Co-Creation

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Co-Creation

“Customer Interaction is King”

an approach to increase speed

and

effectiveness in product development

By

Maaike Suzanne Spoor

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Co-Creation

“Customer Interaction is King”

an approach to increase speed and effectiveness in product development

Author:

Maaike Suzanne Spoor Student number: 1152971

Eindhoven

20^thof October 2004

Supervising Professors:

University of Groningen, Groningen

Prof. Dr. Ir. J.C. Wortmann

ABN-AMRO, Amsterdam Prof. Dr. P.L. Iske

Supervising Manager:

Philips, Eindhoven Ir. A.B. Streng

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PREFACE

Creating technological and consumer knowledge and transferring it into products and services is the core activity of any product development process. In previous years there was ample time to develop this knowledge, to transfer it into products and services and to bring these products into the market.

In today’s highly competitive environment speed in development is of extreme importance. To be competitive a company needs to be the first to enter the market with a product that surprises consumers positively. An additional challenge is the trend towards more heterogeneous needs that makes product development increasingly difficult.

Ongoing technological improvement in the information and communication technology, increasing bandwidth of the Internet and growing presence of consumers grouped together in online communities to discuss products provides new opportunities and challenges of tapping into this consumer knowledge.

Collaboration with online consumer groups to use their collective wisdom and to mobilise creativity provides opportunities to enhance speed and effectiveness of new product development. This way of virtual collaboration with consumers is called Co- Creation.

This explorative research aims to provide a better understanding of this new approach of online consumer involvement in product development processes.

This research project is part of my graduation thesis for the study Technology Management at the faculty Management and Organisation at the University of Groningen. It is conducted at Philips Corporate Quality Bureau in Eindhoven under supervision of the University of Groningen.

At this place I would like to take the opportunity to thank all the people who were closely involved with this research project. First of all, I thank my tutors Aad Streng, Hans Wortmann and Paul Iske for their support and feedback. Also, I thank the Philips Pronto Team in Leuven, especially Marc Harmsen who provided me with valuable information about the relationship with the online community Remote Central. And, Daniel Graf from Streamium who gave me the opportunity to meet his team in Vienna and California to work together on the development of a structured approach for the initiation of Co-Creation. Finally, I would like to thank everyone else who provided me with information, feedback and support.

Your involvement in my creation process has been valuable!

And of course I would like to thank Herbert de Kort, Chief of the Corporate Quality

Bureau, who engaged me in this graduate assignment.

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PREFACE 5

TABLE OF CONTENTS 7

EXECUTIVE SUMMARY 9

PART I: INTRODUCTION 11

3. INTRODUCTION 13

1.1 Research Formulation 13

1.2 Research Method 16

4. ROYAL PHILIPS ELECTRONICS 17

4.1 About Philips 17

4.2 Strategy and Shifts 17

4.3 Philips’ Product Divisions 18

5. EVOLUTION TOWARDS CO-CREATION 19

5.1 Introduction 19

5.2 Definition of Co-Creation 19

5.3 Drivers for Co-Creation 19

5.4 Conclusion 21

6. INNOVATION PROCESSES 22

6.2 Innovation Processes 22

6.3 Product Development and Consumer Involvement 24

6.4 Philips CE and DAP 26

PART II: UNDERSTANDING CO-CREATION 33

7. BENCHMARK EXAMPLES OF CO-CREATION 35

7.2 The Examples 35

7.3 Surveys 39

8. CO-CREATION DEFINITION AND APPLICABILITY 40

8.2 Product Development Models 40 8.3 Application field of Co-Creation 43

9. CO-CREATION - UNDERLYING PRINCIPLES 45

9.1 sIntroduction 45

9.2 OSS Development 45

9.3 User Motivations 47

7.4 Product Attractiveness 55

7.5 Coordination and Collaboration 58

7.6 Value Creation 59

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PART III: CONCLUSIONS 61

10. CO-CREATION CBI AND UDP MODELS SUMMARISED 63

10.2 Characteristics CBI and UDP Models 63

10.3 Key Challenges 65

10.4 Pitfalls (Risks) 68

10.5 Speed and Effectiveness 69

10.6 Other Benefits 70

11. CO-CREATION APPICABILITY TO PHILIPS 72

9.1 Sense and Simplicity 72

9.2 Applicability to Philips CE 73 9.3 Applicability to Philips DAP 74

9.4 Managerial Implications 75

9.5 Managerial Guidelines for Co-Creation 76

10 CONCLUSION 82

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EXECUTIVE SUMMARY

This explorative research aims to provide a better understanding of the approach of Co- Creation.

Co-Creation is the involvement of consumers in product development processes via the Internet.

The applicability of Co-Creation for consumer goods, the underlying principles that make Co-Creation to function and its contribution to speed and effectiveness to product development are studied.

Literature study in different academic fields is performed. Benchmark examples are studied to get insight in different application fields and management approaches. Surveys are developed for community members to get insight in key motivations to engage in Co- Creation and for community owners to support benchmark analysis. Pronto and Streamium are used as business cases.

Benchmark examples have demonstrated the applicability of Co-Creation to the field of consumer goods.

Consumers willing to engage in Co-Creation show high involvement with the product, brand affinity and are eager to express their needs and product knowledge.

The key principle making Co-Creation to function is mutual value creation. The value drivers of the company and the individual consumer should be aligned. This is the management issue at stake.

Co-Creation will flourish when a framework is set that provides a clear direction for valuable user contributions and users have substantial empowerment to influence product development. Openness and transparency of interactions as well as an adequate responsiveness to the community form the basis for a win-win situation. The result is a beneficial and enduring relationship between the organisation and the user community.

Co-Creation contributes to speed and effectiveness, because it enables direct contact with

a diverse and geographically dispersed users group. It facilitates quicker response to and

absorption of user ideas and feedback.

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PART I: INTRODUCTION

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1. INTRODUCTION

The consumer industry is subject to pressures of globalisation, increasing product complexity and shortening product lifecycles. This makes organisations continuously re- think the way they organise their product development processes. The focus has been – and still is – to do things better and faster. In the last decade the quality movement focussed on product quality resulting in significant improvements in the reliability of processes. The prime focus is now on speed: speed in processes, speed in creating knowledge of what products need to be developed and speed in bringing products to the market.

The creation of knowledge about what new products need to be developed and what needs to be improved in existing products is a time-consuming process and might easily go astray when there is a lack of interaction with the market. The advent of new information and communication technologies, such as Internet and increased bandwidth provides new opportunities and challenges. There seems to be a more direct and faster way to collect this information, to mobilise creativity and to test the consumers’ response by using the collective knowledge of people in the market. This approach of knowledge creation in collaboration with consumer groups is called Co-Creation.

To enhance effectiveness and speed in the product development process, Philips set the direction towards a more open approach of innovation [12]. The interest of a better understanding of the approach of Co-Creation will contribute to this direction.

1.1 Research Formulation

This research project will contribute to the general understanding of the approach of Co- Creation. The question is in which processes for new product development consumers can be constructively involved in a virtual way. For what types of products outside the software field is this approach applicable and for what product types are consumers more willing to be involved. And, what could be the benefits of this new approach of consumer involvement for Philips.

Problem Statement

The problem statement of this research project consists of the following research objective and research question:

The research objective:

‘To provide Philips with an understanding of the approach of Co-Creation and a well-defined judgment about the applicability of Co-Creation as an approach to enhance speed and the effectiveness

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of the product development process in the field of consumer goods and to provide a set of management approaches

in order to initiate and manage Co-Creation, including implications with regard to the current management situation.’

1 Speed (to market) is defined as the length of time it takes to develop a new product from an early initial idea for a new product to initial market sales. Effectiveness is defined as incorporating

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The research question:

‘What are the underlying principles making the approach of Co-Creation to function, could the approach of Co-Creation be applied in the field of consumer goods and how does the approach of Co-Creation

enhance speed and effectiveness within the product development process?’

Research Boundaries

This project’s primary focus is on:

- Customers

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as consumers or end-users;

- Virtual approaches of Co-Creation;

- Consumers organised in virtual communities;

- Philips’ Product Divisions Philips Consumer Electronics and Philips Domestic Appliances;

- Co-Creation approaches for existing businesses and

- Co-Creation approaches for the concept generation process and product development processes (known at Philips as PCP).

Conceptual Model

This conceptual model is based on the research objective and research question and gives insight in the context of this research project.

Figure 1: Conceptual Model of Consumer Involvement in Innovation Processes

This conceptual model shows the organisation’s innovation process. The environment consists of technological, market and societal trends formed by movement of competitors, lifestyles and technological innovation. Inside the organisational boundary these trends and the organisational strategy, responding to these trends, give input to the innovation process

³

. In the planning part of the innovation process, consumer insights

2 The term customer in this report refers to actual users in a consumption context. Hence, the term customer is synonymous to consumer and user as vice versa. This terminology also includes the different states of former, actual or potential purchase, consumption or usage.

3 Philips uses the terminology of Business Creation Process (BCP) for innovation processes.

= Research Focus Boundary

= Organisational Boundary

= Primary Research Boundary

= Consumer Community Technological, Market Technological, Market and Societal Trends and Societal Trends

Released Products Released Products into the Market into the Market Strategy

Strategy

Consumer Consumer Insight Insight

Market Market Introduction Introduction PCP

Concept PCP Concept Generation Generation Planning

Planning RealisationRealisation

Consumer as Consumer as

User User Consumer as

Consumer as Resource Resource

Co Co--CreatorCreator

= Consumer Community

= Consumer Community Technological, Market Technological, Market and Societal Trends and Societal Trends

Released Products Released Products into the Market into the Market Strategy

Strategy

Market Market Introduction Introduction PCP

Concept PCP Concept Generation Generation Planning

User User Consumer as Consumer as

User User Consumer as

Consumer as Resource Resource Consumer as Consumer as Resource Resource

Co Co--CreatorCreator Consumer as Consumer as

Co Co--CreatorCreator

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are generated. Consumer insights, combined with generated ideas result in a portfolio of

concepts for new products. These concepts are judged against business opportunities, the organisation’s strategy, available resources and current product portfolio.

In the realisation phase an assignment for the creation of a particular concept is conducted. In the product development process

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the concept is converted into a real product. In the marketing introduction process advertising material is developed to communicate the launch of the new product. At the launch of the product into the market, the commercial product life cycle starts.

Within innovation and product development processes, consumers can adopt different roles [24]. Adopting the role of resource, consumers act as a source for innovation.

Analysis of consumer data provides a general consumer understanding is required determining how the organisation could create consumer value. In the product development process a more profound insight of consumer behaviour and preferences of a target audience is constructed concerning a particular product concept.

Adopting the role of co-creator, consumers become part of the organisation’s activities and can be actively involved in the process of concept generation and phases of product conception & design and product development & engineering phase of the product development process.

Finally, the consumer as user provides product feedback: to other users in the form of reviews, and to the organisation in the form of complaints or suggestions. This feedback loop can be used to improve the process for knowledge creation in both the innovation process and the product development process.

In some cases consumers, within a consumer community, assume both the role of co- creator and of user. For instance, at the Linux project, people are programming software that contribute to Linux’ performance or expands the operating system, but are using it at the same time.

All processes contributing to innovation and the three different consumer roles are described within this research. The focus is of the internet-based involvement of consumers acting as co-creator in the processes of concept generation and product development (PCP).

Based on the conceptual model, the following set of subquestions are stated:

- What are the business drivers and user motivations for Co-Creation?

- What is the application field of Co-Creation for consumer goods?

What are current types of Co-Creation?

To which phases of the product development processes is Co-Creation applicable?

- What are the underlying principles making Co-Creation to function?

- How does the approach of Co-Creation enhance speed and effectiveness within the product development process?’

- What are challenges, risks and benefits of managing Co-Creation?

- Which type of Co-Creation will be most applicable for Philips Consumer Electronics and Philips Domestic Appliances in order to enhance effectiveness and speed within the product development process?

4 Philips uses the terminology of product creation process (PCP) for the process of product

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1.2 Research Method

Literature study is performed to obtain a deep understanding of particular subjects of this research project or to be able to explain, found and validate statements. Literature study is performed in the field of innovation processes, and product development in particular, open source software development, organisational behavioural theories and communities of practice.

Philips CE’s and Philips DAP’s innovation and product development processes, including consumer involvement are diagnosed to give indications of potential benefits when implementing the approach of Co-Creation. Based on this diagnosis implications for the current management situation are provided. The product portfolios are analysed to give recommendations for the potential successfulness of Co-Creation for particular product classes.

Benchmark examples are studied to get insight in different application fields and management approaches. One open source software project is examined to collect empirical evidence to support statements found in the literature. In the field near to software development, that of software embedded hardware, different examples are available. The most well-known are chosen. Outside the software field, all examples that could be found are examined. Practical usage of Co-Creation, as defined in this project, has been minimal up to now. Therefore only a few examples could be identified.

Within Philips, the Pronto Team

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has a close relationship with an online user community.

Insights and best practices of this example could be leading for within Philips.

Streamium

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is taken as business case. The Streamium Team is currently developing a community and tools for its users to create and share their own add-on applications.

Surveys are developed to validate key elements in user motivations to join and to participate in a community for Co-Creation and to get an indication of the importance of these elements. Posting surveys in message boards of the communities is a relative quick way to collect empirical evidence.

A second survey is developed to support benchmark analysis and to get insight in the key principles used in community. These surveys are sent by email to the platform owners.

5 Pronto is a programmable universal remote control.

6 Streamium is a device that streams PC and Internet content directly into the living room.

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2. ROYAL PHILIPS ELECTRONICS

1.1 About Philips

The brothers Gerard and Anton Philips founded Philips in 1891. Their first products were light bulbs. These brothers were innovators and entrepreneurs who succeeded in business, while improving the lifes of customers and employees. Their founding belief was that by daring to make choices that improve the lives of people both inside and outside the company, they would be successful not by coincidence but by design.

Nowadays Royal Philips Electronics is one of the world's biggest electronics companies, with sales of EUR 29 billion in 2003.

1.2 Strategy and Shifts

In the ‘90s Philips carried out a major restructuring program to return it to a healthy footing. And in 2001 Gerard Kleisterlee, Philips’ current chairman, started the ‘Towards One Philips’ or TOP program an initiative to become a leaner and more streamlined company in terms of its processes and enabled Philips to save more than € 1 billion.

Philips wants to become a true leader in the three interlocking business domains of Healthcare, Lifestyle and Technology. To realise this, it has become more outward- looking: Philips has set directions towards open innovation and is increasingly forming alliances with trading partners and customers. At the same time Philips is transforming into a market-driven organisation. As a new step towards this transformation, Philips just started its new brand campaign ‘Sense and Simplicity’. The essence is to promise their customers a more comfortable, more intuitive and more straightforward relationship with technology – and with Philips.

These changes are reflected in Philips’ mission to improve the quality of people’s lifes by introducing meaningful technological innovations.

It is clear that Philips is better working together in different fields. Recently it had added the fourth value of ‘Depend on Each Other’ to its core values and it exploits its well- known Business Excellence through Speed and Teamwork (BEST) program to achieve business excellence by improving processes and by learning internally from best practices. And externally Philips is concluding more and more partnerships.

Besides, it is consistently focussing on improving people’s lifes and to delight them. The

consumer is the centre of interest; all activities are performed around him. And the new

brand promise sets the tone for even more consumer interaction. Within all these trends

Co-Creation seems to fit perfectly. Intense collaboration with consumers will enable

Philips to create products that are designed around them, that are easy to experience and

advanced.

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2.3 Philips’ Product Divisions

Philips is organised into five Product Divisions (PDs), each with it’s own processes for business creation and product creation. To be successful in a though competitive area, each PD is more and more collaborating with customers or consumers, sometimes making use of virtual approaches.

The five Product Divisions

Philips Medical Systems provides X-ray, ultrasound, magnetic resonance and patient monitoring products. Philips Medical Systems develops world-class solutions through close collaboration with customers and researchers.

Philips Consumer Electronics (CE) offers a broad range of electronic devices for consumers, like audio and video systems, (flat screen) televisions, mobile phones and remote controls. This division is playing a key role in the realisation of ‘Connected Planet’: a vision that allows consumers to access and enjoy entertainment and information services wherever they are, whenever they want, in an intuitive, spontaneous and instant way. CE is increasingly making use of the Internet to reach consumers to test its products.

Philips Domestic Appliances and Personal Care (DAP) produces a wide range of products to help people prepare healthy food and beverages, care for their home and garments, and enhance their beauty and sense of wellbeing. Philips DAP tries to improve lifes with breakthrough innovations like Coolskin, SoniCare and Senseo.

Philips Lighting produces a full range of halogen and fluorescent lamps, LED (light- emitting diode)-based lighting and automotive lamps. Using is customer-driven approach of product development based on a thorough understanding of people’s needs, it delivers effective and innovative products. However, the dialogue is mostly with stakeholders, like architects.

Philips Semiconductors is a provider of semiconductor-based solutions for connected consumer and communications applications. Philips Semiconductors use eBusiness solutions for virtual collaboration in B2B, making it easy for their customers to do business with them.

In the remainder of this report, the focus is on the PDs Philips CE and Philips DAP, serving the consumer. Although Philips Lighting is also partly serving the consumer market, this PD is not included in the research boundaries. Mostly interaction takes place with interior decorators as these have an important stake in the development of lighting trends, spheres and furnishing.

Philips Medical Systems and Philips Semiconductors are active in B2B areas. These two

PDs do not fit the set boundary spanning, in which the focus is on virtual interaction

with consumers.

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3. EVOLUTION TOWARDS CO-CREATION

3.1 Introduction

Considering the rise of Co-Creation contributes to its general understanding and will be an opening to explore the underlying principles. Drivers of both organisations and consumers are clarified to enlighten the evolution towards Co-Creation. However, first a definition of Co-Creation, as considered in this report, is given in order to create comprehension of the used terminology.

3.2 Definition of Co-Creation

The definition for Co-Creation in this report is adopted from an internal research at Philips

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. It is defined as:

“Co-Creation provides people with the ability and opportunity to invent and produce solutions for themselves (empowerment), which have personal value and meaning, through a process which encourages and enables the making of something unique (degrees of freedom) with participants that are willing to constructively engage in Co-Creation (openness).

Co-Creation is accomplished within a mutually accepted framework outlining the ways of operating for all stakeholders (code of conduct).

Co-Creation often unfolds over time, characterised by the feeling of trust and attachment, and all participants see its conditions as convenient and flexible.”

The following remarks specify the definition to the concept of Co-Creation as considered in this report:

•

It should be noticed that Co-Creation in this report is exclusively focused on virtual collaboration between an organisation and the user;

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Co-Creation as a collaboration in the context of product development;

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Users are organised in online communities;

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Users share solutions or contributions within the community and with the organisation;

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Communities are seen as self-evolving entities within a defined framework; and

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Applicability ranges from new product development and innovation to online configuration

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in the product’s early life cycle.

3.3 Drivers for Co-Creation

Prahalad [30] refers to the paradox of the 21

^st

century: consumers have broader field of product choice, but this gives them less satisfaction; businesses have more strategic options, but these yield on balance less profit. The emergence of Internet provides opportunities to overcome this paradox. The Internet is enabling a two-way relationship defining new mechanisms for direct co-operation and knowledge creation [35], instead of

7 Philips Design has conducted a research on Co-Creation as part of a broader research called Understanding Digital Experiences. However, the scope of that research focussed on brand experiences. The focus of this research project is on product development and enhancement.

8 Online configuration should not be confused with mass customisation. Mass customisation is defined as choosing from predefined options. With online configuration the consumers are provided with the

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importing knowledge about consumers that serves as input for new product development.

Consumers’ motivations for Co-Creation

In the last two decades, a trend towards individualisation led to more heterogeneous needs among consumers. And consumers have via Internet broad access to information to become better informed about product quality and possible alternatives. They even obtain business related knowledge. Via communities they discuss with other consumers, respond, and learn from each other while sharing tips and tricks. Becoming wiser, consumers have become more critical and they tend to express these critics more and more. In their desire for more empowerment, they may even initiate conversations with companies, when not satisfied with the product experience or when they have an idea for potential product improvement or innovation [31].

Business drivers for Co-Creation

Due to high access to information, trends in globalisation and the emergence of digitalisation competition is becoming stronger. Companies react by increasing product variety and by anticipating on enhancing consumers’ experience. Mass customisation is for a company a cost-effective solution to cope with a broad field of consumer needs.

Moreover, companies are increasingly seeking out external resources to overcome the learning curves related to new technologies and consumer needs. A general trend towards more heterogeneous needs makes product development increasingly difficult. To be competitive a company needs to be first in the market with a product that surprises consumers positively. Also, shortening product life cycles imply that speed is a critical element in developing products.

Enabling possibilities for higher degrees of interactions, the Internet is a cost-effective and quick way to collect information about consumers’ needs and to form two-way relationships with consumers. This enables the consumer to express their desires and ideas.

Virtual collaboration

While in this report the attention is on Internet-based collaboration regarding product development, the following examples show that the field of online collaboration and interaction among individuals or as a company with third parties is much broader.

For example, in the field of (academic) research, the NASA Clickworkers project is a case of online collaboration, where public volunteers contributed to the identification of craters on Mars.

In the field of content creation, more than two thousand volunteers contributing with articles on self-selected topics creating an online encyclopaedia called Wikipedia.

In the societal environment, as another example, the government collaborates with citizens, who contribute their knowledge and opinion about a topic via a publicly known Internet site.

Tapping from this pool of knowledge, the government is able to make better decisions about policies and laws.

Finally, in the field of distribution, the most notorious example is Napster. Individual users share their hard drives with tens of millions of other users, profiting from a from a very efficient distribution system for a highly varied amount of songs and films.

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3.4 Conclusion

Concluding, Co-Creation is defined as a new form of collaboration in the digitally networked environment that deals with the importance of factors as speed, feedback, and knowledge creation. It is defined by interaction with active, empowered and knowledgeable individuals rather than by the organised control of passive consumers.

The advent of Co-Creation is originated in the fact that consumers are less satisfied about the fit of products to their needs and that organisation are subjected to increased competitive pressure.

Becoming more critical and wiser users are motivated to start a dialogue with

organisations to create products that better suit their needs. Speed in product

development and effectiveness, which is taking the right decisions within the product

development process, are at present a company’s main business drivers.

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4 INNOVATION PROCESSES

4.1 Introduction

Before determining the application field of Co-Creation more insight is needed in innovation processes. As stated in chapter 1, the focus is on the processes of concept generation and product development (PCP) in which consumers act in the role of co- creator.

In this chapter the innovation processes are discussed. Next, the product development processes are discussed more in-depth as consumers can be systematically involved in these processes. The most prevalent methods for consumer involvement are described.

Then the organisation of these processes at Philips CE and Philips DAP is given and the consumer involvement is assessed. This provides insight in the weight of consumer involvement in particular processes and the extent of an active consumer role. The last indicates the readiness of Philips to engage in the approach of Co-Creation. The former specifies the most desired process to apply Co-Creation.

4.2 Innovation Processes

The aim of the innovation processes is to generate a portfolio of product plans that will be realised within a certain time-span, typically of 3-5 years. Innovation processes are considered as cyclic.

Figure 2: Conceptual model for Innovation Processes

In the innovation processes strategic options for future business success are defined.

These options are in line with the business mission and strategy. The process starts with the assessment of the organisation’s position in its competitive environment. General consumer understanding is gained through societal trend analysis. Consumer research (interviews and surveys) provides more detailed data about lifestyles and user needs. With this information unique aspects that may improve the consumer’s experience are indicated. These aspects, linked to core needs are called consumer insights. Based on these consumer insights and gaps in the market combined with technological possibilities, new concepts (strategic options) are developed in the concept generating process and translated into product plans.

Priority setting of product plans, based on availability of (financial) resources and the current product portfolio, determines assignments of particular concepts to the realisation process.

The development processes (PCP) concerns the realisation of one product plan or project. Product plans, preliminary concepts, are elaborated into product concepts (tangible models). The concepts are assessed against technical and market requirements.

When the concept is validated it serves as input for the development, where further

Technological, Market Technological, Market and Societal Trends and Societal Trends

Released Products Released Products into the Market into the Market

Strategy Strategy

Market Market Introduction Introduction

Planning

Concept Concept Generation

Generation PCPPCP Technological, Market

Technological, Market and Societal Trends and Societal Trends

Released Products Released Products into the Market into the Market

Strategy Strategy

Market Market Introduction Introduction

Planning

Concept Concept Generation

Generation PCPPCP

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specification takes place. In the market introduction process, advertising is developed to

communicate the launch of the new product to the market.

Nambisan [24] classifies consumer involvement in these processes into three large categories. In contrast to Nambisan, here the opinion is taken that the consumer acting as co-creator is also able to play a role in the process of concept generation. Moreover, the activity of product testing is also seen as a co-creative action. The argumentation for these opinions is provided in appendix 1.

The first category is ‘consumer-as- resource’. Data about consumer preferences, use patterns, and general consumer background is derived from trend analysis. Using structured interviews or surveys more detailed or accurate consumer information is obtained.

The consumer in the role of resource is mainly providing the organisation personal information.

Figure 3: Classification of consumer involvement into 3 roles

Online user communities, in which consumers exchange product experience and share tips and trics, can keep an organisation abreast of trends and issues that users concern.

Identifying and tracking a number of these user communities, can provide the organisation with consumer insight.

In the second category, consumers are classified as ‘co-creator’. In essence, consumers become part of the organisation’s activities. An interactive, or two-way relationship is created with these consumers. Consumers adopting this role are really contributing to the process of concept generation and the PCP. They share their ideas, based on current product experience and product knowledge.

Organisational knowledge processes need to integrate the internal intelligence with that of the co-creative consumers. A shift in the company’s mindset is required – it needs to be consumer-driven and open. It needs to be more open in two ways. Firstly, openness of processes for new product development is a condition for joint knowledge creation and enables the consumer to make relevant contributions. Secondly, the company needs to be receptive for new ideas or suggestion and to view consumers as knowledge partners [25]. The ‘not-invented-here syndrome’ must be overcome.

The last category is the one of ‘consumers-as-users’, in which users provide product feedback or support. Product feedback reaches the company in the form of complaints or suggestions. Users may also provide product feedback to other users in the form reviews. Consumer feedback needs to be integrated in all processes, but certainly in the process where consumer insights are generated. Learning from this feedback increases the effectiveness of product development.

The other activity performed by consumers in the role of user, is provision of product support to other users. Consumers with significant knowledge and expertise in product usage may provide product support to other users.

Consumer Insight

Market Introduction Planning

Concept

Generation PCP

Consumer as Resource

Consumer as Co-Creator

Consumer as User Consumer

Insight

Market Introduction Planning

Concept

Generation PCP

Consumer as Resource

Consumer as Co-Creator

Consumer as User

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Consumers acting in the role of user are useful in the market introduction process, where early buyer insight and information about first problem identification is obtained, which can serve as input for product improvements.

Tracking communities

⁹

, in which users write product reviews and compare different products, provide the organisation with information about product limitations and the general consumer attitude against its product.

4.3 Product Development and Consumer Involvement

Figure 4 depicts the processes for product development, which contain the steps conducted within the product development process (PCP).

Figure 4: Generic PCP Model

Each phase is a process of its own, because it includes a broad range of activities involving several business functions and management levels. However, in practice iteration takes place and (sub)processes may take place in parallel or are overlapping [7].

In the discussion below is indicated per phase what traditional methods are prevalent for systematic consumer involvement. Moreover, the possibilities for interactive virtual approaches of consumer involvement are analysed.

Exploration and Feasibility Phase

This phase acquires its input from the Planning Process. The input contains a series of preliminary conclusions on the opportunity of a new product, based on the analysis of technical and market trends. In this phase the preliminary concept is both checked on technical feasibility and on product market feasibility. More in-depth analysis on consumer need and preferences of a specific target group is conducted regarding functionalities of the future product.

The purpose is to define requirements for the product concept that captures all consumer needs and desired features and specifications.

Speed and effectiveness will be enhanced most, when making the right decisions at the beginning of the PCP. Therefore, companies employ a range of structured inquiry mechanisms (concept tests, perceptual map and interviews) where the consumer plays a passive role. Consumers play a more active role, when qualitative research methods are used (focus groups, expert judgement and in-depth interviews), which gives input for enrichment of the concept.

At this early stage of the PCP, different problems could arise when involving consumers.

They may not know what their needs are and they cannot imagine what they do not know about emergent technologies, new materials, etc. Creating preliminary prototypes, enhancing consumers’ insight in the product and its potential functions, brings along costs to make equipment and tools. For more details about trade-offs in product development, see appendix 2.

Significant improvements in information and communication technologies enable virtual approaches of consumer involvement in these processes. Via rich virtual representations

9 An example of a community, in which users write reviews, is www.vergelijk.nl.

Product Conception &

Design

Product Development

& Engineering Exploration &

Feasibility Testing

Product Conception &

Design

Product Development

& Engineering Exploration &

Feasibility Testing

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and techniques for rapid prototyping the user can have a stake in elaborating a concept.

Trial-and-error provides users the opportunity to learn and to improve the created concept.

Product Conception & Design

In this phase the design of the product concept is further detailed. Ultimately it will be transformed into prototypes that are used to verify the product concept and design. The purpose of this phase is to produce and approve a fully dimensioned and functioning prototype and to verify the product design, performance and produceability.

Conjoint analysis is used as a tool for understanding the tradeoffs users make between various features of a product.

In-house lab tests can be used to check all specification to ensure that the product meets all required functions.

Web-based tools, like a ‘design scribble’ or the use of ‘drop and drag’ functions provide high- quality data needed to support feature and design decisions [21]. Moreover, the Internet enables frequent interaction with a large and geographically dispersed consumer group.

Figure 5:Overview of methods for consumer involvement

Product Development and Engineering Phase

Here, all interactions between modules and parts are tested and all materials are determined. The manufacturing process is developed after which the first batch of products, the pilot production, is manufactured using build and tested production tools, equipment and processes. Then these products are tested accordingly and improved where necessary.

Test Phase

In the test phase initial production takes place, user or field tests are conducted and feedback is captured. This phase ends with the release for mass production. This is the end of the new product development project.

Development of a coffee maker

At R&D a new way to heat water in less time is invented. From results of consumer analysis trends of individualisation and increased time pressure in households are identified.

Different ideas are generated to use the principle of heating water in a new product. Based on business feasibility the product concept for a new coffee maker that makes one cup of coffee in less time is validated for realisation.

In the exploration phase of the realisation process technical feasibility is tested. For instance, the amount of water needs to be regulated to make a good cup of coffee. New tests are performed against and preliminary conditions for size and design. Then the product concept is elaborated to a physical prototype, for instance made of foam. When the concept is validated and consolidated it serves as input for the product development and engineering phase, where further specification takes place: decisions on size, material, features, colour, etc. are made.

Qualitative

Quantitative

Depth Interviews Focus Groups Expert Judgement

Surveys Concept Tests Perceptual Maps

Conjoint Analysis Qualitative

Quantitative

Surveys Concept Tests

Conjoint Analysis

Quant. User Tests - -

Post-Prototype Stage Pre-Prototype

Stage Qualitative

Quantitative

Conjoint Analysis -

Stage Qualitative

Quantitative

Conjoint Analysis

Quant. User Tests - -

Stage Qualitative

Quantitative

Conjoint Analysis -

Stage Depth Interviews

Focus Groups Expert Judgement

Conjoint Analysis -

Stage

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Prior studies have established the highly productive role consumers can play in product and prototype testing. Product flaws can be identified early in the development stage, which will minimise costly redesign and rework. Based on this feedback corrective actions could be implemented. Further, by involving a diverse set of consumers in product testing, organisations can gain a rich understanding of how the product will perform in a variety of use contexts. This feedback can serve as input for the innovation processes, where consumer data and lifestyles are analysed.

Field tests or ‘out-of-the-box’ tests are actually a rehearsal for the official product launch.

The understanding of the product functionalities and the success of the product are rated.

Virtual representations and simulations can be applied to test a product concept online.

4.4 Philips CE and DAP

4.4.1 Innovation Processes at Philips CE and Philips DAP

The innovation processes at Philips CE and Philips DAP are described concisely to provide an impression on how these PDs have structured these processes. In the next section, consumer involvement is described in detail for processes of concept generation and product development.

Philips CE

On the basis of the SPEED Process Model [27], Philips CE describes the different processes that take place for innovation. Philips CE uses the terminology of business creation process instead of innovation process.

Concerning the primary research boundary, only the processes related to generation of consumer insights, the generation of preliminary concepts and the processes for product development are discussed.

The SPEED Process Model describes, like in figure 2, two groups of primary processes:

•

Planning: the preparatory planning of product creation activities and

•

Realisation: the realisation of the planned activities.

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27 Figure 6: Philips CE's Business Creation Process

Planning Processes

In the Consumer & Market Intelligent Process general consumer and market understanding is gained from desk research of external sources. Consumer insights are derived through meta-analysis of various concept-specific research and new primary consumer research around specific themes of interest (e.g. information about their living patterns is obtained by tracking target groups and conducting surveys or interviews to develop usage scenarios). Here consumers are indeed already involved. Consumers have the role of resource.

Concept development takes place in the Idea Management Process. Based on brainstorming, clustering and screening preliminary concepts are generated. Also concept enrichment and assessment takes place in this process. Concept Labs might be used to enrich concepts with consumer feedback. They are an iteration of consumer focus groups and workshops. In this case the consumer acts as a co-creator.

Realisation Process

Regarding product requirements, preliminary concepts are assessed and enriched in the Business and Technology Know How Generation Process. Consumers are involved to assess and enrich concepts using qualitative and quantitative (online) techniques.

After the creation of a preliminary concept, in the Product Realisation Process this concept is checked on feasibility and confirmed. The product is designed through the use of pre- integrated product platforms and standard designs and through use of new technology in carrier products.

It is observed that there is an overlap between the planning processes and realisation processes regarding the development and enrichment of concepts. Concept enrichment and assessment takes place both in the Idea Management Process and in the Business and

TECHNOLOGY

&

SUPPLIER ENVIRONMENT MARKET

ENVIRONMENT

Philips Consumer Electronics

Business Creation Process

IMPROVEMENT ENABLING

PROJECT MANAGEMENT

MANAGEMENT REVIEW

METHODS &

TOOLS

HUMAN RESOURCE MANAGEMENT

SUPPLIER INTEGRATION PRODUCT QUALITY

MANAGEMENT

REALISATION

BUSINESS & TECHNOLOGY KNOW-HOW GENERATION

Exploration Feasibility Deployment

MARKET INTRODUCTION Introduction

Planning

Launch Preparation

Introduction &

Launch Evaluation ARCHITECTURE & STANDARD DESIGN CREATION

Reference Architecture Creation

Standard Design Creation

Product Platform Creation

PRODUCT REALISATION Concept

Confirmation Design Integration &

Validation

INDUSTRIALISATION Supply

Chain Creation Process Verification Production Ramp Up PD STRATEGY

• Mission & Vision

• Strategic Imperatives

• Portfolio Management

• Strategic Marketing Initiative

• Functional Strategies

PLANNING

UAW-0482/0105 2004-07-07

BUSINESS PROGRAMMING

Financial Justification &

Priority Setting LT Marketing

& Product Programming

MT Marketing &

Product Programming

Technology

& A&SD Programming

Assignment Preparation BUSINESS INTELLIGENCE

Strategic Option Creation Consumer &

Market Intelligence

Value Proposition

Planning

Technology Know-How Planning

Idea Management

TECHNOLOGY

&

SUPPLIER ENVIRONMENT MARKET

ENVIRONMENT

Philips Consumer Electronics

Business Creation Process

IMPROVEMENT ENABLING

PROJECT MANAGEMENT

MANAGEMENT REVIEW

METHODS &

TOOLS

HUMAN RESOURCE MANAGEMENT

SUPPLIER INTEGRATION PRODUCT QUALITY

MANAGEMENT

REALISATION

MARKET INTRODUCTION Introduction

Planning

Launch Preparation

Introduction &

Launch Evaluation MARKET INTRODUCTION

Introduction Planning

Launch Preparation

Introduction &

Launch Evaluation ARCHITECTURE & STANDARD DESIGN CREATION

Product Platform Creation ARCHITECTURE & STANDARD DESIGN CREATION

Product Platform Creation

PRODUCT REALISATION Concept

Validation PRODUCT REALISATION

Concept

Validation

INDUSTRIALISATION Supply

Chain Creation Process Verification Production Ramp Up INDUSTRIALISATION

Supply

Chain Creation Process Verification Production Ramp Up PD STRATEGY

• Mission & Vision

• Strategic Imperatives

• Portfolio Management

• Strategic Marketing Initiative

• Functional Strategies

PLANNING

UAW-0482/0105 2004-07-07

BUSINESS PROGRAMMING

Financial Justification &

Priority Setting LT Marketing

& Product Programming

MT Marketing &

Product Programming

Technology

& A&SD Programming

Assignment Preparation BUSINESS INTELLIGENCE

Strategic Option Creation Consumer &

Market Intelligence

Value Proposition

Planning

Technology Know-How Planning

Idea Management

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Technology Know How Generation Process. However, the focus is different in both processes.

In the Idea Management Process the intention is to eliminate less feasible concepts, like a funnel, in order to avoid unnecessary investments in the Realisation Processes. In the Business and Technology Know How Generation Process concepts are assessed against a more specific target group. Once validated, the concept is further enriched.

To increase speed in product development processes, different processes that encompass the realisation process take place simultaneously or are (partly) overlapping.

Philips DAP

In figure 7 DAP’s main processes are showed. Within the context of this research project the focus is on new product development. These activities are the domain of the Business Creation Process (BCP). Within this process, the focus is on Marketing Planning and Innovation to Market.

Planning Processes [27]

In the Marketing Planning Process consumer insights are generated with help of the marketing research organisation Vantis. This process encompasses the creation of new concepts, based on market needs and market intelligence.

Consumer insights are generated meeting consumer in their familiar home environment. Interviews, dialogues and observation form a deeper understanding of consumer’s usage and behaviour that can be used to generate consumer insights

¹⁰

. Revealed unmet needs are the basis for the product’s value proposition. These insights are assessed and activated with consumers resulting in a validated insight sheet.

Figure 7: DAP's main processes

Realisation Processes

At DAP the terminology of Execution Processes is used.

The Innovation to Market Process consists of a Function Creation Process (FCP) and the Product Creation Process (PCP).

The FCP produces detailed functional specifications based on end-user requirements: the optimum technical principle and specific functions that fulfil the end-user requirements without violating other requirements are defined [28]. The outcomes of the FCP are direct inputs for the PCP, giving it more structure and certainty. This results in a better timing of the product launch. The PCP focuses on the development of a whole new product in contrast to the FCP that focuses on the development of a certain function of

10 Presentation: Hongli Joosten, DAP Home Environment Care, LoB Garment Care, ME Day, Workshop 1, December 3, 2003.

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feature. More than one FCP can serve as input for one PCP, when a number of new

functions or features are combined into a new product.

The PCP focuses on the realisation of the product concept, using the proven technical solution developed in the FCP [29].

4.4.2 Product Development and Consumer innovation at Philips

In this section the product development processes (PCP) of Philips CE and Philips DAP are projected against the generic PCP to provide a better understanding. In general, the same processes take place, but some are split up into sub processes or may partly overlap with the processes of the generic PCP. Also consumer involvement is assessed.

Philips CE

Philips CE’s SPEED Process Model is set up based on an organisational/process approach in order to get a better understanding how the product development should be managed within the organisation. This is in contrast to the Generic PCP Model, which is set up from a phased approach. Therefore, activities within a particular process of CE’s PCP model cannot be linked to one particular phase within the Generic PCP Model. The processes will overlap with other phases. Processes in the Realisation block take place simultaneously.

Figure 8: Projection of CE’s Business Creation Process onto the generic PCP

Regarding concept generation, consumers are involved for enrichment in Concept Labs.

This is an iterative process of focus groups and workshops to enrich the initial concept with multi-disciplinary team on the spot. In this case the users take the role of co-creator.

In the realisation processes, the PCP, consumers assess preliminary concepts using qualitative and quantitative (online) techniques. Results guide further concept

Know-how Generation Exploration Feasibi Deployment

Architecture and Reference Architecture Creation Standard Design Standard Design Creation

Creation Product Platform Creation

Product Realisation Concept Confirmation Product Design

Industrialisation Supply Chain Creation Process Verification Production Ramp Up

Market Introduction Communication & Sample Ordering &

Launch Preparation Test Marketing

Planning:

Know-How Planning

& Programming

= Current Consumer Involvement

Feasibility Exploration

Communication &

Launch Preparation

Product Integration & Validation

Product Conception

& Design

Product Development

& Engineering Orientation &

Exploration Testing

Introduction &

Launch evaluation Product Design