From Mass Customization to Open Innovation: From configuration by customers towards customer innovation

By Dr. Frank Piller

The ability to create new products is an important component of a firm's innovative capabilities. New products are crucial to diversify, adopt, and reinvent an organization in changing market and technical conditions. Yet despite the importance, firms find it difficult to create new products (and services). Often, innovations cause enormous investments, but flop and do not meet the desires of the target markets. Thus, management guru Peter Druckner demands: "Today no one needs to be convinced that innovation is important ... How to innovate is the key question."

One striking example of how to innovate and to develop new products in a new way provides the development of open source software. Products like Linux or the Apache server consist not only of pieces of innovative code being responsible for these software's success, but these products are also created in a highly creative way.

Open source software is developed within networks of developers. However, these developers are not persons being highly paid to do this task, but (sometimes thousands) of people contributing in their leisure time or during work. There is much fascinating research on the motives of these people. But most of this research is concentrated on software development. While there are some nice exceptions, in most cases open source is seen equal to software.

But I think (some of) the principles of OS software development can be a role model for many other product categories as well. I use the term "open innovation" to describe a concept of innovation following the principles of open source development to perform innovation innovatively in many product categories. The main idea is that customers and users, and communities of users, are actively integrated into the innovation processes by the means of dedicated tools and platforms.

By performing open innovation, the assumptions of the traditional, internally-focused innovation system of many firms shall be overcome. In a new book (http://www.amazon.de/exec/obidos/ASIN/1578518377/masscustomizatde), Harvard Professor Henry W. Chesbrough uses the term open innovation to address the demand to co-operate to innovate. Open innovation in his understanding draws on technologies from networks of universities, start-ups, suppliers, and even competitors. The automotive industry can be regarded as a good example. Automobile OEMs don't try to reinvent the wheel, they partner with suppliers and research organizations to stay on top of new technological developments.

However, open innovation in my understanding goes one important step further: In addition to networking with various sources of technology providers, open innovation should build, first of all, on networking with the customers and users of a product. Open innovation aims at transferring the ideas and approaches from open source software development to the domain of other product categories and services. The result shall be innovative products and services that better meet the requirements and needs of their users.

The idea is to build and operate platforms where (communities of) customers and users create, develop, and discuss new products and services with the objective to capture the joint creativity and knowledge of both the company and its customers. Analogous to the open source idea, users can build upon other user's contributions or collaborate with other users to develop a final product without the help of a manufacturer.

Open innovation builds on customers as the primary source of innovation to a large extent. One important enabler of open innovation is a toolkit, an interface between the firm and the customer to enable customers to become innovators. Like a mass customization configurator, innovation toolkits (configurators with a larger solution space) guide the users to express their creativity and desires into a concrete product.

Not really a new idea. MIT Professor Eric von Hippel does research on this topic since many years (see http://userinnovation.mit.edu/). But also mass customization is not a new idea per se, it is just starting to happen now. The same is the case with customer / user innovation. Integrating users and customers into innovation processes to a greater extent than with the known market research instruments is demanded since decades. In niche markets like extreme sports it is also a common practice since these sports were invented. But in mass markets with millions of "normal" users, customer innovation is a new thing. Here, only the advent of recent internet technologies enable user innovation in a large scale.

Just check the homepages of BMW or Audi. On both sites you can access innovation platforms where average drivers are invited to create the next generation of cars -- or at least provide important input. These strategies would be impossible without the recent developments in internet innovation toolkits (check http://www.hyve.de for a company providing these toolkits). Also in the car industry, the OSCar Project aims at developing, prototyping, and, finally, constructing a commercial car within an open source a-like network. While the projects mentioned before can be performed almost exclusively in the digital domain, the OSCar project demands real-life work-shops to build prototypes. But it works (after various modifications of the original setting): The first real life prototype was just presented to the public.

From projects with several companies in the last year I learned that building an open innovation strategy based on an existing mass customization product line can be a very suitable strategy. Mass customization users are at least somehow used to working with a configurator. They also realized that interacting with a firm can provide now benefits (in terms of better fitting products), and, thus, is worth the effort. Mass customization customers are also often the most demanding leaders of a market segment. The same arguments are, of course, true also from the perspective of a firm offering mass customization.

So, connecting mass customization and open innovation makes a lot of sense. Both approaches build on the same principles of customer integration, use similar tools, and foster relationship sticky-ness and customer involvement. I see the connection of mass customization and open innovation as an important characteristic of third generation mass customization.

This article is reproduced by kind permission of Dr. Frank Piller, Director of the TUM Research Center for Mass Customization & Customer Integration at the Department of General and Industrial Management (AIB) of the Technische Universitaet Muenchen. This article originally appeared in the August 2003 edition of Mass Customisation News, a Newsletter on Mass Customization, Personalization and Customer Integration, edited by Dr. Piller.