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  • pg 1
into user-driven innovation
table of contents

Preface                                                              3
1. Innovation in change                                              4
2. Global trends and innovation                                      4
3. New approaches to the work on innovation                          8
   3.1 User-driven innovation                                        8
   3.2 Openness in innovation                                       11
4. The Danish challenge                                             13
   4.1 For whom and when are new approaches to innovation usable?   13
   4.2 How are results created with new approaches to innovation?   14

InsIGHt Into user-drIven InnovatIon 2007

With the programme for user-driven innovation, we have, as the first country in the world,
launched a targeted effort to promote user-driven innovation in the private sector and the
public sector.

I see the programme as a significant contribution to preparing the Danish economy for global
competition. Enterprises no longer compete solely on the parameters of price and techno-
logy, but increasingly also on the ability to offer precisely the solutions that hit the customers’

The programme for user-driven innovation is a Danish laboratory for innovation with focus
on the users. Here, enterprises and public sector institutions must be able to develop and
test new methods for gaining improved insight into the needs of the users. And the results
produced by this work are to benefit the highest possible number of Danish enterprises.
With this programme, we wish to contribute to making Denmark one of the most innovative
countries in the world.

The discussion paper that you are holding in your hand presents the challenges that Danish
enterprises face in their work on innovation, as well as a number of the most up-to-date tools
available for the work on innovation. The programme for user-driven innovation focuses on
innovation in both private enterprises and public institutions. However, this paper focuses on
innovation in private enterprises.

It is my wish that the paper will provide you with concrete insight into ways in which the work
on innovation can be organised and will present the experience gained by other enterprises.           The Board of the Programme for User-Driven Innovation consists of the following members:
However, innovation is a major challenge. For this reason, we close the paper with a presen-          Managing Director Jacob Holm, Fritz Hansen A/S (Chairman), Executive Vice President
                                                                                                      Mads Nipper, the LEGO Group, Group Senior Vice President Lisbeth Thyge Frandsen,
tation of some of the most current challenges to the work on new approaches to innovation,            Grundfos (People & Strategy), Managing Director Lars Gundorph, Willis, Architect Dorte
viewed from our perspective. Questions we would like to discuss with all those who are                Mandrup-Poulsen, Dorte Mandrup Arkitekter, Chairman Lars Nørby Johansen, The Danish
interested.                                                                                           Growth Council, Chairman Lars Mikkelgaard-Jensen, The Danish Council for Technology
                                                                                                      and Innovation, Hospital Director Jens Otto S. Jeppesen, Odense University Hospital,
Enjoy your reading.                                                                                   Rector Anne Kirah, 180° Academy, Director Jane Wickmann, The Danish Technological In-
                                                                                                      stitute, Senior Shop Steward Jørgen Bjergskov Nielsen, NKT Cables, Head of Department
                                                                                                      Annemette Digmann, Region Midtjylland

Jacob Holm
Chairman of the Board of the Programme for User-Driven Innovation

1. InnovatIon In cHanGe

Briefly stated, innovation is a matter of improving the earnings of companies by com-                                          However, there is still a shortage of knowledge on enterprises’ work on innovation and
mercial application of new knowledge and ideas, either through introducing new and                                             the role of the latest innovation tools. One of the issues is whether, when and how en-
improved products or through the implementation of new processes, routines and pro-                                            terprises can systematise and perform concrete work, in the most expedient way, with
cedures.                                                                                                                       new tools for innovation, including, for instance, user-driven and open innovation. In
                                                                                                                               future, it will also be of key importance to get answers for these questions.
Surveys show that between 75 per cent and 96 per cent of all development projects
conducted in enterprises fail to achieve their targets. At the same time, more than half
of the managers in the world’s largest corporations are dissatisfied with the returns on                                       2. Global trends and InnovatIon
innovation work performed in their companies.1                                                                                 The traditional focus of innovation has been on research and technological develop-
                                                                                                                               ment. However, the global development poses new demands on the innovation of
There is no room for this in the global race for innovation, in which the ability to trans-                                    Danish enterprises.
late knowledge and new ideas into concrete solutions assumes ever increasing impor-
tance and thus becomes a core activity for most enterprises.                                                                   For a number of years, globalisation has made an impact on the competitive situation
                                                                                                                               of Danish companies. The most prominent characteristics of this development have
The present paper focuses on the consequences of global competition for the inno-                                              been new technological possibilities, lower transport and production costs, trade libe-
vation work of Danish enterprises. In this paper, you can read, among other things,                                            ralisation, etc.
                                                                                                                               Much seems to indicate that globalisation has now entered a second phase, in which
• The new challenges that the global development poses for innovation in Danish en-                                            new trends contribute to putting companies’ innovation under pressure.
  terprises within, for instance, the fields of new communications technology as well as
  research and development.                                                                                                    technology opens new markets and brings new competition
                                                                                                                               In recent years, the technological development has made it possible to enter into direct
• The new tools available for enterprises to use in order to improve the success rate of                                       contact with, and sell products to, consumers all over the world. Especially the Internet
  their work on innovation. Focus is placed on ways in which enterprises can improve                                           has made many more products and services available to a far greater number of con-
  the precision and effectiveness of their innovation work by operating with user-driven                                       sumers and enterprises than ever before.2
  and open innovation.
                                                                                                                               As shown in Figure 1, the number of commercial transactions via the Internet in Den-
• Ways in which new approaches like user-driven and open innovation can interact with                                          mark has grown strongly, in step with growing access to the Internet. This means that
  other methods of innovation.                                                                                                 foreign companies are able to sell in markets that were previously the domain of Danish
                                                                                                                               enterprises and enter into direct contact with Danish consumers via the Internet. This
• Reflections on the degree to which all methods of innovation are equally relevant to                                         applies, for instance, to books and computer games, where several distributors based
  all enterprises, and how enterprises can approach the methods in practice.                                                   in other countries today sell products in direct competition with Danish retailers.

    The Boston Consulting Group (2006): “Innovation 2005 and 2006”, Businessweek/Doblin Inc. (2005): “Get Creative – how       2
                                                                                                                                   C. K. Prahalad et al. (2006): “The Future of Competition” and C. Anderson (2006): “The Long Tail – How Endless choice is
    to build innovative companies”, 1 August 2005, Bain & Co. (2002): “Innovation Study, Harvard Business Review”.                 creating unlimited demand”.

Figure 1: Commercial Internet transactions in Denmark per quarter
                                                                                                       The new communications technologies have also made it possible to communicate
Million Transactions                                                                                   more directly with customers, and obtain, for instance, feedback from clients and users
     9                                                                                                 all over the world. In this way, previous obstacles between customers and companies
                                                                                                       have become much smaller, and this has changed the relationship between compa-
     8                                                                                                 nies and customers.
                                                                                                       New communications technology means that Danish enterprises face a greater num-
                                                                                                       ber of competitors. However, it also means the emergence of larger, and a greater
     5                                                                                                 number of, new potential markets. This means that companies’ ability to seize the
                                                                                                       opportunities in new markets where products are sold to consumers and other compa-
                                                                                                       nies in new ways becomes an increasingly crucial competitive parameter.
     2                                                                                                 Increasing competition on knowledge and innovation
                                                                                                       Today, even highly advanced technological solutions and complex knowledge are avai-
     1                                                                                                 lable to many companies. This is partly because the total investments in research and
     0                                                                                                 development are rising. In this respect, the entry of the Asian growth economies into
                                                                                                       research, development and innovation also plays a major role. From 1995 to 2003, the








                                                                                                       share of the EU, the USA and Japan of the global spending on research and develop-








                                                                                                       ment has fallen from 86 per cent to 79 per cent. Countries like China and India are
















                                                                                                       expected to account for the greatest part of global research and development growth
Source: www.pbs.dk                                                                                     in future.3

                                                                                                       However, at the same time, research and development involves a much higher number
                                                                                                       of different actors and enterprises all over the world. For instance, American compa-
                                                                                                       nies with less than 1,000 employees accounted for 25 per cent of total American re-
                                                                                                       search and development spending in 2001, compared to only 4 per cent in 1981. Much
                                                                                                       indicates that this is a global trend.4
The spread of new communications technology combined with, among other things, lo-
wer transport costs, also offers opportunities for Danish enterprises. Products and ser-               It therefore becomes increasingly difficult to exploit a technological advantage to build
vices that were previously only available from a few special retailers and distributors,               a favourable market situation. Competitors will rapidly be able to offer the same or bet-
because the customer base was very limited, can be sold to a far greater number of                     ter solutions. There is thus close correlation between a high level of innovation and a
consumers in a global market, because the costs of reaching consumers have fallen                      short product life cycle. This is, for instance, reflected in the fact that the industries that
substantially.                                                                                         make the greatest investments in research and development are also the industries in
                                                                                                       which new products make up the greatest share of turnover, cf. Figure 2.

                                                                                                           OECD (2006): The internationalisation of Business Research”.
                                                                                                           Chesbrough, Henry (2006): “New Puzzles and New Findings”.

Figure 2: New products share of turnover correlated with the intensity of
research and development broken down by sectors5                                                                                                        The shorter life cycle of products and services in the market and the high costs as-
                                                          Pct.                                                                                          sociated with being the technological market leader make it more difficult to deliver sa-
                                                   70 %                                                                                                 tisfactory returns on investments in research and development. Therefore, it becomes
                                                                                                                                                        increasingly important to structure the work on innovation so that it meets current and
                                                   60 %
New products (< 5 years) share of total turnover

                                                                                                         ICT and Media                                  future needs in the market and is structured in an efficient and cost-conscious manner.
correlated with the intensity of research and

                                                   50 %                                        Cars and parts          Air and space travelling         flexible and fluctuating markets
development broken down by sectors

                                                   40 %                                                                                                 Markets and industries are no longer as clearly defined as they used to be. For instance,
                                                                                                  Average all sectors    Pharmaceuticals                the boundary between manufacturers and service providers is no longer as clear as ear-
                                                                                 Conctruction and plants
                                                   30 %                                                                                                 lier. The fierce competition on technology has pushed down the prices of many products.
                                                                                                                                                        And the service associated with goods now accounts for the greatest (and steadily incre-
                                                                                     Chemicals and primary goods
                                                   20 %                                                                                                 asing) share of the earnings for many product groups. Within the motorcar and computer
                                                                     Foodstuffs and consumer goods
                                                                                                                                                        industries, more than 80 per cent of the earnings derive from services.6
                                                   10 %
                                                                                                                                                        One example is Apple, which, with the music programme iTunes, has moved from being
                                                   0%                                                                                                   primarily a manufacturer of personal computers to entering the market for music distribu-
                                                          0%           2%          4%             6%            8%            10 %           12 %       tion. Sales and distribution of music have become a market that has changed significan-
                                                           Sectors: R&D budget proportional to total turnover                                           tly as a consequence of the new technological possibilities. While the total sales of music
                                                                                                                                                        are declining, due to, among other things, file sharing, free distribution via the Internet,
                                                                                                                                                        private copying, etc., the digital sales of music are rising, cf. Figure 3.7

                                                                                                                                                        Music retail chains are therefore now under pressure from companies that were not
                                                                                                                                                        previously actors in the music market.

                                                                                                                                                        Companies are no longer necessarily engaged in one specific market or one specific
                                                                                                                                                        industry. This makes the competitive situation difficult to predict even just a few years into
                                                                                                                                                        the future. This means that it becomes increasingly important for the individual company
                                                                                                                                                        to predict and seize new opportunities in the market.

       EU (2006): Monitoring industrial research: The Annual Digest of Industrial R&D.                                                                  6
                                                                                                                                                            R. Wise & P. Baumgarten (1999): “Go Downstream. The New Profit Imperative in Manufacturing”, Harvard Business Review

Figure 3: The sales of music, at global level in USD million
                                                                                                      stronger consumer demands
                                                                                                      Consumers also make greater demands on products and their relevance. Increased
$ 35.000                                                                                              wealth and purchasing power in the West and several new growth economies generate a
                                                                                                      larger number of demanding consumers. In addition, consumers’ expectations for a con-
$ 30.000                                                                                              stant flow of new and improved variants of products and services have generally esca-
                                                                                                      lated; both because new and improved products are introduced constantly and because
$ 25.000                                                                                              the variants increase in number for most product groups.

$ 20.000                                                                                              This applies to both books and music, markets in which there has been a global trend
                                                                                                      towards a higher number of available products. But it also applies to everyday consumer
$ 15.000                                                                                              goods. For instance, the number of beer brands available on the Danish market has
                                                                                                      increased nearly six fold over the period 2002 to 2006.8 Rising demand for different beer
$ 10.000
                                                                                                      and competition from microbreweries and foreign breweries have caused, among other
                                                                                                      things, Carlsberg to change its product portfolio.
 $ 5.000
                                                                                                      Where there were previously only a few variants in the market, today there are many
                                                                                                      different variants of most products. This means that it is not sufficient to introduce new
        2004                           2005                           2006
                                                                                                      products and services to the market if companies want to maintain market shares and
                         Music sold on the Internet            Sales of traditional music media       customer loyalty. It is important to hit the customers’ needs.

           The 2007 estimate is based on the first 6 months of the year                               Global trends have great significance for the work on innovation
                                                                                                      The global development thus poses new demands on companies’ innovation work.
                                                                                                      Shorter distance between manufacturers and customers, intensifying competition in the
                                                                                                      area of research and technological development, as well as rising demands from consu-
                                                                                                      mers and customers, make it increasingly important to organise the innovation process
                                                                                                      in a more targeted and effective manner. The following presentation focuses on new
                                                                                                      approaches to the work on innovation.

                                                                                                          Bryggeriforeningen (2007): Figures for the beer market (http://www.bryggeriforeningen.dk/default.asp?pid=270)

3. new aPProacHes to tHe work on InnovatIon
                                                                                                                                understanding the needs of users and translating this knowledge into the development
If the innovation of enterprises is to hit the market with precision, it is of key significance                                 of products and services.10
to acquire the greatest possible level of insight into the needs and opportunities found
in consumers and other enterprises in the market. This is the way to improve earnings                                           There are several reasons for the increasing focus of companies on users and oppor-
from existing and new business areas. One important part of the work on innovation is                                           tunities in the market:
to use the sources of innovation both inside and outside the enterprise.
                                                                                                                                • Greater insight into users’ realised and non-realised needs increases the likelihood of
The vast majority of companies work on creating innovation by applying new techno-                                                the innovation of enterprises hitting the market with greater precision. User focus is
logy. However, it has become more difficult to get ahead of competitors solely on the                                             thus also able to create better returns on investments in innovation.
basis of new technology. For this reason, among others, there is an increasing focus
on supplementing technologically focused innovation with the non-technological part                                             • Insight into users’ realised and non-realised needs offers the opportunity to launch
of the work on innovation. This involves working systematically on, for instance:                                                 solutions that provide obvious value to the customer and distinguish products from
                                                                                                                                  the competitor’s offer. This is a contributing factor to enabling companies to charge a
• Becoming familiar with realised and non-realised consumer needs and future needs                                                premium price for their products or services.
  in the market (user-driven innovation)
                                                                                                                                • And by giving the customer influence on the product design, it is possible to create
• Organising the work on innovation in a manner which draws on knowledge and com-                                                 ownership with customers of the company’s products. This ownership can give the
  petencies outside the enterprise (open innovation).                                                                             individual enterprise more loyal customers and thus improve earnings.

3.1 user-driven innovation                                                                                                      The concept of user-driven innovation covers several different approaches to identi-
It is becoming increasingly necessary to meet consumers’ demands for products and                                               fying realised and particularly non-realised needs in the market and among users. In
services that are relevant in their everyday life. Surveys show that a lack of understan-                                       connection with the programme for user-driven innovation, user-driven innovation has
ding of the needs of users is the cause of 70 per cent to 80 per cent of failed newly                                           been defined as stated in the box below.
developed products.

Many business leaders today consider customers and business partners to be among
the most important sources of innovative ideas. The focus has so far to a high degree                                                 Definition of user-driven innovation
                                                                                                                                      User-driven innovation is to be understood as a systematic approach to the development of new products,
been on charting and understanding consumers’ purchases of products and services
                                                                                                                                      services, processes, forms of organisation, etc., on the basis of research or inclusion of users’ life, practice
by means of market analyses, focus groups or daily contact with customers, for in-                                                    or needs, including the identification of non-realised needs that are expected to subsequently materialise in
stance at trade fairs and the like.9                                                                                                  terms of demand from larger user segments.

However, several enterprises give higher priority to the work on systematic and scienti-                                              Users are defined in the broad sense of consumers, customers, employees, enterprises, cooperation
                                                                                                                                      partners, suppliers or citizens. Research and inclusion are defined as, for instance, observation, dialogue or
fic methods with a view to identifying present and future user needs, in order to provide
                                                                                                                                      active user participation in the course of the entire innovation process.
customers with a value that competitors cannot offer. This is done by charting and

    Harvard Business Review (2007): The HBR List Breakthrough Ideas for 2007, February 2007. IBM (2006): “Udvid innovati-       10
                                                                                                                                     Elizabeth Sanders (2006): Design Serving People
    onshorisonten”, Global CEO study. Dansk Industri: DI Indsigt, nr. 2, February 2006.

User-driven innovation has two distinctive dimensions. The dimensions are what type                                       Human and social sciences
of user need is studied and to what extent the users are involved in this work. User-                                     One widely applied approach is based on methods derived from the human and social
driven innovation is distinct from traditional marketing by the degree of user involve-                                   sciences. This approach includes knowledge and methods from ethnography, anthro-
ment in the innovation process or by survey examinations of non-realised needs, cf.                                       pology, sociology, psychology and other sciences that offer special insight into human
Figure 4.11                                                                                                               behaviour by collecting and interpreting knowledge about users. This is done by, for
                                                                                                                          instance, observation studies or by conducting in-depth interviews based on open que-
Figure 4: Two dimensions within user-driven innovation

User involvement                                                                                                          In practice, the knowledge thus gained is often linked with components from the worlds
Direct                                                                                                                    of design and engineering, with a view to translating the new knowledge into products.
                                                                                                                          The objective is to understand people’s fundamental priorities and needs and find out
                              Involvement                                                                                 how products and services can meet these needs and priorities.13
                              of lead users

                                                                                                                               Example: the development of anaesthesia equipment
                                                                                                                               Dameca is a Danish company that has produced anaesthesia equipment since 1947. At the end of the
                                                                                                                               1990s, Dameca experienced a decline in the sales of anaesthesia equipment due to, among other factors,
                                                                                                                               intensified competition, and the company therefore decided to contact a design enterprise in order to get
                                                                                Ethnographic and                               new ideas for the development of anaesthesia equipment. The designers used the needs of users as their
                              Traditional                                       anthropological                                point of departure, and therefore witnessed a number of surgical operations in order to observe the ways
                              marketing                                         methods                                        in which surgeons used the anaesthesia equipment. They discovered, for instance, that surgeons often
Indirect                                                                                                      Needs            spent extended periods of time assuming inexpedient bodily positions. By observing the surgeons perform
                    Realised                                                             Non realised                          their work, the designers gained an understanding of the surgeons’ needs, and the observations provided
                    (Real and expressed)                                                 (Real but hidden)                     the basis for the development of new equipment.

                                                                                                                               Source: www.brugerdreveninnovation.dk

It is a challenge to create a business model in which knowledge about and from users
is integrated as a core element of the development process.12 Below follows a presen-
tation of four approaches that either involve knowledge of non-realised needs among
users and in the market or involve users directly in the work on innovation. The diffe-
rent approaches can in practice be applied both separately and used for supplemen-
ting each other.

     FOR A (2008): User-driven innovation – context and cases in a Nordic region”.                                        13
                                                                                                                             Elizabeth Sanders (2004): ”Ethnography and the Empowerment of Everyday People”.
     Chesbrough, Henry (2003): ”Open Innovation – The New Imperative for Creating and Profiting From Technology”,         ReD Associates (2005): “Applied Business Anthropology”.
     Harvard Business School Press, Boston.

lead user                                                                                                                    co-creation
Another approach to the work on innovation that is also gaining ground is the lead user                                      An alternative to obtaining knowledge and ideas from users that are on the cutting
approach. It takes its point of departure in knowledge, ideas and input from users that                                      edge of the trends in the market is to include entirely ordinary users. Co-creation is
are on the cutting edge of the trends in the market. These are users with a specific                                         an approach in which enterprises develop products and services together with users
need who therefore adapt and develop products so that products or services acquire                                           instead of developing products and services for users. This is done, for instance, by gi-
improved or innovative properties. The users adapt and develop products on the basis                                         ving users access to development tools, knowledge, networks, etc. Surveys show that
of their own knowledge and competencies, but often they do so in cooperation with                                            between 10 and 40 per cent of the users of a number of product types are engaged in
other users, for instance in user communities on the Internet.                                                               developing and improving the products.15

Often, the work with these users generates commercial value because lead users                                               One of the leading experts on co-creation, C. K. Prahalad, points out that companies to
make greater demands on the products than the average user.14 The challenge lies in                                          a higher degree create value together with users than internally in the company.16 The
identifying lead users and involving them in the innovation work.                                                            challenge for companies is to involve users in the most expedient way, so as to create
                                                                                                                             the highest possible value.

       Example: kite surfers                                                                                                        Examples: teddy bears, web forums and encyclopaedia
       A number of products are developed by lead users instead of companies, including companies within                            There are a number of examples of how enterprises develop products and services together with users,
       computer games, hospital equipment and sporting equipment. For instance, kite surfers are at the forefront of                including such success stories as (1) Build-a-Bear, which allows children to “build” their own teddy bear, (2)
       most innovation within kite surfing. Kite surfers exchange information, ideas, solutions and experience on the               MySpace, where users can create their own web page and meet others, and (3) Wikipedia, where users
       Internet. Often their design tools and designs of new kites are superior to those of commercial enterprises.                 together write and use an encyclopaedia. Co-creation is about systematic inclusion of users in the develop-
                                                                                                                                    ment of new products and services.
       Source: Eric von Hippel (June 2007): User innovation, Innovation communities, Open innovation, Open
       source, Living Labs, Ethnography and all that!                                                                               Source: C.K. Prahalad (2006): Innovation through Co-Creation” and Cipu: User drive.

     Eric von Hippel (2005): “Democratizing Innovation”.                                                                     15
                                                                                                                                  Eric von Hippel (2005): “Democratizing Innovation”.
                                                                                                                                  C. K. Prahalad et al. (2006): “The Future of Competition”.

employee-driven innovation                                                                                               3.2 openness in innovation
Users are also employees in companies. Employees handle the day-to-day contact                                           Another approach to the work on innovation is to draw on knowledge from outside
with customers, competitors, suppliers and colleagues. At the same time, employees                                       sources.
possess great knowledge from the production concerning the possibilities of adap-
tation or improvement of the products. They therefore often possess knowledge of                                         Since the end of the 1980s, many companies, including for instance IBM, Xerox and
shortcomings or opportunities relating to the product.                                                                   Procter & Gamble, have chosen to open up their work on innovation to the outside
                                                                                                                         world. Partly because the research and development departments were not alone able
Employee-driven innovation is about systematic inclusion of knowledge from the                                           to secure a technological and innovative lead for the companies. Partly because the
employees that are not otherwise part of the work on innovation in the company. For                                      costs incurred from operating them were disproportionate to the revenues generated
companies, the challenge consists of building a culture of innovation in its organisation                                by the in-house departments.17
and a process through which knowledge and ideas from employees are systematised,
tested, developed, implemented and realised.                                                                             Today, innovation takes place to a higher degree across companies’ departmental bo-
                                                                                                                         undaries and in cooperation with other enterprises. On the basis of the development from
                                                                                                                         1970 to 2000, it is estimated that almost 15 per cent of corporate investments in research
                                                                                                                         and development takes the form of acquisition of knowledge and research from sources
   Example: involvement of hospital staff                                                                                outside the organisation, compared to only 3 per cent around 1970, cf. Figure 5.18
   Every day at a hospital, many professional groups of employees are users of facilities and equipment the de-
   sign and usability of which has a great impact on the quality of patient treatment. Odense University Hospital
                                                                                                                         Figure 5: acquisition of research and development from outside sources as a share of corporate
   makes an active effort to involve employees and users in innovation processes. In order to obtain valuable
                                                                                                                         investments in research and development
   input for improvement of products and processes, management has used a questionnaire survey to request
   ideas for the solution of minor and major problems in the day-to-day work of the employees at the hospital.
   On the basis of the responses, management has formulated 26 business cases, including a motorised bed
   and a washing trolley for intimate hygienic care for intensive care patients.

   Source: www.brugerdreveninnovation.dk
                                                                                                                         10 %


                                                                                                                                                         1980                        2000
                                                                                                                                  Approx. 3 per cent of all research was acquired from outside sources

                                                                                                                               Henry Chesbrough (2006): “Open Innovation – Researching a new paradigm”.
                                                                                                                               EU (2006): “Monitoring industrial research: The Annual Digest of Industrial R&D”.

Instead of engaging in development projects alone, many companies choose to co-                   There are several ways in which to work on open innovation: We may, for instance,
operate on innovation with suppliers, competitors, knowledge partners or enterprises              make a general distinction between two types of open innovation processes.
from entirely different industries. For instance, 68 per cent of the respondents in a
survey among European enterprises emphasise that more cooperation with external                   • In some cases, companies open up for a wide circle of uses, customers and sup-
partners is part of their strategy for improving the company’s ability to accelerate the            pliers, as for instance in connection with Open Source software.
work on innovation.19
                                                                                                  • In other cases, the innovation process is only opened up to the parties that are invol-
There are several reasons why companies decide to open up their innovation pro-                     ved in the cooperation, whereas it may still be closed to external customers, suppliers
cess:                                                                                               and other cooperation partners, etc.

• New ideas and trends spread globally in the course of a very short time. The time it            In both cases, however, open innovation means that patents, licences and intellectual
  takes to bring a product or a service to the market may therefore be a decisive com-            property rights assume greater significance. The protection of rights is a natural exten-
  petitive parameter. Here, it is a great strength to be able to apply the innovation work        sion of opening up the innovation process. In concrete terms, to some enterprises in-
  of other actors and gather other competencies and knowledge across geographical                 novation consists in acquiring patents and rights to apply knowledge from other enter-
  distances and organisational boundaries.                                                        prises. Or it consists in selling the knowledge generated internally to other companies
                                                                                                  in the form of patents or by receiving royalties, as opposed to applying the knowledge
• Cooperation with other enterprises is also an effective way to create the best possible         to own products or services.
  returns on investments in innovation work. Innovation often involves considerable
  costs and risks. Cooperation offers the opportunity for sharing costs with others.              However, it will vary what an open innovation strategy means to enterprises in practice.
                                                                                                  The challenge consists, among other elements, in identifying the most expedient way
• Last, cooperation and strong networks provide opportunities for companies with di-              for the individual company to organise itself, depending on, for instance, the industry in
  verse strengths and knowledge of the markets to venture jointly into new markets                question, the competitive situation, the size of the company, its corporate culture, etc.
  which they would not venture into on their own.

American Professor Henry Chesbrough has been one of the driving forces behind the
work on describing open innovation. Cooperation with other enterprises in connection
with the innovation process is at the very centre in this context. Open innovation is
characterised by, among other things, the acquisition of knowledge, including research
and development, from either public or private actors. These may include universities,
consultancy firms, private laboratories, GTS institutes, etc.

     Economist Intelligence Unit (2007): “The Value of Knowledge”.

                                                                                                                       4. tHe danIsH cHallenGe
Example: Senseo coffee maker
The development of the Senseo coffee maker is an example of an open innovation process, in which two
                                                                                                                       The new trends within the work on innovation increase the need for knowing more
companies opened up to each other and developed a joint product based on the individual competencies                   about when companies benefit from working systematically on identifying realised and
of the two companies. Senseo is a coffee maker to be used exclusively with some special coffee bags. The               non-realised needs in the market and opening up the work on innovation. And there is
coffee bag system is the outcome produced by cooperation between Philips (consumer electronics) and                    a need for discussing how new approaches to innovation may in practice be integrated
a Douwe Egberts (coffee roasting business). The two companies have jointly developed a coffee brewing                  in enterprises so as to create new and profitable products, services or concepts.
system in which only the special coffee bags can be used with the special coffee maker. Even though the
companies thus open up to each other, they have not surrendered their rights, nor have they made their in-
novation freely available to other parties. The coffee maker and the coffee bags are protected by patents, and         4.1. for whom and when are new approaches to innovation usable?
any questions concerning intellectual property rights have thus been defined in clear terms.                           One question is: for whom and when is it relevant to adopt new approaches to inno-
                                                                                                                       vation? There is not much knowledge on which contexts offer the best effect of new
Source: www.senseo.dk                                                                                                  approaches to the work on innovation. For instance, are the new approaches to in-
                                                                                                                       novation relevant for the innovation of all products, services and processes, and for all
                                                                                                                       types of companies/industries, etc.?

Example: Linux                                                                                                         The key element of user-driven and open innovation is to catch trends and future ne-
The Linux software project is an example of a development project in which the development has been fully              eds in the market rather than to focus on what is in demand or technologically possible
open. To persons and enterprises that have or had an interest in supporting the development of an open ope-
rating system. The project started in 1991 at the initiative of Finnish Linus Torvalds, who requested help from
others via the Internet. The source code was made available to the public. This has made many thousands
participate in the project of developing Linux over the years.                                                         The individual enterprises are in very different situations. Some companies operate in
                                                                                                                       a market where the most important parameter is technological leadership; for instance,
                                                                                                                       a company that supplies enzymes for the pharmaceutical industry. Other companies
                                                                                                                       operate in a market where the role and solutions of the company may appear straight-
                                                                                                                       forward and given. This applies, for instance, to a master carpenter. For some enterpri-
                                                                                                                       ses, the identification of users’ non-realised needs may thus seem a remote reality.

                                                                                                                       There is, however, a constant risk that the markets in which most enterprises operate
                                                                                                                       will disappear or change character. One example is music retailers, which have been
                                                                                                                       overtaken, in a very short time, by the Internet-based music distributors. Or companies
                                                                                                                       on the technological cutting edge where the technological platform no longer yields
                                                                                                                       high returns or which have been overtaken by competitors. For instance, Intel’s lead in
                                                                                                                       processor speed over its closest competitors fell from 21 months to 0 months from the
                                                                                                                       mid-1990s to the end of the decade.

Changes like this can render a product or an entire business model obsolete very                               It can be an entirely different situation for small companies, for which high development
rapidly. Therefore, companies may have a need in many different contexts to identify                           costs may involve high risks, for the sole reason that the budgets are smaller and the
which opportunities and needs will arise in the market. To this end, new approaches to                         financial resources slimmer. This increases the need for companies to select both the
the work on innovation are able to provide valuable input.                                                     right tools from the outset and perhaps less extensive approaches that match their
However, many of the approaches are actually new and have therefore not been te-
sted fully in a Danish context. There is a need for discussing and building knowledge                          Working with user-driven or open innovation does not mean that companies must re-
on when the individual enterprise gains the greatest possible benefits from working on                         frain from the work on, for instance, technology or research-driven innovation. As Fi-
the individual approaches.                                                                                     gure 6 (below) illustrates, neither user-driven nor openness in the work on innovation
                                                                                                               excludes the other approach or other methods of innovation. Nor are any of them a
                                                                                                               necessary prerequisite for the other.

   Question for discussion:
   In which companies, industries and competitive scenarios are the new approaches applicable, and what
                                                                                                               Figure 6: multiple dimensions of innovation
   effects can be expected?

                                                                                                                                                             Technology and
4.2. How are results created with new approaches to innovation?
Another question is what it takes for the individual company’s application of new met-                                                                                           Closed
hods and tools to actually result in new products, services or concepts? And how the                                                                                             innovation
new approaches to innovation match the company’s other work on innovation.

The approaches to innovation adopted must be adapted to the situation in which the
company finds itself, and must thus be considered in relation to the intended outcome                          Identification of user needs                                                   Identification of user needs
of the innovation work. It is therefore important to clarify how the innovation process                        not important in innovation                                                    very important in innovation
is to the implemented in concrete terms and best adapted to the specific situation of
the company.

In concrete terms, the issue is which tools the companies are to apply. Here, the                                                                  innovation
companies’ point of departure can be different. Even the situations of small and large                                                             process
companies may differ widely. Some large companies may have the possibility of ope-
                                                                                                                                                                       Not technology
rating their own department of user-driven innovation or buying consultancy services                                                                                   and research-
to identify the future needs of users.                                                                                                                                 driven innovation

                                                                                                                                  or saId In a lot fewer words
The figure is based on three dimensions. It shows that innovation can be more or less
heavy on research and technology. At the same time, it can be more or less open. And                                              Briefly stated, innovation is a matter of improving the earnings of companies by com-
the identification of non-realised user needs and market needs may be more or less                                                mercial application of new knowledge and ideas; either through introducing new and
prioritised by the enterprise.                                                                                                    improved products or through the implementation of new processes, routines and pro-
In practice, very few enterprises will engage in innovative work that is entirely without
an element of technological development. At the same time, very few enterprises will                                              The traditional focus of innovation has been on research and technological develop-
engage in innovative work that is entirely open or completely closed. Different compa-                                            ment. However, the global development poses new demands on the innovation of
nies assume different positions within the cube. For the individual enterprise, it is the-                                        Danish enterprises.
refore of key significance to establish which combination is most expedient.
                                                                                                                                  If the innovation of enterprises is to hit the market with precision, it is of key significance
However, the decisive factor for the growth opportunities of Danish companies is to                                               to acquire the greatest possible level of insight into the needs and opportunities found
become wiser in relation to these matters. The companies that are best at innovation                                              in consumers and other enterprises in the market. This is the way to improve earnings
distinguish themselves not only by the resources they spend, but by their ability to                                              from existing and new business areas. One important part of the work on innovation is
engage in systematic development of ideas, selection of projects, development and                                                 to use the sources of innovation both inside and outside the enterprise.
                                                                                                                                  The new trends within the work on innovation increase the need for knowing more
There is not much concrete knowledge today on how the different approaches to in-                                                 about when companies benefit from working systematically on identifying realised and
novation may be combined and systematised in the individual companies. Therefore,                                                 non-realised needs in the market and opening up the work on innovation. And there is
there is a need for discussing how new approaches to innovation may be anchored                                                   a need for discussing how new approaches to innovation may in practice be integrated
and managed, which competencies must be established internally in the company and                                                 in enterprises so as to create new and profitable products, services or concepts.
which competencies must be sought from outside sources.

     Question for discussion:
     How do companies ensure that the application of new methods and tools for innovation is translated most
     effectively into the constant development of new products, services or business concepts/models?

 Barry Jaruzelski, Kenvin Dehoff, Rakesh Bordia (2006): ”Smart Spenders. The Global Innovation 1000”, Booz Allen Hamilton,

New York.


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