CASE STUDY 3.1: COLLABORATE TO INNOVATE? DEVELOPING NEW PRODUCTS AND SERVICES BY COLLABORATING INSIDE AND OUTSIDE OF THE SUPPLY CHAIN When developing new products and services and bringing them to market, organizations are increasingly looking beyond their own walls to identify collaborative opportunities. One type of collaboration occurs when the company involves customers and end users in the development process. The motivation for this approach is clear. Since the primary reason for many product and service design and redesign activities is to meet consumers needs, companies can better understand market expectations and hence have a greater chance of success by facilitating customers participation in the development process. Furthermore, customers can be a great external source of innovation. Initiatives offered by LEGO, BMW, and DHL offer some insights on how companies can collaborate with their customers to co-create new products and services. Most well-known for its LEGO-brand toys, the LEGO Group (Billund, Denmark) is one of the worlds largest toy production companies. The company provides a platform called LEGO IDEAS through which users can submit their own designs and models for new playsets and evaluate the submitted proposals. If a proposed model is commercialized by the company, the original designer receives a financial reward in the form of royalties. The introduction of LEGO IDEAS was motivated by the companys earlier success in launching programmable bricks, known as LEGO MINDSTORMS, the development of which involved a successful partnership with academia and a community of product enthusiasts including hackers! Inspired by a similar idea of engaging consumers in product development, BMW launched its Co-Creation Lab, a virtual meeting place for consumers. Consumers offer ideas and opinions on designs of new vehicles and can interact with BMW designers and engineers. In the service sector, DHL is one company that has applied the co-creation concept. DHL, the mail division of one of the worlds largest logistics companies, Deutsche Post, utilized innovation centers to stimulate new ideas in collaboration with consumers. The efforts led to an innovative technology that now helps the company make fully autonomous deliveries by air to remote or hard-to-reach areas. Organizations can also collaborate with their suppliers in developing new products and services. In fact, collaborative supplier innovation is a growing trend and is driven by a number of factors. Companies are under great pressure to reduce costs, and an effective way to achieve this can be through collaborative cost reduction in the entire chain. Additionally, development of new products and services may require major technological innovations beyond a single companys capabilities, necessitating the expertise and technical know-how of a network of suppliers. If done right, collaborative supplier innovation can help companies generate various benefits such as shorter time to market, reduced sourcing and development costs, improved quality, greater cross-organizational collaboration, and better focus on core competencies. Procter & Gamble (P&G) is one company that established an effective framework to foster supplier-enabled innovation. The company created a secure IT platform to exchange ideas and share technology briefs with its suppliers, who had tremendous innovation potential due to their R&D capabilities. For example, if P&G wanted to extend the effect of a detergent perfume, it could tap into its chemical suppliers expertise and possibly carry out a joint product development project. The introduction of the platform led to a significant increase in the number of joint innovation projects between P&G and its suppliers. The practice of collaborative innovation can extend even beyond companies supply chains. Some of these efforts may occur in the form of a consortium within an industry, or they may involve cross-industry collaborations. These initiatives typically align well with the concept of open innovation, which encourages the flow of external and internal ideas and technologies for innovation rather than the traditional approach of using internal R&D activities to develop products and services. Many applications of open innovation exist in various sectors. Philips established a High Tech Campus to provide tools to help more than 140 companies accelerate their product development and other projects. Samsungs innovation strategy includes partnerships with companies such as startups in Silicon Valley. American pharmaceutical company Lilly offers an Open Innovation Drug Discovery program, enabling researchers to access its R&D capabilities and data with the goal of new drug development. As an example of service innovation, Amazon and P&G teamed up to make the delivery of bulky products more efficient. Amazon set up small distribution centers inside P&Gs warehouses to directly ship the companys products to customers, thereby generating advantages in cost of storage, transport, quick delivery, and better protection from disruption.38

Questions What challenges can organizations face when pursuing collaborative supplier innovations?

What are some strategies they can implement to tackle those challenges? What are the pros and cons of collaborating with smaller suppliers as opposed to large ones in innovation projects?

Which type of organizations would be more likely to benefit from open innovation?

Consider a manufacturer that sells products through a retailer. How can the manufacturer involve the retailer in its NPD to promote success of its new product launches?