Companies Look for Ideas in All the Wrong Places
The New Reality for Customer Engagement
Despite the fears among experts that the U.S. is losing its competitive edge, when Eric von Hippel looks around him he sees innovation taking place everywhere: in hospitals, in classrooms, at sporting events, on customer Web sites. That's why von Hippel, a professor of management and head of the Innovation and Entrepreneurship Group at the Massachusetts Institute of Technology, called his latest book Democratizing Innovation (MIT Press, 2005). In his view, everybody is innovating all the time, in all kinds of fields. And the best innovations, the ones that eventually win in the marketplace, are those brought about by "lead users."
Sadly, corporations are stuck in what he calls the "find a need and fill it" mode of innovation. That not only limits their ability to innovate; it also keeps them from understanding that lead users are the real source of most of their own best innovations, and from benefiting from that knowledge. Despite the academic prose, von Hippel's book is really a manifesto that advocates the transformation of how corporate innovation should take place and the development of a new set of tools for finding those user innovations. An added benefit, he says, only half-joking, is that "you totally get rid of market research."
In early May, CIO Insight Editor Edward Baker interviewed von Hippel on a variety of topics ranging from custom semiconductor foundries to kite-boarding to ways in which companies might harness the power of lead-user innovation. An edited version of the discussion follows.
CIO Insight: Can you describe the difference between user-led and manufacturer-led innovation?
ERIC VON HIPPEL: Early on, user innovation and craft innovation was all there was. You would either make your boots yourself or you would go to the local bootmaker and tell him exactly what you wanted. When mass production came into place, so much
consideration had to be placed on the design for manufacturing that an entire class of experts rose up in the middle of the production process. The result was that manufacturers lost track of where the actual ideas came from.
To reconnect to the innovation process, manufacturers set up market research departments. And, of course, that had a perfect logic on the face of it: "We want to sell to our target market customers, so let's ask them what they want." It's what I call the "find a need and fill it" school of thought. But in fact, what that process missed was that the real innovations were being done by users at the leading edge.
So you had a paradigm that went: Find a need and fill it, with the responsibility lying entirely on the manufacturer to both identify the need and come up with the solution.
That, in turn, led to sophisticated techniques such as market research, which can only produce incremental innovations. And the fascinating thing is that when you go into the histories of most corporations, you see that the major innovations they find to create new product lines are coming from outside, from lead users, but they come in by unacknowledged pathways.
Is that process beginning to change?
What's happening is a revolution from the edges. Companies in fields like computer games are discovering with surprise that they can systematically profit from user innovation. Online games are a perfect example. They were operating in a standard mode of creating games and selling them to users. Then, much to their surprise, they discovered that users were cracking their games and modifying them to be more to their liking. And thenand this is really the differencethe companies said, "Gee, that's a good idea."
So they thought to themselves, "Let's actually design our product so that we have a proprietary engine that we can protect and make our money from. And we'll let the users build and modify the games." And what happened? They prospered mightily.
Historically, an innovation comes in by surprise, and the manufacturer really has no way of understanding that that's what happened: "We already have R&D and marketing research in place, so it must have happened that way," they think. So the novelty here is the consciousness of these firms of the new phenomenon, organizing to fit it and then profiting much more systematically.
What kinds of companies are good at making the switch to user-led innovation?
It tends to be information companies first. What happens in those places, like the video-game companies and Stata, a company that makes statistical software, is that the users post their games, or their statistical tests in the case of Stata, and the manufacturers are able to just lurk and see which ones are the most popular. They don't have to do any analyses of their market; it's done for them by user behavior. Isn't that cool?
Similar things happen in sports, which is a physical product. Basically you have contests and matches and playoffs where manufacturers can go and observe the user innovations to their equipment, see how they perform and pick the best ones.
Take kite surfing, a sport that involves standing on something like a surfboard and letting a huge kite pull you across the water. It was invented by enthusiasts who developed and built the equipment at the same time. Eventually, manufacturers got in the game, but so did a Web site organized by a MIT student called Saul Griffith, where he encouraged the free exchange of new kite-surfing design ideas. Soon a manufacturer began producing kites and boards from the ideas on this Web site, and because the company didn't have any design effort of its own, it could sell its equipment for much less than its rivals.
Can you discuss the role of the lead user?
Let me give you an example, something I often try out for fun in my classes. I ask my students about their backpacks, which they all have but don't care about much. But you always find a
couple of user innovators, who, despite all the variety that's available, are sufficiently dissatisfied so that in a small sample, say 50 kids, I always find two or three who modify them.
Here's a great example from this year. Kids these days carry around a lot of electronic gear. Well, one student's wife was going to have a baby, and he planned to bring along a video camera, mobile phone, PC, all this stuff I'm sure his wife wouldn't want, to the hospital. And he knew that there weren't going to be enough plugs available. So he built a power strip into his backpack, plugged everything into that, and had just one wire coming out of the thing. And of course, that immediately resonated with all the other students, who were saying, "Oh, yeah, I need to do that, too."
So it's somebody with an extreme need, he modifies the product, and if he's a lead user, in fact, it will spread. And I bet that you're going to see backpacks with power strips become available commercially in a year or two.
The neat thing is that there are really quite a lot of user-innovatorssomething like 20 percent of surgeons in universities work to modify their surgical equipment, for instance. But over time the market can work out which innovations are the best. Otherwise, if everybody publishes and everybody has to search, that's pretty costly; whereas if you can array this stuff so as to highlight the lead-user innovations, everybody can move ahead more rapidly.
And a lot of these innovations are complementary. If I'm developing a bike and somebody else develops a better mud guard for it and somebody else develops some springs for it, you arrive at a constellation of stuff you want.
So it's not just one or two incredible people out there, it's really a set of interrelated stuff. It's always the lead user whose innovations succeed in the market, but what you have to think about is that given population sizes, there are actually quit a few of these guys. If there's 1 million mountain bikers, and say 30,000 of them are innovating, you are going to get a population of about 1,000 who are coming up with really great stuff.
Is there anything about those lead users that is antithetical to a corporate point of view?
Lead users actually complement the manufacturers. Manufacturers don't want markets that are small and uncertain; after all, they have enough trouble feeding the middle. So lead users, because they are always pushing the edge, encounter situations where there are no products that satisfy them. So they develop new ones. Now, that's fine from a manufacturer's perspective, because manufacturers are lousy at sensing needs and producing responsive products. So actually it's a very complementary activity. All that's needed is for the manufacturers to recognize that it's there and, like the gaming companies, set up a system to deal with it systematically.
The peopleor firmswho will lead are those who want variation in a certain product or ser-vice but the cost of supplying that variation is very high. Consider the custom integrated circuit foundries, which build to order phenomenally complex chips. The cost of doing so was getting out of line. It used to be that a customer would say, "Nah, I don't like the way the robotic dog voice sounds in this chip; it's not quite what I had in mind." And the chip manufacturer would reply, "Well, fine, we'll revise the chip. All it will take is $100,000 and six months."
To solve the problem, the industry turned to tool kitscomplex software that could simulate what the customer needed and that the customer could use to design the chip it wanted.
Can less information-based industries be equally successful picking up on innovations from lead users?
We have shown, in the 3M study I discuss in the book, that there is a perfectly systematic, routine way to do lead-user innovation, but companies have to learn how. The system at 3M involved a central coaching group that was expert in how to do it, and any division that needed this process could tap into these coaches, and these coaches, in turn, had a link to us at MIT. And they did very well; at one point about a third of their innovations were coming from lead users outside the company.
How can IT departments help support the lead-user innovation process?
I would think that IT departments should regard the chance to support innovation as a huge boon. Rather than being seen as the impediment in the wheel, they could develop a really good process for helping people find the innovative ideas they're looking for, whether it's through user Web sites, or whatever. And if IT departments could start to think of themselves as purveyors of tool kits for innovation on the part of the users of their company's products, rather than end solutions, that would be terrific.
When it comes to internal process innovation, I think the salvation for this kind of thing is, again, tool kits. The whole problem with ERP systems, for instance, is that they rarely let the end users pick the pieces they want. Going to a tool-kit approach would allow everybody more heterogeneity at a high level of quality.
Technology allows you to do this more flexibly nowadays, and you want to get the choice to the user's side where they in effect can configure things. And the better you do this, the more design freedom you give the user. And thus the better able users are to make what they want in such a way that they are more efficient and productive.
As to their own internal requirements, what IT departments could do is go out and look for solutions that other lead-user organizations have developed that would meet their own requirements. It is crazy to try to redevelop something when someone else has developed it better. In fact, there's a new Web site called Avalanche, where a bunch of companies are sort of cross-licensing their custom software to one another. Imagine being able to incorporate a lead-user component into that so that you really could get the best stuff.
Do you believe the trend toward the democratization of innovation will increase?
I often visit Massachusetts General Hospital, which is right across the Charles River from me, and help them with innovation. That's where the whole industry of automated drug delivery was born. It used to be that doctors and nurses simply squirted something into a vein. Now it can be computerized, so that a machine automatically recognizes every drug and how it should be administered.
Why did they invent this? Because the poor nurses on the floor were having to do all these calculations about drugs on the runwhat's the size of this baby, what on earth do I do here, how do I dilute itand often made mistakes. An anesthesiologist who found a baby turning blue because of a mistake in drug administration said, "We've got to fix this." And the passion I saw in that effort in the institution as a whole was just as intense as these kite boarders out on the water. Now, automated drug delivery is a several billion dollar business.
Everybody is passionate about something, right?
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