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Michael Weiss www.carleton.ca/timwww.carleton.ca/tim/tim.pdf
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TTMG 5101Integrated Product Development
Session 5: July 17
Summer 2008
Objective
• Upon completion of this class, you will know about:– Strategies for capturing value in open environments– Tapping into sources of external innovation– Shifting the responsibility of innovation to users
• And you will be able to:– Discuss the benefits and liabilities of networked innovation
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Agenda
1. Group assignment
2. Strategies for open innovation
3. Networked innovation
4. Innovation in communities
5. User innovation
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1. Group assignment
• Describe a product opportunity:– Describe the job the customer needs done– Identify the gap in current offerings by competitors– Describe a scenario of using the product
• Refine product opportunity into a value opportunity:– Who buys
• Who are the stakeholders? – What do they buy
• What are the general product attributes? – Why should they buy from you
• What are your unique capabilities?
• Presentations of first version on July 21, 10 min each
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Individual assignment
• Document a best practice for product development as a pattern (context, problem, solution)
• Based on the literature or your own experience
• Follow the pattern format:– The pattern must clearly identify forces and consequences – The pattern must include three known uses
• First version of patterns workshopped on July 28
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Readings
• Chesbrough, H., & Appleyard, M. (2007), Open innovation and strategy, California Management Review, 50(1), 57-76.
• Chakravorti, B. (2007), Innovation without borders, Innovations, 2(3), 113-124.
• Lakhani, K., & Panetta, J. (2007), The Principles of Distributed Innovation, Innovations, 2(3), 97-112.
• Thomke, S., & von Hippel, E., Customers as innovators: A new way to create value, Harvard Business Review, 80(4), 74-81, 2002.
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2. Strategies for open innovation
• Open strategy balances the value creation opportunities gained from openness with the need to capture value so as to sustain participation
• Openness is defined as pooling of knowledge where contributors have access to input of others, but do not get exclusive rights over the resulting innovation
• Value of openness is enhanced with every user– Users directly contribute ideas and content to improve the
quality and variety of the product (Wikipedia, Linux)– The more users, the more momentum behind the product,
attracting complementors (value of Linux in ecosystem)
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Open source business models
• Open source business models often blend elements of open and closed innovation
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Deployment Improve user experience, and users are willing to pay (support, subscription, services)
Hybridization Development of proprietary extensions (add-ons), or creating public/private versions (dual license)
Complements Sell a bundled solution that combines proprietary artefacts with open source software
Self-service User community creates open source software to address its own needs (can be combined)
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Sustainability
• Open initiatives must confront challenges to their ability to sustain themselves over time– Attracting and retaining contributors– Preventing co-option– Governance (how innovation community is led)– Covering fixed costs of innovation
• Traditional business strategy can make important contributions towards mitigating these issues– IP ownership: OSS companies often follow a hybridization
business model with proprietary extensions– Management of the value chain: creation of complements;
opening up the stack (interfaces, commoditization)
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3. Networked innovation
• Some of the most innovative companies (eg P&G, Google) have sought out external partners for ideas, commercialization, and expansion into new areas
• Innovators need to establish rules on how to engage with the network: whether and how to play
• Carefully evaluate these questions:– Should you open up to collaborate with others?– What are potential sources of resistance in the network?– What are your options for overcoming them?
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How do networks add value?
• Access to skills and IP• Share risk with network partners• Accelerate development• Build critical mass• Reduce cost through outsourcing• License to the network• Capture value through integration• Exposure to new ideas
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Risks to overcome
• Sourcing or licensing out creates a risk that the value of your IP is appropriated without compensation
• Execution deals carries risks: high-commitment options are hard to reverse; low-commitment options creates the risk of disagreement (eg governance)
• Financial risk, in particular paying too much
• Integrating with others creates complexity that needs to be managed (also cultures, agendas, overlap)
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How to coordinate networks?
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Integration The value chain is fragmented and business is cyclical. Therefore, bring participants under unified management through vertical integration, horizontal integration, or partnerships
Power play Networks tend to follow a power law, that is, power and influence are concentrated in a few hubs. Therefore, complement the interests of the most powerful players and ride their coat tails
Public solution Sometimes there is not enough power in the network to align its players. Therefore, educate policy makers to get the public sector to take an active role, offering incentives or subsidies
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4. Innovations in communities
• There are more smart people working outside your company than inside (attributed to Bill Joy)
• Development of open source software (OSS) is an alternative model for organizing innovation
• OSS is developed, maintained and improved by communities of (often) mostly volunteers
• Distributed innovation comprises decentralized problem solving, self-selection, self-organization, free revealing, and hybrid organizational models that blend community and commercial success
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Distributed innovation models
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Self-organizing community
Development (eg Linux kernel) is organic, determined by actions of community members and not explicit project managementExample: Linux, ecosystem valued at $35 B
Blending community and commerce
Community of users (of Threadless) takes over innovation, new product development, sales forecasting, and marketingExample: Threadless’s business model based on competition for t-shirt designs
Getting outsiders to innovate
Connect “outside” innovators with “inside” problems to overcome productivity challengesExample: InnoCentive, marketplace for R&D problems in knowledge industries
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Organizing principles
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Self-selection of tasks
Contributors self-select to tasks that address problems they need solved. Contributors’ skills and tasks at hand are matched without explicit coordination by community “managers”
Architecture of participation (also see Baldwin and Clark 2006)
The more granular and diverse the available tasks, the larger the potential pool of participants (eg non-designers can provide feedback and promotion in Threadless)
Information processing nature of tasks and availability of innovation tools
High degree of fidelity of digital products enables error detection and correction by tools. Contributors can share and evaluate each others’ contributions (eg code)
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Openness and IP
• Distributed innovation systems thrive when their organizers embrace openness and transparency, and IP regimes that sustain collaborative participation
• Traditional means of IP protection are not applicable to distributed innovation, as participants share and reuse ideas and created assets; however, there are risks with free revealing and accepting feedback
• Licenses ensure that assets remain available to users within and outside the community; licenses can differ in what requirements they impose on how derivative works must be licensed (eg GPL vs BSD)
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5. User innovation
• Innovation is hard as need information resides with your customers and solution information with you
• It is also inexact: even if customers know what they want, they often cannot transfer that knowledge
• Knowledge is “sticky”, which suggests to shift the locus of innovation to where the knowledge is
• How can you bypass the expensive and error-prone effort to understand the customer’s needs?
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New approach
• Provide users with toolkits to build their own products (custom modules or even full applications)
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Cos
t
Adv. Dev’t
User Innovation
Company
Interface
Build
Design
Test User
Build
Adv. Dev’t
Design
Traditional
Company
Interface
TestUser
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Shifts towards user innovation
• Make toolkit user-friendly to allow efficient experimentation; use familiar language; provide library of modules; enforce design rules
• Carefully select your first customers to those who have a strong need for custom solutions
• Evolve your toolkit continuously as you learn from leading-edge for future customers
• Adapt your business model to low-volume customers, and changes to relationship with customers
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Serving under-served users
22Underserved users Products
Users
Head:Mainstream
Tail:Niche
