Collaborative Innovation with Customers: A Review of the Literature and Suggestions for Future Research

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<ul><li><p>Collaborative Innovation with Customers:A Review of the Literature and</p><p>Suggestions for Future Research*ijmr_310 63..84</p><p>Charles R. Greer and David Lei1</p><p>Neeley School of Business, Department of Management, Texas Christian University, Fort Worth, TX 76129, USA,and 1Cox School of Business, Department of Strategy and Entrepreneurship, Southern Methodist University, Dallas,</p><p>TX 75275, USACorresponding author email:;</p><p>Collaborative innovation with customers or users is increasingly important for thedevelopment of new products and services. In this paper we provide a review of theliterature, placing emphasis on how firms engage in collaborative innovation withindividual and business customers. Our review develops a synthesized conceptualframework from three existing models, and other streams of research, to organize thisdiverse body of literature.We review studies from several disciplines including innov-ation, strategy, management, marketing and information technology.Although much ofthe literature assumes net positive benefits from such collaboration, we also discusscontrary perspectives. We highlight areas in which research is needed for greaterunderstanding of the strategic issues and for managing the collaborative process, andprovide suggestions for future studies.</p><p>Introduction</p><p>The importance of collaborating with customers inthe development of innovative products and serviceshas been recognized for many years. As a result, suchcollaboration has become a major component ofmany organizations developmental efforts and therehas been a steady proliferation of studies on thissubject. In the product design literature, for example,Elofson and Robinson (2007), Franke et al. (2006)and Franke and Piller (2004) have investigated theimpact of customer knowledge and capabilities onnew product design. The implications of collabora-</p><p>tive innovation with customers (CIC) are substantialas there has been a paradigm shift. Firms now learnfrom their customers and new technologies pushtoward collaboration and more open forms of innov-ation (Chesbrough 2003; Chesbrough and Appleyard2007; Lichtenthaler 2008; Prandelli et al. 2006).</p><p>Firms are working closely with customers andsuppliers and are obtaining new insights and know-ledge from these sources (Prahalad and Ramaswamy2000; Skaggs and Youndt 2004). Declining econo-mies of scale in research and development areprompting some of these collaborations (Chesbrough2006; van der Meer 2007) and the growth ofextended relationships among firms is even trans-forming the nature of competition and cooperation(Lichtenthaler 2008). In several industries, such asathletic footwear (Fuller et al. 2007), equipment forextreme sports (Hienerth 2006; Raasch et al. 2008),surgical equipment (Lettl et al. 2006) and videogames (Jeppesen and Molin 2003), customers areserving as sources of product and service innovations</p><p>*A free Teaching and Learning Guide to accompany thisarticle is available at:</p><p>The authors would like to acknowledge the assistance ofBart Shirley, Lisa OBrien, Satish Nambisan, Ville Ojanen,David Cravens, Sunny Cui and Ray Smilor.</p><p>International Journal of Management Reviews, Vol. 14, 6384 (2012)DOI: 10.1111/j.1468-2370.2011.00310.x</p><p> 2011 The AuthorsInternational Journal of Management Reviews 2011 British Academy of Management and Blackwell Publishing Ltd.Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA02148, USA</p></li><li><p>or ideas for future development. A few examplesinclude Snap-ons collaboration with automotivetechnicians who create the logic for their computer-ized diagnostic systems on an after-hours basis,Legos collaboration with customers on the develop-ment of its Mindstorms NXT Robot, and the BBCscollaboration with customers who provide pro-gramme content (Seybold 2006).</p><p>In this paper we provide an interdisciplinaryreview of the CIC literature that involves collabora-tion between (1) producers or suppliers and (2) cus-tomers or users, either as individual consumers orbusiness customers.1 We use the CIC acronym to referto the process of engaging in the creation of newproducts or services in collaboration with customersor users. CIC falls within one of the major streams ofopen innovation (OI) (Gianiodis et al. 2010), whichhas been defined as systematically performingknowledge exploration, retention, and exploitationinside and outside an organizations boundariesthroughout the innovation process (Lichtenthaler2011, p. 77). Although there has been debate aboutthe value of OI as a framework (Linstone 2010; Trottand Hartmann 2009), the concept generally includesinbound, outbound and combined processes or know-ledge flows (Gianiodis et al. 2010; Lichtenthaler2011). OI presents a perspective that describes thedegree to which an organizations boundaries arepermeable to knowledge flows (Chesbrough andCrowther 2006).</p><p>Inbound processes utilize the discoveries of others(e.g. acquisitions), outbound processes involvepassing on internally developed technologies (e.g.licensing), and combinations involve processes suchas alliances and cross-licensing (Chesbrough andCrowther 2006; Gianiodis et al. 2010; Lichtenthaler2011). Another dimension of OI is whether suchprocesses are of a pecuniary or non-pecuniary nature(Dahlander and Gann 2009). OI has been furtherdefined as involving four research streams: (1) tech-nology transactions, (2) user innovation, (3) businessmodels (e.g. appropriability), and (4) innovationmarkets (e.g. intermediaries and auctions) (Lich-tenthaler 2011). This review falls within the secondstream, but our focus on customers goes beyond</p><p>previous work in this area, which has often concen-trated on lead users.</p><p>CIC is less comprehensive as it involves the pro-cesses by which firms and customers engage inmutual innovation, instead of the broader OI issuesof acquisition or divestiture. Although we refer to OIconcepts at times for comparison, clarification orextrapolation, much of the vast literature on OI,which can occur without interaction with customers,is beyond the scope of our review.2 Also beyond thefocus of our review are studies concerning customerswho innovate by themselves, only with other users invirtual communities, or as lead users who formuser-led companies, but never engage in collabora-tion with manufacturers, producers or suppliers(Baldwin et al. 2006; von Hippel 2005).</p><p>The first objective of our paper is to provide aninterdisciplinary review that encompasses workfrom the innovation, strategy, management, market-ing and information technology (IT) literatures.We pursue this objective by (1) reviewing studiesthat convey insights into how firms engage in CICand (2) providing summaries of the approaches,samples, types of collaboration and key findings ofpapers that directly address CIC. The second objec-tive is to review perspectives that are critical ofthe approach. The literature has often assumed netpositive benefits, although there are several chal-lenges with CIC that are receiving more attention(Brockhoff 2003; Ojanen and Hallikas 2009;Schultze et al. 2007). Our third objective is toprovide suggestions for future research on this topic.</p><p>We note that a recent review by Bogers et al.(2010) has addressed innovation by users (particu-larly lead users), with emphasis on why users innov-ate. While we include work on lead users, whichbegan with the path-breaking work of Eric vonHippel (von Hippel 1978, 1986, 1988), our reviewfocuses on how firms and customers collaboratein innovation, such as through participatory design,empathy, trust and modularization. Our reviewplaces greater emphasis on strategic managementissues, such as the effects of CIC on in-house innov-ators, the selection of innovation partners, the role of</p><p>1Where needed for clarity, we identify whether the customeris an individual or business customer and provide separatediscussions in the sections on motivation and indicators ofcollaborative potential, where such distinctions are mostcritical. The supplementary material also provides informa-tion on the level of analysis.</p><p>2We note that there are differences between the focus of ourreview and the concept of mass collaboration. Mass collabo-ration or peer production, such as seen in the examples ofWikipedia and Linux, involve innovations that are developedand maintained by thousands of contributors (Tapscott andWilliams 2008). However, these initiatives do not necessar-ily involve collaborations between producers or suppliersand customers or users.</p><p>64 C.R. Greer and D. Lei</p><p> 2011 The AuthorsInternational Journal of Management Reviews 2011 British Academy of Management and Blackwell Publishing Ltd.</p></li><li><p>networks, and customer motivation. Our approach ismore interdisciplinary as we review a substantialnumber of marketing papers on co-production andco-development, as well as IT papers. We alsoprovide a synthesis of existing conceptual frame-works for CIC.</p><p>Approach to the review</p><p>We used the electronic database EBSCO BusinessSource Complete to search academic journal papers.Because several terms may potentially refer to CIC,we used a number of words or phrases in titlesor as key words: co-creation, co-development, co-innovation, co-production, collaborative innovation,customer new product development, joint devel-opment, lead users, participatory innovation anduser-centric innovation.3 In addition, we conductedBoolean searches on several combinations of these askey words. We also conducted text searches usingsome of these key words. We retained papers by theirrelevance as indicated by their title or abstract, or byexamination of the paper. Also, we limited the searchto journals dealing with innovation, strategy, manage-ment, marketing and information technology and topapers written in English. In addition, in order toidentify papers potentially missed in such searches,we conducted targeted searches of journals withheavier focus on these topics in the EBSCO database,as well as the Emerald database. We also conductedmanual searches of numerous reference lists to iden-tify additional relevant papers and books and searchedan electronic library catalogue for relevant books.</p><p>Conceptual framework</p><p>The lack of a comprehensive theory for CIC, particu-larly from a managerial perspective, has been cited asan important shortcoming in the literature (Bogerset al. 2010). There has been substantial reliance onSchumpeterian concepts (Schumpeter 1934), withinnovation being motivated by the prospect of</p><p>economic rents (von Hippel 1988). For example,Schumpeterian theory explains market displacementof entrenched incumbent firms by entrepreneurialfirms (Chesbrough and Crowther 2006; Ojanen andHallikas 2009). Agency theory, which can provideinsights into decisions about innovating in-house orpurchasing innovations, has been used for guidance(Athaide et al. 2003; von Hippel 2005). Transactioncost economics, which can explain fidelity andperformance in CIC relationships, has been used astheory (Athaide et al. 2003). For example, suchtheory helps to explain decisions about engaging ininnovation activities outside the firm (Ojanen andHallikas 2009).</p><p>However, none of these theories provides compre-hensive guidance for understanding the process ofCIC (Athaide et al. 2003). While these theoriesprovide insights on why firms might pursue CIC,they provide little guidance to how such innovationcan be performed. As a result of these deficienciesthere has been a call for more applicable, relevantand integrated theory (Bogers et al. 2010; Gianiodiset al. 2010; Ojanen and Hallikas 2009; Tzeng 2009).The need for such theory, to explain such phenomenaas co-creation of value and co-production, hasresulted in the development of service-dominantlogic, which emphasizes relationships and the cen-trality of customer integration in active exchangesof knowledge and skills (Vargo and Lusch 2004).Integrative theory is also reflected in a recentapproach to firm-hosted virtual forums (for productinnovation), which has found evidence for thesuperiority of the interaction of multiple theories,relative to single theories, as explanations of cus-tomer involvement. The approach involves the inter-action of social capital theory (sense of obligation),social exchange theory (social reward expectations),involvement (sense of partnership with the firm)and social identity (identification with the group)(Nambisan and Baron 2009). An OI framework alsoprovides guidance for innovation decisions, such aswhether to make or buy, integrate or relate (inter-firm innovation options) and keep or sell. Theframework views the firms ability to innovate as afunction of its capacities to invent, transform andinnovate along with its external capacities to absorb,connect and transfer knowledge to external entities(Lichtenthaler and Lichtenthaler 2009).</p><p>Table 1 presents three conceptual frameworks thatreflect more comprehensive and integrative explan-ations of CIC. These frameworks, which provide theorganization for our review, include the Ojanen and</p><p>3The literature uses several terms in reference to such col-laboration, although some terms, such as co-development,can often have a very different meaning. In addition to CICrelated processes, co-production has also been used to referto customer production or self-service activities, e.g. scan-ning purchases in a store or cropping photos in a camerashop (Bendapudi and Leone 2003), and studies that have thisconnotation are not the focus of our review.</p><p>Collaborative Innovation with Customers 65</p><p> 2011 The AuthorsInternational Journal of Management Reviews 2011 British Academy of Management and Blackwell Publishing Ltd.</p></li><li><p>Hallikas (2009) CIC framework, the Etgar (2008)model of co-production and the Payne et al. (2008)framework for co-creation of value. The Ojanen andHallikas (2009) model, which focuses on organ-izational routines or processes that facilitate collabo-ration, was developed from an examination of CIC inknowledge-intensive engineering consulting. Suchknowledge-intensive business services industries(KIBS) have been the subject of numerous studiesof collaboration and innovation (Bettencourt et al.2002; den Hertog 2000; Miozzo and Grimshaw2005; Skjolsvik et al. 2007).</p><p>The Etgar (2008) five-stage co-production model,which is directed toward the joint creation of value,such as initiatives directed at innovation,4 providesthe second framework in Table 1. This model incor-porates the integrative concepts of dominant logictheory at its second stage, which includes customiz-ation, psychological motivations and social ben-efits.5 Components for consumption, distributionand logistics, and assembly, which apply to differentconnotations of co-production, are not included. Thethird framework in Table 1 is the Payne et al. (2008)framework for co-creation of value, which envisionscustomers as equal contributors with firms increation....</p></li></ul>