The creation of knowledge, products, and services by online communities of companies and consumers is still in its earliest stages. Who knows where it will lead?
Jacques Bughin, Michael Chui, and Brad Johnson
For most companies, innovation is a proprietary activity conducted largely inside the organization in a series of closely managed steps. Over the last decade, however, a few consumer product, fashion, and technology businesses have been opening up the product-development process to new ideas hatched outside their walls—from suppliers, independent inventors, and university labs.
Executives in a number of companies are now considering the next step in this trend toward more open innovation.1 For one thing, they are looking at ways to delegate more of the management of innovation to networks of suppliers and independent specialists that interact with each other to cocreate products and services. They also hope to get their customers into the act. If a company could use technology to link these outsiders into its development projects, could it come up with better ideas for new products and develop those ideas more quickly and cheaply than it can today? Suppose that a wireless carrier, say, were to orchestrate the design of a new generation of mobile devices through an open network of interested customers, software engineers, and component suppliers, all working interactively with one another.
This is the model of innovation as a convergence of like-minded parties. Increasing numbers of organizations are now taking that approach: distributed cocreation, to use its technical name. LEGO, for instance, famously invited customers to suggest new models interactively and then financially rewarded the people whose ideas proved marketable. The shirt retailer Threadless sells merchandise online—and now in a physical store, in Chicago—that is designed interactively with the company’s customer base. In the software sector, open-source platforms developed through distributed cocreation, such as the “LAMP” stack (for Linux, Apache, MySQL, and PHP/Perl/Python), have become standard components of the IT infrastructure at many corporations. What facilitates this new approach to innovation is the rise of the Web as a participatory platform. What will drive its adoption by an increasing number of companies is the growing competitive need to uncover many more good ideas for products and to make better and faster use of those ideas.
Distributed cocreation is too new for us to draw definitive conclusions about whether and how companies should implement it. But our research into these online communities and our work with a number of open-innovation pioneers show that it isn’t too soon for senior executives to start seriously examining the possibilities for distributed cocreation or to identify the challenges, such as the ownership of intellectual property and increased operational risk, they face in adopting it.
The new face of innovation
In nearly every sector, many of the ideas and technologies that generate products emerge from a number of participants in the value chain. Boeing designs its aircraft, but suppliers make (and own the intellectual property for) many of the components. Likewise, HP’s computers and Apple’s iPod include hundreds of parts invented and manufactured by companies in more than two dozen countries. In many sectors, suppliers understand the technology and manufacturability of their pieces of the end product better than the OEMs do. Eli Lilly licenses and sells products that other companies develop; high-technology and media giants continually scan the horizon for innovations developed by start-ups and try to acquire whatever seems promising.
The benefits of specialization and collaboration seem obvious today. Clearly, an automaker’s suppliers can make better headlights at lower cost than the OEM can, because specialization promotes focus and innovation. Many companies participate in joint ventures for individual products or marketing packages and collaborate with university labs or specialists. Businesses are increasingly open to insights and ideas gleaned from any source—especially their customers, through call centers, retail data, and focus groups. Collaboration extends in many directions: when companies pursue a new product, many of them consult with contract specialists and suppliers and test prototypes with their customers.
But collaboration looks very different on Wikipedia, the online encyclopedia that represents a true phenomenon on the Internet. Wikipedia is created entirely by its users, not by a corporate-development staff in California. It is a living and continually expanding global reference work, which has expanded in less than seven years to offer more than six million articles in over 250 languages.2
The example of Wikipedia suggests that companies can take even greater advantage of specialization by ceding more control over decisions about the content of products to networks of participants (suppliers, customers, or both) who interact with one another. Does this seem far-fetched? IBM apparently doesn’t think so: it has adopted the open operating system Linux for some of its computer products and systems, drawing on a core code base that is continually improved and enhanced by a massive global community of software developers, only a small fraction of whom work for IBM. In software, open-source packages are gaining such favor that they are cutting into profit margins and drawing market share from proprietary software brands.
Many other examples of cocreation are now under way. One of them, participatory marketing, which encourages customers to help create marketing campaigns, is sometimes more than just a new tactic to attract attention. Approached in the right way, it is also an opportunity to start cocreating products with them. Last year, for instance, Peugeot invited people to submit car designs online and attracted four million page views on its site. The company built a demonstration model of the winning design to exhibit at automotive marketing events and partnered with software developers to get it included in a video game. Even business-to-business companies are starting to cocreate with customers: corporate users of SugarCRM’s customer-relationship-management software customize it to meet the specific needs of their industries.
Companies have three ways to win by adopting distributed cocreation. First, they can capture value from the cocreated product or service itself, as LEGO and Threadless have, by merchandising good ideas gleaned from the network. (In South Korea, the cocreated cosmetic brand Missha has seized a 40 percent market share in its segment.) Second, companies can capture value by providing a complementary product or service. Red Hat, for instance, sells a host of technology services to users of Linux. Third, they can benefit indirectly from the cocreation process—for example, through an enhanced brand or strategic position.
