Frank Piller: Open Innovation & Customer Co-Creation

Co-Creation of Value with Companies
Customers
State of the Art, Research Perspectives, and
Managerial Implications

Frank T. Piller
Chair, RWTH Technology & Innovation Management Group, RWTH Aachen
Co-Director, MIT Smart Customization Group, MIT, Cambridge, MA, USA

www.open-innovation.com

2

About us

tim.rwth-aachen.de

The RWTH-TIM Group is a large group of researchers, and
many of them have contributed to the research providing
the basis for this presentation.

With about 15 full time
research positions plus
many graduate student
assistants, tutors, and
research affiliates,
RWTH-TIM is one of the
largest groups of its kind
in the German-speaking
academic landscape.

© tim.rwth-aachen.de 3

5

RWTH-TIM Group: Selections of Recent Research Project Clusters

Open Innovation: Increasing the productivity of technical problem solving by
external search
Customer Co-Creation: Integration of customers and users in the innovation process
in form of a firm-initiated strategy. Focus on toolkits for customer innovation, user
innovation contests, and innovation communities
Intra- and interorganizational technology transfer: Absorptive capacity, managing
ambidexterity, and preventing "NIH" (not invented here)

Customer Co-Design in Mass Customization Environments: Strategies to profit from
heterogeneities in the customer domain
Modeling the contingencies of the innovation process: Database of 300 methods for
the innovation process and matching tool to corporate challenges of managing
innovation
Managing ramp-up: Connecting the new product development process with the
manufacturing system

Objective of this talk

• Introduction into the idea of open innovation and value co-
creation – and the underlying principles

• Discussion of some basic frameworks and structures

• Selected insights into recent research

• A competence-based framework: What are capabilities and
competences required to co-create?

• (Sorry.) Research in the field exploded recently, so I probably will
not mention many interesting issues and results worth to discuss.


7

Two problems that
make new product
development difficult

9
Every innovation process requires two kinds of information,
influencing the efficiency and effectiveness of the process.

Solution Need
Information Information

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Sticky information

“The stickiness of a given unit of knowledge or information is
defined as the incremental expenditure required to transfer that
unit from one place to another, in a form that can be accessed by
the recipient. When this expenditure is low, information stickiness is
low; when it is high, stickiness is high. By implication, sticky
information is harder to move.” (von Hippel 1994)

Some reasons:
• Information needed by developers may be tacit
– Can you tell your child how to ride a bike?

• A lot of information is often needed by developers
– “You didn’t tell me you were going to use the product that way!”

11
Every innovation process requires two kinds of information,
influencing the efficiency and effectiveness of the process.

Solution Need

ef ea
In
sticky

s
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sin nes
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information

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12

Local search reduces problem solving effectiveness
(Lakhani 2007)

Local Search Problem Evidence

Problem-solvers have different local Experiment (psychology lab): individual
knowledge stocks (Hayek 1945; von problem solvers have difficulty adapting
Hippel 1994) to new problems (Luchins 1942;
Duncker 1945)

Problem solvers use their own local Team-based problem solving negatively
knowledge stocks and solution effected by prior experience and new
algorithms even when not appropriate: problems being different from old (Allen
& Marquis 1964)

Bounded rationality (Simon 1957) Firm & Industry level findings of
negative effects:
- Routines in problem solving
(Nelson & Winter 1982) – Photolithography (Henderson & Clark 1990)
– Semiconductor Manufacturing (Stuart &
- Competency Traps Podolny 1995)
(Levitt & March 1988) – Medical Imaging (Martin & Mitchell 1998)
– Biotechnology and Semiconductors
(Sorensen & Stuart 2000)

13
Known measures to reduce the local search
problem
(Lakhani 2007)
More effective external search
Gatekeepers (Allen & Colleagues)
Special boundary roles (Tushman & Colleagues; Ancona & Colleagues)
Absorptive capacity: establish bridging strategies (Cohen & Levinthal 1990)
Change search style
Cognitive search (Levinthal & Gavetti 2000)

Partner with organizations with different knowledge
Alliances and acquisitions (Stuart & Podolny 1996; Mowery et al 1996; Rosenkopf &
Nerkar 2001; Chesbrough 2003; Laursen / Salter 2004)
Informal organizational arrangements (Nonaka & Takeuchi 1995; Hansen 1999)

Find people with different knowledge
“Knowledge flows with people moving” (Lakhani 2006; also: Saxenian 1992;
Almeida & Kogut 1999; Rosenkopf & Almeida 2003)

An important disclaimer I always stress in presentations
for executives: "Conventional", "known", or "established"
does not mean that it is not important

Today we will talk about "new" forms of integrating external
information in the innovation process

But that does not mean that "conventional" (established) forms
are outdated or should not be used any longer.
The tools and methods of co-creatioan and open innovation
supplement the established forms, but do not substitute them.
The task of a manager is to know which form of interaction with
external partners is most effective in a specific situation -- and when
an organization should better rely on its internal capabilities only.


15

The proposition of open
innovation as a
set of supplementing
practices addressing
the problems of
sticky information
and local search

The background of open innovation
Central R&D (German Chemical companies, Edison Labs (became Bell
Labs; now: AT&T Labs); DuPont, Xerox Parc ...)
The fall of centralized R&D in most organizations
Research versus development
Market driven innovation -> Profit center controlled R&D
Stage-gate thinking
Distributed R&D via Venture Capital

Portfolio thinking in innovation management as dominating pattern
"Radical" versus incremental innovation
High risk, low risk
Near term, long term
Basic research, applied research
Internal versus external sourcing of ideas and technology
© tim.rwth-aachen.de Source: David Feitler 2010 16

17

Three (plus one)
intellectual schools
of open innovation and
value co-creation

Innovation in the periphery of the firm:
The development of open innovation (I)

If information for problem solving is „sticky“ and distributed,
strategies to transfer this information make sense.

First school: The traditional approach: Innovation networks with
competitors, suppliers, universities, etc. (Brockhoff 2003, 2005; Brown /
Eisenhardt 1995; Chesbrough 2003; Freeman / Soete 1997; Laursen / Salter 2004; Lundvall
1992; Hirsch-Kreinsen 2004; Rosenberg 1982; Tidd et al. 2000)
= “Open Innovation” according to Chesbrough (2003)


The term "open innovation" has been made
popular by Henry Chesbrough, UC Berkeley

Open innovation: A system where innovation is not solely performed internally within a firm, but in a cooperative mode
with other external actors. Companies are using external ideas as well as those from their own R&D departments, and
both internal and external paths to the market, in order to advance their technology. Open innovation is characterized
by cooperation for innovation within wide horizontal and vertical networks of customers, universities, start-ups,
suppliers, and competitors.

Open innovation is opposed to closed innovation, in which companies use only ideas generated within their boundaries,
characterized by big corporate research labs and closely managed networks of vertically integrated partners.
© tim.rwth-aachen.de Figure from: Chesbrough 2003. Definition building on Lausen & Salter 2006; 19

What is open innovation?
The formal discipline and practice of engaging the world for
problem solving ...
Licensing out
External technology (knowledge) acquisition and sourcing
Consortia and other cooperative ventures
Lead user innovation
Co-creation with customers
( Today also: Inter-functional / inter-divisional knowledge exchange
and idea generation within large corporations )

But: IIbelieve there is more than just the sheer fact
But: believe there is more than just the sheer fact
THAT we interact with external actors.
THAT we interact with external actors.
For me, open innovation is about the "HOW"
For me, open innovation is about the "HOW"
we interact with them !!!
we interact with them !!!

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Background of our research on the
"how" of collaboration with external
actors is different in "open innovation":
Diener 2010; Diener & Piller 2009, 2010:
Study of Brokers and Intermediaries
Facilitating Open Innovation

RWTH-TIM Study comparing open innovation intermediaries
(Diener / Piller 2010).

Strong growth of special intermediaries for open
innovation. We coined them "open innovation
accelerators".
Research idea: By studying the underlying
business models and models of value creation of
these "specialists", we will gain a better
understanding of the phenomenon

First study comparing these intermediaries
65 companies identified, 43 met our definition
Extensive analysis and profiling of these 43 OIAs
Self reports, interviews, survey, secondary
sources, client interviews

Download ($$$): study.open-innovation.com
(contact me for an academic version)

OPEN CALL also has been called "Crowdsourcing"
(Interactive Value Creation)

"Crowdsourcing represents the act of a company or institution taking a
function once performed by employees and outsourcing it to an
undefined (and generally large) network of people in the form of an
open call. This can take the form of peer-production (when the job is
performed collaboratively), but is also often undertaken
by sole individuals.“ (Howe 2006)

Other terms, same idea: Commons-based Peer-Production of Innovation
(Benkler 2002; Lakhani 2006); Interactive Value Creation; (Reichwald & Piller
2006, 2009; Piller 2004), Wikinomics (Tapscott 2007)


The Challenge [of doing open innovation alone]: Or why
firms often face difficulties in going outside for innovation
(Andy Zynga 2009)

Global
Industry x Global Innovation Community
Large / small companies
Universities
Private / Government Labs

WHY Individuals
Venture Capital

• Knowledge disaggregation
• Tacit Knowledge
• IP Considerations (protection/pollution)
• Leading Edge Knowledge Not in Public Domain
• Need for translation and Disguise
• Leakage of Competitive Information
• Culture/Policies/Authority
• Processes Efficiency

The number of OIAs is increasing strongly since 2000

© tim.rwth-aachen.de Source: Diener & Piller 2010 25

How do the intermediaries differ?
We find three core elements which "define openness"

The most
distinguishable Open Search Open Call
Initiation
difference of open Facet I
Contracting
innovation seems to be to Task
Self selection
avoiding the active assignment Constitution
search for information /
solutions with a clear
presumption about its
location and Informalized
composition Facet II formalized Collaboration (self
organization)
Along the dimension of
openness, companies
give away the ‘control’
over parameters of
Facet III IP Exploitation Open license
knowledge acquisition
processes, and, (partly)
about the exploitation of
the generated results.

Conceptual Framework of Openness
in the Innovation Process


We found three core characteristics to structure the
market of open innovation providers


Configuration Types

8 dominant patterns of collaboration between manufacturer and external actors

Openly search for solutions. There are just a few presumptions about
where to find the concrete solution and how it is maybe composed.
1 No direct interaction with external actors.
Commonly search takes place on the internet. Observing communities.
e.g. Netnography

Search for a certain solution openly with a few presumptions.
Integrate the external holder of the solution and work collaboratively
2
on solving the problem.
e.g. LU method, innovation communities

Post a problem or task to an undefined big heterogeneous group and
get many ideas back
3
e.g. typical online brainstorming


Configuration Types

8 dominant patterns of collaboration between manufacturer and external actors

Post a challenge or a problem to an undefined big group of experts.
Potential solvers select themselves and solve the problem
4 independently from each other.
e.g. open expert communities
Posting ideas tasks to a broad unknown heterogeneous community.
5 Collaboratively working on innovation tasks.
e.g. user communities etc.

Post an innovation task openly to an own pre-defined group of
potential solvers.
6 The external actors solve the task independently or
collaboratively.
e.g. Innovation challenge/contest
Posting a problem to an unknown pre-defined external network of
experts.
7 Potential solvers select themselves and solve the problem
independently from each other.
e.g. restricted expert communities
Posting a specific problem or idea, start a contest to a known pre-
defined group.
8 External actors must be qualified as potential solver.
e.g. community with restricted access


33
What is open innovation?
The formal discipline and practice of engaging the world for
problem solving ...
Licensing out
External technology (knowledge) acquisition and sourcing
Consortia and other cooperative ventures
Lead user innovation
Co-creation with customers
( Today also: Inter-functional / inter-divisional knowledge exchange
and idea generation within large corporations )

... using new forms of organizing the collaboration with external
actors.
Crowdsourcing / commons-based peer production
Beyond formal contracts and networks
Beyond autonomous user innovators

The development of open innovation (I)

If information for problem solving is „sticky“ and distributed,
strategies to transfer this information make sense.

The traditional approach: Innovation networks with competitors,
suppliers, universities, etc. (Brockhoff 2003, 2005; Brown / Eisenhardt 1995;
Chesbrough 2003; Freeman / Soete 1997; Laursen / Salter 2004; Lundvall 1992; Hirsch-Kreinsen
2004; Rosenberg 1982; Tidd et al. 2000)
= “Open Innovation” according to Chesbrough (2003)

Second school of earlier literature: task of firm is to capture
autonomous lead user inventions (e.g. Anderson & Crocca 1993; Ciborra
1991; Enos 1962; Freeman 1968; Urban & von Hippel 1988; Ramirez 1999; Rice & Rogers 1980;
Rosenberg 1976; von Hippel 1976, 1978a, 1978b, 1982)

lead users are a “product feedstock for manufacturers” (von Hippel
2005)


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The development of open innovation (II)

New perspective (third school) that firms are organizing the process of
distributed / open innovation (Gassmann/Enkel 2004; Jeppesen & Molin 2003; Lakhani 2005;
Ogawa & Piller 2005; Piller & von Hippel 2005; Piller 2004; Prahalad & Ramaswamy 2000, 2004; Ramirez
1999; Reichwald & Piller 2009)

Going beyond formal innovation networks with customers, suppliers,
universities, etc.
Open Innovation metaphor to summarize practices building on the
notion of distributed sources of innovation, organized in a very different
way to the conventional Coasean way of assigning and contracting work:
Utilizing "crowdsourcing" ("peer production", "interactive value creation")
as a mean to organize the exchange, building partly on open source
software production (Benkler 2002, 2006; Lakhani et al. 2008; Piller 2004; Reichwald & Piller
2006, 2009; Tapscott 2006, von Krogh et al. 2002, 2006 and many other recent voices ...)

Open innovation as a new paradigm to organize the division of labor
within the innovation process

Open innovation can start inside and outside the organization
How SIEMENS structures its open innovation initiative

Source: Lackner 2009: Open Innovation at Siemens

Recently, the term "co-creation" has been introduced to address open
innovation with customers and users, while "open innovation" is
focused on technology acquisition in the realization stage

Solution Need

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Co-creation and open innovation are two sides of the
Co-creation and open innovation are two sides of the
same coin -- but demand different tools and responsibilities
same coin -- but demand different tools and responsibilities

39

And we may have to add a
fourth school of
value co-creation:
Autonomous user
communities
(with a little bit of firm support)

40

Innovation in the periphery – without a firm:
The development of "open innovation" / co-creation (IV)

Customer communities acting without any firm collaboration or firm
initiation

Open source software development as a key example (also the original
Benkler focus)

More recent literature on value creation and innovation of user
communities in e.g., outdoor markets (e.g., Fueller et al. 2008, 2010)

Recent interesting development: Upcoming of specialized firms just
focusing on supporting user communities in creating value
General purpose internet platforms
Free CAD like Sketch-Up
Quirky and other "crowdsourced companies"
Open, localized manufacturing system (e-machineshop)

User Manufacturing
Users (customers) are becoming not only co-innovators, but also
manufacturers, using a new infrastructure provided by some
specialized companies.
(1) Easy-to-operate design software that allows users to
transfer their ideas into a design without much experience in
how to operate a CAD software.
(2) (Open) Repositories of designs, often under creative
commons license.
(3) Easy-to-access flexible manufacturing technology.

Add (4) Easy-to-access distribution capacities: (Expert)
users are now enabled to set up an “instant company” that
designs, makes and globally sells physical products (as easy as
starting a blog or creating an eBay store).
[ More information: http://tinyurl.com/yofu2y ]

An online marketplace that offers sellers complete e-commerce services to
independently create and sell a wide variety of products

• Average 15 million unique visits per month
• Approximately 1500 new, independent shops join the network each day
• Roughly 45,000 new, unique products are added each day
• Hundreds of "power sellers" making their living by exploting niche
opportunities they sense, understand, transfer, and serve.


Companies like Zazzle, Ponoko, e-machineshop etc.
created a new (?) way for innovation and value creation.

These companies provide a new ecosystem to create, test,
build, and distribute.
"Users" (entrepreneurs) can create their own assortments ...
and there own market ("niching the niches")
Manufacturers no longer have to understand what
customers want ... they are just producing what people tell
them to do (and not "why they need it")
User manufacturing closes a missing link of open
innovation: Some innovative users create new products
(often to profit from using them), but also are being enabled
to share their developments (at larger quality) with a larger
group.


49

But let's return to a firm
focused perspective
(if we ever left it)

A closer look on open innovation practices to acquire
"solution information"

Solution Need

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Increasing the productivity
of problem solving

InnoCentive is not alone: NineSigma and Yet2 are seen as
core competitors, but have a slightly different business model

Network Size 2m+ 160K+ Solvers, 175 120,000 registered users,
650K+ individuals Countries, 40 Disciplines 70+ brokers, 200+
120+ Affiliates consultants

How they make money Posting Fee Posting Fee Membership fee $4,000 to
$12-19,000 $6,000 to $15,000 posting $30,000
Success fee = % of final fee* Consulting service fee
contract or fixed amount Success fee = 40% of $30,000 to $40,000
(Retainer) contract or award Success fee = % of value
of the deal

Solver/Solution Provider $5,000 to $50,000 plus $5,000 to $1m Contract or licensing value
awards follow-on contract value ($1.5m average)

Growth 500 RFPs to end 2006 2008 postings nearly 25+ deals in 2008
400 RFPs in 2007 double 2007 postings Expansion of broadcasting
large growth in 2008 and Opening of European office services
2009 in 2010


Piloting open innovation via broadcast search in
German industry association among SMEs
Starting situation
FVA, research consortium of approx. 150 German SMEs in
mechanical engineering related technologies (driving systems) as part of VDMA
(one of Germany's largest industry associations with 2000+ members)
FVA funds own research program (contract research, pre-competitive, shared IP)
Need to improve productivity of R&D spending on consortium and firm level
Idea to pilot open innovation: Research contract to RWTH-TIM
First stage
Getting of commitment of members and corporate education (took 12+ months !!!)
Evaluation of legal situation of working with problem solving platforms in Germany
Second stage
Piloting of six challenges (two company challenges, one that failed on the consortium
level before, one that just had been contracted externally, two from up-coming research
agenda)
Decision to partner with NineSigma
RFP drafted, search ongoing ... (today)
Third stage
If evaluation of pilots is positive, establishment of OI platform as membership service
for association on VDMA level

VDMA Project to Pilot Open study of
Explorative
Innovation:
Research Agenda existing applications of Identification of suitable
OI in domain
problem statements
Comparing different tools
and methods Piloting: Contracting of
platform and formulation
Legal constraints and of RFPs
requirements 2.
1.
1. Identification of
Evaluation of results
Evaluation and open innovation platform of approach
Development
modification of OI to measure efficiency of OI
methods for industry Definition of incentives
domain
Market study and
comparison of OI
platforms ("beauty 3.
contest" of OIAs)

Recruiting "problems"
Piloting of platform and
4. evaluation of efficiency and
Development of effectiveness of approach as
Final reports to executive
business model compared to conventional
board and "checklist" for
SME members means of organizing R&D
for future operation
of platform on the Development of
operating & pricing
FVA level model for association
("NineSigma inside")

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For university researchers
(and TLOs), this corporate
trend towards open
innovation bears tremendous
opportunities

Traditional pattern of university-firm technology transfer

University
Wissenschaftler
scientists 1 2 3 Unternehmen
Companies

Search for
Suche nach
interesting
Bestandteilen
document results
stellen Wissen ein Transfer-
Transfer technologies
der Lösung
database
Datenbank

Motivation durch:
Incentives for transfer Search for research inLösungsweg: etc.
Annahme über einen universities
• Externe grant contract
- Part of “Zwänge“ - Screening ofauf bekannte Wissensbasis
• Zugriff nur usual suspects
• Erwartungswert einer potentiellen Abfrage - Using existing networks bias“ bei Suche /
- Expected value of potential • Unterliegt „local search
der Informationen durch by a firm
demand of knowledge ein Unternehmen Evaluation
- Local search bias
• Reputationserhöhung
- Increasing reputation • Motivation durch „Not Invented Here“
- Transfer often stopped by
begrenzt
"Not-invented-here"


Using Open Innovation for Technology
Transfer: A project for the German National
Academy of Science (DFG)

University
Wissenschaftler
scientists 3 2 1 Unternehmen
Companies

Plattform für
Open Broadcasting
Broadcasting
screening of of search
Broadcast problems
Open
innovation problems
der Probleme
platform
Innovation
e lt
mrittf hlag
r o
Übe fevorscion
ns
aungssolut
tr s
Lösible
pos

Activities on research site: Probleme
• Wissenschaftler screenen • Unternehmen übermitteln Fragestellung an
Activities on company site:
Plattform
- •Screeningnurproblems
Reaktion of wenn Lösung bekannt oder - Transfer of problems
Lösungsweg “einfach“ • Screening und Bewertung der Lösungen
- Reaction only when problems seems to be - Screening and evaluation of problems
•known and cost to answer affordable
Übermittlung konkreter Lösungen • Belohnung des "best" solution
- Transfer of besten Beitragenden
- Transfer of solution idea
- Contracting of further directed research
- Transfer of suggestion for contract research

Piloting open innovation via broadcast search as
an innovative measure of technology transfer (DFG project in the
material sciences and EC funded project for the nano-technologies)

Starting situation: The European Paradox
Europe is leading in basic research in the material sciences (and especially "nano"
research) ...
... but is lacking behind North America and Japan in exploitation of research results
Same on German level fro DFG: Plenty of initiatives, but no large impact in transferring
research results from basic research into practice
Idea to pilot open innovation: Research contract to RWTH-TIM
First stage
Background research on state of technology transfer system
Empirical research and broad qualitative research (today)
TAM study on level of researchers
Second stage
Piloting of open innovation for technology transfer
Idea is to complement traditional transfer channels, not to substitute them
Third stage
If evaluation of pilots positive, establishment of OI platform on level of DFG / European
Community


60
Co-Creation with users and customers
to get access to need information
Solution Need

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Theoretical foundation:
lead user theory

The other stream of open innovation research:
The user innovation concept by Eric von Hippel, MIT
"I need it but it doesn‘t exist, so I‘ ll have to make it myself."

Lead User innovate here Manufacturers innovate here

# of users
with need First commercial product available

“Voice of the customer”
methods of conventional
“Lead User market research
Method”
to discover
autonomous
lead user
innovation
Time

© tim.rwth-aachen.de Source: von Hippel 1988, 2005 63

65
An important differentiation (II): Lead user research is NO market research –
and often lead users are NOT customers of the manufacturer

66
There are two fundamental ways to profit from the lead
user idea: (1) Search for LU innovations and (2) Co-
create with lead users/experts

1. Search for LU innovation
– Broad open search for existing (prototype) innovations out
there in your (target) market by lead users (more "observation" than
"co-creation")
– Focus is on access to latent need information
– Examples: Sport equipment, machinery, medical equipment

2. Search for lead users and lead experts in (analog) markets
– Search for persons with lead user characteristics for a given
problem definition
– They face the same need, but often to a higher extreme (in analog
markets)
– Focus often is on access to technical solution information
– Invite them to innovation workshop to co-create with your R&D team

67

That we have to integrate
customers into value
creation seems to be out
of question today.

67

69

The question is "how"

69

71

Three paradigms to
integrate customers in
the innovation process

72
Three modes of customer
participation in NPD
(Piller 2004; Fredberg & Piller 2009, building on
Dahan and Hauser 2002)

74
How can companies interact with their customers

75
Mode 1 - Design for customers ("observe").
Products are designed on behalf of customers.
Firms use customer information from diverse input
channels to explore needs: Listening into the
customer domain by analyzing sales data, internet
log files, or surveying sales personnel;
Netnography; Quality Function Deployment.

Another form of observing customer: Netnography
Netnography [interNET & ethNOGRAPHY] is a qualitative research approach to
analyze the consumer dialogue in online communities in order to gain valuable
consumer insights especially in the early stages of the innovation process (Kozinet
2007). The empathic and non-obtrusive online observation allows the
qualitative assessment of explicitly verbalized and implicitly existing needs,
whishes experiences, motivations, attitudes, and perceptions of consumer towards
products, services and brands.

© tim.rwth-aachen.de Source: Michael Bartl, HYVE AG, 2010 76

77

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Mode 2 - Design with customers ("interact").
Display solutions or concepts to customers so
they can react to proposed design solutions: Pilot
customers or beta users. Concept testing, focus
groups; Output-Driven Innovation method.

Example: CoCreation Master Class by Dialego AG, Aachen

1 2
Participants
Consumers
introduction &
are
asked to
recruited
comment directly
from within
on the image
the Dialego
presented –
Panel or a
including a scaled
partner list
evaluation

Preparing analysis:
5 3 Pre-defined analytical areas

Analysis,
4
Management
Summary &
recommen- Results
dations for in Online
furture actions Report
including
statistics

Dialego AG - Market Research Online 79

82

83

Mode 2 - Design with customers ("interact").
Display solutions or concepts to customers so
they can react to proposed design solutions: Pilot
customers or beta users. Concept testing, focus
groups; Output-Driven Innovation method.

Mode 3 - Design by customers ("build" / "Co-
creation"). Active integration of customer
participation in NPD (Ramirez 1999; von Hippel
2005; Reichwald & Piller 2006), often with tools
that are either provided by the firm or by
customers themselves. The manufacturer is either
empowering its customers to co-design a solution
or is implementing methodologies to efficiently
transfer an innovative solution from the customer
into the company domain.

84

Co-creation is an active,
creative and social process,
based on (voluntarily*)
collaboration between
producers (retailers) and
users, that is initiated by the
firm to generate value for
customers.

* different to selve service!

85
Co-creation is between the manufacturer-active paradigm
(MAP) and the customer-active paradigm (CAP)

(Source: von Hippel 1978, p. 40).

92
A typology of "mode 3" arenas of interaction of customer
participation in NPD (Piller & Ihl 2009, 2010)

High Idea
(Creative
& open contests /
Idea contests
Communities of
Communities of creation
task)
lead user Co-Creation
theory
Degrees of
freedom

Low Idea screening Product-related
(predefined Product-related
& narrow &Idea screening
refinement forumsforums
discussion
and
task) Back end
by customers communities (design, testing)

NPD progress
Front end
dyadic (ideation, concept)
network
(single customer) (customer community)
Degree of collaboration

93

Communities
(Open / embedded) of co-creation for
Toolkits for
Toolkits for user Peer production;
Toolkits for
innovation problem solving /
crowdsourcing
user innovation
user innovation
High
(Creative
"lead user
& open workshops"
task)

Virtual
Degrees of Toolkits for concept
freedom Toolkits for user co-design Virtual concept
user design testing and
and customization testing & trading
& customization idea
Low markets
(predefined
& narrow
task) Back end
(design, testing)

NPD progress
Front end
network

94

High
(Creative
& open Idea
Idea contests
Communities of
Communities of creation
task)
contests Co-Creation

Degrees of
freedom

Low Idea screening Product-related
(predefined Product-related
& narrow &Idea screening
refinement forumsforums
discussion
and
task) Back end
by customers communities (design, testing)

NPD progress
Front end
network

95

Open Senior Innovation
Integrating senior citizens into new
product development to improve
your firm's capability for innovation

Project funded by NRW.ZIEL 2 Program

senior.open-innovation.com

96
Our idea: "Open Senior Innovation": A new approach
to reduce the NPD risk and increase NPD efficiency

Picture: Age Simulator by duke HealthCare Communication
Objective: To develop a method which enables senior citizens
to directly transfer their needs into an artifact that highly
corresponds with their needs. This means to shift some
specifications of the product into the domain of the user.

The idea is to isolate the source of uncertainty, i.e. sticky
information about user needs, and to place it entirely outside
the boundary of the manufacturer. This is a fundamental
break with the current understanding of the innovation
process (Piller & von Hippel, 2007).
The idea is not to try to understand what older consumers may
think and want, but to enable them to co-design exactly what
they want.
Open Senior Innovation Platform: Provide platform and
supporting infrastructure so that senior consumers can
participate in defining fitting products for their needs, but also
in solving technological problems along the innovation
process.

97
Objective of project is a feasibility study to build our
understanding of senior innovation platforms.

Main objectives of project:
(1) Create proof of feasibility for internet
platforms for open senior (service) innovation
(2) Understand technical and economic
principles.
(3) Build an exploratory prototype of platform
and pilot it.
(4) Generate business model how to operate
platform sustainable.
Stay tuned ... project has start in Jan 2010 ...
First idea contest online since March 10, 2010:
Design the best cell phone for senior citizens
(www.einfachtelefonieren.de)

98
The Open Senior Innovation Platform shall combine both
methods to access need information and methods to
utilize distributed solution information.

Open innovation starts
Users
Users
at two levels:

Providing better Firm
Firm
access to need Partners
Partners
information about the
customers' OSSI
OSSI
preferences. Community
Community
Providing better
access to solution Web
Web
information how to Problem
Problem
transfer this need into Solvers
Solvers
a new product or a
new service.

99
Such a platform promises a broad set of benefits and
advantages – their realization however still has not been
shown.
Overcoming the sticky information problem of accessing need information.
Providing direct access of older users to manufacturers and service
providers (firm partners).
Initiation to innovation project can be user community, but also firm.
Ideas can be generated by individuals or groups of users
Utilizing resources of experienced contributors with heterogeneous
set of experiences
Transfer of idea to (offline) senior expert networks.
Utilization of large untapped labor source (matching requirements on
corporate level).
Special requirements of designing platform with regard to usability
and incentive structure
Special focus on service development

100

We know much about the
tools and methods to
integrate users in the
innovation process – but
what are the underlying
principles?

101
Competences of firms and customers to co-design
successfully in NPD (Piller & Ihl 2009)
Necessary
competences of For a full report of this argument,
the customer please refer to the working paper
Product
"open innovation with customers", for
competence download at
tim.rwth-aachen.de/piller/
Technical
competence
Leadership
competence
(+) (+) (+) (+) (+) Success
through
Characteristics of Degrees of Degree of Progress in Open
open innovation freedom collaboration NPD process Innovation
with
(-) (+) (+) (+) (-) (+) (-) Customers
Disclosure
competence
Appropr.
competence
Integration
competence
Legend:
Necessary
competences of (+)
if characteristic A is high then competence X tends to be more relevant
the company
(-)
if characteristic A is high then competence X tends to be less relevant

121
Further questions

• Today no one needs to be convinced that user and open innovation is
important. How to innovate with external actors is the key question.
• (Building on Peter Drucker, 1988)
• Who is the user?
• Capabilities and competences of innovating participants
(-> service marketing, mass customization research)
• Capabilities and competences of firms to innovate openly with their periphery
("Absorptive Capacity 2.0")
• What is happening in the interactions of users and firms
along the innovation process?
• When is there enough of a good thing? ´Firms start to exploit users for their
innovation process. Do we need user innovation governance?
• User entrepreneurship ... when do users start to organize themselves?
• What is the core of an organization?

122

Contact

Frank T. Piller
TIM-Group at RWTH Aachen University

Kackertstraße 15-17, 52072 Aachen, Germany

Tel.: +49 (0)241-809-3577
piller@tim.rwth-aachen.de
tim.rwth-aachen.de/piller
www.open-innovation.com
mass-customization.blogs.com
scg.mit.edu

Frank Piller: Open Innovation & Customer Co-Creation

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