Lack of a common definition
Some while ago I was on the 22:nd annual ISPIM conference in Hamburg where one of the research tracks concerned levels of openness in open innovation. After the presentations, discussions flourished and it was my clear understanding that there is currently little consensus to a common view on openness within the research community. So this is the first of two articles where I would like to give my view on the matter.
Defining openness
To begin with I would like to start this manifesto by defining what we mean by “openness” in open innovation. Chesbrough is commonly cited on this topic with regard to his definition of the “boundaries of the firm”. When ideas, or the property right of ideas, flow inside or outside the innovation funnel of the firm - where the “funnel” represents the stage-gate process of evaluating and reducing the amount of less valuable ideas - innovation opens up. Traditionally, every phase in the innovation process, from idea generation to experimentation and commercialization, has been performed internally at the firms. So, by that dispute, openness is relative to assets controlled by the firm.
Assets for openness
But what are the assets actually owned, or controlled, by the firm? To begin with, the restricted value is rarely with regard to physical objects. Even though a single instance of an object might be relatively valuable to a firm in terms of transaction value, it is seldom as valuable as the blueprint to producing such objects. For instance, in comparison to owning the world’s only box of anticarcinogens, which would be highly valuable, it is even more valuable to own the recipe for anticarcinogens, or even the patent rights to it. With the right resources you will then be able to keep reproducing anticarcinogens as long as they are valuable to you.
Hence, there are two things that are much more valuable to the innovative firm than the object itself - and that in the long run may even be invaluable - and those things relate to the sources of product/process/service reproduction, namely data and people - or by their more value-enhanced descriptions - information and knowledge. The right information, complemented with the right knowledge to utilize that information, together form the two most valuable assets of the information era. Thus the interest from firms to control and restrict such assets from competitive access.
Boundaries to, and channels for, openness
Another significant distinction of openness is that it is not static. If the required asset remains statically on either side of the boundary of the firm, and the boundaries are closed for transfer, the firm itself is consequently non-open. Note that information does not need to be physically transferred from point A to point B to be shared (or stolen, if not shared intentionally), it just needs to be accessed and viewed at point A from point B. Importance lies with the accessibility across the boundaries. With information, in contrast to physical objects, moving an asset from one location to another does not necessarily mean that it is deleted in the first location; it might just as well be copied. Regardless of the form assets are made of (tangible or non-tangible), there needs to be channels to transport them for the firm to be open. If ideas stay within the innovation funnel, innovation is not open. So clearly, the firm’s funnel needs channels to communicate with resources outside its boundaries. This leads us to two distinct necessities for defining openness in open innovation – transparency and connectivity.
By transparency we refer to opening up the visibility of data resources, be they information or knowledge (databases or people). Firms traditionally restrict access to its data resources by i.e. firewalls, passwords, regulations, policies, locked doors, etc., depending on the form, or value, of the information the resource contains. As with most policy concerns privacy must be protected. Certain data is by no means meant to be publicly accessible, such as personal consumer information, strategic business metrics, etc., and thus requires restrictions. But data that is not classified as confidential may be candidates for exposure to support innovation.
By connectivity we refer not only to allowing the data to be exposed, but to the creation and acceptance of channels to retrieve, publish and communicate with the data. It becomes even more evident with open innovation, since sharing information and knowledge may help create new business value, while restricting it may create – nothing.
From value chains to value networks
With the transition from viewing a firm’s value enhancements as a secluded sequence - a value chain - to a multiple set of parallel, and possibly asynchronous, cross-functional processes - a value network - the amount of “nodes” (in which the product/process/service value increases) will amplify radically. As will the order in which the nodes are accessed. Moving from a controlled process to a dynamic self-regulatory system has its implications for a firm.
Porter’s sequential value chain and a value network map (12manage.com, 2011; valuenetworksandcollaboration.com, 2011).
Most importantly each node-to-node connection, especially those that connect with outside nodes, has four gateways which must be in a proper state. First of all the out-reaching node must be allowed to access the channel. Secondly and thirdly there must be a channel between the nodes and it must be available and open in both ends. Finally the recipient node must be accessible - meaning its location, or address, must be publicly available and its recipient connector must not reject incoming signals. From a general node-perspective, the node - whether it contains information or knowledge - must be open for in- and outgoing connections.
A “node” in a value network is any employee, customer, partner, system, database, document archive/etc., which contains information or knowledge that is of value to another node, and that collaboratively improves the value of the product/process/service of interest for innovation. A “channel” is any transmission line (telephone line, Internet system, email route, postal service, meeting space, or similar) between two nodes in a value network which supports the exchange of information or knowledge between them. There must also be a common language for communication, such as English, XML, etc.
From the firm’s internal perspective it can only influence the information and knowledge in which it has possession. To interact with external data sources - outside the funnel - the firm must establish channels to support it. Yet, the firm will be reliant on other firms’ transparency. One way to accelerate this is to engage in innovation partnerships where mutual rules for transparency and connectivity are established, thus reinforcing communication with nodes outside the funnel. For traditional open innovation the use of ideation systems, patent licensing platforms and innovation marketplaces such as InnoCentive are common ways of approaching this.
In the next article in this series of two we will cover various target groups to consider when opening up and levels of openness in various phases in the innovation process.
Recommended reading
Allee, V. (2011). ”Value Networks and the true nature of collaboration.” ValueNet Works and Verna Allee Associates.
Paasi, M. & Valkokari, K. (2011). “Levels of openness in open innovation.” Proceedings of the XXII ISPIM Conference.
West, J. & O´Mahoney, S. (2008). “The Role of Participation Architecture in Growing Sponsored Open Source Communities”, Industry & Innovation 15, 2 (April 2008): 145-168. Taylor & Francis.
Co-creation evolves as markets change
In traditional terms a “market” is a place where sellers present goods and buyers purchase them when they find one they want or need. In the traditional case a buyer has a few pre-made standard products to choose from. In the information age the conditions of market places are shifting from meeting points of two processes (the production process and a separate purchasing process) into collaborative systems of co-creation. New business models are evolving and companies are realizing that consumers are not incompetent illiterates, but rather well-informed, highly skilled users. The combination of their intelligence, skills and product competence may be of major value to the company.
Hence the focus is changing from a product-centric market where firms produce stuff they want to sell, toward a market where personalized consumer experiences are becoming dominant. Consumers today have a variety of goods to choose among and are often able to tailor them to personal needs (as with new cars or with software services). With the impossibility for companies to cost-efficiently deliver individualized products to each consumer - at least not at a reasonable rate - a new approach to consumer experience is necessary.
The value creation process redefined
The main driver for co-creation is actually a combination of a few changing market phenomena. The first one is the changing attitude of consumers. Stemming from, among others, the open source movement consumers have started to become more involved in the evolution of products and services - especially those consumers who are lead users and/or professionals in the area of the product or service. Users today are generally better informed and more engaged due to the increased access to information and new improved business communication channels over the Internet. And equally important - they are all connected, meaning they do not only co-create with the company (B2C) but also with each other (P2P or C2C). Porter’s definition of the “value chain” is diminishing with respect to new “value networks” - with an exponentially growing number of nodes.
Businesses perspectives on co-creation
As stated by Prahalad and Ramaswamy (2003) it is often futile for a company to try to manage individuals’ experiences. Companies have continuously been trying for decades, mostly by various consumer insight programmes, but the trend is now shifting toward viewing products and services as “platforms for user interaction”. Companies need to not only understand consumer behavior and needs, but also create environments in which consumers can tamper, explore and experiment with products and actively participate in their development. And the value network doesn’t end there; when consumers define uses that are out of the company’s traditional scope they need a partner network to help offer the solutions required by the consumers. Co-innovating with partners in the value network to increase the consumer experience will strengthen the company’s market position compared to those who don’t.
Co-creation or mass customization?
User experiences will vary with regard to several factors, some of which are context, mood, background, former experiences, etc, and all of these may vary for each occation. Since companies are not likely able to foresee every separate situation, they have three general options; to create an offering that is general enough to fit most situations, to create such a variety of offerings that every situation is covered, or to create a modifiable general offering which can be adapted for each situation and/or in collaboration with others. The latter option mirrors a situation where a consumer receives a product or service that is adjustable to each present situation – a concept also commonly known as “mass customization”. Mass customization is a form of co-creation which combines the economic benefits of mass production with the flexibility of individual customization. Mass customization does not exclude initial co-creation, they are complementary and may both be incorporated into the innovation process. As co-creation often refers to participating in defining products and services, mass customization usually refers to the possibility of modifying the products/services and their content.
Note that many times, especially in services, co-creation may occur in the production process as well. At those occasions co-creation and customization are intertwined. A rule of thumb is usually that the more flexible the solution the more difficult it is to develop. Hence the need for mass participation in the concept development phase to provide a greater body of experience and knowledge to the innovation process.
Recommended reading
Bhalla, G. (2010). Collaboration and Co-creation: New Platforms for Marketing and Innovation. Springer.
Prahalad, C.K. & Ramaswamy, R. (2003) The New Frontier of Experience Innovation. MIT Sloan Management Review.
Ramaswamy, V. (2010). The Power of Co-Creation: Build It with Them to Boost Growth, Productivity, and Profits. Free press.
The interest in video technologies has surged as IT infrastructures and network capacities have improved. We have conducted a study with Q-Med, a medical device group, and Populate, a digital media company. We explored how such technology can stimulate open innovation, in our case the sharing of ideas among employees by discussing videos. Our case company, Q-Med, introduced an interactive website with functionality that is similar to YouTube. Videos that present the company’s history and give a background to and describe the core values of the company have been produced and published on the website.
The reason for focusing on the core values was that the management wanted to keep the original spirit of the company and have the unique success factors in focus even during a period of fast growth and global expansion. By reinforcing company core values with the overall focus on the entrepreneurial spirit, they wanted to affect employee’s attitudes, behavior and commitment. The management conducted a series of workshops and forums to discuss and strengthen the company’s core values and the interactive website was a continuation of this effort. In each video the employees were encouraged to share their reflections on the values and how they can be implemented in practice, by submitting comments on the website.
Our study focused on how the use of the video website affected the awareness of the core values and whether this also influenced the behavior of the employees. We were interested in exploring whether or not the use of the video website supported contribution and sharing of ideas, which is one of the key dimensions of open innovation. Two web surveys were designed for the study. The first survey was conducted prior to introducing the video website and the second survey after introducing it. As a complement, we also conducted interviews, focus groups and observations of how the video website was used.
We identified a slightly negative effect on awareness and behavior in relation with the vision by the employees, which can partly be explained by that the project took an unexpected turn because of organizational turbulence and downsizing. Employees that felt like active participants were more likely to prefer video, were more satisfied, and perceived greater positive effect on awareness and behavior. Our study extends findings from traditional organizational change communication research by showing that participation is a key success factor also when using a video website. We also found that there was unequal access to the internet, which made it difficult for the operators, working with production in the production line, to find and access the interactive video website.
In the future, the employees of Q-Med see a number of potential applications of this technology: communicating with subsidiaries, presenting the company to new employees, presenting the work of different departments and presenting new members of the management team.
Participation inequality - the “90-9-1 principle”
According to Sturgeon´s Law 90 percent of everything is crud. Theodore Sturgeon initially referred to science fiction movies, but the adage has come to be widely accepted as true for the Internet as well - specifically web content. And if 90 percent of all web content is trash, we need to secure that the focus stays on the 10 percent of good stuff. And as the law is a generalization and not a definite truth, we can enforce a good strategy to increase the level of quality content in the services we provide. There are several models dealing with this issue.
Web usability guru Jakob Nielsen has defined a complementary theorem to Sturgeon´s Law which he calls participation inequality. He has characterized his theorem as a 90-9-1 principle which is specifically aimed at web 2.0 services. By “90-9-1″ he refers to research results showing that 1 percent of users are active creators of content, 9 percent of users work actively to refine the content produced by the creators, and 90 percent of users simply consume the content. Jeff Howe has picked up on this as well, and two of his ten rules for crowdsourcing paramounts the importance of curing the Sturgeon disease. In the conclusions of his book “Crowdsourcing” he proclaims the importance of letting the crowd itself judge what is crud and what is not, so that the focus stays with the ten percent of the content that the crowd considers valuable.
Disposition of user contribution according to the 90-9-1 principle
A common example of this phenomenon is YouTube, where the upload vs view ratio (producers vs consumers) is 1 to 1,538, meaning that only 0.5% av all users are contributors of content. Another frequent example is that of Wikipedia, where 70% of all articles have been written by 1.8% of the community. These statistics verify that a small fraction of all users represent the critical mass of content for large prosumer sites. Similar analysis have been made to 157 communities utilizing the Lithium community platform, and the results go hand-in-hand with the previous statements, where 3.36% of all users provide more than 50% of the content.
The Lorenz Curve is a way of statistically and graphically displaying the disproportionate distribution of wealth in society. It presents the percentage of participants on the X-axis and the percentage of income on the Y-axis. The Lorenz Curve has also proven statistically valid for participation inequality, where the Y-axis instead of income displays the number of contributions to the web community. In general, this method is a good mathematical construct to help visualize the pareto principle of participation where a few contributes plenty and many contributes scarcely.
Examplifying inequality levels through Lorenz curves. (Source: Dr. Michael Wu.)
One must not forget, though, that even passive consumers contribute indirectly to the community while consuming, since the motivational driver for most contributors often is the attention and appreciation of the rest of the crowd!
Just as Jeff Howe suggests, it is good practice to let the users help themselves to selecting and highlighting good content. Voting on content, and reviewing it, helps users in finding top content and ignoring crud. Utilizing a good review- and rating system will help to make appreciated content even more popular - and less appreciated content will consecutively deprecate.
Forrester Research has fine-tuned the 90-9-1 concept into a social technographics ladder which even further categorizes prosumers. The Forrester model is complemented with a social technographics profiling tool for analyzing users as a foundation for forming a prosumer strategy for your service. In essence, the main contribution to the field is not the extended division of participants, since it is mostly a granulation of the editor group, but rather the practical use of the profiling tool which can be of profound use for social community projects.
The 90-9-1 principle in open innovation
As we have seen, building critical mass is vital for any prosumer service to succeed. And as we have also seen, it is equally vital to find and attract creators of content, as the service otherwise risk quickly dropping in popularity, hence never getting the launch it needs to advance. Open innovation, and specifically various forms of ideation activities or prediction markets, are - like most other web 2.0 services - often founded on crowd participation. Regardless of the size of the crowd, an active crowd is necessary in order for such open innovation projects to be successful. So what does this mean for your future open innovation projects? It simply means that finding and motivating your top contributors will be a crucial success factor. If you manage to find and motivate them early in the process the project is more likely to manage to create a critical mass of content and be self-maintaining from then on.
While attempting to locate contributors to invite to your service, it is important to know what to look for that separates good contributors from mediocre ones. In general they need to have at least three characteristics; 1) they need to have the right incentive to contribute (an incentive you need to stimulate properly), 2) they need to have the “courage” to contribute, meaning they should be frequent and preferably experienced contributors, and 3) they need to have subject matter expertise to be able to contribute properly, so that quality content is provided, avoiding unnecessary crud.
Consumers may also transform into contributors once they start feeling comfortable with their role in the community. As they read, interact or consume content, they may sooner or later become inspired enough to start editing content as well.
An evolutionary circle of contribution
In the Open Innovation Frameworks project we recently performed a research case study on an ideation project for a municipality and experienced that exact problem - a “critical mass disorder”. The participation rate was initially very low, which inhibited the acceleration of content production, in this case the production of new creative ideas. Ourpost-project research results showed alignment to the 90-9-1 theorem. The project did not succeed well in recruiting top content producers, hence with very little content at hand from the (missing) lead-contributors, there were not enough for the editor group to work with. And as a consequence there was too little content to inspire consumers to become editors or creators. All-and-all, the case demonstrated the very same symptoms as described previously in this article. With nobody at the steering wheel, the truck doesn´t really go anywhere… If the project would have been initiated with a pre-study of lead-contributors to be given special invites - perhaps even provided a week´s exclusive access - the project would have been more likely to have produced more sufficient outcomes - now it didn´t.
Antidote formulas for resolving participation inequality
Based on the work of Jakob Nielsen and his original participation inequality theory, complemented with further research, we here give some concrete advise for dealing with participation inequality. One of the main purposes is to help users climb the contribution value chain - from consumer to editor to contributor.
1. Make it easy to contribute. Lower the bars and minimize the efforts needed to contribute. Do not demand too complicated forms or too difficult log in procedures,since those may be experienced as too daunting to first time users. Sometimes single-click actions might be just enough to get users started as editors. Once they begin to feel confident as editors, more advanced steps may be underway. And many users find it hard to begin contributing from a blank piece of paper, so support them by providing examples, templates or references. If they can see how other have done it, they will be much more comfortable contributing themselves.
2. Make participation a side effect. Consumers interact regularly in communities as well, and their actions can also be valuable contributions if evaluated properly. By data mining user participation, community systems have a lot to learn which can improve the overall interaction value. Amazon´s “people who bought this book also bought..” is a good example of how ordinary consumer interaction can be turned into valuable contribution.
3. Reward contribution. Find out what motives your contributors and establish a responsive reward system. This is very important to drive continuous contributions, but comes with two rules of thumb; 1) primarily reward quality - you do not want a massive crud explosion in your community, this will only make the content confusing for quality users, 2) don´t over-reward - unless you want the over-achieving one percenters to completely dominate your service.
4. Pinpoint lead-users and inspire them to contribute. Find competent and active contributors and entice them to participate in your open innovation project. Secure a set of energetic contributors to let loose on day one, so that critical mass can be safely guaranteed.
Conclusions
So, if you take these precautions, will your distribution ratio change, say from 90-9-1 to 75-20-5? Most likely - no. Rather, the ratio will probably remain consistent, yet the total amount of participants in your project/community will raise. If your top contributors can increase from say 100 to 500, your content will increase with the same ratio, thus attracting more editors and consumers. Assuming the 90-9-1 ratio is a relatively fixed rule of thumb, then suddenly your entire participation rate will raise five-fold, and you will be finding yourself managing an open innovation community that can be described as nothing less than prominently successful.
Recommended reading
Howe, Jeff (2008). Crowdsourcing - Why The Power of The Crowd is Driving The Future of Business. Crown Business.
Laurence Brothers, Jim Hollan, Jakob Nielsen, Scott Stornetta, Steve Abney, George Furnas, and Michael Littman (1992): “Supporting informal communication via ephemeral interest groups,” Proceedings of CSCW 92, the ACM Conference on Computer-Supported Cooperative Work (Toronto, Ontario, November 1-4, 1992), pp. 84-90.
Steve Whittaker, Loren Terveen, Will Hill, and Lynn Cherny (1998): “The dynamics of mass interaction,” Proceedings of CSCW 98, the ACM Conference on Computer-Supported Cooperative Work (Seattle, WA, November 14-18, 1998), pp. 257-264.
Today, on the 30th of November 2010 the iPad is released in the Swedish market, but even before its launch, last week, the “pad” was named to this year’s Christmas present in Sweden. Expectations on this new technology, platform and media channel is high. Within research communities focused on IT and innovation processes estimates are that the iPad is a potential “disruptive technology” in its potential to again redefine and bring new dimensions to today’s already rather complex and partly digitalized media landscape.
In the year 1994, the Web hit the public front. During the following six years the web grew from a rather simple media comprising mainly of grey pages with black text and blue hyperlinks to a rather advanced and modern media with support for animations, video, execution of program code, etc. The Web as a media platform matured over several years and in the year 2000 it had grown to become a major challenge, not at least for many traditional newspapers. The challenge was obvious. How should they relate to this new media? It was not a printed media in its traditional sense. The pages were of course graphical and layout was important, but the pages were also interactive and could be continuously updated with news. The ability to have both a printed newspaper edition and a web edition created some perplexity in most newspaper offices.
Today, in 2010, the Web is again different. In the wake of the Web’s interactive features, the web in its form of social media now once again challenges journalism, journalists, and the traditional newspaper. With services like Twitter, just about any person can report from events from any place and anyone can now easily comment on the editorial text published in the newspapers´ electronic versions, in real time, and as soon as the text is published. The boundary between the reader and the writer is becoming increasingly blurred.
At a time when borders are blurred or even erased, when collaborations are made easy, and when traditional roles are loosening as a result of digitization, it will on the one hand become easier to work together to create something new, to collaboratively work with open innovation as a point of departure, and to achieve success together. On the other hand, with the loosening of traditional roles, distribution channels and value chains the rules governing the economy around these media is also redefined. In the traditional newspaper there were editors, journalists, distribution channels and payment models – well developed and clear. There were authors of the editorial, and there were readers as recipients of the editorial text.
With the introduction of the iPad on the market and as part of the media landscape the rules of the game are changing. With the new pads around a new channel is ones again established as not only a potential but also as a media landscape disruptive phenomenon for newspapers and magazines to now get a grip on. Before the iPad the traditional newspapers needed to position themselves between the printed and the digital media. Most newspapers made the simple choice to continue selling subscriptions and single copies of its printed newspaper, and give out free online web-based magazines as “added value”. The idea and the model were simple. The physical was something that people could be willing to pay for. The digital was supposed be handed out for free. With magazine apps for the iPad this simple division between the physical and the digital is no longer possible.
iPad and similar pads have many properties similar to the printed media. Nice reading format, nice resolution, portrait orientation of text and the opportunity to read through the “pages” and “bookmark” anything you find interesting. Simultaneously, the pad is a digital networked object in constant contact with the online world and its information flows, (including e.g. RSS feeds, blogs and social media). The pad is positioning itself right on the spot in between the printed media and the Web. With this new position many more positioning issues and questions follows. How should the digital magazine relate to the printed media?, i.e. to the traditional newspaper? Should it present itself as a supplement, a replacement or something completely different from the printed newspaper and the web respectively? What should the economic models look like? The Swedish newspaper ”Dagens Nyheter” might serve as a good example here. For Dagens Nyheter their news site on the web, www.dn.se will remain free while the DN newspaper on the iPad, DN+ will cost 22 SEK per single issue or 99 SEK / month for a DN+ iPad subscription, followed by 199 SEK / month for non-DN-subscribers. This exemplifies the positioning work that is now going on in this business area for the development of viable economic models surrounding this new digital platform and media.
A great potential now lies in the development of a succesful iPad magazine app, a “magazine browser” app with a viable economic model closely attached to, or integrated with, it – enabling simple co-authoring and enabling payment and revenue. With the integration of a magazine app with a working payment model a “closed ecology” can be created in which the stakeholders included in the ecology – ranging from the journalists to the readers can collaborate and together form the content of tomorrow’s newspaper, i.e. be innovative together in the creation of new editorial text. Simultaneously, the closed ecology can ensure a sound economic model to compensate the stakeholders while at the same time upholding “the magazine” as a frame of reference for how we should navigate the flows of news and interpret the texts presented within this ecology. As such, this boils down to basic questions of service design, economy and memberships within a community – with a new platform as an area to play around with there are also possibilities to invent and reinvent the rules governing the playground – socially and economically. As such, the creation of “the magazine browser” app as a closed ecology might imply a great opportunity for open innovation,
