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OVERVIEW: Involving customers in the innovation process entails a host of new concerns, concepts and managerial decisions. Transitioning from older models of no or low customer involvement requires attention to the different types of customer innovation, organizational mission and organizational structure. This article provides a typology for customer innovation, describes how to involve customers in the innovation process, and offers guidelines for shifting organizational structure and emphasis toward customer-driven innovation in order to enable continual, sustainable innovation.
To be a marketplace leader, let your customers drive
Kevin C. Desouza, Yukika Awazu, Sanjeev Jha,
Caroline Dombrowski, Sridhar Papagari, Peter Baloh, and
Jeffrey Y. Kim
OVERVIEW: Involving customers in the innovation
process entails a host of new concerns, concepts and
managerial decisions. Transitioning from older models
of no or low customer involvement requires attention to
the different types of customer innovation, organiza-
tional mission and organizational structure. This article
provides a typology for customer innovation, describes
how to involve customers in the innovation process, and
offers guidelines for shifting organizational structure
and emphasis toward customer-driven innovation in
order to enable continual, sustainable innovation.
KEY CONCEPTS: innovation, customers, knowledge
Organizations in today’s competitive marketplace are
increasingly recognizing the need to innovate in partner-
ship with their customers. They are changing their inno-
vation strategies from “innovating for customers” to
“innovating with customers” and involving those
customers in a process of “knowledge co-creation” (1,2).
As these customers become increasingly connected with
a firm and with other customers, they are becoming
partners in product/service innovation. Consider the
following examples.
Smart organizations have begun to consciously tap into
their “lead users,” who possess knowledge that can help
an organization better plan for the development of new
products and the improvement of existing products (3).
have begun to host customer workshops, bringing in the
super-users of their products and learning from them.
Other organizations have product research centers where
they monitor subjects as they interact with products and
services. Some software development firms purchase
add-ons, scripts and other artifacts created by their
customers while using their products, and then introduce
those artifacts in future versions of the products and
Organizations gain in various ways by letting their
customers connect with each other and by facilitating the
process using innovative communication technologies.
Consider, for example, the Wiki (a software that allows
users to create, remove and edit content on Web pages)
introduced recently by eBay. By encouraging customers
onitsWiki,eBay:1)attractstheattentionofcustomers to
its portal, 2) provides an experience of ownership and
control among its customers, and 3) taps into their
insights and ideas.
In such ways, customer innovation has become an
essential strategy for organizational survival. Innova-
tions can come from how organizations interact with
customers: 1) by identifying, analyzing and communi-
cating with them, 2) incorporating them into their
existing innovation process through transformation of
their business processes, and 3) encouraging customers
to engage in improving existing products and services.
In this paper, we introduce various types of customer
innovation and discuss ways of establishing an organiza-
tional innovation program that takes into account the
strategic value of these different types. The second half
of the paper shows how to manage customer innovation
in a complete innovation program.
Identifying the Customer
Innovation in how customers are identified is an imple-
mentation of new customer segmentation (4). Segmenta-
tioncalls for separation, categorization and classification
of objects, and should be done before analyzing data and
information about customers. By using segmentation,
organizations can classify and categorize customers
based on certain features that will allow them to identify
targetmarkets. These features, if managed appropriately,
will improve service and products. For example, by seg-
menting customers based on demographic data (such as
disposable income) and analyzing their tendencies (such
as willingness to purchase products), organizations can
position products better and improve marketing
campaigns, among other aspects.
May—June 2008 35
0895-6308/08/$5.00 © 2008 Industrial Research Institute, Inc.
NPower Seattle is an example of successful customer
other nonprofits with technology-related projects,
upgrades and strategies, has found that customer seg-
mentation greatly assists its relationships. While
acknowledging that the characterizations it creates are
caricatures, the firm has found it highly beneficial to
assess customers as technology constrained,”“technol-
ogy optimistsand technology investors.
Eachof these categorieshas different needsfor, and per-
ceptions of, technology. For instance, technology-
constrained customers tend to be frustrated with the
limitations of technology and perceive it as a burden and
acost, and consequentlyseek to limittheir investment in
technology. On the other hand, technology optimists are
willing to invest in new technologies, but want a partner
to assist them in choosing and adjusting to these tech-
nologies. Thus, by categorizing customers in this way,
NPower Seattle can tailor offerings to customers based
on their perceived needs and likely intentions around
Analyzing Customer Information
Dramatic advances in information and communication
technologies (ICTs) have influenced the way organiza-
tions analyze customer information. Today, because
information can be collected and analyzed in real time,
organizations have an abundance of customer informa-
Kevin Desouza is on the faculty of the Information
School at the University of Washington, Seattle. He is a
founding faculty member of the Institute for Innovation
in Management (I
M) and is an affiliate faculty member
of the Center for American Politics and Public Policy,
both at the University of Washington. His most recent
book is Agile Information Systems (Butterworth
Heinemann, 2006). In addition, he has published over
100 articles in practitioner and academic journals.
Desouza has advised international corporations and
government organizations on strategic management
issues ranging from knowledge management to competi-
tive intelligence and crisis management.
Yukika Awazu is an inaugural Henry E. Rauch Doctoral
Fellow at Elkin B. McCallum Graduate School of
Business at Bentley College, Waltham, Massachusetts.
Her most recent position was president of the Engaged
Enterprise, a global research and strategy consulting
organization. She has co-authored Engaged Knowledge
Management (Palgrave Macmillan, 2005) and her
articles have appeared in business and academic
journals such as Business Strategy Review, HR
Magazine,European Management Journal, International
Journal of Information Management, and Communica-
tions of the ACM. She received her M.A. in economics
and M.B.A. degrees from the University of Illinois at
Sanjeev Jha is a doctoral student at the College of
Business Administration, University of Illinois at
Chicago. He has published in Communications of the
ACM, Information Resources Management Journal and
IEE Engineering Management. He has co-authored
papers presented at Academy of Management and other
conferences. Prior to joining the doctoral program, he
was deputy manager (marketing) in Gas Authority of
India Limited (GAIL), where he was responsible for
marketing natural gas to industrial customers in North
Gujarat, India.
Caroline Dombrowski is an MLIS student at the Univer-
sity of Washington, Seattle. As a research assistant for
the Institute for Innovation in Information Management,
shehascontributed to scholarly and practitioner articles
on the topic of innovation. She received an M.Phil. from
the University of Cambridge, United Kingdom, in phi-
Sridhar Papagari is a doctoral candidate in management
information systems (MIS) at the College of Business
Administration, University of Illinois at Chicago. His
main research interests are in enterprise eHealth
strategies, post-adoption technology management, and
IT-enabledinnovation. He has M. S. degrees in electrical
engineering and computer science and an MIS at UIC,
and a bachelor of engineering degree in electrical &
electronics engineering from Osmania University,
Hyderabad, India.
Peter Baloh is an assistant lecturer in the information
management department of the Faculty of Economics at
Ljubljana University, Slovenia. He spent the last year
doing research for his Ph.D. at 6* RAE IRIS-Informatics
Research Institute at the University of Salford, United
Kingdom.In addition, he founded and manages the small
Slovenian consultancy and advisory firm, Catch the
Knowledge. He received his M.Sc. (honors) in informa-
tion management at the Faculty of Economics,
Jeffrey Kim is on the faculty of the Information School at
the University of Washington, Seattle, and an adjunct
faculty member of the Graduate School of Culture
Technology at Korea Advanced Institute of Science and
Technology (KAIST). His research focuses on the orga-
nizational changes and information technologies in
knowledge-intensive firms. Currently, he is examining
the social and technological aspects of boundary-
spanning practice in the information technology
industry. He received a Ph.D. in information and
computer science from the University of California,
Research Technology Management
tion. This information is constantly being collected from
financial institutions, credit reporting agencies, local
stores, and other sources, with and without the custom-
ers knowledge.
Physical devices complement and add to this increas-
inglylarge pool ofelectronicinformation.Collection and
identification devices, such as store cards and radio-
frequency identification (RFID) tags, enable organiza-
tions to collect accurate information on customer
purchases.RFID devices can be attachedto products in a
store to track their movement within the store. In
addition, organizations are able to record and store such
information with ease because data storage media are so
In the health care industry, the abundance of patient
claims data, including disease information, risk
behaviors, information on medical visits, and prescrip-
tion history, have encouraged managed-care companies
and some employers to mine the data and develop pre-
dictive models to help manage health care costs.
Not only does more customer information exist, but
interactions around customer information have become
more frequent. For example, almost all organizations
havebegun to exploittheInternetandits variants toshare
information. The end result is that customer information
isavailable inalargervolume andafinergranularity than
ever before. Moreover, the tools used to analyze
customer information continue to become increasingly
sophisticated, feasible and economical. Today, relevant
knowledge is extracted by processing these vast quanti-
ties of information through such techniques as statistical
analysis and, more recently, data mining.
The TGI Fridays restaurant chain, for example, used
information about its customers to redefine its food
offerings (5). After observing that customers were
seeking more healthy food options, the restaurants
changed their menus, letting customers replace French
fries with baked potatoes or green vegetables, for
instance. Data mining analysis on its point-of-sale data
uncovered further patterns and combinations in how
their patrons customized the standard offerings, leading
tothe creation of dietmenu items and low-caloriemeals.
Customer involvement in information gathering is
minimal,since most of the dataneeded to generate infor-
mationare readily available. Thus,creditcardcompanies
donotneedtoinvolve their customers in order to analyze
purchasing behavior because they receive such data and
information regularly and can process both easily.
Communicating with Customers
Organizations may increase the type of channels (e.g.,
telephone, email, chat rooms, discussion forums) that
customerscanaccess in order to communicate moreeffi-
ciently. Customer Relationship Management (CRM)
systems track interactions with customers and improve
the delivery of products and services.
Organizations have also embraced the Internet for trans-
mitting product documentation, troubleshooting guides,
repair manuals, and other forms of support information.
While customers can resolve their queries and problems
on-line by using chat rooms, email and structured
reasoning systems, most computer manufacturers have
gone a step further and added interactive Web-based
programs to handle customer support queries and to
debug their purchases.
Companies like Barnes & Noble allow customers to
purchase a product on-line and return it at a local store if
they are not satisfied. Some electronics stores, like
Circuit City, allow customers to order on-line and pick
up from their local store. Best Buy, another electronics
store, allows customers to use in-store kiosks to
customize products and answer questions, thereby
providing the same flexibility as if purchasing on the
Banking firm Washington Mutual has developed inno-
vative communication strategies with customers by
defining customer touchpoints,that is, every interac-
tion with customers has been named and defined so that
both management and employees can analyze ways to
innovate those interactions. Sample touchpoints include
an ATM, during a phone call to a call center, and
in-person inquiries at a bank.
One innovation that resulted from this model was the
developmentof a newIT interface thatgives bank repre-
sentatives access to histories of interactions with a par-
ticular customer, including priority information like the
customers risk profile. These new interfaces aggregate
useful information and have dramatically improved the
quality of customer interaction as well as increasing the
amount of practical information at bank representatives
Customer innovation
has become an
essential strategy
for organizational
MayJune 2008 37
Business ProcessCustomer Interactions
Customers used to not be involved with business
processes, their role limited to consumption of the final
productsand services andpossibly giving theirfeedback
to a company. This has changed, however. For example,
most airline companies now allow passengers to book
theirtickets, choose their seats, printa receipt, and check
in on-line.
One of the outcomes of increased integration of
customers into a companys supply chain process is the
disintermediationof certain players in the industry.
Thus, on-line booking for air travel resulted in disinter-
mediation of travel agents, and hence increased the effi-
ciency and effectiveness of the ticketing process. A
similar change in business processes in the automobile
and securities industries, among others, enabled by the
Internet, has led to customers dealing directly with, and
hence communicating more, with the companies them-
One example of both customer segmentation and inte-
gration into the value chain is the auto insurance
company, Progressive, which targeted the under-served
segment of high-risk customers (6). To serve these
customers efficiently and effectively, it developed
Claims Workbench,a software platform installed in
laptops with wireless modems, that allows claims repre-
sentativesto perform up to 20 separate transactions inthe
field. When an accident is reported, Progressive dis-
patches its representative to the incident location where
they complete all paperwork on the spot, thus minimiz-
ing the incidence of fraud. The representatives can
conduct damage assessments by checking parts lists
installed in the software application. Using the
Immediate Responsible Vehicles (IRVs), the reps can
send the claim to the claims centers and settle it quickly,
thereby saving money and improving customer service.
Dell Computer Corporationsdirect modemodel was
invented by Michael Dell, who recognized two trends in
the marketplace: 1) that standardization of PC compo-
nents allowed Dell to outsource the manufacturing
process (except assembly), and 2) the sophistication of
customer knowledge about, and comfort with, PC tech-
nology. Because of these factors, Dell decided to design
a value chain that allows direct interaction and gives
customersmore choices andtheabilitytocustomize their
orders. The direct model provides not only technical and
costadvantages resulting from lower inventory costs, but
also a significant advantage in terms of customer
knowledge management. Because Dell can directly
interact with customers, it has a better chance of discov-
ering customer needs.
Strategic innovations by ICTs can scale-up existing
business models that do not allow competitors to catch
up quickly. For example, Enterprise-Rent-A-Car
focused on the car replacement marketan underserved
and ignored service the firm could offer. Enterprise
developed Automated Rental Management Systems
(ARMS), an Internet-based software application that
connects Enterprise, insurance companies and auto-
repair shops, to manage the entire rental car cycle and
process. When an Enterprise customer has an accident
and calls an insurance company with a claim, the
insurance claims agent logs on to ARMS and automati-
cally replaces the customers rental reservation. Tradi-
tionally,this process took a tedious paper-based, manual,
andhuman process thatinvolvedhalfadozen phone calls
to different rental office locations. The system is also
connected to auto-repair shops, which can send repair
updates to both insurance companies and customers.
ARMS also tracks the collection of the repaired car and
the return of the rental car, and automatically generates
an electronic invoice for the insurance company. The
great thing here is that it reduces human involvement;
Enterprise eliminated, on average, 8.5 phone calls per
rental transaction. This is about 85 million phone calls,
and, since 1993, about seven million hours of employee
time(5minutespercall). By late 2002, ARMS was being
used by 22 of the 25 largest insurance companies in the
United States.
Customer Interactions with Products and Services
As products become more sophisticated, only rarely will
everycustomeruse the technology in the sameway. This
is because most products now have options for modifi-
cation, personalization or customization. Understanding
how users engage in these customizations can yield
insights on possible enhancements and innovations, as
occurswithsoftware organizations that regularly tap into
their lead users to discover new routines, methods and
enhancements (7).
One aspect of managing knowledge to support the
customer requires personalizing the shopping experi-
ence. Organizations can use transaction data and
customer information, especially for those purchases
conducted on the Internet or through other electronic
media like personal digital assistants (PDAs) or mobile
phones.Forfrequent travelers, entering their preferences
into a ticketing system for every trip is time-consuming
and annoying. In the past, they would have gone to a
travel agent who knew their preferences and made the
arrangements accordingly. These travel agents were
knowledgeable, not only about the various destinations,
but also about preferences: window seat, nonsmoking,
make and model of rental car, and so on. Today, elec-
tronic customer reservation systems can handle many of
these details.
ICTs have also made experimenting with product and
service offerings popular. Customers often try a product
or service before committing to a purchase; on-line
Research Technology Management
vendors provide trial software, music samples, no-risk
trial periods for services, and the like. In light of this
culture of sampling, it has become more difficult to lock
customers into a purchase without providing a taste of
what they can expect. This requires the organization to
make such knowledge available in easily digestible
formats, to devise mechanisms that allow the customer a
sense of the expected product benefits without releasing
theentire product for free, andto ensure that information
is openly shared with and received from the customer.
When purchasing a book, for example, readers want a
synopsis,theauthorscredentials,the reviews, price, and
other information to inform their decision. One of the
reasonswhy companies likeAmazon continue to besuc-
cessfulisthehighlysophisticatedways such information
is presented to a potential buyer via the Internet. Thus,
publishers allow readers to read a few pages of a book,
andon-line music vendorsprovidesongsamplesfor their
As another example, Google has Google labson its
Website,which lets users try Googles beta products and
services. Users can download them free and play with
them,afterwhich they can give their feedbackdirectly to
developers by sending email or by joining community
discussions. Once the products graduatefrom labs,
they become available for all Google users. Experimen-
tation is the requirement of this constant knowledge
exchange; knowledge must flow freely from the
customer to the organization and vice versa.
Innovation in Products and Services
Innovationin the formoffinalproductsand services isan
implementation of knowledge from the customer,
defined as the insights, ideas, thoughts, and information
the organization receives from its customers. These
insights can be about current products and services,
customer trends and future needs, and ideas for product
innovations.Ideasforsuccessfulproductinnovations are
most likely to come from end users and customers of the
products and not from within the organization. An
organization must therefore actively seek out such
knowledge in order to be better prepared to implement
product enhancements and innovations.
Sometimes, through this form of innovation, customers
can change their business models or processes and offer
different services. For instance, NPower Seattle was
aware of an Earned Income Tax Credit that was under-
utilized, and worked with early technology adopters
(who had shown eagerness to use new forms of technol-
ogytochangetheirservices)toallowthemtooffer a new
service, making it easier to collect that money. As its
director, Jamie Green, stated, Seventy-five million is
left unclaimed by low-income Washington families. In
one of our grants, we articulated that we wanted to work
with early adopters and pragmatists and see $2 million
additional dollars coming back to the community.
As this quote demonstrates, the measure of success in
such cases will usually depend on the success of the cus-
tomer’s new offerings. In these instances, changing
customer business practices is a service provided by an
outside organization.
It is also important to design, manufacture and sell a
product that customers want, rather than trying to
convince them to buy something created elsewhere.
Thatswhy listening tocustomersissoimportant for suc-
cessful innovations. For example, Hewlett-Packard
modified its Laser Jet V printer design by adding
handles, after observing that more than 30 percent of its
customers, most often women, routinely moved printers
and did not want to break their fingernails (8).
These types of customer innovation raise a range of
critical issues (see Table 1) that organizations must
consider as they utilize customer innovation. The devel-
opment of organizational processes around customer
innovation demands a new lens through which to assess
both innovative processes and organizational mission.
Our next section presents such a framework.
Managing a Customer Innovation Program
Organizations take ideas from customers, process them,
incorporatethem into finished products,andthen deliver
them to customers. The organizations value is normally
tied to the internal and external value generated. The
ideal organization will recognize and appreciate the
customerdimension in everyinteraction and build itinto
its internal innovation process.
Successful customer innovation programs are based on
systematic interactions among three key entities: the
organization, products and services, and customers.
Thesethree entities interactwith each otherin a seriesof
innovation stages: the idea generation and development
stage; the design, testing and refinement stage; and the
commercialization stage (see illustration, page 41).
Organizations must integrate their customer innovation
program with the various types of innovation (see Table
2). The typology of customer innovation given previ-
ously may have seemed daunting in aspects and possi-
bilities for innovation management. Each type of
customer innovation fits within the management model
outlined below, which will provide a complete innova-
tion program with an emphasis on customer-generated
and customer-focused innovation. First, we give an
overviewof the innovationprocess, and thenwe provide
three areas of focus for projects or organizations to
consider with respect to customer innovation and orga-
nizational strategy. The three areas can be considered
indicatorsofcustomer involvement and metrics for orga-
nizational efforts around customer innovation.
MayJune 2008 39
Idea generation and development
The first stage of the innovation process is idea genera-
tionand development. Considerthis quote froman inno-
vation officer at a builder of computer games:
We are a very fast-paced and dynamic industry. In the gaming
industrywe are known to work 24/7. Oneof the challenges wehave is
gettingat the right sourcesof ideas, information andinnovations. We
are now hiring 17- and 18-year-old kids and giving them salaries to
play games and to tell us how to come up with new ideas. Some day
whenyouhave kids,youwill knowthatthey arenotthe easiestsources
to manage . . . sources management is the most challenging and
complex activity.
Understanding the sources of ideas is critical for innova-
in idea generation with their customers. Creating arenas
where customers feel comfortable and encouraged to
provide feedback is a key component of collecting
customer-generated ideas. In the gaming industry,
customer ideas are solicited via constant feedback
through Web sites, discussion groups, blogs, and so
forth. In addition, customers innovate by building add-
ins, scripts and the like, to accompany the games. As our
interviewee noted:
For the most part our sources are our customersthe gamers. They
have become so tech savvy that all we do is provide the architecture
for a game, and then they can customize it as needed to play various
versionsof the game. So, whatwe are tryingto do isbring the sources
that we are interested in into the organizations. We do hire high
school students, in particular those that post to gaming listservs, etc.
Rather than trying to get information from these sources via your
traditional techniques such as surveys, etc., we bring them into the
manifold of the organization and then get information from them. By
far, we pay most attention to our customer sources.
An organization needs to collect as many ideas as
possible from appropriate customers, which means that
customer segmentation can play an important role. Ideas
from novices are different from the ideas from super-
users, as Table 1 illustrates. Ideas provided by those
average users are normally more creative than the ideas
Table 1.—Critical Issues, Concerns and Checkpoints
Type of Customer Innovation Critical Issue Checkpoints
Customer segmentation Customers and categories are dynamic. Are types of customer information prioritized?
Staff must be trained and understand purpose. Are there customer protection guidelines?
Right types of information must guide
segmentation to avoid discrimination.
Customer analysis Information overload, particularly from
automated systems. Can analyses be traced back to specific
Systems must be integrated (i.e., from all
types of customer interactions). Are all systems connected?
Privacy and security of customer data must be
Customer communication Complex problems and valuable clients
require in-person interaction. If outsourced, does customer service still
understand customers?
High-quality communication must be
Many channels and options for communication
must exist for anytime, anywhereservice.
Customer interaction with
organization Investment must be made in infrastructure for
agility in adapting to environment. Can the organizations structure morph?
Risks with established relationships whenever
communication channels changed. Has groundwork for change been laid with
established suppliers, vendors, customers, etc?
Copycats may rapidly duplicate ideas.
Customer interaction with
products and services Customers and technicians need a common
language. Are customers segmented by need and
Novice and expert customers need to be
handled differently. Do technicians interact regularly with
Channels of communication need to be varied
and flexible.
Products and services
outputs Requires rich, human-to-human interaction. Are there protocols for eliciting knowledge from
Stickyor tacit knowledge can be difficult
to articulate. Are there metrics to evaluate the marketability
of ideas?
Feasibility must be carefully analyzed and
customer needs, not specific products,
should be identified.
Research Technology Management
of experts (9), but are more difficult to implement than
the ideas from professionals. Experts may be limited in
theirimagination by their expertise.Therefore,customer
information analysis is critical to understanding how
radical the idea is and how difficult it is to implement.
Organizations need to do the right kind of segmentation
and have the right communication tools to get the right
kinds of ideas from the right sources, who may reside
anywhere. To access these global customers, the organi-
zation needs to have ICTs that can reach them virtually
The customer innovation program is based on systematic interactions among the organization, products and
services, and customers.
Table 2.Three Stages of Customer Innovation
Idea Generation and Development Design, Testing and
Refinement Commercialization
Interacting entities Organization and customer Organization and products and
services Products and services, customers
Type of customer
innovation Customer definition, customer
information analysis, customer
Business process Products and services, customer
Challenges Segmentation, information overload,
privacy and security issues System and process transformation Segmentation, knowledge
transfer, communication tools
Checkpoints Are you sub-segmenting? Do you know your existing
system and capabilities? Do you know for whom you
develop customizable products?
Do you understand the risk of privacy
and security associated with
customer information analysis?
Do you have engineers who can
understand usersfeedback?
MayJune 2008 41
and communicate with them in their local languages and
in real time.
Design, testing and refinement
This is the stage in which organizations need to incorpo-
rate what they learn from customers into the design of
new products and services. First, ideas need to be
filtered, screened and tested before actual implementa-
tion; the organization needs to create an environment
where those ideas can be discussed by others. For
example,ideas from novice users mayneed to be filtered
byengineerswhoknowhow to implement them. Assem-
bling cross-functional teams can be important for
creating an environment where the ideas can be trans-
lated into new products and services. It would therefore
be beneficial to include the various types of people who
normally engage in customer interactions. For example,
the sales force is the group closest to customers and thus
possesses a great deal of customer information. It is also
important for organizations to include that knowledge in
theR&Dprocess (10). In addition, ICTs can connect
distributed team members and provide them with a
platform to interact with other members and exchange
Organizations need to transform existing business
processes and systems to make them suitable for the
customer-driven innovation program. For example, if an
organization has a highly rigid organizational structure,
it needs to embrace an open structure where employees
can contribute their opinions of the new ideas. However,
this comes with pain and costs because people are
usually afraid of new systems and processes. Without an
explanation of why the transformation is necessary and
how it will make the environment better, there will be
This is the case not only for internal employees but for
external partners as well. For example, IBM and HP
could not imitate Dellsdirect model,because it was
perceived as too radical and they did not want to jeopar-
dize their current operations, which were based on
existing relationships with vendors and suppliers. It is
essential that organizations understand which system
and process transformation will enable them to bring
customers and employees together into the design,
testing and refinement stage. Precise knowledge of what
a specific transformation can do and how it can be
accomplished will help managers bring about the
required change.
In the commercialization stage, organizations need to be
innovative in how they incorporate customer ideas into
products and services that will be acceptable to
customers. For example, organizations may want to
present a pilot case or offer an experimental product to
find out how customers feel about them and then incor-
porate the ideas into the modified and revised version.
This strategy is common among software companies,
which usually distribute new software products as beta
versions so that customers can identify bugs and give
other feedback.
Organizations should also provide opportunities for
customerstocustomize or personalize theirproductsand
services. Wireless companies are leaders in this area,
allowing their customers to personalize ring tones or
change the outward appearance of their phones with
different covers.
Inthisregard, it is important to recognize that knowledge
can be explicit or tacit, and organizations should have
mechanisms, such as email, phones, chat rooms, Wikis,
and so on, in place to capture customerscomments. For
example, if customers want to give feedback on the
phone, it is counterproductive to keep insisting that they
fill out long forms. It is also critical here that employees
appreciate the importance of capturing customer
feedback and be flexible enough to encourage customer
Toward Customer-Driven Innovation
Customer-driven innovation is very different from the
old customer innovation programs, which we call
customer-focused innovationand customer-centered
innovation(see Table 3). In customer-centered innova-
tion programs, innovation is done with customers
organizations and customers create innovation together.
In customer-focused innovation programs, innovation is
done by the organization.
Incustomer-driveninnovationprograms,thecustomer is
the key playerinnovation is done by customers, with
minimum involvement by the organization. Customers
products and services They can offer ideas without geo-
graphic and time constraints, and the organization must
be able to apply those ideas quickly to the development
of new products and services. Without the tools to
Organizations need to
collect as many ideas
as possible from
Research Technology Management
support such dynamic interaction, it risks losing its
customers to competitors.
Regardless of the dangers of knowledge leaks and intel-
lectual property issues, organizations need to pursue
customer-driven innovation programs that incorporate
all types of customer innovation. Focusing on each type
of customer innovation and assessing an organizations
current status as customer-centered, -focused, or -driven
will enable organizations to innovate more successfully,
quickly and with lower overall investment. We examine
these differences below.
The organizations role
In a customer-driven innovation program, the role of the
organization shifts from that of communicator and
principal innovator toward coordination, facilitation and
transparency. The organization coordinates the innova-
tion activities of customers during the entire innovation
process, including, for example, the activities by which
customers contribute their ideas and give their feedback
on current products and services. The organization also
needs to coordinate customer activities with its existing
business processes and systems.
Type of innovation
The type of innovation represents the nature of
customersengagement. In customer-centered innova-
tionprograms, the engagementcanbedescribed as open
innovation; that is, the innovation program is open to
customers and they are allowed to be involved with the
process, usually at specific points in time with specific
processes. In customer-focused innovation programs,
customerengagementcanbe called closed innovation;
that is, the innovation process is seen as a black box and
customers are not directly involved with the innovation
process. In customer-driven innovation programs, in
contrast, the customers engagement is dynamic,
providing ideas anytime and anywhere. Customers and
organizations interact frequently, sometimes in unstruc-
tured ways, and organizations need to serve customers
dynamic needs.
Degree of control
The degree of control represents the difficulty that orga-
nizations face in controlling the overall innovation
process. In customer-driven innovation programs, it is
probably impossible for organizations to control the
innovation is very
different from the old
customer innovation
Table 3.Customer-Driven Innovation vs. Older Paradigms of Customer-Centered and Customer-Focused Innovation
Innovation Customer-Centered
Innovation Customer-Focused
Central entity Customer Customer and organization Organization
Degree of customer
involvement Innovation by customers Innovation with customers Innovation for customers
Role of organization Coordinator Communicator Innovator
Type of innovation Dynamic innovation Open innovation Closed innovation
Degree of control Impossible to control Difficult to control Easy to control
Degree of coordination Emergent coordination Difficult to coordinate Easy to coordinate
Critical innovation stage Commercialization (Ideas are
over-generated and developed,
but difficult to commercialize)
Idea development (Ideas are
abundant, but difficult to
Idea generation (Ideas are
Types of innovation to
focus on Products and services, output
interaction; interaction with
products and services
Communication with customers;
customer interaction with
Customer segmentation and
customer analysis
Critical issues with
innovation types Stickyand tacit knowledge
transfer requires high levels of
human interaction
Investment in infrastructure Analysis must be ongoing
Customers must be segmented
for proper analysis High-quality communication
needed Systems must be integrated
Risk of copycats Information overload possible
MayJune 2008 43
process, because they do not know how many customers
are involved and they cannot control when and where
customers contribute. In customer-centered innovation,
however, organizations can control the innovation
process, but it is difficult to do when compared to
customer-focused innovation. In the customer-focused
innovation process, control is the major strength and
most visible benefit, since the innovation process is
limited to internal processes or to third parties who are
tied by contract.
Degree of coordination
The degree of coordination represents the difficulty that
organizations have in coordinating innovation activities
among stakeholders. In customer-driven innovation
programs, the degree of coordination is emergent; for
example,various customer communities arecoordinated
at local group levels. In customer-centered innovation
programs, coordination is done by organization and is
quite complex, with multiple stakeholders involved.
Coordination is easier in customer-focused innovation
programs,where the innovationprocess is structuredby,
and internal to, the organization.
Commercial innovation stage
This is the most important stage of the innovation
process because it is here that the organization develops
the products and services that can dominate the market.
In customer-driven innovation, where ideas come
anytime and from anywhere, there may be a surfeit of
ideas, and selection and implementation become the
main challenges. In customer-centered innovation
programs, idea development, screening and refinement
are central. In customer-focused innovation programs,
fresh ideas are scarce and the idea-generation stage
becomes the most critical element.
Let the Customer Drive
Organizations must both collect and develop ideas from
customers quickly. They also have to commercialize the
ideas rapidly. For example, Washington Mutual has a
history of product and services innovation beginning
with being the first bank to offer free checking accounts.
Deb Horvath, CIO of Washington Mutual, highlighted
this issue in an interview:
In our history, years ago, we were the first bank in our industry to
havefree checking,and afterwe did,all the otherbanks kindof hadto
do the same thing. We were the first to do no fees for our ATMs. We
were the first to some up with the retail experience in our branches
(Occasio). Other banks are doing the same now.
Washington Mutuals continued banking success
dependson consistent innovationand rapid implementa-
tion,which the organizationhassuccessfullystreamlined
and encouraged in all sectors of the business.
Thus,itisnottheabilityoforganizations to innovate, but
their ability to innovate continuously and consistently
that is vital. Building models for customer-driven inno-
vation is essential to the vitality of organizational inno-
vation programs. Organizations can no longer assume
that they possess all the knowledge and capabilities for
innovating for customers. Neither is it sufficient to
innovate with customers. Customers need to drive inno-
vation. Successful organizations will be those that take
advantage of customer-driven innovation to further their
growth, enter new markets and be leaders in their mar-
Thisresearch was funded in part by theInstituteforInno-
vation in Information Management (I
M) at The Infor-
mation School, University of Washington, under the
Leveraging Ideas for Organizational Innovation project.
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Research Technology Management
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... Most of the industries obtain innovative technologies to become accelerate the augmentation industry. Today, most of the hotels often utilize innovative technologies to attain the below-mentioned outcomes: increase efficiency and quality of performance, reduce the cost & time wastage, value-adding for operational activities, problem-solving, unique way of producing and delivering the tourism products in the hotel industry, providing a competitive advantage, enhanced organization performance, improve guest satisfaction and build loyalty among clients and employees (Hjalager, 1997;Desouza et al., 2008;Schramm et al., 2008;Bilgihan et al., 2011). Sri Lankan business firms also acquire innovative technologies to enhance productivity and increase overall performance. ...
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The importance of value co-creation in servitization is increasingly emphasized but remains largely unexplored from the entrepreneurship theoretical perspective. This study develops an entrepreneurial framework for value co-creation in servitization by conducting a qualitative case study with middle managers from a multinational industrial company. The empirical findings suggest that value co-creation facilitates the discovery and creation of service opportunities through middle managers' entrepreneurial actions, that is, boundary spanning and bricolage. We also find that servitization reinforces value co-creation through middle managers' exploitation or exploration of service opportunities. The study not only offers new knowledge on the mutual influence between value co-creation and servitization, but also discusses the importance of middle managers as individual level actors in value co-creation. In addition, this study acts as a call for entrepreneurship frameworks for research on servitization.
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Purpose – To show how information and communication technologies (ICTs) could help a company implement radical new strategies. Design/methodology/approach – Generalizations are made based on 20 case studies of companies that strategically innovated in their industries by introducing radical new business models. Several of these cases are used in the paper to highlight the points made. Findings – The paper shows that ICT enables firms to: reach consumers that most competitors cannot serve profitably; offer radically new value propositions to consumers that other firms cannot deliver in a cost‐efficient way; and put in place value chains that no other firm could do efficiently. ICT also allows strategic innovators to scale up their business models quickly and so protect themselves from competitive attacks. Originality/value – This paper shows that coming up with a radical business model that breaks the rules of the game in an industry is easy! The difficult part is to implement such radical strategies in the marketplace so as to deliver real value to customers in a cost‐efficient and profitable way. The paper demonstrates that ICT is a key enabler in the successful implementation of radical new strategies.
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No matter how hard companies try, their approaches to innovation often don't grow the top line in the sustained, profitable way investors expect. For many companies, there's a huge difference between what's in their business plans and the market's expectations for growth (as reflected in firms' share prices, market capitalizations, and P/E ratios). This growth gap springs from the fact that companies are pouring money into their insular R&D labs instead of working to understand what the customer wants and using that understanding to drive innovation. As a result, even companies that spend the most on R&D remain starved for both customer innovation and market-capitalization growth. In this article, the authors spell out a systematic approach to innovation that continuously fuels sustained, profitable growth. They call this approach customer-centric innovation, or CCI. At the heart of CCI is a rigorous customer R&D process that helps companies to continually improve their understanding of who their customers are and what they need. By so doing, they consistently create or improve their customer value proposition. Customer R&D also focuses on better ways of communicating value propositions and delivering the complete experience to real customers. Since so much of the learning about customers and so much of the experimentation with different segmentations, value propositions, and delivery mechanisms involve the people who regularly deal with customers, it is absolutely essential for frontline employees to be at the center of the CCI process. Simply put, customer R&D propels the innovation effort away from headquarters and the traditional R&D lab out to those closest to the customer. Using the example of the luggage manufacturer Tumi, the authors provide a step-by-step approach for achieving true customer-centric innovation.
Virtual customer communities enable firms to establish distributed innovation models that involve varied customer roles in new product development. In this article I use a multitheoretic lens to examine the design of such virtual customer environments, focusing on four underlying theoretical themes (interaction pattern, knowledge creation, customer motivation, and virtual customer community-new product development team integration) and deriving their implications for virtual customer environment design. I offer propositions that relate specific virtual customer environment design elements to successful customer value creation, and thereby to new product development success.
Virtual customer communities enable firms to establish distributed innovation models that involve varied customer roles in new product development. In this article I use a multitheorotic lens to examine the design of such virtual customer environments, focusing on four underlying theoretical themes (interaction pattern, knowledge cre- ation, customer motivation, and virtual customer community-new product develop- ment team integration) and deriving their implications for virtual customer environ- ment design. I offer propositions that relate specific virtual customer environment design elements to successful customer value creation, and thereby to new product development success. The emergence of new information and com- munications technologies has initiated a radi- cal transformation of customer-prod ucer rela- tionships in many industries, with important implications for new product development (NPD). New technologies, such as the internet, allow broad communities of interest (e.g., cus- tomers) to coalesce around specific products and services. Such online or virfuaJ customer communities (VCCs) could facilitate the deploy- ment of distributed innovation models that in- volve varied customer roles in NPD (Holmstrom, 2001; Kambil, Friesen, & Sundaram, 1999; Pra- halad & Ramaswamy, 2000). Customers can be involved not only in generating ideas for new products but also in cocreating them with firms, in testing finished products, and in providing end user product support. In short, new technol- ogies enable "a shift from a perspective of ex- ploiting customer knowledge by the firm to a perspective of knowledge co-creation with the customers" (Sawhney & Prandelli, 2000: 31; em- phasis added). Such knowledge creation tends to be deeply rooted in the social relationships that take hold ietween the various entities in the virtual com- I gratefully acknowledge North Carolina State Universi- ty's Center for Innovation Management Studies (CIMS), which provided funding for this study through a research grant. I also thank the attendees of the AMR Theory Devel- opment Workshop in Toronto, associate editor Devereaux Jennings, and the anonymous AMR reviewers for their valu-
Purpose To draw management and scholarly attention to two missing capabilities in a knowledge management program: segmentation capability and destruction capability. Design/methodology/approach An opinion paper based on consulting and research experiences of the authors. Findings Organizations that consider the two missing capabilities have witnessed significantly improved knowledge management programs compared with when the capabilities were missing from their agenda. In addition to the two missing capabilities, the third capability – protection capability – may need due attention. Research limitations/implications The two missing capabilities can be further investigated as important constructs. The two capabilities complement and augment their peer capabilities (creation, transfer, storing, retrieving and applying). The intricacies of the missing capabilities and the known capabilities need to be further studied. Practical implications If an organization neglects the two capabilities, the benefits of their knowledge management program will be limited. Organizations can cultivate the two missing capabilities effectively and efficiently by following the suggestions of the paper. Originality/value This is the first paper that discusses the two missing knowledge management capabilities exclusively and connects their role and importance to known capabilities.
Past research has demonstrated that industrial customers can, in effect, bring about product innovation among their suppliers. However, little seems to be known as to whether consumers are also potential inventors of new services. Presents results from an empirical study with the objective of exploring whether ordinary users can contribute novel service ideas regarding mobile telephony. An experimental approach was used to compare the characteristics of new services suggested by ordinary users with services suggested by professional developers. It was found that the service innovations suggested by the users were more creative and useful than those suggested by the professionals. On the other hand, the suggestions of the professionals were deemed easier to produce. Concludes with a discussion on the contributions and limitations of user involvement, wherein the organisational role of the users involved is discussed. Also makes a proposal regarding how to further investigate the potential of the user as a co-worker in the innovation process.
Accurate marketing research depends on accurate user judgments regarding their needs. However, for very novel products or in product categories characterized by rapid change—such as “high technology” products—most potential users will not have the real-world experience needed to problem solve and provide accurate data to inquiring market researchers. In this paper I explore the problem and propose a solution: Marketing research analyses which focus on what I term the “lead users” of a product or process. Lead users are users whose present strong needs will become general in a marketplace months or years in the future. Since lead users are familiar with conditions which lie in the future for most others, they can serve as a need-forecasting laboratory for marketing research. Moreover, since lead users often attempt to fill the need they experience, they can provide new product concept and design data as well. In this paper I explore how lead users can be systematically identified, and how lead user perceptions and preferences can be incorporated into industrial and consumer marketing research analyses of emerging needs for new products, processes and services.
Innovation is rapidly becoming democratized. Users, aided by improvements in computer and communications technology, increasingly can develop their own new products and services. These innovating users—both individuals and firms—often freely share their innovations with others, creating user-innovation communities and a rich intellectual commons. In Democratizing Innovation, Eric von Hippel looks closely at this emerging system of user-centered innovation. He explains why and when users find it profitable to develop new products and services for themselves, and why it often pays users to reveal their innovations freely for the use of all. The trend toward democratized innovation can be seen in software and information products—most notably in the free and open-source software movement—but also in physical products. Von Hippel's many examples of user innovation in action range from surgical equipment to surfboards to software security features. He shows that product and service development is concentrated among "lead users," who are ahead on marketplace trends and whose innovations are often commercially attractive. Von Hippel argues that manufacturers should redesign their innovation processes and that they should systematically seek out innovations developed by users. He points to businesses—the custom semiconductor industry is one example—that have learned to assist user-innovators by providing them with toolkits for developing new products. User innovation has a positive impact on social welfare, and von Hippel proposes that government policies, including R&D subsidies and tax credits, should be realigned to eliminate biases against it. The goal of a democratized user-centered innovation system, says von Hippel, is well worth striving for. An electronic version of this book is available under a Creative Commons license.