Lead Users: In Communities
A great deal of lead-user innovation can be found in network communities. These
communities form as a result of lead users finding themselves searching for likeminded
people with whom they can share their ideas and perhaps find ways to improve their own
innovations. There are many ways to facilitate and/or foster the growth of these pseudo-
organisations, thus making it necessary to delve into different networks types and how each
one can be coerced into revealing its riches in slightly different ways.
Network products tend to foster their own user communities, for the very same reasons
that lead-user innovation itself fosters communities. Because the users of a network product
get more out of it when the network encompasses as much as possible, network product users
tend to migrate to common areas in which they can learn about and discuss that product.
Tapping into these user-formed communities can be a great way to find lead-users, who after
using the product realise that there was something more that needed to be fulfilled, thus
propelling them to go on and devise a way for this to happen.
The most obvious product that works in this manner would have to be open-source
software. Operating systems like Linux (and increasingly even Apple and Microsoft) let their
source codes become public domain, in an effort to allow users to tailor their computing
experiences to their own specific needs.10 These needs may (and in many cases do)
foreshadow the needs of other users, and are therefore lead-user innovations. For open source
-
8/8/2019 Lead User Innovation Report
8/20
8
software, and even other networked products, the most efficient place to locate and entice lead
users is on the internet. User newsgroups and web servers are the most likely place for
companies to find their open source goldmines. Linux and other comparable products tend to
create innovations that range widely between breakthrough and incremental. This is due to the
fact that many of the advances are simply add-ons to existing software that better suit a users
needs, however open source also allows for the creation of completely new programs, though
this type of innovation is rarer.
While users of open source software are getting together to discuss the use of this tool
that has been provided to them by a company, lead-user innovations that came into being
without the express help of a companys product are quite common. The sport of kite surfing
was the product of lead users, who decided that they wanted more from their sportive
endeavours: more speed, more height and more excitement. They devised a method of
connecting a large kite/parachute-like apparatus to something similar to a common surfboard,
and voila, kite surfing was born as a sport. One of the most interesting aspects of the kite
surfing phenomenon was that it did not really take off until someone took the time to foster
the sharing of ideas. An MIT student named Saul Griffith was the one who went out of his
way to create a website where kite surfing enthusiasts could come together and exchange
ideas and learn from each other.11
This user-created website gave rise to a new mini- industry as the innovations on the
site were advanced and popular enough to merit production. Entrepreneurs recognized the
value of this breakthrough innovation and capitalized on its intrinsic value, using online
designs as the basis for what is now a booming business. The newly formed kite surfing
manufacturing company recognises that the innovations of its users are still going to be
valuable as time goes on, and they continue to solicit interesting and fresh ideas to incorporate
into their new products,12
which is what everyone (from corporations to mom-and-pop stores)
-
8/8/2019 Lead User Innovation Report
9/20
9
needs to begin to do.
User communities can be established for reasons other then sharing innovations and
can still be used to locate and distil lead-user innovations. The example of the library
information search tool OPAC can be used to shed light on how this can actually happen. The
users of this software are librarians, and through internet-based networks designed for
communication between libraries the changes being made to OPAC systems across the world
were slowly beginning to surface. Eventually it became apparent that many librarians were
making customizations to their OPACs, significantly adding to the functionality and
efficiency of the product.
Lead-user communities seem to be best facilitated on the internet, however it is not an
essential feature of these networks to be internet-based. Locating lead users without an easily
searchable database to learn from is also developing into an important competency for
companies trying to harness user innovations. Surgeons, for example, are extreme innovators,
with an estimated 50% of them making some type of modification to their instruments.13 It
would be useful for suppliers to seek out the users of their products with the best reputations
and ask for their input on the designs of their tools. This concept seems simple enough, and
3M has been a pioneer in integrating it into their surgical tools development process, but
companies in general are notoriously bad at soliciting improvements from their top users.14
Another amazing characteristic of user communities is the diversity of the users
involved. These users have quite divergent backgrounds, but are drawn together by a common
need or want. This diversity allows for simultaneous improvements to go on at once. A good
example of this would be the mountain biking industry. As users involved in different aspects
of the sport come across unique challenges, they apply their knowledge in different and
meaningful ways allowing for ice-gripping tires to be developed simultaneously with a new
carrying rack.15
Not only are the circumstances that these user encounter divergent, but their
-
8/8/2019 Lead User Innovation Report
10/20
1
intellectual capital is just as varied. As in the kite surfing example, where innovations ranged
from aerodynamic improvements made by engineers to aesthetic improvements made by
laymen.16
Finding Lead Users: Through Intermediaries
Firms may explore making a connection with lead users by entering relationships with
intermediary firms. Companies solicit the help of such intermediaries due to several reasons,
including that intermediaries have the resources to efficiently find innovators, the complex
nature of the industry requires specific expertise to find users, and intermediaries will likely
yield information far more quickly and cost effectively due to already established networks
and relationships.
There are a wide range of companies offering intermediary services. Typically, one
intermediary will focus on a certain type of innovator. A company that focuses purely on lead
users would be Leaduser.com. They help companies organize lead user idea generation
projects or coach employees to do so themselves. Companies such as Leaduser.com find lead
users through electronic searches, trade journals, and industry contacts. The next step is to
observe the lead users, find out what they are doing and why. An example of this step can be
seen in Nortels, who hired Leaduser.com help them discover the future of wireless data
services.17
They observed users in fields such as aviation, oil fields, and public safety. This is
then usually followed up by a workshop session of several key lead users, which have a wide
range of skills that they can bring to help refine the concepts. Concepts are then made into
workable plans, and usually these workshops generate several potential concept
products/services.
A lot of the effectiveness of this method comes from finding the right people, which is
-
8/8/2019 Lead User Innovation Report
11/20
1
what many firms might have a hard time doing. Another reason why companies might prefer
to use an intermediary than to initiate the process themselves is that it provides a controlled
environment where the communication can take place. The company might be hesitant to let
outsiders become intimately connected with the production process at first, and intermediaries
allow for a kind of separation to still exist.
Finding Lead Users: By Using Contests
Contests are an effective medium that firms can use to encourage both incremental and
breakthrough innovation. The key success factors of contests are the definition of the
challenge and the motivation for the reward. Firms need to strike the delicate balance between
giving a specific purpose to entrants without limiting them from showing their true potential.
Moreover, due diligence still plays a vital role in the attraction of lead users as without the
proper branding of the contest the segment will not yield optimal results. As such, extensive
market research must also be done in order to understand how to incentivize the segment so
that optimal applicants can be motivated to not only participate, but to do so whole-heartedly.
Nespressos 2005 Design Contest mandated entrants to imagine the future of coffee
rituals.18 The contest was aimed at the young designers, and the rewards were as follows:
26,000 Euros, an opportunity to have their ideas commercialized, incredible press coverage,
access to an elite network of designers, and an ability to jumpstart their careers.19
In order to
be as successful as Nespresso, firms must perform significant market research to brand their
contests effectively. (See Appendix A-3)
OTHER ISSUES WITH USER INNOVATIONS
It is increasingly important for companies to come out with breakthrough innovations, which
-
8/8/2019 Lead User Innovation Report
12/20
1
can be found by tapping into the combined talent of lead users. In doing so, firms must be
prepared to deal with the issues and challenges arising as a result.
Marketable Value
New products that come to market have high failure rates because of the lack of
market. This information is found after investing millions of dollars into market research. The
role of market research information is changing with user innovation. Instead of searching for
consumer insights and spending money on research marketing methods such as ethnography
the company would automatically be provided with the end product. Hence, the question
companies now face is, is the user innovation marketable?
Companies such as Threadless.com integrate customers into the innovation process by
asking them to submit their ideas for a product. It employs a process called collective
customer commitment whereby the firms ask for commitments from customers to purchase a
new product before the companies commence final development and manufacturing.20 There
are less costly product failures and companies do not have to identify a segment on their own.
Market research expenditures turn into sales faster than traditional methods would allow.
User innovations are a product of a user fulfilling their needs. Once that need has been
fulfilled they may not feel the need to market the product to others. Hence, companies will
need to use market research to find markets, even if they are niche markets, which have a
need for the user innovation. The aim is to find a market that is big enough to obtain marginal
gains through the sale of the product. In addition to this, marketers need to see what aspects of
the innovation will be of value. The feature of the product that adds on value should be
marketed as opposed to features that do not. Identifying what customers perceive to be extra
value comes from market research.
-
8/8/2019 Lead User Innovation Report
13/20
1
Policy structure
Policy structure plays an important role for innovation. The patent system that is currently in
place, for example, protects the rights of the patent owner for a maximum of 20 years.21
Patents were originally created to reward the innovator by granting him exclusive rights to use
and develop the idea or invention. However, critics of the patent system argue that patents
allow strong industry players to concentrate and consolidate and have high barriers for entry
into the industry. In order to allow room for innovation and the spread of new ideas for the
public good there must be a more competitive environment and one that supports using
existing ideas and technology as a base for development.
In light of the above discussion, there are changes that need to be made for the
innovation policies of countries. Strong property rights need to be in place but they must be
congruent with a user-driven economy. According to Charles Leadbeater, there is a need for
a more balanced approach to intellectual property, one that encourages ideas to flow up and
down the pipeline, from manufacturers but also from and between users. 22 He also
suggests a policy that is more open to social interaction as it is consumers that know what
they want and will contribute to an innovation more than a businessman that lacks consumer
insights. Hence, in order to be successful in the world economy policies should be created to
encourage innovation, support innovation funding and facilitate the networking of
innovation.
A Changing Business Model
We are headed towards a networked knowledge economy, where innovation
processes are distributed.23 Ideas flow back and forth between networks of user innovators,
consumers, communities, experts and companies. With the power shift that accompanies this
network, open innovation challenges the traditional innovation system with regards to the
-
8/8/2019 Lead User Innovation Report
14/20
1
issue of property rights. The company is no longer the sole creator of the product and thus
does not hold the property rights to the product, but rather the innovator does. The new
business model will force companies to encourage users to share their contributions. This shift
of power would mean that firms would have to invest more in building relationships with
consumers, opening lines of communications with them and fostering those relationships.
This will result in a complete of structural norms such as financing, investment and budget
allocations. For instance, Von Hippels aforementioned concept of providing consumers with
toolkits in order to help them innovate would cause companies to incur expenses in the short
run. The aim of this is to speed up market commercialization of ideas that provides value to
the network that one operates in. Though ideas have been shared successfully through
consumers special interest community networks, firms will have to develop innovating
marketing techniques foster relationships with their key users and to effectively make up for
the fact that unlike other members of user networks, they are exchanging ideas with the
ultimate goal to make profit 24.
Patty Seybold, author of Outside Innovation and a fan of Von Hippel, suggests
consumers paying to support the innovation product if feasible.25
This has already been done
through community and individual effort on the part of the consumer but businesses may be
able to get the general public to contributing to the development of a user innovation with the
right marketing. All in all, the traditional business model will change in the near future.
The Lack of Resources
A lead user by definition is one who has the ability to recognize the need and then has the
propensity to follow through with the innovation. There are various costs associated with user
innovations, for both the lead user and the manufacturer. It is difficult if not impossible for
great minds to put their creative talent to work when they do not have the right tools. Dr. Von
-
8/8/2019 Lead User Innovation Report
15/20
1
Hippel proposes the concept of providing consumers with toolkits in order to overcome this
challenge. It is important for manufactures to give product users appropriate tools so that they
may innovate to their potential26. In doing so, firms must recognize that giving too much
information may result in the users mastery of the manufactures technical knowledge, a loss
of competitive edge and a threat of new entrants into the industry. On the other hand if the
tools are not adequate enough, they can lead to a case of mass customization much like the
Nike ID website wherein users can customize their own shoes to their taste but are not able to
innovate anything new.27 The aim is to allow for innovation and to speed up market
commercialization of ideas that provide value to the network that one operates in, without
setting too many constraints. Hence, companies are seeing a change in their business model as
they cater to consumers in a different way than they traditionally did.
BMW, for example, posted a tool kit designed for telematics and in-car online services
on its website and allowed customers to develop and post their ideas. From approximately one
thousand postings, BMW invited fifteen innovators to its head offices to help reach a
prototype. As such, the company effectively allowed these customer to take on the role of
Head of Market Research, Head of R&D and finally to come in-house as a Manager of
Product Development.28
CONCLUSION: THE FUTURE OF USER INNOVATION
In conclusion, consumers and businesses are working together to come through with
incremental and breakthrough user innovations that might not have been possible if they had
not collaborated. There is a shrinking gap between conventional business practices and
empowering users. The face of market research is morphing and consumers and producers
look more like team mates in the effort to produce better more innovative products. In the
future, consumer interaction with companies will become increasingly integral to the success
-
8/8/2019 Lead User Innovation Report
16/20
1
of the firms within their segment. As such, firms will have an increasing role to play in
making their brand loved and building their customer relationship in order to communicate
effectively and share ideas with consumers.
ENDNOTES
1"Innovator" Lexico Publishing Group, 2006
Accessed 22 November 2006.
2Postrel, Virginia, Innovation moves from the laboratory to the bike trail and the kitchen. The New
York Times, April 21, 2005 Accessed 18 November 2006.
3Leadbeater, Charles, The User Innovation Revolution National Consumer Council, London, UK,
2004
Accessed 18 November 2006.
4The rise of the creative consumer The Economist, March 10, 2005:
Accessed 18 November 2006.
5
Postrel, Virginia, Innovation moves from the laboratory to the bike trail and the kitchen. The NewYork Times, April 21, 2005
Accessed 18 November 2006.
6Zappa, Michell, Customer-Made. 2006
Accessed 18 November 2006.
7Leadbeater, Charles, The User Innovation Revolution National Consumer Council, London, UK,
2004: Accessed 18 November 2006.
83M. 2006. Accessed 20 November 2006.
9
Moeini, Anissa, E-Commerce and the Art of High Tech Marketing, Professor Detlev Zwick. Classnotes: November 16 2006.
-
8/8/2019 Lead User Innovation Report
17/20
1
10Postrel, Virginia. Innovation Moves From Laboratory to the Bike Trail and the Kitchen. New
York Times. 21 April 2005.
Accessed 20 November 2006.
11Von Hippel, Eric. Companies Look For Ideas in All the Wrong Places. CIO Insight. 5 June 2005.
Accessed 17 November 2006.
12 Piller, Frank. An Interview with Eric Von Hippel. EURAM Newsletter. 20005.
Accessed 18 November 2006.
13Postrel, Virginia. Innovation Moves From Laboratory to the Bike Trail and the Kitchen. New
York Times. 21 April 2005.
Accessed 20 November 2006.
14Postrel, Virginia.Innovation Moves From Laboratory to the Bike Trail and the Kitchen. New
York Times. 21 April 2005Accessed 20 November 2006.
15Postrel, Virginia. Innovation Moves From Laboratory to the Bike Trail and the Kitchen. New
York Times. 21 April 2005
Accessed 20 November 2006.
16Postrel, Virginia. Innovation Moves From Laboratory to the Bike Trail and the Kitchen. New
York Times. 21 April 2005
Accessed 20 November 2006.
17Lead User Method Training Video . 6 Minute Video. 2001.
Accessed 19 November 2006.
18Trendwatching.com- Customer Made. 2006.< http://www.trendwatching.com/trends/CUSTOMER-
MADE.htm>Accessed 18 November 2006.
19Nestle-Nespresso.com. Official Competition site 2006. < http://www.nespresso.com/design/>
Accessed 22 November 2006.
20Ogawa, S. and Frank Piller. Reducing the Risks of New Product Development. MIT Sloan
Management Review (2006). Vol. 47, No. 2, pp. 65-71.
Accessed 21 November 20
21 Schact, Wendy. Patent Reform: Innovation Issues. CRS report for congress. July 2005.
Accessed 19 November 2006.
22Leadbeater, Charles. The User Innovation Revolution. National Consumer Council. London, UK,
2004.
Accessed 19 November 2006.
23Hautamaki, Antti. Open innovation networks challenge the supplier-centered innovation system.
Sitra. 2006. Accessed 19 November
2006.
24 Trendwatching.com-Customer Made. 2006. Accessed 22 November 2006
-
8/8/2019 Lead User Innovation Report
18/20
1
25Seybold, Patty. Issues that consumer-centric execs are facing as customers take control. Outside
Innovation. 15 November 2006. Accessed 19 November 2006.
26 Chari, Narasimha Lead User and Innovation Networks January 11, 2004:
Accessed 12 November 2006.
27Design With Heart Nike Co, 2006
Accessed 19 November 2006.
28The rise of the creative consumer The Economist, March 10, 2005:
Accessed 26 November 2006.
APPENDIX A-1
Fig: Crossing the Chasm
Source:Keeping Early Adopters Engaged After Crossing the Chasm. Spirited Thought. 22
December 2005. Accessed 21 November 2006.< http://www.spiritedthought.com/2005/12/22/keeping-early-adopters-engaged-after-
crossing-the-chasm/>
APPENDIX A-2
Fig: Range of Lead User Contributions (Across Industries)
-
8/8/2019 Lead User Innovation Report
19/20
1
Innovations
Samples:User Manufr Suplr Other NA Total
(N)
Scientific
Instruments
77% 23% - - 17 111
Semicon & PC
Crd Process
67% 21% - 12% 6 49
Pultrusion
Process
90% 10% - - - 10
Tractor Shovel
Related
6% 94% - - - 11
Engineering
Plastics
10% 90% - - - 5
Connector
Attaching
Equip
4% 13% 83% - - 12
Sports
Equipment
58% 27% - 15% - 48
APPENDIX A-3
Fig: Nespresso (Nestle) design contest mandate and winning design for Nespresso (In-
care coffee machine)
Source: The Nespresso website 2006< http://www.nespresso.com> Accessed 20
November 2006.
-
8/8/2019 Lead User Innovation Report
20/20
2