Collaborative Innovation Research Paper

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Customer involvement in new product development has recently become a major issue in management literature. Underlying all innovation activities is the particular attention progressively being focused on regarding consumers as partners in the learning process, even discriminating between the contribution made by advanced users and ordinary users compared to professional developers. Companies have new opportunities to improve their innovation processes by applying the knowledge and competence of their own customers rather than just accumulating knowledge about them through traditional marketing research. Companies can thus create value by working with their own customers rather than just working for them. This mutual collaboration allows a company to improve its external fit by reinforcing its competitive edge, since it can better anticipate market changes and satisfy not only its customers’ desires but also their potential needs. To this end, interacting and collaborating with the lead users has proven useful, as have the market experiments designed to support learning from mistakes and the techniques based on soliciting metaphors and mental models underlying specific consumer attitudes and behavior. The most advanced application of these techniques allows the company to directly involve the customer in his or her new product development processes according to a participatory approach. Customers have proven to be an especially precious source of new solutions for different product categories, ranging from sportswear to mechanical equipment. The application of this greater customer knowledge enhances the innovation process and makes it possible to better satisfy market needs. However, this goal is difficult to achieve as absorbing customer knowledge is a complex matter from an organizational standpoint and costly from an economic one.

Recent contributions from literature show how Web-based tools can simplify these activities by making it easier to manage systematic interactions with a select group of customers at a low cost. The Web and, in general, the tools based on ICT enhance, in a remarkable way, the company’s capacity to conveniently absorb market knowledge and regularly interact with a category of consumers that is broader than the regular customer base. This would clearly be impossible offline and represents the revolutionary potential of the Web to support the development of product innovation managed by individual companies. To be more specific, different Web-based tools have been developed over time to support each stage of the innovation process.

The purpose of this research-paper is to examine the practices of firms that intensively use the Web to cooperate with their customers across their innovation processes, by addressing two questions: (a) What are the properties of virtual environments enabling collaborative innovation? (b) How can firms involve customers through the Web in different new product development activities? To answer these questions, the remainder of the research-paper is structured as follows. We provide an overview of the literature in which we discuss various conceptualizations of customer knowledge and customer involvement in the firm’s innovation processes. Then we highlight key patterns in technology marketing that enhance direct collaboration with individual customers and communities of customers. We finally use the review to develop our collaborative innovation conceptual framework, providing a comprehensive picture about the tools enabled by the latest ICT developments to support new product development, following the seminal contribution by Dahan and Hauser (2002). The last part of this research-paper points out the limitations of the analysis, the implications for management, and the future directions for research.

The Relevance Of Customer Involvement In Innovation Activities

Collaboration has become an established way of doing business with suppliers, channel partners, and complementors (those whose products are made more valuable by yours). However, with a few notable exceptions, working directly with customers to cocreate value remains a radical notion. As consumers have become increasingly empowered and demanding, marketing scholars have preached the benefits of customer-relationship management—essentially an “inside-out” approach to retaining customers based on the misguided notion that the company is the arbiter of the relationship and the customer plays a passive role. In today’s connected world, however, collaborative innovation—the valuable process of partnering with the end user to create and maximize value—is the real goal.

Actually, firms have always sought to build deeper customer connections to make their innovation process more effective. Several contributions highlight different stages in the evolution of the relationship between a firm and its customers in the context of supporting and catalyzing new product development activities.

At the simplest level of the firm-customer interaction, customers play the role of passive receptors of the firm’s innovation activities. The key idea at this stage is to improve the fit between the firm’s offerings and customers’ needs by surveying customers and importing customer understanding into the firm. Firms need to listen to their customers by developing a market orientation, because market knowledge plays a strategic role in supporting their competitive advantage, improving new product development processes. Market-sensing ability and internal organization are seen as key factors driving innovation success, along with effective research and development (R&D) and manufacturing routines. Firms try to understand the expressed desire of their customers, called the “voice of the customer,” usually through focus groups, customer surveys, and research techniques such as concept testing and conjoint analysis. According to this perspective, the firm-customer relationship tends to be a one-way import of explicit knowledge from individual customers who are already included in the company’s customer base. Actually, customer knowledge plays a broader role in innovation and customer-knowledge absorption activities can be extended across three different dimensions.

From Explicit Customer Knowledge to Tacit Customer Knowledge

When customers are viewed as passive recipients of the company’s value proposition, the firm cannot fully understand customer knowledge assets developed within their specific contexts of experience. At the next level, firms have attempted to involve customers more deeply in their marketing process, by developing two-way learning relationships with individual customers. More specifically, the research in the service-marketing field proved that customers can play the role of partial employees. Such two-way learning relationships enable the firm to create customized offerings for specific target segments, greatly increasing their satisfaction. To support this two-way process, the firm’s research toolkit has to expand dramatically to include newer techniques aimed at discovering unarticulated needs through direct customer observation and interaction. For example, firms can observe customers within their native surroundings; dialogue and work closely with lead users; conduct market experiments by using a “probe-and-learn” process; and adopt techniques designed to uncover unarticulated, perhaps even unconscious, preferences by employing the metaphors, constructs, and mental models driving customer thinking and behavior. Pushing such approaches a step further, firms can involve customers directly in their product design process. Techniques based on participatory design and emphatic design (Leonard & Rayport, 1997) enable customers to directly contribute to new product development. In summary, one-way knowledge import evolves into a richer dialogue with individual customers, allowing firms to tap into the deep and rich store of tacit customer knowledge.

From Individual Customer knowledge to Social Customer knowledge

Following the approach just mentioned, however, an important dimension of customer knowledge is still untapped. This is the social knowledge that develops through the interactions that customers have with each other to develop a social identity and recognize themselves as members of specific social categories on a contextual basis. It is a crucial dimension of customer knowledge in order to improve the firm’s marketing activities, particularly in industries characterized by rapid and uncertain changes in customer preferences. Recently, a new awareness about the relevance of social knowledge has emerged. Some authors have introduced the notion of community (Wenger, 1998) to describe the social and emotional phenomena in consumption. These authors suggest that customers choose specific products considering not only their usage value, but also their linkage value—that is, their potential for stating customer identification with a specific social group. Hence, any consumption experience needs to be analyzed within a social context in order to be deeply understood. The techniques that have been most commonly employed to analyze the influence of the social dimension on consumption behavior range from the traditional workshop based on focus groups, where the main challenge is dealing with group-thinking phenomena, to anthropology and ethnography with its emphasis on cool hunting. Especially in the latter case, the main idea is that people within a culture have procedures for making sense. Hence, the key object of the analysis is the bundle of verbal and behavioral mechanisms through which a specific group of customers builds social meaning. Participant observation—that is, observation of customer activities directly sharing their experiences on real time—is the most popular method for this purpose. Techniques based on role-playing have been effectively used as well in order to grasp tacit knowledge emerging at a collective level.

From Core Customer Knowledge to Peripheral Customer Knowledge

Firms can also benefit from intermediaries or knowledge brokers who collect customer-generated knowledge from a broader set of contexts and from different vantage points (Hargadon & Sutton, 2000). Through direct channels of communication, companies may not be able to reach the right customers, because their interactions and perspectives tend to be limited to the markets they already serve. Companies can also find it difficult to reach people at the right time, because customers tend to interact with them at relatively late stages of the decision-making process. Knowledge brokers can connect with a broader base of customers than the firm’s own customers in contexts that are very different from the narrow context of product purchasing, and in domains that extend beyond the firm’s immediate product and service offerings. Therefore, they help individual firms to listen to more diverse and unusual voices, accessing customer knowledge that is not only both individual and social, explicit and tacit, but also not constrained by the firm’s mental models or biases. By improving the “peripheral vision” of firms, these mediators help firms to escape from the bias of their served markets and their core customer knowledge (Verona, Prandelli, & Sawhney, 2006).

The Role Of The Web In Supporting Collaborative Innovation With Customers

The Web presents several unique properties that not only make customer knowledge absorption easier and cheaper, but also allow customers to become actively involved in the firm’s innovation activities. Specifically, Web-based tools can simplify the activities of customer-knowledge absorption by making it easier to manage systematic interactions with a select group of customers, even broader than regular customers, at a low cost. The Web enables the creation of virtual customer environments—platforms for collaboration that allow firms to tap into customer knowledge through an ongoing dialogue (Nambisan, 2002).

Specifically, it allows for a continuous and rich dialogue with a huge number of customers at a very low cost (Evans & Wurster, 1999). Therefore, it makes the one-way customer knowledge import and dialogue with individual customers more efficient and effective. The Web also vastly augments the firm’s capacity to tap into the social dimension of customer knowledge, by enabling the creation of virtual communities of consumption to collect and analyze knowledge that develops through spontaneous conversations among customers. Customers self-select themselves based on the focused interests promoted by specific communities. This self-selection means that customers are highly involved and motivated to share knowledge with other customers and community managers, making their contribution both richer and less expensive than in the off-line world. Finally, on the Web there are increasing opportunities to access a partner’s partner competencies, as well as a customer’s customer knowledge, entering electronic archives and virtual communities. Hence, peripheral knowledge can be more easily grasped, especially by independent third parties who act as knowledge brokers by filling structural holes between individual customers and communities of customers on one side and specific firms on the other side (Sawhney, Prandelli, & Verona, 2003).

A description of the unique characteristics of the Web-enhancing customer-knowledge absorption and supporting customer involvement follows.

Reach: Allowing Firms to Reach Beyond Current Customers, Markets, and Geography

First, the Internet is an open, cost-effective, and easy-to-use network compared to previous proprietary networks—such as EDI. These properties make it a global medium with unprecedented reach, substantially increasing the number of relationships that an individual player can manage without geographic constraints. In this way, new information technologies facilitate extended connectivity to leverage distributed competencies.

Interactivity: Permitting True Collaborative Work Instead of Merely “Knowledge Import”

Virtual environments break the age-old trade-off between richness and reach (Evans & Wurster, 1999). In the physical world, communicating (and absorbing) rich information requires physical proximity or dedicated channels, while sharing information with a large audience requires compromises in the quality of information. Therefore, the number and the quality of relationships that any player can develop in the physical world is limited by this reach-richness tradeoff. In virtual environments, it is possible to go beyond this tradeoff and create two-way relationships with a large number of players without compromising on the richness of the same relationships. On the Web, companies can richly interact with a huge number of customers on a systematic basis, in this way supporting true collaboration.

Scalability: Allowing Firms to Connect With Thousands of Customers

Positive network externalities create incentives to extend the number of connections enacted by the individual player. On the supply side, the incremental cost to reach any new customer progressively tends to decrease because of the predominance of fixed cost compared to variable costs. On the other side of the network, consumers find more value in a network as the number of users of the network increases. According to the so-called Metcalfe’s law, the value of a network increases in proportion to the square of the number of people using it. So the first competitor to achieve a critical mass of customers can potentially achieve dominance. Consequently, when a company has reached the critical mass of connections, dominance tends to increase further in a virtuous cycle. Of course, the threshold level has a limit up to which the value of the network may slope downward because of the negative effects of a very large network—which include saturation, contamination, and cacophony. Still, the threshold level of a virtual network is far greater than the one of a physical network.

Persistence: Persistent Ongoing Engagement Instead of Episodic Interactions

Virtual environments push industries to become more global. Boundaries between industries tend to blur on the Web and, at the same time, the division of innovative labor tends to develop across geographies. The joint effect is that it is much less likely to find all the competences needed to support innovation within the same organization. The Web can be used to coordinate activities and information sharing between otherwise disconnected pools of knowledge and competences on a systematic and global basis at a lower cost than in traditional, off-line environments. Hence, virtual environments create the need for engaging an increasing number of players on a systematic basis (because of more diverse competencies needed) and at the same time provide the solution (thanks to low-cost coordination mechanisms and opportunities for sharing the innovative labor on a global and continuous basis).

Speed: Reduced Latency in the “Sense-and-Respond” Cycle—Real-Time Results

The Web has a powerful effect in increasing the flexibility of the network, allowing not only to involve different partners at different times, but also to transform weak relations in strong relations and vice versa, depending on the complexity of the knowledge that needs to be transferred. Real time, two-way, and low-cost communication makes it easy to consolidate specific customer relationships on a contingent basis through ad hoc virtual communities and online conversations. Consequently, the individual player can benefit from high plasticity in the organization of his or her connections with different actors on a very dynamic basis and with low costs of conversion, once the platform of interaction has been created.

Peer-to-Peer: Allowing Access to Customer-Generated Social Knowledge

The Web also vastly augments the firm’s capacity to tap into the social dimension of customer knowledge by enabling the creation of virtual communities of consumption to collect and analyze knowledge that develops through spontaneous conversations among customers. Customers self-select themselves based on the focused interests promoted by specific communities. This self-selection means that customers are highly involved and motivated to share knowledge with other customers and community managers, making their contribution both richer and less expensive than in the off-line world. As we said, any consumption experience needs to be analyzed within a social context in order to be deeply understood, and the phenomenon of word-of-mouth epitomizes it. However, when companies are offline, except for focus groups no tools are available to make emerging social customer knowledge. Online, virtual communities allow the systematic leverage of social customer knowledge, for the first time monitoring word-of-mouse (i.e., word-of-mouth through the mouse) phenomena. Beyond the opportunity to leverage direct connections with communities of customers, it is also relevant not to forget that the Web is a low-cost open standard: Anyone anywhere can connect to it and contribute to the public discussion. This makes it much easier to access a partner’s partner competencies, as well as a customer’s customer knowledge, entering electronic archives and virtual communities managed by independent third parties.

Web-Based customer knowledge absorption at Each stage of the innovation Process: A conceptual Framework

We propose that the previously mentioned unique characteristics of the Web allow the firm to evolve from a perspective centered on interaction with customers to a perspective focused on active collaboration with customers intended as partners at each stage of the value creation process (Prandelli, Verona, & Raccagni, 2006). The differences between the former and the latter are quite relevant. In the first case, the interaction is the locus of economic value extraction and markets are considered as forums for value exchange. The main competitive issue for the individual firm relies on better understanding customers in order to create a superior value proposition for them. On the contrary, when we move toward a perspective centered on firm-customer collaboration, the interaction becomes the locus of cocreation of value and value extraction and markets are forums for cocreation of experiences (Prahalad & Ramaswamy, 2004). The main competitive issue for the firm is to create value propositions with its customers: The firm and its customer collaborate in cocreating value and then compete in extracting value.

Virtual environments can leverage two main drivers in enhancing opportunities for collaborative marketing and innovation. First, the Web empowers customers across all marketing activities. In virtual environments, customers have the opportunity to define what information they want, what product they are interested in, and hence they have the chance to increase their control over any exchange process, pushing companies to change their information policies in dealing with them from opaqueness to transparency (Sawhney & Kotler, 2001). The balance of power between the company and the customer shifts toward equilibrium and the boundaries between them are blurring. Specifically, customers have the possibility to self-inform as they can research products and issues on their own without relying on experts (as in the medical Web sites WebMD.com and MedlinePlus.com). According to the “Internet efficiency view,” in digital environments where product information is separated from the physical product, customers are fully informed about process and all available alternatives, reducing opportunities of profit for retailers. Hence, they can self-compare product features and prices side by side from competing manufacturers with a few clicks of a mouse (as in PriceGrabber.com and DealTime.com). Customers can also monitor manufacturers’ reputations to assure themselves of product and service quality, enacting a sort of self-police approach (consider, for instance, eBay.com and BizRate.com). Finally, they can self-organize, creating or joining communities of interest or conducting conversations on products, interests, lifestyles, or issues to share their experiences (e.g., iVillage.com, Experts-Exchange. com), and self-advice, providing feedback for their peers based on the basis of their experiences with products and manufacturers (e.g., Amazon.com, PlanetFeedback.com, Epinions.com, and Ciao.com).

However, the most radical novelty in firm-customer relationships introduced by the Web is not related to customer empowerment, but to direct customer involvement into marketing and especially innovation activities through ad hoc virtual interfaces (Sawhney, Verona, & Prandelli, 2005). This is the second driver of collaboration with customers in digital environments. In fact, the Web allows customer involvement across all innovation activities. In particular, digital environments are extraordinarily powerful in supporting direct involvement of consumers throughout the entire innovation process because a segmented public can be efficiently and rapidly reached. The cost of developing and testing virtual prototypes is much lower than physical prototypes and virtual reality can significantly enhance the quality of the interaction with the consumers and the process of distributed learning. Hence, an approach based on the systematic, direct interaction with the customer is becoming increasingly relevant in new product development. We subsequently describe the most significant Web-based applications at each stage of the innovation process and provide examples.

Idea Generation

The first stage of new product development greatly benefits from the Web’s potential to integrate and enhance consumer input. The simplest application consists of online questionnaires. In the search for successful new product ideas, the aim is to reduce uncertainty by identifying customers’ preferences and interacting directly with them to absorb various potential stimuli that could open up new paths (Dahan & Hauser, 2002). The questionnaire usually aims to improve selected aspects of the site, product, or service; financial incentives considerably increase the response-rate. To enhance customer involvement through the Web during the idea-generation stage, companies can also use suggestion boxes where users can express their own innovative ideas. A good example is the Ben & Jerry site, where users can contribute new ideas for both products (prepackaged ice cream) and services (especially packaging and distribution) in a dedicated area of Customer Assistance. Advanced applications of these dialogue windows are also found on the Procter & Gamble site (www.pg.com) for a large number of product categories. In all these cases, it is essential to establish clear regulations regarding intellectual property rights, so that the company can use the innovative ideas suggested by consumers who are also encouraged through product or financial incentives. Even reward mechanisms can be introduced to encourage the most competent users to compete with each other in finding new ideas to solve specific company problems. Remuneration is usually paid by the company and, in some cases, can even exceed $100,000 as in the Innocentive.com site created by Eli Lilly. Thanks to a spin-off, the site today provides reward mechanisms for the generation of new concepts in several industries, ranging from plastics to mass-market consumer goods.

It is also easier to handle complaints online both for the company interested in improving its supply and for dissatisfied users. In the more advanced cases, users are given a range of specific e-mail addresses where they can send their complaints and ask for explanations. Accurate analysis of the complaints serves to stimulate and strengthen existing products and can even lead to the introduction of radical changes. Particularly useful is also the technique of “listening in” (Urban & Hauser, 2004), namely, recording and analyzing the information exchanged between individual users and the experts who provide virtual advice to help them identify the product that best satisfies their needs. The “virtual consultant” tries to identify the respondent’s ideal product while the designer can understand the product features least satisfying to the customer and subsequently question the customer in order to understand how to best answer his or her unmet needs.

Finally, new product and service generation can also considerably benefit from online virtual communities of customers, which bring together users sharing the same interests and willing to promote spontaneous online conversations to exchange opinions and experiences. As we anticipated, by encouraging direct and iterative communication in the online community, these groups generate knowledge regarding consumption shared at the social level, which is difficult to grasp using other research tools. Intangible incentives, often associated to opinion leadership, usually represent a good way to stimulate participation in communities emerging in consumer markets, while economic incentives are more common in business communities (Sawhney & Prandelli, 2000). In both cases, spontaneous members usually show a high degree of involvement and often even offer—as in the case of the communities of videogame (cf. Idsoftware.com), motorcycle (cf. Ducati.com) and software (cf. Sunmicrosystems.com) enthusiasts—specific technical competence, rendering their contribution particularly qualified and trustworthy.

Idea Selection

Idea selection represents a critical stage in new product development to preserve economic balance. To this end, the most important Web-based tools include virtual concept testing and online focus groups. In the first case, virtual reality gives innovative companies the opportunity to develop different product concepts in great detail thus allowing consumers to compare individual product features and select the most convincing concept. For instance, Volvo has created an ad hoc site—Conceptlabvolvo.com—where users can express their preference for new automobile concepts proposed by the company, those they consider the most appealing and most likely to succeed and be manufactured. Users can also view the evaluations expressed by other consumers in real time. If the cost of transforming the product concept into a prototype is low—as in virtual environments—it is opportune to move the selection stage as far up as possible in the innovation process. This makes it possible to also increase response flexibility and possible changes in market and technology thereby reducing product development time, promoting the processes of learning from low-cost mistakes, and preventing the information collected at the beginning of the product development cycle from becoming outdated (Eisenhardt & Tabrizi, 1995).

The second key tool used to promote the Web-based concept selection process is the online focus group. This is the traditional research technique based on knowledge of the market through consumer interaction, made much more efficient and applicable to a select group of a difficult-to-reach public organized by the Internet. It is based on videoconference technology and chat rooms. Consumers are identified according to their specific characteristics and asked to form virtual teams to discuss and evaluate different product concepts. A particularly important aspect of the online focus groups is the anonymity the Internet provides. Although on the one hand this results in less emotional involvement, on the other hand the participants are considerably less inhibited and group-thinking phenomena, where the individual contributions merely reflect the views of the dominant member of the group, are less common.

The so-called “Information Pump” (Prelec, 2000) is based on virtual focus groups where participants are asked to express their opinions about new product concepts in order to identify the most successful ones. The aim is to make an objective evaluation of the quality and internal coherence of the participants’ opinions, which are evaluated each time by an impartial expert and by the other participants. In order to ensure this method functions efficiently, all information must be updated in real time and an appropriate system of incentives implemented for the participants. This method is particularly useful, since it makes it possible to not only objectively classify the opinions of individual participants regarding new product concepts, but also to evaluate the quality and reliability of each respondent.

Product Design

Once product concepts have been identified, they have to be organized in product configurations that can be subsequently tested on the market before they are launched. At this point, the key problem is to transform consumer priorities into design and engineering priorities by directly involving the customer in identifying specific product features subsequently incorporated into the final product. Such a codefinition of the product’s features in virtual environments can range from simply applying mass-customization tools to combine aesthetic and functional product features conceived in modular form, to developing cross-functional design teams that involve customers directly through the Web, to the complete product design by the customer him-or herself.

First, as suggested by Dahan and Hauser (2002), consumers can be asked to select different product attributes of new product concepts by applying Web-based tools of conjoint analysis. By using virtual interfaces that the respondents enjoy navigating and that are relatively easy for the company to implement, it becomes possible to determine the main features respondents prefer, the attributes that interact, and the ideal combination. As the authors argue, this method has been successfully applied to develop a wide range of products from cameras and photocopiers to toys and detergents.

The most advanced applications of Web-based conjoint analysis have led to the mass customization of products designed and sold through the Web such as the Barbie dolls offered online by Mattel and the sneakers that can be purchased on the Nike site. Consumers seem to especially like the interface images that allow them to view the different product attributes and then combine them to create their ideal product configuration with a mere click of the mouse. Moreover, the respondents tend to create their products according to whether they are asked to add attributes to a basic model or eliminate undesirable ones from the most complete configuration. This obviously has key implications for the design and internal organization of the site.

Although the possibility of customizing the aesthetic and functional components of the supply represents an option that involves the customer in product development based on an accurate analysis of the “cards” selected, that is, on the optimization of the processes of absorbing knowledge “about” the consumer, more radical options are offered by the Web to enhance the knowledge and competence “of” the consumer. More specifically, by allowing consumers to become involved in a wide range of activities, from making minor modifications to existing products to creating radically innovative modifications, digital environments allow consumers to even design and develop new products (Thomke & von Hippel, 2002). Toolkits for user innovation can be assembled to exploit new technologies such as computer simulation in order to make new product development faster and less costly. These toolkits are merely coordinated sets of user-friendly tools for the configuration of new products that allow users to self-develop innovations. This eliminates the problems of sharing customer knowledge that is often sticky since it is idiosyncratic and context specific and therefore difficult to transfer (von Hippel, 1994). These tools usually support specific projects, requiring ad hoc competence in a specific product category. Within this area, the user is free to innovate, develop customized products through mechanisms of repeated trial and error and even suggest new patents for the finished product. In this way, the user can create a preliminary design, simulate its development and prototyping, evaluate how the product will function when used, and proceed to systematically improve it until he or she is satisfied with the final version. Prototyping and rapid experimentation are crucial in sup-porting this approach, which can systematically integrate the competence and experience of the consumer in the innovation process. A broad range of industries has begun to introduce these applications. For instance, in the software industry, it has been widely demonstrated that it is useful to promote consumer involvement in the codefinition of products by allowing users to download beta versions and asking them to identify possible bugs. Customer-driven, Web-based toolkits to support innovation processes have also been successfully developed in the industries of computer circuits, plastics, and consumer goods (Thomke & von Hippel, 2002).

User design mechanisms can also be applied by ad hoc virtual cross-functional teams created by companies rather than by the larger virtual communities of product users (Sawhney & Prandelli, 2000). In the first case, the consumers are considered real partners in the innovation process coordinated by the company, and they are encouraged to collaborate in specific projects. After undergoing a careful selection process and offering appropriate incentives—often based on award mechanisms and/or contests—consumers are involved in distance work teams and collaborate with other division members chosen from the Marketing, research and development (R&D) and production divisions. Networking systems and groupware technologies are crucial and support consumer knowledge-sharing within the organization and its integration with preexisting knowledge. The result is a rather systemic collaboration that goes far beyond knowledge transfer.

In the case of the application of user design tools to virtual user communities, customer input in the innovation processes is mainly based on open-source mechanisms. Such mechanisms support communities that are completely run by and for the users and allow them to exchange opinions on specific products. While these products are initially mainly technical, they can lead to direct collaboration in the creation of new products and services (von Hippel, 2001). In these systems, each user does not necessarily develop the needed product or service alone—as in the individual application of the toolkits for user innovation—but can benefit from the innovative suggestions freely made by the other users. In the typical case of software products, this means that each user can obtain a copy free of charge and can legally study its source code, modify, and distribute it to others without any remuneration. Many studies show that these mechanisms are particularly useful in developing innovations related to the software industry and the Internet start-ups. In fact, open-source mechanisms have expanded into many different industries (for instance, sportswear) where systematic new product development is essential (von Hippel, 2001). Regardless of the specific industry considered, the reason these kinds of distributed innovation mechanisms are so successful is that they enhance the reputation of each user who concretely contributes to the final output and promote a reciprocal relationship in the creation of the final product. Moreover, the sense of responsibility toward the group, and the awareness of the significant impact on the community often represent important stimuli to those who are qualified and want to participate.

Product Testing

Digital environments can significantly contribute to simplifying and making the new product testing stage more efficient before launching a product on the market. New technologies such as rapid prototyping, simulation, and combinatorial methods make it possible to generate and test different product versions. Web-based tools further enhance this approach by exploiting the potential of virtual-reality, three-dimensional images, and animation to generate low-cost virtual prototypes that are fairly close to the quality and completeness of the physical one (Dahan & Srinivasan, 2000). The Web thus makes it possible to simultaneously test different product configurations (virtual product testing) as well as different market situations; that is different marketing mixes to complement the supply (virtual market testing) in order to choose the best solution with the direct collaboration of the end users.

Regarding virtual product testing, the best opportunities stem from the application of the Virtual Reality Markup Language. This tool is a three-dimensional virtual representation of the product that, when combined with streaming video and interactive sensory peripherals, allows visual, auditory, and tactile information to be effectively distributed to end users. Consumers can view detailed descriptions of each prototype combined with virtual tours around and inside the product. In this way, all the product components can be seen before consumers make their final evaluation. Like the stage when consumers can choose different product concepts, even in this case, consumers can modify, at least in part, some product features by choosing some predefined modular attributes in order to identify the price-attribute combination that best satisfies their individual need.

This application can also be used to integrate the virtual representation of the product through the reproduction of the other attributes of the marketing mix—from advertising to the representation of the sales force—in order to recreate a total virtual shopping experience. This method, aimed at supporting the market forecast of each product, is also defined as information acceleration. Like the evaluation of an electric vehicle prototype proposed by Urban, Weinberg, and Hauser (1996), each user cannot only virtually “enter” the car, but can also exchange information with other users, interact with the car dealer, view advertising material, and so on. It is clear that the amount of processed information required to reproduce a real simulation of the purchasing experience tends to be much greater compared to simple virtual product testing and the number of tested prototypes tends, as a consequence, to decrease.

Finally, it is worth noticing that in both cases conjoint analysis makes it possible to make reliable estimates of the future market share of each prototype. As Dahan and Srinivasan demonstrate (2000) in the product category of the bicycle pump, the results obtained from virtual product testing are extremely precise, can be carried out at a much lower cost, and are rather similar to those obtained through physical product testing. This means that this approach can also be used for a variety of durable goods.

Product Launch

The role of the consumer in the innovation process, however, does not end with the development of the product. On the contrary, online activities such as viral marketing or Web-enabled word of mouth become strategic tools that can effectively promote rather than hinder even the final product launch stage. Companies can usually promote viral marketing by introducing options such as the possibility to send a specific Web page “to a friend.” Due to the reliability of the information source, these “electronic postcards” can enhance product exposure at a very low cost and enhance product trust. Ad hoc incentives—such as discount coupons, free samples, or participation in contests—can be offered to both the senders and the recipients of viral messages in order to effectively support “word-of-mouse” activities.

This phenomenon can also be enhanced by virtual communities. Although customer knowledge-sharing within a community is less organized and controlled, it is extremely effective, since it is based on a spontaneous form of communication. The reciprocal trust catalyzes the exchange of experiences and, vice versa, the exchange of information enhances member relationships. Since users decide to group around a specific area or product category on their own initiative, these communities create a particularly interesting target for the company to the extent that it is the result of a process of self-segmentation that ensures a high degree of involvement. Therefore, promoting company-run communication activities through forum or chat rooms based on shared values rather than on specific products can considerably influence the purchasing expectations and trends. In fact, in the best of cases, users can even turn into veritable proselytes of the company’s products. In order to support the launch of new products to targeted groups, these com-munities are sometimes hosted by independent minisites, which differ from corporate sites since they are short term and only designed to promote individual products launched on the market. Alternatively, given their strategic importance for the success of the innovation, sites dedicated to new products can be systematically and even permanently set up within the main site, often with links accessed via the home page.

Customer involvement in the product launch stage can also occur by means of personalized communication, especially newsletters, which focus more on the brand than on the individual product and are sent to a select group of customers according to a permission-based criteria. Providing personalized assistance to help customers choose products can also enhance customer relationship management. Even the organization of events designed to bring together

off-line and online users interested in particular products (which they might even be able to view in advance) can contribute to making them feel part of a select group involved in the new product offer, thus increasing company and user interaction. In fact, the activities related to customer relationship management and personalized newsletters take on crucial importance throughout the entire new product life cycle. These activities allow the company to systematically interact with its customers and consequently obtain regular feedback so it can subsequently upgrade the product. Therefore, Web-based tools increase the opportunity to make new product development an ongoing process that systematically can benefit from customer input.

Conclusions, Managerial Implications, And Future Directions For Research

The purpose of this research-paper was to show how companies can use the Web as an enabler of collaborative innovation with customers. While customer knowledge has always played a key role in managing product innovation, today’s competitive environment demands going beyond merely importing the “voice of the customer” through traditional off-line means. The Internet allows firms to engage customers more broadly, more richly, and more speedily. It allows firms to create ongoing customer dialogue, absorb social customer knowledge, and scan knowledge of potential or competitors’ customers.

While further empirical analysis is needed, our contribution clearly contrasts the traditional perspective on customer involvement in innovation against the emerging perspective of cocreation facilitated by the Web. We illustrate how the unique characteristics of the medium—interactivity, reach, speed, persistence, and flexibility—permit firms to reach new frontiers in the cocreation of value. We then outline a variety of Web-based mechanisms for customer collaboration, highlighting their applicability to the individual stages of the firm’s innovation process. Our analysis allows us to draw two managerial implications regarding (a) the emerging opportunity to establish a direct and interactive dialogue with the firm customers and (b) the absorption and integration of complementary forms of knowledge through different mechanisms.

First, we suggest that Web-based mechanisms complement all existing mechanisms that firms employ in engaging customers in their innovation processes, such as customer surveys and opinion polls. However, the Web allows firms to do more with these mechanisms than they were able to do off-line. By establishing a direct contact through interactive dialogue, firms can now better select lead users or, better, let them self-select. In addition, the firm is neither constrained by physical boundaries nor by the boundaries of its served markets in the selection of lead users. Customers can spontaneously self-signal themselves by participating in online conversations based on their personal interests. Customers can also participate in virtual communities, which provide the experiential context and a forum for co-creation. Through the social knowledge-sharing in these communities, the firm can validate ideas and develop product concepts that are robust, because the firm has already been exposed to a form of social control: It is the output of distributed learning and creativity.

Second, we develop a conceptual framework that shows that the Web is an integrated platform for engaging customers in multiple ways for multiple goals. There is a resonance among different forms of customer participation in the company’s activities. A strong sense of belonging to virtual communities enables strong social relationships, which increases individual customers’ willingness to share their knowledge with the company. Conversely, the ability to develop personalized relationships with individual customers aimed at tapping into their contextual knowledge has a positive impact on their trust and involvement with the firm. The higher involvement in turn enhances customers’ intention to participate in communities managed by the company or even by independent third parties. Firms can now also access high-quality customer knowledge even from potential customers, competitors’ customers, and nonadopters. In sum, different Web-based mechanisms are synergistic and can be deployed simultaneously by a firm as part of an integrated innovation strategy. Therefore, these tools should not become independent “silos” for customer dialogue. Rather, firms need to connect all these channels into a truly integrated platform for pursuing different forms of knowledge to support different stages of the innovation process.

Future studies could proficiently provide further empirical evidence about the integrated usage of the Web to enable collaborative innovation with customers, developing the analysis at least along two different main streams.

First, following a qualitative approach, the analysis should focus on selected case studies in order to explore the emerging implications of Web-based collaboration from a twofold perspective. From a marketing perspective, it should focus on the firm-customer relationship in order to evaluate the implications of collaboration on brand loyalty, trust, and value perception. From an organizational perspective, attention should be paid to the conditions enabling knowledge transfer and flow, exploring also the criteria supporting effective composition of new product development teams, specific tools accelerating customer knowledge-sharing and deployment within the company, and mechanisms for appropriate payoffs distribution.

Second, following a quantitative approach, the study should directly involve managers responsible for new product development activities to gather firsthand information about the actual usage of the Web to support collaborative innovation. It should cover a large sample of companies, operating in different industries and countries. To this end, a survey could be conducted to collect data related to the logic underlying the adoption of specific Web-based tools and the actual use that companies make of the information collected through the Web to support their innovation process.

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