Early Customer Integration into the Innovation Process

In this analysis of European high-tech companies, the authors focus on the innovation front-end, since during the early stages of the innovation process, customer consideration can greatly affect innovation success. Focusing on specific manufacturer goals for early customer integration (ECI), the authors derive necessary customer contributions, then develop a conceptual framework for ECI. Based on four in-depth case studies four new customer roles are defined, enhancing the well-known lead user approach: opportunity sensor, complementary specialist, specifier, and selector. Using this foundation, the paper analyses the respective characteristics and managerial challenges of these early customer roles. INTRODUCTION For a long time it has been recognized in theory and practice that customers as an external resource can significantly improve innovation processes. This is even more the case in today’s diverse and dynamic technology and market environment.. At the same time most innovative ideas fail because of technical weaknesses, competitive disadvantages, non-reflected me-toostrategies, and as most critical factor lack of market awareness, which results often in overengineering. Under these conditions the role of customers as source of innovation is becoming more and more important. Companies therefore engage in a lot of different activities to get closer to their customer or involve them in their innovation processes. Several empirical studies have shown that an active involvement of customers into the innovation process has positive influence on innovation success (Bacon and Beckman 1994; Murphy and Kumar 1996; Murphy and Kumar 1997; Gruner and Homburg 1999; Kristensson, Magnusson et al. 2002). Also surveys among managers show for the creation of new products a similar emphasis on the demand side (Förderer, Krey et al. 1998). Customer integration into the innovation process leads to a more successful product portfolio which is necessary for profitable growth in the marketplace. Consequently firms try to get close to their customers and to listen to their voices. Studying actual discontinuous product development projects lead to the finding that most companies do not employ a formal, highly structured process for these projects. However there are consistent processes followed which differ significantly from that for incremental projects. Generally speaking the former processes are more exploratory and less customer driven. Also the development of prototypes takes place at an earlier stage, preceding opportunity analysis, assessments of the market attractiveness, market research, and financial analysis (Veryzer Jr. 1998). The following paper aims to contribute to this topic by analyzing real world approaches and theoretical models. A striking deficit in the existing body of literature is the fact that there are hardly any studies looking at the different stages of the FFE and their influences on customer’s contributions. We try to contribute to scientific progress by concentrating our analysis on subject relationship. The following questions are to be discussed in this study: What other modes of early customer integration into the FFE besides the classic LeadUser approach can be found and described? How do the manufacturers’ goals influence the decision for and the management of a specific mode? To attack this question we will look at roles customers can take (or can be assigned to) and closely connected to contributions customers will deliver. Since the generation and selection of the right breakthrough ideas at the very beginning is crucial for the success rate of the whole innovation process we will focus the main part of this paper especially on that stage. The aim of this paper is to derive managerial implications based on suppliers’ goals (linked to customers’ contributions). We will show that besides the Lead-User approach there are other relevant means of customer integration into the FFE. For this study we use the term customer not only for current customers of a company's products, but also competitor's customers, lead users, untapped customers, and lost customers (Dahan and Hauser 2001). Furthermore we will focus on the direct link between R&D and the demand side of the market explicitly excluding methods and procedures applied during the FFE as part of marketing processes. The research procedure behind this study is an iterative learning process considering input from the empirical as well as the theoretical side. The empirical data collection starts with real life problems and develops later on into in-depth case studies explaining certain phenomena or successful practices in a qualitative way. Parallel to this side the theoretical part is based on an literature review leading to more understanding of the identified problems. In addition scientific theories and hypothesis complementing these original findings enable the researcher to address his research questions in a thorough and unique way. A quantitative confirmation of developed models or hypotheses may conclude the whole process. The empirical data collection took place in 47 interviews that have been conducted at 21 companies. Based on the information collected four in-depth case studies – about companies using typical modes of customer integration into the FFE have been written and analyzed. In addition further empirical data came out of a working-group-style research projects conducted by the Institute of Technology Management together with eleven companies from the eastern parts of Switzerland, southern Germany and western Austria. Analyzed with the current literature in mind the collected material enabled the development of expanded landscape of early customer integration to boost innovation. EARLY CUSTOMER INTEGRATION (ECI) In the following we will focus on the heart of the FFE and its potential for customer integration. Similar to the early supplier involvement (ESI) on the upstream side of the value chain we will call involvement of customers into the innovation process early customer integration ECI. We will define ECI as Early Customer Integration into Innovation Process 3 1. Integration of customers, customers’ customers, or intermediaries to customers (in short any player on the downstream side of the value chain), 2. into the fuzzy front end FFE of the innovation process, 3. characterized by an active customer role (in contrast to surveys or interviews e.g.). In contrast to the approaches described before the knowledge from the customer is central for ECI. The underlying rationale is to integrate customers into the FFE by giving them an active role. It covers all phases of the FFE (opportunity, idea, concept) and can be further distinguished into different modes each of them characterized by different customer contributions and roles as well as requiring specific activities from the manufacturer. The manufacturer integrates customers into the early phases of his innovation process in order to get better results – success in the FFE has to be defined accordingly – out of this process. Therefore the overall goal is to improve the innovation process’ output by the help of selected customers. In general this can be done by the development of more ideas or better ideas in any case of ideas with higher market and business potential. For the following we will put a special focus on the goals and expectations that motivate manufacturers to run ECI. This is done for two reasons: On the one hand it enables us to structure the following considerations and – most importantly – on the other hand it contributes to fill a research gap. So far there are no specific studies available dealing with the effects of expectations on customer integration. There is literature focusing on the outcome to be expected from the integration however mostly on a generic, unspecific level and without looking on the managerial implications. We will show that goals and results are determining factors to differentiate between specific modes of ECI. MANUFACTURERS’ GOALS AND INTEGRATION RESULTS Manufacturer’s goals stand at the beginning of the chain of influence leading to customer integration results. Based on these goals the customer will play different roles and deliver different contributions. With right customer contributions the overall result of early customer integration ECI should lead to the desired improved innovation results and can be compared with the original manufacturer goals. The results coming out of ECI are strongly influenced by the closely related group of manufacturers’ goals, customers’ roles and customer’s contribution. We will use manufacturers’ goals, their expectations, as well as customer integration results synonymously. Since measurement of the integration’s success rates is not part of this study we are not distinguishing between the expected and the achieved results. Keeping the focus on specific results expected from ECI is a challenging task for future research. A possible focus could be the identification of success rates of different result-based modes of ECI and if they are different – as we expect them to be the explanation of their discrepancy. The principal goal behind ECI (and customer involvement in general) remains to improve a company’s innovation success rate amongst increasing R&D-expenditures and high new product failure rates. The manufacturer expects advantages outweighing the disadvantages coming out of ECI (cf. Kirchmann 1994; Brockhoff 2002). Existing studies list numerous advantages (in the context of this paper synonymously used with manufacturers’ goals) that can be clustered into groups. Eliminating redundancy the following relevant subjects remain and can further be summarized to three paramount objectives (Kirchmann 1994; Gruner 1997): acquisitive goals, effectivity increasing goals, and efficiency increasing goals. These three types can also be dubbed market-related results, risk-related results, and resource-related results. Similar to above points they are further distinguished in better understanding of the user market, stronger relationship, improved innovation ‘sales’ prediction, and competitive intelligence on the market side. Regarding risk, a reduced failure rate during the innovation and R&D-process as well as an overall improved product quality are results found in empirical studies. Synergy effects lead to a reduction both in time and cost and therefore reduce the valuable resources on the way to successful innovations. Gerpott (1998) studied R&D-cooperation in general and separated the underlying reasons into a macro and micro level. Looking at the macro level the main reasons for R&Dcooperation – and for customer integration as one specific configuration out of them – are the reduction of resources and cost to establish a technological innovation, an increase in quality and acceleration on the way to R&D results, reduction of technological and financial risk, and the preparation to open up new market segments (Rotering 1990 Hauschildt 1997, Sakakibara 1997). Caused by the generic point of view, these reasons are very similar to above mentioned goals for customer integration. The micro level however leads directly to our focus: Defining the outcome of customer integration as specific contribution for the innovation process leads to the following potential results (Bruce and Biemans 1995): Generation of new product ideas Availability of information regarding customer needs Feedback to concepts and prototypes Aid during development Assistance during innovation-marketing We will use these potential results as a starting point for our framework and discuss them in the following. The assistance during development as well as innovation-marketing are part of the customer orientation and therefore outside the frame of ECI. RESULT-ORIENTED CUSTOMER ROLES DURING ECI The goals for and results of customer integration have been employed as determinants to come up with the basic framework and specific drivers for ECI. Based on these results distinctive customer roles have been identified – Opportunity sensor, Complementary specialist, Lead-User, Specifier, and Selector (see Figure 1 for an overview). In this chapter these roles are analyzed to understand their implications on ECI management. Early Customer Integration into Innovation Process