The Rise of Customer-Led Innovation

Just in case workforce issues hadn’t become quite complex enough, now the lines between your best customers and your best product developers may be disappearing. That’s because it’s no longer enough to just listen to your customers. Many businesses have got to tap directly into the creative impulses and abilities of their product users in order to stay ahead of the innovation game.
Conventional wisdom is that the role of customers is to have needs that businesses can identify and then fill with new products or services. In his new book Democratizing Innovation, Eric von Hippel of the Massachusetts Institute of Technology calls it the “manufacturer-centric model,” and he notes that it’s becoming less dominant in our high-tech age. What’s increasingly replacing or at least complementing it in a growing number of industries is a “user-centric” model of innovation that depends on customers being willing and able to do much of the creative work themselves.

Innovations that originate with customers aren’t so much a brand new trend as they are a growing and increasingly recognized one. As The Economist reports, “Researchers such as Nikolaus Franke at the University of Vienna and Christian Luthje at the Technical University of Hamburg have demonstrated the importance of past user contributions to the evolution of everything from sporting equipment to construction materials and scientific instruments” (“Business,” 2005). What’s new are the technologies that make customer innovations easier and the fact that more businesses see this as a viable innovation strategy.

When it comes to user-centric innovation, the most important customers are those von Hippel refers to as lead users. “These are highly motivated individuals, or even companies, who are on the cutting edge of technology use,” he notes in an interview with TheFeature.com. “They are not necessarily the people on the payroll or members of the development community, and this is a good thing because, while professional developers may have leading-edge technical skills, it's the lead users that have the leading-edge needs” (Salz, 2005).

Lead users are often power users, the customers who want to use products for their own unique purposes and so often wind up modifying those products. They are the wind surfers who first added foot straps to their boards so they could jump waves better, the climbers who add new spikes to their boots to climb certain mountains better, the hot rodders who rev up their engine performance, and the hackers who add new subroutines to an existing operating system.

In some cases, companies develop strategies for locating lead users and then get their feedback for purposes of innovation. The office supply firm Staples, for example, worked with a company called Big Idea Group to hold a competition in which it asked customers to come up with ideas for new products, a process that resulted in over 8,000 new ideas (“Business,” 2005).

In other cases, companies directly involve customers in the design phase via toolkits. For example, GE Plastics gives its customers Web-based tools, including simulation software, to allow them to conduct their own experiments on how different grades of plastic would best suit their individual needs (Thomke & von Hippel, 2002). Von Hipple notes that the semiconductor industry adapted the concept of toolkits early and, as of 2003, over $15 billion worth of semiconductors had been designed in this way (von Hippel, 2005).

Similarly, video game-maker Westwood Studios gives customers toolkits that allow them to design components of their games. And toolkits can be used to spark innovation in company services as well as products, according to a field study of a Swedish mobile telecom company (Kristensson, Magnusson, & Matthing, 2002).

It’s also clear that customers are increasingly being conditioned to personalize products and services via new Internet products. Just this week, for example, the Web portal Yahoo! moved closer to providing its users with customized online services by launching a beta version of My Web, which it touts as a “personal search engine.” The feature permits users to create an online archive for the purpose of saving search results, favorite web pages, etc. (Gray, 2005).

Likewise, technology such as digital music players and digital video recorders are giving people more options when it comes to media, allowing them to see and hear what they want when they want (“Once Size Fits One,” 2005). As they grow accustomed to the power to personalize, today’s consumers are likely to expect to wield such power with a growing array of products and services.

But what happens when the customers become not just potential buyers but critical sources of a corporation’s intellectual and human capital? How should they be “managed”? How can they be “rewarded” appropriately? What are the dangers involved in redefining the traditional company-customer relationships, and what business practices must change as a result?

These are just a few of the questions companies will need to ask as they pursue user-centric innovation techniques. The answers may wind up shaping the face of business for years to come.



For more information on Democratizing Innovation and Eric von Hippel, including a full PDF version of his book and other research, click here.

For an interview with Eric von Hippel, click here.

For an Economist articled called “The Rise of the Creative Consumer,” click here.

For a PDF article called “Users as a Hidden Source for Creativity,” click here.

For an article about Yahoo!’s new MyWeb feature, click here.

Subscribers to Knowledge@Wharton can find an article about tailoring technology to customer needs by clicking here.

Documents used in the preparation of this TrendWatcher follow:

“Business: The Rise of the Creative Consumer: The Future of Innovation.” The Economist, March 12, 2005, p. 75.

Gray, Tim. “Yahoo Launches ‘My Web’ Beta.” Internet.com. April 27, 2005.

Kristensson, Per, Peter R. Magnusson and Jonas Matthing. “Users as a Hidden Resource for Creativity: Findings from an Experimental Study on User Involvement.” Creativity and Innovation Management, March 2002, pp. 55-61.

“One Size Fits One: Tailoring Technology to Consumer Needs.” Knowledge@Wharton. April 20, 2005.

Salz, Peggy Anne. “Follow the Leader.” TheFeature.com. April 4, 2005.

Thomke, Stefan and Eric von Hippel. “Customers as Innovators: A New Way to Create Value.” Harvard Business Review, EBSCO, April 2002, pp. 74-81.

von Hippel, Eric. Democratizing Innovation. Cambridge, MA: The MIT Press, 2005.