Customer participation in new product development
Innovation is perceived by many to be the key to long-term success. Mature companies and startups alike commit their time and money to new product development, hoping to gain customer loyalty and lay the foundation for sustainable business success. With the growing acceptance of the open innovation philosophy, firms start looking beyond their borders for innovative ideas, and one new source of ideas they find increasingly valuable is their own customers, both current and potential. Firms develop different approaches for getting the customers engaged and invite them to share their opinions on the various aspects of new product development – from new product features to changes in the organizational processes. Customer participation is enjoying a great momentum, and consultants and scholars sing praises to new business approaches that allow firms to harness the creative power of their customers. But is this enthusiasm always justified? Is customer participation a magic bullet that guarantees turning companies into innovation powerhouses?
Thinking deeper about open innovation
It is true that no company has a monopoly on innovative ideas, and it is naïve to expect that the firm’s own employees will have answers to all the questions that it might face, says Sergey Anokhin, an Entrepreneurship Professor at Kent State University. The whole idea of the open innovation movement is based on acknowledging this simple fact. The open innovation philosophy welcomes collaboration, ideas exchange, and the search for alternative commercialization arrangements. Yet, amidst all the excitement that the new paradigm generates, there are lurking challenges that often remain ignored by the adepts of the new innovation thinking.
The idea that innovative ideas may be sourced elsewhere is not new. Technological licensing has been around for ages. And it is well known that companies often face difficulties trying to make use of someone else’s innovative ideas. They may be unwilling or unable to internalize the external knowledge. The former is described by the ‘not-invented-here’ syndrome, well known in the management literature. The latter is, perhaps, the more serious issue that has to do with the so called absorptive capacity, explains Professor Anokhin.
Absorptive capacity deals with the extent to which the company is able to acquire, assimilate, transform and exploit the external knowledge. If the company has well-developed absorptive capacity, its learning from customers (or, for that matter, competitors) will be easy, fast, and productive. Absorptive capacity is like a sponge that allows the company to draw in the ideas poured into it from outside. If the company ranks low on absorptive capacity, regardless of how innovative the customers’ ideas might be, chances are that the efforts at engaging customers into the new product development process will be wasted. That is, absorptive capacity is a key mechanism that guarantees the harnessing of customers’ input into the innovation process within the company.
To see if these ideas are supported in practice, a group of researchers from Western Michigan University, University of Massachusetts – Lowell, and Kent State University has conducted a study of the impact of customer participation on new product development performance under conditions of low and high absorptive capacity. The sample included 243 U.S. companies operating across many industries. The results were very straightforward, says Dr. Anokhin. Although on average it can be said that customer participation is good for both product innovativeness and new product development performance, the effect is only observed in companies having high absorptive capacity. For the firms that score low on absorptive capacity, the effect is virtually non-existent. This has startling implications for policy makers who are thinking about adopting the new approach to innovation by engaging their customers.
For firms that do not have well-developed absorptive capacity, investing into customer participation is a waste of time and money, and it will not lead to a noticeable improvement in innovativeness or new product performance, says Sergey Anokhin. At the same time, firms that rank high on absorptive capacity, stand to gain much from getting their current and potential customers involved. In other words, before making a commitment to this recently popularized approach to stimulating innovative ideas, decision makers must take stock of their firms’ absorptive capacity. If it is low, systematic efforts at encouraging organizational learning are in order, and it is very essential that the company overcomes both the inability and unwillingness to use new ideas that come from elsewhere. This may require careful HR programs aimed at training the employees, but may also require organizational restructuring to facilitate the learning and collaboration processes within the firm, suggests Dr. Anokhin.
For more information, read Morgan, T., Obal, M., & Sergey Anokhin- Kent State (2018). Customer participation and new product performance: Towards the understanding of the mechanisms and key contingencies. Research Policy, 47(2), 498-510.
The article created in April 2018