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It is now 10 years since Henry Chesbrough published his groundbreaking book on the “new imperative for creating and profiting from technology”. A lot of insight has been generated since then about how firms could win the innovation race by leveraging the expertise of a connected world with exponentially growing and globally distributed knowledge.
Probably the largest part of material in this context addresses the question how consumers could be integrated into the innovation process:
Additionally, a significant amount of material has been published on how external R&D partners could be integrated into the innovation process in order to solve technical and scientific challenges. The questions in this part of Open Innovation are more complex since they comprise strategic dimensions, process and organizational issues, topics that focus on culture change and how to manage networks of solution partners. Furthermore, if one dives deeper into this subject, one finds that also issues like suitable business models, Intellectual Property management, finding new innovators and increasing the firm’s absorptive capacity are necessary conditions for success in R&D-driven Open Innovation (see a recent publication for more information on this subject).
However, up so far there is little material on how to systematically innovate openly with B2B customers. This article closes the gap by providing insight from innovation-3’s project work and from Best Practice examples. It starts with describing the four key roles that B2B customers may have in this context, then addresses the question how the best partners could be found and managed and finally closes with some recommendations about what your firm should do in order to reach the next level in integrating your B2B customers into the innovation process.
For the sake of simplicity and in order to limit the scope of this article we make three distinctions. These don’t limit the value of the thoughts and insights presented here.
Firstly, “customer” in this context refers to any firm downstream in the industry’s value chain such as existing customers, customers’ customers, leads / not-yet-customers or intermediaries to customers.
Secondly, we look only at active interactions with customers and leave out more passive forms such as market studies, benchmark studies, inquiries, focus groups and others. By “active interactions” we mean interactions that pursue one or more of the following three goals:
And thirdly, we focus on the fuzzy front-end of the innovation funnel and leave aside customer involvement in the efficient back-end (such as e.g. using selected reference customers for innovation marketing).
There are four major ways in which leading firms innovate openly with their B2B customers. In every one of these, integration of the B2B customer into the innovation funnel is achieved via a specific role the customer plays.
B2B customers in the “Trend Insight Enabler” role contribute to the firm’s innovation strategy by providing – in most cases tacit – insights about the evolution of the business environment, markets, technologies or competitors.
There is enough case evidence that bi-directional interactions, i.e. jointly developing trend-based scenarios, provide value to all parties involved. In most cases these interactions are pre-competitive and not regulated by Intellectual Property provisions (since all parties profit from insights generated in the process) but governed by Non-Disclosure Agreements.
An example from the German chemical industry may illustrate the point. Bayer MaterialScience, the polymer division of the chemical giant Bayer, has installed a “Creative Center” (CC) that operates in the new products / new markets quadrant of the classic Ansoff matrix. Together with large customers, e.g. car manufacturers, the CC develops and refines future market scenarios and roadmaps. From an internal perspective, the CC takes these discussions up to a point where market potentials and potential future technology platforms become so tangible that R&D units are in a position to conduct early-stage feasibility studies.
The adoption rate of innovations in products, services and business models with respect to time can be visualized in a bell-shaped curve. In almost any industry there are customers that pursue a first-mover innovation strategy and are far ahead of the market (i.e. at the very left of the adoption curve). They possess a huge tacit knowledge of innovation potentials and sometimes even develop prototypes on their own to solve their innovation problems.
Eric von Hippel coined the term “Lead Users” for these firms. In his research, von Hippel showed in various case studies that integration of Lead Users can be crucial for speed and effectiveness in innovation management. Von Hippel’s observations are particularly true for firms that pursue a first-mover innovation strategy.
Integrating Lead Users has also the goal of accessing tacit insights – but contrary to the Trend Insight Enabler approach these insights are focused more on new products, services and business models than on general developments and trends.
B2B customers in the “Concept Validator” role contribute to the firm’s innovation process by (a) pushing and steering innovation via the concept or (at a later stage in the funnel) via the product specification and by (b) integrating the innovation into the customer’s manufacturing / value chain.
From the customer’s perspective this interaction can be seen as supplier integration. Often the customer is in a system business – such as e.g. airplane / train manufacturing or energy – and hence the level of tacit knowledge exceeds by far the one of a single Lead User. The Concept Validator approach can be found in two forms: In a rather strict / governing form or a more exploratory form.
The first form can be observed for instance in the aerospace industry. When e.g. Airbus and Boeing develop new aircraft models with the carriers (which could be seen as Lead User integration) and break down the innovation challenge into sub-systems and components, the individual innovation partners need to follow strict, pre-defined procedures. An example for this: When PFW, a supplier to Airbus and Boeing, develops new tube systems according to specifications set by these two firms, both the new product and the underlying supply chain processes are subject to formal acceptance by the airplane manufacturers.
The more exploratory form of the “Concept Validator” approach can be found in leading German innovation clusters. In these clusters, a number of firms that cover the whole innovation value chain – from materials via devices and systems to applications – are aligning their innovation efforts in order to ensure that the innovation efforts at every level of the value chain are perfectly aligned. Two examples from the German chemical industry may illustrate the point:
As every open innovator knows usually there is a whole ecosystem of other firms with knowledge in fields that are complementing the firm’s core competence (see also here). This knowledge may comprise
By innovating with “Complementary Expertise Providers” firms access tacit or explicit knowledge to create innovative solutions. Two examples from leading German firms may illustrate the point:
Graphic 1: Position of B2B customer innovation partners in the fuzzy front-end
The quality of customer integration in B2B Open Innovation depends firstly on identifying the best partners. Some ideas on how to do this can be derived by studying business practices of leading firms.
Analyzing the Social Web for consumer trends and innovation opportunities via specialized service providers and / or via special software is currently receiving a great deal of interest. Interestingly, this approach is not limited to the B2C space. It can be applied in B2B scenarios as well. And even more interesting is the point that – if it is done rightly –a solid base of global Trend Insight Enablers can be produced en passant.
Let’s look at a case study on a large German energy firm (which needs to remain anonymous for confidentiality reasons) to see how this could be done. As you may be aware of, the German government has decided to remove nuclear energy from the mix of energy sources. In order to maintain security of energy supply, a large part of the current contribution of nuclear energy needs to be replaced by renewable energies. Since – in contrast to nuclear energy – the production of renewable energies is not centralized, a massive redesign of energy production and distribution grids is required.
In this context, some pivotal technological decisions are to be made. The energy firm wanted to get more insights into the shape of future “smart grids” and in particular in automated metering in smart grids. Furthermore, we encouraged the energy firm to design the process so that it allowed for identification and meaningful interaction with the global best on the subject.
In an obvious first step own staff, specialized Think Tanks and specialized consulting firms with domain expertise were asked to contribute to the innovation challenge and identify potential Trend Insight Enablers (“Who do you see as a leading expert in this field?”). In step 2, the Web was analyzed for more experts via specific Web tools and Professional Services. A large number of potential Trend Insight Enablers could be found and added to the existing list – which was quite surprising to the energy firm since the assumption was “we know what is out there”.
After qualifying the list of experts and setting up an appropriate framework for deeper discussions (including Non-Disclosure Agreements), a Delphi process with selected Trend Insight Enablers was arranged with the explicit goal to de-average opinions and to identify non-mainstream expert judgments. Out of this step, a number of issues that needed further discussions were isolated that were then discussed via virtual global roundtables and workshops.
Apart from getting more insight into the global diversity of opinions and expert judgments – in particular into those issues where there are substantiated different opinions – the energy firm isolated a number of Trend Insight Enablers that will be engaged in suitable interactions as the innovation topics are pushed though the funnel.
Having a well-managed database of lead users is a tremendous asset for increasing the effectiveness of your firm’s innovation process. So for instance, a German firm from the optical industry has a database of Lead Users that covers all of its target industries and market segments. For every Lead User, any interaction is evaluated with respective to its innovation contribution and hence the firm has an up-to-date information on the best Lead User for any potential innovation challenge.
If the firm wants to go beyond simply managing the existing base of Lead Users and aims at expanding the base, there are a number of “classical” ways to find the lead users for your firm. Among them are structured interviews with your firm’s sales force, analyzing conferences and trade shows of your customer industries and conducting in-depth interviews with trade associations of your firm’s customers.
Additionally, leading firms have found new ways to identify find new Lead Users via Web-based approaches. One of these ways is to evaluate the interactions on the firm’s customer portal and pinpoint the users that think ahead of the majority and engage in discussions with an innovative character. Another way is listening to the Social Web (as described above) and identifying the opinion leaders that push the innovation envelope.
In a number of industries – such as the automotive or the aerospace industry – there is a natural choice for selecting the Concept Validators: They are the big manufacturers that govern the quality management systems of their supply chains.
However there are many industries in which the firm is not restrained by these kinds of tight managerial systems. In these kind of situations, a suitable Concept Validator would be a (potential) customer that has (a) a high interest in the innovation issue on hand and (b) the power to extend its market share via the innovation (and hence the sales volume of the innovating firm).
There is an interesting twist in the Concept Validator play: In some situations it is more valuable to address customers of the customer since these might have a deeper understanding of the value of the innovation than the immediate customers. This observation is also a key rationale to integrate customer’s customers in cross-industry-/cross-value-chain innovation clusters, at least for the ones mentioned above. An example for this view comes from the German Chemical Industry: A Specialty Chemicals firm which innovated in membranes for lithium-ion batteries. Its immediate customers didn’t see the potential in this technology but an automotive OEM – a customer of the firm’s customer – did.
In extending the base of Complementary Expertise Providers, leading firms follow comparable pathways than the firms that excel in Lead User integration. However, in managing the base of Complementary Expertise Providers, leading firms – primarily the ones from the software industry and from adjacent industries – go beyond this and pay careful attention to the interactions of the providers since there might be an opportunity in platform / business model innovation.
If a firm takes on this strategic perspective, the management of a portfolio of Complementary Expertise Providers is much more than just having a database of partners. It comprises
Graphic 2: Key characteristics of the four roles
Leading firms do not only focus on finding and keeping the best customers for innovation purposes, they also make sure that the management of the corresponding processes is well embedded into the formal organization.
When one looks at the four key roles described above one finds that they differ by position in the innovation funnel and by the nature of their contribution to the firm’s innovation process:
Consequently, leading firms allocate the management of the corresponding innovation partners at different levels:
Integrating B2B customers into the innovation process helps your firm to kill two birds with one stone: It improves effectiveness of the innovation process and it improves customer closeness. As shown in this article, there are emerging Good Practices on how to segment the relevant customers and how to organize for integration of your firm’s B2B customers.
Depending on what your firm has already accomplished in this area, one or more of the following actions might increase your firm’s innovation performance:
By Frank Mattes
Frank Mattes has more than 15 years of experience in managing innovation, change management and projects. He has worked for several specialized medium-sized consulting companies and for The Boston Consulting Group. He also worked at C-level for an IT and a professional services firm. Frank founded and runs the innovation catalyst innovation-3. Frank is the author of several books and a contributing editor to InnovationManagement, the number one platform for innovation management practitioners.