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Customers as Innovators:
A New Way to Create Value
by Stefan Thomke and Eric von Hippel
Reprint r0204f
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For the exclusive use of D. DIXON, 2019.
April 2002
HBR Case Study
The Cost Center That Paid Its Way
r0204a
Julia Kirby
First Person
If You Want Honesty, Break Some Rules
r0204b
Ginger L. Graham
Big Picture
Wealth Happens
r0204c
Mark Buchanan
Maneuver Warfare: Can Modern
Military Strategy Lead You to Victory?
r0204d
Eric K. Clemons and Jason A. Santamaria
Executive Women and
the Myth of Having It All
r0204e
Sylvia Ann Hewlett
Customers as Innovators:
A New Way to Create Value
r0204f
Stefan Thomke and Eric von Hippel
Reawakening Your Passion for Work
r0204g
Richard Boyatzis, Annie McKee, and Daniel Goleman
Best Practice
Saving Your Rookie Managers
from Themselves
r0204h
Carol A. Walker
The Entrepreneur
Out of the Blue and into the Black
r0204j
Frank Batten
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For the exclusive use of D. DIXON, 2019.
This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
For the exclusive use of D. DIXON, 2019.
Customers as
Innovators
A New Way to Create Value
R&D has long been a costly and inexact process. Now some
companies are trying a radically new approach, giving customers
the tools to design and develop their own products.
by Stefan Thomke and Eric von Hippel
“L
isten carefully to what your customers want and
then respond with new products that meet or exceed their needs.” That mantra has dominated many
a business, and it has undoubtedly led to great products
and has even shaped entire industries. But slavishly obeying that conventional wisdom can also threaten a company’s ability to compete.
The difficulty is that fully understanding customers’
needs is often a costly and inexact process. Even when customers know precisely what they want, they often cannot
transfer that information to manufacturers clearly or
completely. Today, as the pace of change in many markets
accelerates and as some industries move toward serving
“markets of one,” the cost of understanding and responding to customers’ needs can easily spiral out of control.
In the course of studying product innovation across
many industries, we have discovered that a number of
companies have adopted an intriguing approach, which
at first seems counterintuitive. Essentially, these companies have abandoned their efforts to understand exactly
what products their customers want and have instead
equipped them with tools to design and develop their
own products, ranging from minor modifications to major
new innovations. The user-friendly tools, often integrated
into a package we call a “tool kit for customer innovation,”
deploy new technologies like computer simulation and
rapid prototyping to make product development faster
and less expensive.1
A variety of industries use this approach. Bush Boake
Allen (BBA), a global supplier of specialty flavors to companies like Nestlé, has built a tool kit that enables its cus-
tomers to develop their own flavors, which BBA then manufactures. In the materials field, GE provides customers
with Web-based tools for designing better plastic products. In software, a number of companies let people add
custom-designed modules to their standard products and
then commercialize the best of those components. Opensource software allows users to design, build, distribute,
and support their own programs – no manufacturer required. Indeed, the trend toward customers as innovators
has the power to completely transform industries. In the
semiconductor business, it has led to a custom-chip market that has grown to more than $15 billion.
Tapping into customer innovation can certainly generate tremendous value, but capturing that value is
hardly a simple or straightforward process. Not only
must companies develop the right tool kit, they must also
revamp their business models as well as their management mind-sets. When companies relinquish a fundamental task – such as designing a new product – to customers, the two parties must redefine their relationship,
and this change can be risky. With custom computer
chips, for instance, companies traditionally captured
value by both designing and manufacturing innovative
products. Now, with customers taking over more of the
design task, companies must focus more intently on providing the best custom manufacturing. In other words,
the location where value is both created and captured
changes, and companies must reconfigure their business
models accordingly. In this article, we offer some basic
principles and lessons for industries undergoing such a
transformation.
Copyright © 2002 by Harvard Business School Publishing Corporation. All rights reserved.
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A Costly Problem –
and a Radical Solution
In a nutshell, product development is often difficult because the “need” information (what the customer wants)
resides with the customer, and the “solution” information
(how to satisfy those needs) lies with the manufacturer.
Traditionally, the onus has been on manufacturers to
collect the need information through various means, including market research and information gathered from
the field. The process can be costly and time-consuming
because customer needs are often complex, subtle, and
fast changing. Frequently, customers don’t fully understand their needs until they try out prototypes to explore
exactly what does, and doesn’t, work (referred to as “learning by doing”).
Not surprisingly, traditional product development is a
drawn-out process of trial and error, often ping-ponging
between manufacturer and customer. First, the manufacturer develops a prototype based on information from
customers that is incomplete and only partially correct.
The customer then tries out the product, finds flaws, and
requests corrections. The cycle repeats until a satisfactory
solution is reached, often requiring many costly and timeconsuming iterations.
To appreciate the extent of the difficulty, consider product development at BBA (now International Flavors and
Fragrances). In this industry, specialty flavors are created
to bolster and enhance the taste of nearly all processed
foods because manufacturing techniques weaken the real
flavors. The development of those added flavors requires
a high degree of customization and expertise, and the
practice remains more an art than a science.
A traditional product development project at BBA
might progress in the following way: A customer requests
A New Approach
to Developing
Custom Products
supplier
Traditionally, suppliers have taken on most of
the work – and responsibility – of product development. The result has been costly and timeconsuming iterations between supplier and
customer to reach a satisfactory solution. With
the customers-as-innovators approach, a supplier provides customers with tools so that
they can design and develop the applicationspecific part of a product on their own. This
shifts the location of the supplier-customer
interface
interface, and the trial-and-error iterations
necessary for product development are now
carried out by the customer only. The result is customer
greatly increased speed and effectiveness.
6
a meaty flavor for a soy product, and the sample must be
delivered within a week. BBA marketing professionals
and flavorists jump into action, and the sample is shipped
in six days. A frustrating three weeks ensue until the client
responds with, “It’s good, but we need it less smoky and
more gutsy.” The client knows precisely what that means,
but BBA flavorists find the request difficult to interpret.
The result is more frenzied activity as BBA struggles to
adjust the flavor in a couple days. Depending on the product, BBA and the client could go back and forth for several
more iterations. This represents a huge problem because
clients often expect BBA to get the flavor right the first
time, or within two or three iterations.
To make matters worse, BBA bears most of the development risk. The company collects revenue only after
both the client and consumers are fully satisfied. R&D expenses could be just $1,000 for tweaking an existing flavor, but they could go as high as $300,000 for an entirely
new family of flavors that require not only chemists and
flavorists but also sales, marketing, regulatory, and quality
control expertise. On average, the client eventually accepts only 15% of all new flavors for full market evaluation,
and only 5% to 10% make their way to the marketplace.
Meanwhile, margins in the flavor industry have been
falling because of increased competition and cost pressures from customers.
In response, BBA’s CEO Julian Boyden and VP of Technology John Wright investigated the option of shifting
more innovation activities to customers. The company
developed an Internet-based tool containing a large database of flavor profiles. A customer can select and manipulate that information on a computer screen and send his
new design directly to an automated machine (perhaps
located at the customer site) that will manufacture a sample within minutes. After tasting the sample, the cus-
Traditional Approach
Customers-as-Innovators Approach
advanced
development
advanced
development
supplier
interface
design
build
(prototypes)
test (feedback)
design
iterations
build
(prototypes)
test (feedback)
customer
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tomer can make any adjustments that are needed. If
When Customer Innovation
the flavor is too salty, for instance, he can easily tweak
Makes Sense
that parameter on the profile and have the machine
immediately produce another sample.
From our research, we have identified three major signs that your
It is important to note that outsourcing product
industry may soon migrate to a customers-as-innovators approach:
development to customers does not eliminate learn1. Your market segments are shrinking, and customers are increasing by doing – nor should it. What it does is make traingly asking for customized products. As you try to respond
ditional product development better and faster – for
to those demands, your costs increase, and it is difficult to pass
two reasons. First, a company can bypass the expenthose costs on to customers.
sive and error-prone effort to understand customer
2. You and your customers need many iterations before you find
needs in detail. Second, the trial-and-error cycles that
a solution. Some customers complain that you have gotten the
inevitably occur during product development can
product wrong or that you are responding too slowly. You are
progress much more quickly because the iterations
tempted to restrict the degree to which your products can
will be performed solely by the customer. (For a basic
be customized, and your smaller customers must make do with
illustration of the customers-as-innovators approach,
standard products or find a better solution elsewhere. As a result,
see the exhibit “A New Approach to Developing Cuscustomer loyalty starts to erode.
tom Products.”)
3. You or your competitors use high-quality computer-based simulaBut developing the right tool kit for customers is
tion and rapid-prototyping tools internally to develop new prodhardly a simple matter.2 Specifically, tool kits must
ucts. You also have computer-adjustable production processes that
provide four important capabilities. First and most
can manufacture custom products. (These technologies could form
important, they must enable people to complete a
the foundation of a tool kit that customers could use to develop
series of design cycles followed by learning by doing.
their own designs.)
Computer simulation, for example, allows customers
to quickly try out ideas and design alternatives withdesign. Because that process was complicated and costly,
out having to manufacture the actual products. When the
the chip company could afford to undertake projects only
simulation technology lacks the desired accuracy, it can
for high-volume customers.
be supplemented with rapid prototyping methods. SecThen a handful of start-ups turned everything upside
ond, tool kits must be user-friendly. They should not redown. Companies like LSI Logic Corporation and VLSI
quire customers to learn an entirely new design language.
Technology provided both large and small customers
(Flavorists, for example, think in terms of formulations
with do-it-yourself tools that enabled them to design their
and chemical compounds, whereas customers think of
own specialized chips. Customers could benefit by gettastes such as smoky, sweet, fresh, and so on.) Third, they
ting what they wanted through their own experimentamust contain libraries of useful components and modules
tion, and the fledgling chip companies could profit by
that have been pretested and debugged. These save cusmanufacturing those customer designs. The win-win solutomers from having to reinvent the wheel. Instead, people
tion was right on the money. Between the 1980s and
can focus their efforts on the truly novel elements of their
today, the market for such custom integrated circuits has
design. Fourth, tool kits must contain information about
soared from virtually nothing to more than $15 billion,
the capabilities and limitations of the production process
with the number of customers growing from a handful of
that will be used to manufacture the product. This will
high-volume buyers to hundreds of thousands of compaensure that a customer’s design will in fact be producible.
nies with very diverse end-user applications.
A key to that $15 billion market is the tool kit technology. In principle, outsourcing custom design to customers
To understand the major impact that the customers-ascan help slash development times and costs, but custominnovators approach can have, consider the history of the
ers are not experts in a supplier’s business. So how could
custom computer chip industry. The story holds several
customers be expected to create custom designs that can
profound lessons about how the right tool kit can turn a
be produced on a manufacturer’s sophisticated process
market on its ear.
equipment? The answer to that was found in a major shift
During the late 1970s, suppliers of custom chips expethat had been taking place in the semiconductor industry.
rienced the same types of market dynamics that BBA has
Stefan Thomke is an associate professor of technology and
more recently encountered. (See the sidebar “When Cusoperations management at Harvard Business School in
tomer Innovation Makes Sense.”) At the time, a typical
Boston. Eric von Hippel is a professor of technology manuser of custom semiconductors, such as a toy manufacagement and entrepreneurship at MIT’s Sloan School of
turer that needed circuitry to operate its robotic dog,
Management in Cambridge, Massachusetts.
might have hired a chip company to develop a custom
An Industry Transformed
april 2002
7
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Traditionally, specialized information used by a manufacturer to design and build custom products has been
locked in the minds of the company’s development engineers. This knowledge accumulates over decades of
experience. In recent years, companies have been able to
incorporate a considerable amount of this human expertise into computer-based tools. These CAD/CAM programs have grown increasingly sophisticated, and many
now contain libraries of tested and debugged modules
that people can simply plug into a new design. The most
effective tools also enable rapid testing through computer simulation and provide links to automated equipment that can build prototypes quickly. This leadingedge technology, which manufacturers had been using
internally, has become the basic building block for customer tool kits.
When LSI was founded in 1981, R&D engineers at large
semiconductor companies were already using many elements of the customer tool kit, but there was no integrated system that less-skilled customers would be comfortable with. So LSI bought some of the pieces, made
them customer-friendly by adding graphical user interfaces, and integrated them. The result was a packaged
tool kit that let customers design their own chips with
little support from LSI.
The brilliant insight that made possible a tool kit for
less-skilled customers was that the design of the chip’s
fundamental elements, such as its transistors, could be
standardized and could incorporate the manufacturer’s
solution information of how semiconductors are fabricated. Then, all the information the customer needed
about how the chip would function could be concentrated within the electrical wiring that connects those
fundamental elements. In other words, this new type of
chip, called a “gate array,”had a novel architecture created
specifically to separate the manufacturer’s solution information from the customer’s need information. As a result,
all customers had to do was use a tool kit that could interconnect a gate array based on their specific needs. For
its part, LSI had to rethink how to make its production
processes more flexible so that it could manufacture the
custom chips at low cost.
Customer tool kits based on gate-array technology
offer the four major capabilities described earlier. They
contain a range of tools, including those to test a design,
that enable users to create their own prototypes through
trial and error. They are customer-friendly in that they use
Boolean algebra, which is the design language commonly
taught to electrical engineers. They contain extensive libraries of pretested circuit modules. And they also contain information about production processes so that users
can test their designs to ensure that they can be manufactured. Interestingly, more recent technology – chips
called field programmable gate arrays (FPGAs) – enable
the customer to become both the designer and the man8
ufacturer. Essentially, FPGA tool kits contain design and
simulation software and equipment that customers use to
program chips for themselves.
The Benefits and Challenges
Well-designed customer tool kits, such as those developed
for the creation of custom semiconductor chips, offer
several major advantages over traditional product development. First, they are significantly better at satisfying
subtle aspects of customer need because customers know
what they need better than manufacturers do. Second,
designs will usually be completed much faster because
customers can create them at their own site. Third, if customers follow the rules embedded in a tool kit (and if
all the technological bugs have been worked out), their
designs can be manufactured the first time around.
There are also ancillary benefits. Tool kits enable a
company to do business with small customers that might
have been prohibitively expensive to work with before,
thus expanding the accessible market–and the number of
product innovations. By serving these smaller clients, tool
kits also reduce the pool of unserved, frustrated potential
customers who might turn to competitors or to new entrants into the market. Furthermore, they allow companies to better serve their larger, preferred customers.
That’s a benefit most suppliers wouldn’t expect, because
they’d assume that their bigger customers would want
the traditional hand-holding to which they’re so accustomed. Experience shows, however, that such customers
are often willing to use a tool kit, especially when fast
product turnaround is crucial.
Of course, tool kits will not satisfy every type of customer. For one thing, they are generally not able to handle every kind of design. Also, they create products that
are typically not as technically sophisticated as those developed by experienced engineers at a manufacturer
using conventional methods. So manufacturers may continue to design certain products (those with difficult technical demands) while customers take over the design of
others (those that require quick turnarounds or a detailed
and accurate understanding of the customer’s need).
The business challenges of implementing a tool kit can
be daunting. Turning customers into innovators requires
no less than a radical change in management mind-set.
Pioneers LSI Logic and VLSI Technology were successful
because they abandoned a principle that had long dominated conventional management thinking at leading
companies like IBM, Intel, and Fujitsu. For many years,
these companies had assumed that their interests would
best be served by keeping design expertise, tools, and
technologies away from customers. In contrast, LSI, VLSI,
and the other industry upstarts understood that they
needed to do just the opposite by putting robust, userfriendly tool kits into customers’ hands.
harvard business review
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Such a dramatic shift in mind-set required a thorough
come customers. That information is then relayed to an
rethinking of well-entrenched business practices. In ese-marketing staff. Today, the Web site attracts about a
sence, a company that turns its customers into innovators
million visitors per year who are automatically screened
is outsourcing a valuable service that was once proprifor potential sales; that information accounts for nearly
etary, and the change can be traumatic if that capability
one-third of all new customer leads, thus fueling much of
has long been a major source of competitive advantage.
GE Plastic’s growth. And because the cost of acquiring
For example, a common problem is resistance from sales
new business has decreased, GE Plastics can now go after
and marketing departments, which have traditionally
smaller customers it might have ignored in the past.
been responsible for managing relationships with cusSpecifically, the sales threshold at which a potential customers and providing first-class service to them. With tool
tomer becomes attractive to GE’s field marketing has
kits, computer-to-computer interactions replace intense
dropped by more than 60%.
person-to-person contact during product development. In
The on-line tools have also enabled GE Plastics to imother words, customers who design products themselves
prove customer satisfaction at a lower cost. Before the
have little need for a manufacturer’s sales or marketing
Web site, GE Plastics received about 500,000 customer
department to determine what they need. If this change
calls every year. Today, the availability of on-line tools has
affects the compensation of sales representatives in the
slashed that number in half. In fact, customers use the
field, it could easily derail any efforts to alter the company’s business model. As a result, senior management needs to face these issues head-on – for examFive Steps for Turning
ple, by determining how the sales and marketing
Customers into Innovators
functions should evolve and by using specific incentives to induce employees to support the transfor1. Develop a user-friendly tool kit for customers.
mation. (For more on how to adapt your business
• The tool kit must enable customers to run repeated trial-and-error
practices, see the sidebar “Five Steps for Turning
experiments and tests rapidly and efficiently.
Customers into Innovators.”)
• The technology should let customers work in a familiar design
To better understand these issues, consider GE
language, making it cheaper for customers to adopt your tool kit.
Plastics, which recently made the bold move of in• The tool kit should include a library of standard design modules
so customers can create complex custom designs rapidly.
troducing some elements of a Web-based customer
• The technology should be adapted to your production processes
tool kit. Doing so required GE Plastics to rethink its
so that customer designs can be sent directly to your manufacsources of competitive advantage and to develop new
turing operations without extensive tailoring.
business models that forced major changes, including
2. Increase the flexibility of your production processes.
the ways in which its sales and marketing staff acYour manufacturing operations should be retooled for fast, lowquired new customers. The company’s story holds
cost production of specialized designs developed by customers.
several valuable lessons.
GE Plastics does not design or manufacture plastic
3. Carefully select the first customers to use the tool kit.
The best prospects are customers that have a strong need for
products but sells resins to those that do, and the
developing custom products quickly and frequently, have skilled
properties of those resins must precisely match that
engineers on staff, and have little experience with traditional cusof both the end product (a cell phone, for instance) as
tomization services. These customers will likely stick with you
well as the process used to manufacture that product.
when you are working out the system’s bugs.
With the formation of the Polymerland division in
4. Evolve your tool kit continually and rapidly to satisfy your
1998, GE Plastics allowed customers to order plastics
leading-edge customers.
on-line and later took the step of making 30 years
Customers at the forefront of technology will always push for
of its in-house knowledge available on a Web site.
improvements in your tool kit. Investments in such advanceRegistered users were given access to company data
ments will likely pay off, because many of your customers will
sheets, engineering expertise, and simulation softneed tomorrow what leading-edge customers desire today.
ware. Customers could use that knowledge and tech5.
Adapt your business practices accordingly.
nology to conduct their own trial-and-error experi• Outsourcing product development to customers will require
ments to investigate, for example, how a certain
you to revamp your business models to profit from the shift.
grade of plastic with a specific amount of a particular
The change might, for instance, make it economically feasible
type of reinforcement would flow into and fill a mold.
for you to work with smaller, low-volume customers.
The approximate cost of bringing such sophisticated
• Tool kits will fundamentally change your relationship with custools on-line: $5 million.
tomers. Intense person-to-person contact during product developGE Plastics, of course, did not make the investment
ment will, for example, be replaced by computer-to-computer
simply to be magnanimous. Through the Web site,
interactions. Prepare for these changes by implementing incentives to reduce resistance from your employees.
the company identifies and tracks people likely to beapril 2002
9
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tools more than 2,000 times a week. To encourage the
rapid adoption of its tool kit, GE Plastics runs about 400
e-seminars a year that reach roughly 8,000 customers.
The company hopes that this effort will help encourage
product engineers to design parts made of plastic (and GE
resins) when they might otherwise have opted for metal
or other materials.
A Pattern of Migration
Perhaps the most important lesson to be learned from GE
Plastics is that a company that adopts the customers-asinnovators approach must adapt its business accordingly.
Furthermore, we’ve found that because the value that
tool kits generate tends to migrate, a company must continually reposition itself to capture that value.
When a supplier introduces a tool kit, the technology
first tends to be company specific: The designs can only
be produced in the factory of the company that developed the tool kit. This creates a huge short-term advantage for the pioneering supplier, which can reduce its custom design costs because they are partially outsourced to
customers. That, in turn, enables the supplier to serve
more customers. And because the customer’s designs must
be produced on the supplier’s system, the supplier doesn’t
risk losing any business.
But the loss of leverage by customers represents a fundamental shift. Traditionally, in the field of specialized
industrial products, companies interested in a customer’s
business develop a custom design and submit it for evaluation. The customer picks the proposal from one supplier, and the others are saddled with a loss for their time
and investment. A tool kit tied to a single supplier changes
that dynamic: A customer that develops a design using
the tool kit cannot ask for competing quotes because only
one company can manufacture it.
Creating Value with
Customers as Innovators *
In the electronics market, suppliers have traditionally
been the designers of full-custom and applicationspecific integrated circuits (light green, with a compound annual growth rate of about 12%). During the
1990s, tool kits based on gate-array and standard-cell
technologies (medium green, with a CAGR of about
13%) enabled customers and third parties to also become product innovators. With field programmable
technology (dark green, with a CAGR of about 29%),
customers take on primary responsibility for custom
circuit design, creating great value in the industry.
* Figures are from World Semiconductor Trade Statistics for
custom metal-oxide semiconductor (MOS) logic, a dominant
technology for digital circuits.
10
Of course, customers would prefer the advantages of a
tool kit without the associated loss of leverage. In the long
run, this type of solution tends to emerge: Customer pressure induces third parties to introduce tool kits that can
create designs to fit any supplier’s manufacturing process.
Or, in a slight variation, customers complain until a company that owns a dominant tool kit is forced to allow a
spin-off to evolve the technology into a supplier-neutral
form. Then, customers are free to shop their designs
around to competing manufacturers.
In other words, one long-term result of customer tool
kits is that manufacturers lose a portion of the value they
have traditionally delivered. But if the conditions are ripe
for the technology to emerge in a given industry and if
customers will benefit from it – and our research shows
that they will – then suppliers really don’t have a choice.
Some company will eventually introduce a tool kit and
reap the short-term advantages. Then, others must follow. In the case of custom chips, Fujitsu initially resisted
making its in-house design technology available to customers, thinking the move was too risky. (See the exhibit
“Creating Value with Customers as Innovators.”) But after
LSI introduced a tool kit and began to establish itself in the
market, Fujitsu and others were forced to play catch-up.
Questions of Value
Predicting where value will migrate–and knowing how to
capture it – will be crucial as customer tool kits become
more widespread. So far, the customers-as-innovators approach has mainly emerged in the B2B field, but numerous signs indicate that it is also spreading to the B2C
arena. Many companies already offer so-called “product
configurators” that enable consumers to obtain a masscustomized version of a standard product. Dell customers,
for example, can select various components (a disk drive,
30
annual billings
(billions of dollars)
chip primarily
designed by:
25
customers
20
customers,
third parties,
or suppliers
15
10
5
suppliers
0
90
91
92
93
94
95
96
97
98
99
00
harvard business review
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What Mass Customization Is – and Isn’t
Imagine a mass manufacturer that could
customize products for each of its customers. Economically, that would require
two things: first, learning how to design
specialized products efficiently (the R&D
problem), and, second, learning how to
manufacture those goods cheaply and
quickly (the production problem).
The second problem has been addressed by the popular concept of masscustomized production. In that approach,
computerized process equipment or flexible assembly procedures can be adjusted
quickly and inexpensively so companies
can make single-unit quantities of one-ofa-kind products at a cost that is reasonably competitive with the manufacture of
similar, mass-produced items. The classic
example is Dell Computer: Consumers
can buy a Dell computer by picking the
major components they want (the size of
the hard drive, the kind of monitor, the
number and types of memory modules,
and so on) from a menu on a Dell Web
site. The company assembles and delivers
the custom products in days.
But Dell’s mass-customization approach does not address the first problem:
learning how to design novel custom
goods efficiently. The company’s customers have only a limited number of
standard components and combinations
to choose from, leaving them little room
for creativity or real innovation. What
if someone wants a computer that cannot be assembled from those standard
components, or what if that person is
uncertain that a particular product will
monitor, memory modules, and so on) from a menu to assemble the computer best suited to their needs. Eyeglass
frames, automobiles, and even Barbie dolls can be similarly configured. In fact, no application seems too trivial.
General Mills is planning to introduce a Web site that will
allow consumers to mix and match more than 100 ingredients to create their own breakfast cereal. Although such
product configurators are currently limited in what they
can do (for one thing, they don’t allow a user to try out
a design, either through a prototype or a computer simulation), future versions could approach the functionality
of true customer tool kits and allow for radically new
innovations. (See the sidebar “What Mass Customization
Is – and Isn’t.”)
Producers of information products, especially software,
will perhaps feel the biggest impact. Companies like
Microsoft have long relied on customers to beta-test new
products. Now other companies have taken that concept
to the next level. Stata, which sells a software package for
performing complex statistical analyses, encourages its
customers to write software add-on modules for performing the latest statistical techniques; the company
then adapts and incorporates the best of those into its
next release.
The danger to software companies is that production is
essentially free, so the customer might one day massdistribute copies of a custom program with the simple
press of a button. If that practice becomes widespread,
a truly effective tool kit might itself become the product,
forcing companies to adapt quickly to the dramatic
change. Or users might abandon their status as customers
altogether, collaborating to design and build their own
tool kits as well as their own specialized programs.
april 2002
actually fulfill her needs? For instance,
will the computer she’s assembled be able
to run the latest game software without
crashing? Unless customers can test a
computer design that they’ve assembled
before placing the order, they can’t perform the trial-and-error experiments
needed to develop the product best suited
to their needs. In other words, with mass
customization, the cost of manufacturing
unique products has dropped, but the cost
of designing such items has not.
The approach presented in this
article – using tool kits that enable customers to become innovators – targets the
first problem; its goal is to provide customers with enough creative freedom to
design innovative custom products that
will truly satisfy their needs.
The growing popularity of open-source software could
touch off such a revolution. Consider what has happened
to companies that sell software for Linux, an operating
system that is virtually free. Recently, IBM took the bold
step of placing $40 million of in-house tools for developing software into the public domain to encourage people
to write programs that run on Linux. IBM is hoping that
the move will help make Linux a widespread standard
and that the company will make money by selling specialized Linux software applications, the hardware to run
them, and consulting services. Other Linux companies
like Red Hat are focusing on packaging, distribution, and
support.
Outsourcing a portion of the innovation task to customers can be an effective approach for speeding up the
development of products better suited to customer needs.
The approach also holds the power to turn markets topsyturvy, creating and shifting value at three separate levels:
the industry as a whole, companies that implement the
technology, and customers that take advantage of it. Exactly where that value will be generated and how it might
best be captured are the multimillion dollar questions
facing companies competing in industries that are being
transformed by customers as innovators.
1. Stefan Thomke,“Enlightened Experimentation: The New Imperative for Innovation,” HBR February 2001.
2. Eric von Hippel,“Perspective: User Toolkits for Innovation,” Journal of Product Innovation Management, July 2001.
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This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
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This document is authorized for use only by DAINE DIXON in New Product Development Summer 2019 taught by ARCHANA KUMAR, Montclair State University from Apr 2019 to Jul 2019.
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