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Directions for this talk:1. Info Sharing vs. Dogma – WIIFM2. Difficult things first – axiological items 3. Why? -> What? -> Who? 4. Pushback (Agent Problem, Inhibitors)5. Lead-User Theory6. Traditional Target Market 7. Stickiness of Information8. Need and Solution Information - Toolkits 9. Information Trading (Prisoners dilemma) (X)10. Democratization of Innovation (X)11. What happened?

“’Men work together,’ I told him from the heart, ‘Whether they work together or apart.’” R. Frost

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You: Independent + Innovative + Involved

….Sensitivity towards the notion…..…No final ‘right or wrong’ determination here…

Why innovate in the first place? 1. Executive directive - Forbes induced fad 2. Problem/Opportunity recognition – commodity - obsolete 3. User needs & perceptual map changes – Maslov 4. Free to subscribe to Mr. Rumbolds’ strategy Upgrade? Want to be a reactor? (1957*) Generational composition… 5. Realization: People are capable – anywhere in the world (50% of all…)

6. With innovation there is no “last gold nugget” (J. Bezos)

7. Isn’t it better to succeed without innovation than failing with innovation? (80%)

8. Strategic imperative to answer: How to make money from a tech./inv. ? See Teece Matrix…

*)Where does the triad (operational excellence, customer intimacy, innovation (product leadership)) come from? Michael Treacy and Fred Wiersema “The Discipline of Market Leaders”, Fig. 5. p. 45, 1997) Problem: 3 value dimensions but projected onto 2 dim space -> preposterous axiom of 3 (topologically) exclusive optima.

Mr. Rumbold

Are you beingserved?

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David Teece Matrix Model: How to make money from

technology or innovation/invention? Of course: The Fittest still has to compete with the Luckiest.

Difficult to make money - innovation race

Inventor (patents)makes money

Holder of CA Makes money

Party with both, technology andCA or bargaining power makesmoney

CA: Complement to what underpins tech/inv.: brand name, manufacturing, marketing, distribution channels, service, reputation, installed base of products, relationships with clients and suppliers and complementary technologies.

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What is innovation? There is no universal scale for innovation Social function: it is always relative to the

context of the people you are trying to apply the innovation to (frame of reference 1) - Gates - Apple

Types of innovation: Incremental 2), break-through/disruptive 3) & transformational

An Innovation is anything new that is actually used (‘enters the marketplace’) – whether major or

minor. (Prof. Eric von Hippel)

“An innovative product is one that makes a leap in the benefits-to-costs ratio in some area of endeavor.” “…definition of innovation is that it is the successful exploitation of new ideas.” - check for compatibility of definitions.

1) Scott Berkun, 10/08/07 googletechtalk2) Aspirin >> Buffered, coated, child-sized, liquid… - rather well understood3) Think of first member of a major new product line (GC) - more illusive

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Who are the sources of Innovation?

Ask yourself:If you don’t know who/what the sources of innovation are, how can youhope to go about innovation in a productive (effective/efficient) way, and devise a process with relevant success rate, etc.?

Ø Traditionally recognized: Manufacturers (e.g. Boing)

Ø More recently recognized: Users (e.g. Boing) (E. v. Hippel: “Sources of Innovation” & “Democratizing Innovation”)

Distinguish by Functional Sources:• An Innovation is a User Innovation when the developer expects to

benefit by using it.

• An Innovation is a Manufacturer innovation when the developer expects to benefit by selling it.

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Innovation is both: essential and unwantedInnovation is a bit like the story about going to heaven. Everybody wants to go to

heaven, but nobody wants to die. Self-interest involved in accepting or resisting an

innovation. The Agent problem: Corporate governance - shaping corporate culture

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Inhibitors:

1. Companies are usually build around (very) few things they do very well, effectively and efficiently (e.g. Dell – build to demand – same for a long time. A company like an ‘engine with a single idea’). Introducing something new disrupts the pattern, obsoletes corporate expertise and production investments.

2. Change devalues personal intellectual property/expert knowledge & power e.g. know C, not C# (Change-management).

3. “Be more innovative – across the company.” – Sometimes this is a disguise for: “save/cut cost” ROI – when it should be more focused on revenue, living up to basics: speed, quality, customer satisfaction & value created for partners.

4. Portfolio management (Boston Consulting Group- why high failure rate even before launch?) – NPD-pipeline - Sunk cost.

8/22NPD

5. Culture of expecting ‘instant perfection’ of ‘intolerance towards mistakes’ (Ups: High reliability Org.). Innovation is

not about instant perfection.

Silicon valley: the art/understanding of falling forward – ability to survive a failure, to actually salvage and feed on it for the next step. Need an environment where there are consequences to failure in innovation, but you get to live to try another time. Diversity + purpose = win

3M Story. William McKnight. Sandpaper-engineer Richard Drew. Legends & Myths about innovation.

Sandpaper EngineerRichard D. Drew

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Suggestive Observations

• Patents – Invention -> Innovation ?• Surveys• http://internationaltrade.suite101.com/article.cfm/most_inventive_countries• Innovation confidence index: http://www.iii-p.org/news/iiip-080122.html• (Openness to new technologies and innovation) IIP: Institute for Innovation and Information Productivity

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Lead User Theory• First 1986 by Eric von Hippel, MIT and confirmed 2004 (Roberts,Morrison…)

GC(83%), NMRS(80%),Transmission Electron Microscopy(72%), Ultraviolet Spectrophotometry(100%) [% = users developed the device and used it 1st in the field]

(See E. v. Hippel “Sources of Innovation” - for detailed elaboration and discovery process)

Conclusion: “Lead User innovations form the basis for new products and

services of value to manufacturers.”

“Lead-Users” are users that: 1.Have needs that foreshadow general demand(1) in the marketplace. 2.Expect to obtain high benefit(2) from a solution to their needs.

(Such users are more likely to innovate –“Necessity is the mother of invention!”)

(1) Lead-Users serve as need-forecasting lab to market-researchers, I.e. yield ‘need-data’ (2) High drive to produce insights into needs and useful solutions. Yield new product

concepts & design data for market researchers.

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(Eric von Hippel; Lecture 15.356; MIT Sloan School of Management)

Lead Users position

early later

User role in scientific instrumentationinnovation is rich andcentral:

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Attractiveness of Innovation as a function of lead-user-ness

Franke and von Hippel 2003: 1. Likelihood for innovating is higher for users having higher lead-user index. 2. Innovations developed by lead-users tend to be more (commercially) attractive. (See also: Morrison et al. 2004) Finding commercially attractive innovations: A test of lead user theory; Franke Hippel, Schreier. Journal of Product Innovation Management, 2006, 23: 301-315

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How to find lead users?1. Get Stakeholders and commitment – housekeeping issues(!)2. Identify the trend associated with your diffusion curve (e.g. Infection

mitigation/control; Brakes)3. Enter diffusion curve somewhere to the left. Start expert discussion: “You should really talk to …” Experts know usually someone who

knows more and also about adjacent things.4. Let this iterate and lateral moves are likely to occur. While language

and questions change you begin to reach lead users and (e.g. in advanced analog markets)…

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…Mindset…..move past surface responses..listen for unexpected nuggets..semi-structured interviewing +‘snowballing/pyramiding’ vs. mass-screening(Mary Sonnack, 3M scientist &Joan Churchill, psychologist)DI p. 133…

Traditional Market Research focuses on the typical target market with functional fixedness i.e. where they don’t stray much from the needs and solutions they directly experience.

Adopter categorization according to inventiveness; Source: Diagram based on: Rogers, E. M. Diffusion of Innovations. New York: Free Press, p. 182.

Adopter categorization according to inventiveness

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Some traditional approaches: (….“Find a need and fill it.”) • Observation of users: “Many users are using / modifying our products

this way – let’s add that feature for them.”• Sales channel inputs: “My customers are asking for visible sample

indicators on gel-cartridge – I said we could do that for them.”• “Me too / me better: “Competitors are getting good sales with their long

shelf-life gels – lets do long shelf-life and Raspberry aroma!”• Traditional quantitative/qualitative marketing research, etc. + new

Barriers: Customers stick to more complex problem solving strategy (p. 112 SI)

steeped in the present, unlikely to come up with concepts that conflict with the familiar. (Even the “new” is reasonably familiar.) Info shelf-life limited.

There is no mechanism to induce users to identify all product attributes potentially relevant to a product category (also those attributes currently not present) .

This, together with the stickiness of information hints that manufacturer innovations will tend to be DOM-type innovation. Lets see…

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Information*) is stickyInformation about: 1. Need & Use context (product/service user)2. Solution types in which we specialize (Manufacturer)

Imagine information transfer had no cost associated with it:Quality of Information available to problem solvers =/= F(x). We could understand user-needs deeply and well.

But it turns out that information is costly to transfer.

*) (raw) Data -> Information -> Knowledge

‘Full-cooperation-Studies find: “…the costs of transferring information during product and service development are likely to be at least as high.” (DI, p. 67 - three studies)

Consequence versus Cause: absorptive capacity (need learn more basic math or circuit board design first), Access fees, Tacit

Map stickiness to cost:“In any particular instance, the stickiness of a unit of information is defined as the incremental expenditure required to transfer that unit of information to a specified location in a form useable by a specified information seeker.” (von Hippel, 1994 DI p. 67)

Tacitness - lack of explicitencoding: Apprenticeship

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Total Information Stickiness:1. Amount of information required by a problem solver2. Do not know in advance which particular items are important3. Contingency on solution path4. Team vs.. Group & cost of discrimination

Information Asymmetries affect User & Manufacturer Innovation:Different stocks of information - possibly expensive to acquire info that is needed but not in stock.Dimension of Function vs. Dimension of Merit (DOM Products)

Controlling for profit expectations see Ogawa1998 Kendall

Bringing full and accurate need and solution information together is often

VERY difficult but Innovator/Problem solver needs both -> 50% prescriptions in U.S. are “off label” uses.

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1. Waterfall technique (Manufacturer:“Specify what you want - negotiate contract to deliver exactly that.” User: “Now that I try it out, it is NOT what I ….” etc.)

2. Iterations (MFR & User activity iterate) – till the user is satisfied. Has a repeated (costly) shift of problem solving sites. - Improve with rapid prototyping, etc.

Approach for product and service design based on where crucial sticky info resides:

1. If solution information is very sticky, and need information is not, product design should be done at the manufacturer site (The traditional pattern).

(DOM)

• If need information is very sticky, and solution information is not, product design should be done at the user site; Especially if user needs/uses are heterogeneous.

(Functionally new)

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What if both sides are sticky?

Reframe the initial product or service design problem which draws on two sticky information sites into sub problems each of which draws on sticky information located at only one site. (E. v. Hippel) E.g. Toolkits:

• Full-Custom IC-Design vs. Gate-Array-IC Design or Flavors: With toolkits customers –not manufacturers -need to “understand customer need”. ($15 billion in 2000; development time down by 2/3)

• Economics of sticky information tends to shift the locus of problem-solving to users (learn in own use-environment). • You can’t afford to understand the needs of smaller customers and design custom solutions for them – with

toolkits you can reach ‘potential customers’ that were out of reach before. ‘Outsource’ the need-intensive task to them.

Mead & Conway 1980

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Homework:

• Next probe into the conditions for toolkits and their development• Explore the subject of Information trading (prisoners dilemma) in economic

terms

• Democratization of Innovation (implosion of asymmetries) • Contact me

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What has happened during the last hour?

• In the US alone about 22 books (ISBN) have been published.• Approximately 4.2 x 10^9 cells in your body have grown and

divided. (Prof. Robert A. Weinberg, MIT, Lecture 1-7.012)

• About 14,709 births and 6619 deaths (The World Fact-book 2008 CIA )

• About 200 patent applications have been filed worldwide (WIPO Patent Report)

• You took about 720 breaths

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