Product Conceptualisation with the Lead User Method Professor Erkko Autio (adapted from a web presentation by Professor Eric von Hippel, MIT Sloan School of Management)

2 EA Market Pull or Technology Push? Market Pull Because... By being technologically oriented companies only invent 'better mouse traps' no one needs... Market Pull Because... By being technologically oriented companies only invent 'better mouse traps' no one needs... Technology Push Because... By being solely market driven companies only develop low-quality products that lack long-term value to customers and to themselves... Technology Push Because... By being solely market driven companies only develop low-quality products that lack long-term value to customers and to themselves %60-80% of successful products

3 EA Difficulty of Researching Technology Markets ”Had I asked end customers, all they would have said is that they need a faster horse” - Henry Ford

4 EA Users Develop Many Major New Products Innovations Affecting First Device Major Improvement Minor Improvement Gas Chromatography111- Nuclear Magnetic Resonance Spectrometry 114- Ultraviolet Spectrophotometry 15- Transmission Electron Microscopy Total44463

6 EA First Device Used in Field Developed By… Innovations Affecting % UserUserMfg. Gas Chromatography83%102 Nuclear Magnetic Resonance Spectrometry 80%123 Ultraviolet Spectrophotometry 100%60 Transmission Electron Microscopy 72%4417 Total77%7222

7 EA The World Wide Web – A Lead User Innovation “Berners-Lee did not set out to invent a contemporary cultural phenomenon; rather, he says, “it was something I needed in my work.” He wanted to simply to solve a problem that was hindering his efforts as a consulting software engineer at CERN. Berners-Lee’s innovation was to apply hypertext to the growing reality of networked computers. He expanded the idea he had developed at CERN and made it available on the Internet in the summer of Technology Review, July 1996, p.34 (also documented by Prof Ari-Pekka Hameri)

8 EA Examples of Important Consumer Product Innovations CategoryExample Health ProductsGatorade Personal CareProtein-base Shampoo Feminine Hygiene Sports EquipmentMountain Bike Mountain Climbing-Piton ApparelSports Bra FoodChocolate Milk Graham Cracker Crust OfficeWhite-out Liquid Computer Application Software Electronic Mail Desk Top Publishing

9 EA Linux is User-Driven Innovation Computing science assistant Linus Torvalds develops a core of an operating system at the University of Helsinki. The project starts as a course assignment Torvalds needs certain functionalities that are not included in commercially available systems, so he continues developing his own system, partly as a hobby He puts his system onto the public domain and invites others to develop further features into the system The work catches on and Linux is born

10 EA Users Aren’t Always the Innovators Innovations Samples:UserManufrSuplrOtherNATotal (N) Scientific Instruments77%23% Semicon & PC Crd Process67%21%-12%649 Pultrusion Process90%10%---10 Tractor Shovel Related6%94%---11 Engineering Plastics10%90%---5 Plastics Additives8%92%--416 Industrial Gas-Using42%17%33%8%-12 Thermoplastic-Using43%14%36%7%-14 Wire Stripping Equip25%75%--28 Connector Attaching Equip4%13%83%--12 Sports Equipment58%27%-15%-48

11 EA Factors Influencing Sources of Innovation 1.Relative ability to profit from an innovation – Firm with highest innovation-related profit expectations most likely to innovate 2.“Sticky information” transfer costs – Firm with stickiest local information needed for innovation most likely to innovate. 3.Agency costs – Always creates tendency towards user innovation “I will do it myself because I want something exactly right for me – You are only willing to make something almost-right for many.” 4.Coordination costs – Always creates tendency towards user innovation “By the time you can physically get here to do what I need, I might be bankrupt – so I have to do it myself (Example, solving semiconductor production problems – loss rates as high as $10,000 per minute!)

12 EA User and Manufacturer Innovations Tend to Differ Users tend to develop Functionally Novel innovations The first sports-nutrition bar The first scientific instrument of a new type Manufacturers tend to develop Dimension of Merit Improvements A better-tasting sports-nutrition bar Improvements to an existing type of scientific instrument

13 EA Users Innovate When It Pays… For Them Only “Lead User” innovations form the basis for new products and services of value to manufacturers “Lead Users” are users that: 1.Have needs that foreshadow general demand in the marketplace; 2.Expect to obtain high benefit from a solution to their needs. (Such users are more likely to innovate – “Necessity is the mother of invention!”) – John Heebøll: “Where is the pain?”

14 EA Time Only lead user prototypes available Commercial versions of product available # of users perceiving need Lead Users Face “Emerging Needs” Now

15 EA Lead Users Lead Markets –Ahead of the market –Benefit significantly –Ahead of the market –Benefit significantly InnovatorsEarly adopters Early majority Late majority Laggards Lead users Time of adoption Number of customers that adopt the product at a given moment in time

16 EA Use of Method: Example Computer-Aided-Design systems Used to lay out printed circuit boards (PCB-CAD)

17 EA In PC-CAD Lead Users Were Innovating - Routine Users Were Not Expected Lead User Attribute Type of Questions AskedLEAD Users Routine Users At Front of “High Density” Trend? What are your: Avg. Number of layers? Avg. Line width (mils)? (1988 data) High Need For Improved System? “Are you satisfied with your present PCB CAD system? NoIt’s OK Active In Solving Own Problem? Did you build own PCB CAD System 82% Yes 1% Yes Number in Sample 3399

18 EA Lead User Method Steps Identify important industry trend (has to be central to industry development) Identify potential lead user groups with regard to trend Verify if potential lead users –Stand to benefit from improved trend preformance –Actually lead in terms of the trend –Have actively tried to solve the bottleneck Carry out focus group discussions –Identify attractive product or service concept features Develop a concept prototype Test this concept among wider user audience (early adopters) Develop the product Sell, sell, and sell!