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[ox-en] Fwd: A Toolkit for Customer Innovation

Hi lists!

Another very interesting article from Eric von Hippel and his
environment. It points to some real world trends we already discussed
and which some of us believe point into the direction of a GPL

I guess the article will be available sooner or later at

or at

						Mit Freien Grüßen


PS: Thanks to Robert for forwarding this to me :-) .

------- Forwarded Message

"A Toolkit for Customer Innovation

HBSWK Pub. Date: May 6, 2002

 It seems almost counterintuitive. But this Harvard Business Review excerpt
by Harvard Business School professor Stefan Thomke and MIT's Eric von Hippel
suggests that you stop listening closely to your customers?and instead give
them tools for creating their own products.

by Stefan Thomke and Eric Von Hippel

"Listen carefully to what your customers want and then respond with new
products that meet or exceed their needs." That mantra has dominated many a
business, and it has undoubtedly led to great products and has even shaped
entire industries. But slavishly obeying that conventional wisdom can also
threaten a company's ability to compete.

The difficulty is that fully understanding customers' needs is often a costly
and inexact process. Even when customers know precisely what they want, they
often cannot transfer that information to manufacturers clearly or
completely. Today, as the pace of change in many markets accelerates and as
some industries move toward serving "markets of one," the cost of
understanding and responding to customers' needs can easily spiral out of

In the course of studying product innovation across many industries, we have
discovered that a number of companies have adopted an intriguing approach,
which at first seems counterintuitive. Essentially, these companies have
abandoned their efforts to understand exactly what products their customers
want and have instead equipped them with tools to design and develop their
own products, ranging from minor modifications to major new innovations. The
user-friendly tools, often integrated into a package we call a "tool kit for
customer innovation," deploy new technologies like computer simulation and
rapid prototyping to make product development faster and less expensive.

A variety of industries use this approach. Bush Boake Allen (BBA), a global
supplier of specialty flavors to companies like Nestlé, has built a tool kit
that enables its customers to develop their own flavors, which BBA then
manufactures. In the materials field, GE provides customers with Web-based
tools for designing better plastic products. In software, a number of
companies let people add custom-designed modules to their standard products
and then commercialize the best of those components. Open-source software
allows users to design, build, distribute, and support their own programs?no
manufacturer required. Indeed, the trend toward customers as innovators has
the power to completely transform industries. In the semiconductor business,
it has led to a custom-chip market that has grown to more than $15 billion.

Tapping into customer innovation can certainly generate tremendous value, but
capturing that value is hardly a simple or straightforward process. Not only
must companies develop the right tool kit, they must also revamp their
business models as well as their management mind-sets. When companies
relinquish a fundamental task?such as designing a new product?to customers,
the two parties must redefine their relationship, and this change can be
risky. With custom computer chips, for instance, companies traditionally
captured value by both designing and manufacturing innovative products. Now,
with customers taking over more of the design task, companies must focus more
intently on providing the best custom manufacturing. In other words, the
location where value is both created and captured changes, and companies must
reconfigure their business models accordingly. In this article, we offer some
basic principles and lessons for industries undergoing such a transformation.

A costly problem, a radical solution
In a nutshell, product development is often difficult because the "need"
information (what the customer wants) resides with the customer, and the
"solution" information (how to satisfy those needs) lies with the
manufacturer. Traditionally, the onus has been on manufacturers to collect
the need information through various means, including market research and
information gathered from the field. The process can be costly and
time-consuming because customer needs are often complex, subtle, and fast
changing. Frequently, customers don't fully understand their needs until they
try out prototypes to explore exactly what does, and doesn't, work (referred
to as "learning by doing").

Not surprisingly, traditional product development is a drawn-out process of
trial and error, often ping-ponging between manufacturer and customer. First,
the manufacturer develops a prototype based on information from customers
that is incomplete and only partially correct. The customer then tries out
the product, finds flaws, and requests corrections. The cycle repeats until a
satisfactory solution is reached, often requiring many costly and
time-consuming iterations.

To appreciate the extent of the difficulty, consider product development at
BBA (now International Flavors and Fragrances). In this industry, specialty
flavors are created to bolster and enhance the taste of nearly all processed
foods because manufacturing techniques weaken the real flavors. The
development of those added flavors requires a high degree of customization
and expertise, and the practice remains more an art than a science.

A traditional product development project at BBA might progress in the
following way: A customer requests a meaty flavor for a soy product, and the
sample must be delivered within a week. BBA marketing professionals and
flavorists jump into action, and the sample is shipped in six days. A
frustrating three weeks ensue until the client responds with, "It's good, but
we need it less smoky and more gutsy." The client knows precisely what that
means, but BBA flavorists find the request difficult to interpret. The result
is more frenzied activity as BBA struggles to adjust the flavor in a couple
days. Depending on the product, BBA and the client could go back and forth
for several more iterations. This represents a huge problem because clients
often expect BBA to get the flavor right the first time, or within two or
three iterations.

To make matters worse, BBA bears most of the development risk. The company
collects revenue only after both the client and consumers are fully
satisfied. R&D expenses could be just $1,000 for tweaking an existing flavor,
but they could go as high as $300,000 for an entirely new family of flavors
that require not only chemists and flavorists but also sales, marketing,
regulatory, and quality control expertise. On average, the client eventually
accepts only 15% of all new flavors for full market evaluation, and only 5%
to 10% make their way to the marketplace. Meanwhile, margins in the flavor
industry have been falling because of increased competition and cost
pressures from customers.

In response, BBA's CEO Julian Boyden and VP of Technology John Wright
investigated the option of shifting more innovation activities to customers.
The company developed an Internet-based tool containing a large database of
flavor profiles. A customer can select and manipulate that information on a
computer screen and send his new design directly to an automated machine
(perhaps located at the customer site) that will manufacture a sample within
minutes. After tasting the sample, the customer can make any adjustments that
are needed. If the flavor is too salty, for instance, he can easily tweak
that parameter on the profile and have the machine immediately produce
another sample.

It is important to note that outsourcing product development to customers
does not eliminate learning by doing?nor should it. What it does is make
traditional product development better and faster?for two reasons. First, a
company can bypass the expensive and error-prone effort to understand
customer needs in detail. Second, the trial-and-error cycles that inevitably
occur during product development can progress much more quickly because the
iterations will be performed solely by the customer.

But developing the right tool kit for customers is hardly a simple matter.
Specifically, tool kits must provide four important capabilities. First and
most important, they must enable people to complete a series of design cycles
followed by learning by doing. Computer simulation, for example, allows
customers to quickly try out ideas and design alternatives without having to
manufacture the actual products. When the simulation technology lacks the
desired accuracy, it can be supplemented with rapid prototyping methods.
Second, tool kits must be user-friendly. They should not require customers to
learn an entirely new design language. (Flavorists, for example, think in
terms of formulations and chemical compounds, whereas customers think of
tastes such as smoky, sweet, fresh, and so on.) Third, they must contain
libraries of useful components and modules that have been pretested and
debugged. These save customers from having to reinvent the wheel. Instead,
people can focus their efforts on the truly novel elements of their design.
Fourth, tool kits must contain information about the capabilities and
limitations of the production process that will be used to manufacture the
product. This will ensure that a customer's design will in fact be producible.

· · · ·

[ Order the full article ]

Excerpted with permission from "Customers as Innovators: A New Way to Create
Value," Harvard Business Review, Vol. 80, No. 4, April 2002.

Stefan Thomke, an authority on the management of technology and product
innovation, is an associate professor of business administration at Harvard
Business School.

Eric von Hippel is a professor of technology management and entrepreneurship
at MIT's Sloan School of Management."

------- End of Forwarded Message


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