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  • INSIGHT into user-driven innovation

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    table of contents

    Preface 31. Innovation in change 42. Global trends and innovation 43. New approaches to the work on innovation 8 3.1 User-driven innovation 8 3.2 Openness in innovation 114. 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

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    InsIGHt Into user-drIven InnovatIon 2007

    PrefaceWith 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’ needs.

    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. However, innovation is a major challenge. For this reason, we close the paper with a presen-tation of some of the most current challenges to the work on new approaches to innovation, viewed from our perspective. Questions we would like to discuss with all those who are interested.

    Enjoy your reading.

    Jacob HolmChairman of the Board of the Programme for User-Driven Innovation

    The Board of the Programme for User-Driven Innovation consists of the following members: Managing Director Jacob Holm, Fritz Hansen A/S (Chairman), Executive Vice President Mads Nipper, the LEGO Group, Group Senior Vice President Lisbeth Thyge Frandsen, Grundfos (People & Strategy), Managing Director Lars Gundorph, Willis, Architect Dorte Mandrup-Poulsen, Dorte Mandrup Arkitekter, Chairman Lars Nørby Johansen, The Danish Growth Council, Chairman Lars Mikkelgaard-Jensen, The Danish Council for Technology and Innovation, Hospital Director Jens Otto S. Jeppesen, Odense University Hospital, 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

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    1. InnovatIon In cHanGe

    Briefly stated, innovation is a matter of improving the earnings of companies by com-mercial application of new knowledge and ideas, either through introducing new and improved products or through the implementation of new processes, routines and pro-cedures.

    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 innovation work performed in their companies.1

    There is no room for this in the global race for innovation, in which the ability to trans-late knowledge and new ideas into concrete solutions assumes ever increasing impor-tance and thus becomes a core activity for most enterprises.

    The present paper focuses on the consequences of global competition for the inno-vation work of Danish enterprises. In this paper, you can read, among other things, about:

    • The new challenges that the global development poses for innovation in Danish en-terprises within, for instance, the fields of new communications technology as well as research and development.

    • The new tools available for enterprises to use in order to improve the success rate of their work on innovation. Focus is placed on ways in which enterprises can improve the precision and effectiveness of their innovation work by operating with user-driven and open innovation.

    • Ways in which new approaches like user-driven and open innovation can interact with other methods of innovation.

    • Reflections on the degree to which all methods of innovation are equally relevant to all enterprises, and how enterprises can approach the methods in practice.

    However, there is still a shortage of knowledge on enterprises’ work on innovation and the role of the latest innovation tools. One of the issues is whether, when and how en-terprises can systematise and perform concrete work, in the most expedient way, with 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.

    2. Global trends and InnovatIon

    The traditional focus of innovation has been on research and technological develop-ment. However, the global development poses new demands on the innovation of Danish 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 been new technological possibilities, lower transport and production costs, trade libe-ralisation, etc.

    Much seems to indicate that globalisation has now entered a second phase, in which new trends contribute to putting companies’ innovation under pressure.

    technology opens new markets and brings new competitionIn recent years, the technological development has made it possible to enter into direct contact with, and sell products to, consumers all over the world. Especially the Internet has made many more products and services available to a far greater number of con-sumers and enterprises than ever before.2

    As shown in Figure 1, the number of commercial transactions via the Internet in Den-mark has grown strongly, in step with growing access to the Internet. This means that 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 applies, for instance, to books and computer games, where several distributors based in other countries today sell products in direct competition with Danish retailers.

    1 The Boston Consulting Group (2006): “Innovation 2005 and 2006”, Businessweek/Doblin Inc. (2005): “Get Creative – how to build innovative companies”, 1 August 2005, Bain & Co. (2002): “Innovation Study, Harvard Business Review”.

    2 C. K. Prahalad et al. (2006): “The Future of Competition” and C. Anderson (2006): “The Long Tail – How Endless choice is creating unlimited demand”.

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    The spread of new communications technology combined with, among other things, lo-wer transport costs, also offers opportunities for Danish enterprises. Products and ser-vices that were previously only available from a few special retailers and distributors, because the customer base was very limited, can be sold to a far greater number of consumers in a global market, because the costs of reaching consumers have fallen substantially.

    3 OECD (2006): The internationalisation of Business Research”. 4 Chesbrough, Henry (2006): “New Puzzles and New Findings”.

    Figure 1: Commercial Internet transactions in Denmark per quarter

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    The new communications technologies have also made it possible to communicate more directly with customers, and obtain, for instance, feedback from clients and users 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-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 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.

    Increasing competition on knowledge and innovationToday, even highly advanced technological solutions and complex knowledge are avai-lable to many companies. This is partly because the total investments in research and 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 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

    It therefore becomes increasingly difficult to exploit a technological advantage to build a favourable market situation. Competitors will rapidly be able to offer the same or bet-ter solutions. There is thus close correlation between a high level of innovation and a short product life cycle. This is, for instance, reflected in the fact that the industries that 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.

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    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-

    sociated with being the technological market leader make it more difficult to deliver sa-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 future needs in the market and is structured in an efficient and cost-conscious manner.

    flexible and fluctuating marketsMarkets and industries are no longer as clearly defined as they used to be. For instance, the boundary between manufacturers and service providers is no longer as clear as ear-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-asing) share of the earnings for many product groups. Within the motorcar and computer industries, more than 80 per cent of the earnings derive from services.6

    One example is Apple, which, with the music programme iTunes, has moved from being primarily a manufacturer of personal computers to entering the market for music distribu-tion. Sales and distribution of music have become a market that has changed significan-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.

    6 R. Wise & P. Baumgarten (1999): “Go Downstream. The New Profit Imperative in Manufacturing”, Harvard Business Review 7 www.ifpi.org

    0 %0 % 2 % 4 % 6 % 8 % 10 % 12 %

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    5 EU (2006): Monitoring industrial research: The Annual Digest of Industrial R&D.

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    Figure 3: The sales of music, at global level in USD million stronger consumer demandsConsumers also make greater demands on products and their relevance. Increased 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-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 the variants increase in number for most product groups.

    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 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 and competition from microbreweries and foreign breweries have caused, among other things, Carlsberg to change its product portfolio.

    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 products and services to the market if companies want to maintain market shares and customer loyalty. It is important to hit the customers’ needs.

    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.

    $ 02004 2005 2006

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    Sales of traditional music mediaMusic sold on the Internet

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

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    3. new aPProacHes to tHe work on InnovatIon

    If the innovation of enterprises is to hit the market with precision, it is of key significance 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 from existing and new business areas. One important part of the work on innovation is to use the sources of innovation both inside and outside the enterprise.

    The vast majority of companies work on creating innovation by applying new techno-logy. However, it has become more difficult to get ahead of competitors solely on the basis of new technology. For this reason, among others, there is an increasing focus on supplementing technologically focused innovation with the non-technological part of the work on innovation. This involves working systematically on, for instance:

    • Becoming familiar with realised and non-realised consumer needs and future needs in the market (user-driven innovation)

    • Organising the work on innovation in a manner which draws on knowledge and com-petencies outside the enterprise (open innovation).

    3.1 user-driven innovation It is becoming increasingly necessary to meet consumers’ demands for products and services that are relevant in their everyday life. Surveys show that a lack of understan-ding of the needs of users is the cause of 70 per cent to 80 per cent of failed newly 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 been on charting and understanding consumers’ purchases of products and services by means of market analyses, focus groups or daily contact with customers, for in-stance at trade fairs and the like.9

    However, several enterprises give higher priority to the work on systematic and scienti-fic methods with a view to identifying present and future user needs, in order to provide customers with a value that competitors cannot offer. This is done by charting and

    understanding the needs of users and translating this knowledge into the development of products and services.10

    There are several reasons for the increasing focus of companies on users and oppor-tunities in the market:

    • Greater insight into users’ realised and non-realised needs increases the likelihood of the innovation of enterprises hitting the market with greater precision. User focus is thus also able to create better returns on investments in innovation.

    • Insight into users’ realised and non-realised needs offers the opportunity to launch 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 premium price for their products or services.

    • And by giving the customer influence on the product design, it is possible to create ownership with customers of the company’s products. This ownership can give the individual enterprise more loyal customers and thus improve earnings.

    The concept of user-driven innovation covers several different approaches to identi-fying realised and particularly non-realised needs in the market and among users. In connection with the programme for user-driven innovation, user-driven innovation has been defined as stated in the box below.

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

    10 Elizabeth Sanders (2006): Design Serving People

    Definition of user-driven innovationUser-driven innovation is to be understood as a systematic approach to the development of new products, services, processes, forms of organisation, etc., on the basis of research or inclusion of users’ life, practice or needs, including the identification of non-realised needs that are expected to subsequently materialise in terms of demand from larger user segments.

    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 active user participation in the course of the entire innovation process.

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    11 FOR A (2008): User-driven innovation – context and cases in a Nordic region”. 12 Chesbrough, Henry (2003): ”Open Innovation – The New Imperative for Creating and Profiting From Technology”,

    Harvard Business School Press, Boston.

    User-driven innovation has two distinctive dimensions. The dimensions are what type of user need is studied and to what extent the users are involved in this work. User-driven innovation is distinct from traditional marketing by the degree of user involve-ment in the innovation process or by survey examinations of non-realised needs, cf. Figure 4.11

    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.

    Human and social sciences One widely applied approach is based on methods derived from the human and social sciences. This approach includes knowledge and methods from ethnography, anthro-pology, sociology, psychology and other sciences that offer special insight into human 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-stions.

    In practice, the knowledge thus gained is often linked with components from the worlds 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 how products and services can meet these needs and priorities.13

    User involvement

    Direct

    Involvement of lead users

    Ethnographic and anthropological methods

    Realised(Real and expressed)

    Non realised

    Needs

    (Real but hidden)

    Indirect

    Traditional marketing

    Figure 4: Two dimensions within user-driven innovation

    Example: the development of anaesthesia equipmentDameca 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 new ideas for the development of anaesthesia equipment. The designers used the needs of users as their point of departure, and therefore witnessed a number of surgical operations in order to observe the ways in which surgeons used the anaesthesia equipment. They discovered, for instance, that surgeons often spent extended periods of time assuming inexpedient bodily positions. By observing the surgeons perform their work, the designers gained an understanding of the surgeons’ needs, and the observations provided the basis for the development of new equipment.

    Source: www.brugerdreveninnovation.dk

    13 Elizabeth Sanders (2004): ”Ethnography and the Empowerment of Everyday People”. ReD Associates (2005): “Applied Business Anthropology”.

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    co-creationAn alternative to obtaining knowledge and ideas from users that are on the cutting edge of the trends in the market is to include entirely ordinary users. Co-creation is an approach in which enterprises develop products and services together with users instead of developing products and services for users. This is done, for instance, by gi-ving users access to development tools, knowledge, networks, etc. Surveys show that between 10 and 40 per cent of the users of a number of product types are engaged in developing and improving the products.15

    One of the leading experts on co-creation, C. K. Prahalad, points out that companies to a higher degree create value together with users than internally in the company.16 The challenge for companies is to involve users in the most expedient way, so as to create the highest possible value.

    Examples: teddy bears, web forums and encyclopaediaThere are a number of examples of how enterprises develop products and services together with users, including such success stories as (1) Build-a-Bear, which allows children to “build” their own teddy bear, (2) MySpace, where users can create their own web page and meet others, and (3) Wikipedia, where users together write and use an encyclopaedia. Co-creation is about systematic inclusion of users in the develop-ment of new products and services.

    Source: C.K. Prahalad (2006): Innovation through Co-Creation” and Cipu: User drive.

    15 Eric von Hippel (2005): “Democratizing Innovation”. 16 C. K. Prahalad et al. (2006): “The Future of Competition”.

    Example: kite surfersA number of products are developed by lead users instead of companies, including companies within computer games, hospital equipment and sporting equipment. For instance, kite surfers are at the forefront of most innovation within kite surfing. Kite surfers exchange information, ideas, solutions and experience on the Internet. Often their design tools and designs of new kites are superior to those of commercial enterprises.

    Source: Eric von Hippel (June 2007): User innovation, Innovation communities, Open innovation, Open source, Living Labs, Ethnography and all that!

    14 Eric von Hippel (2005): “Democratizing Innovation”.

    lead userAnother approach to the work on innovation that is also gaining ground is the lead user approach. It takes its point of departure in knowledge, ideas and input from users that are on the cutting edge of the trends in the market. These are users with a specific need who therefore adapt and develop products so that products or services acquire improved or innovative properties. The users adapt and develop products on the basis of their own knowledge and competencies, but often they do so in cooperation with other users, for instance in user communities on the Internet.

    Often, the work with these users generates commercial value because lead users make greater demands on the products than the average user.14 The challenge lies in identifying lead users and involving them in the innovation work.

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    Example: involvement of hospital staffEvery 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 makes an active effort to involve employees and users in innovation processes. In order to obtain valuable 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

    employee-driven innovationUsers are also employees in companies. Employees handle the day-to-day contact with customers, competitors, suppliers and colleagues. At the same time, employees possess great knowledge from the production concerning the possibilities of adap-tation or improvement of the products. They therefore often possess knowledge of shortcomings or opportunities relating to the product.

    Employee-driven innovation is about systematic inclusion of knowledge from the employees that are not otherwise part of the work on innovation in the company. For companies, the challenge consists of building a culture of innovation in its organisation and a process through which knowledge and ideas from employees are systematised, tested, developed, implemented and realised.

    3.2 openness in innovationAnother approach to the work on innovation is to draw on knowledge from outside sources.

    Since the end of the 1980s, many companies, including for instance IBM, Xerox and 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 to secure a technological and innovative lead for the companies. Partly because the costs incurred from operating them were disproportionate to the revenues generated by the in-house departments.17

    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 outside the organisation, compared to only 3 per cent around 1970, cf. Figure 5.18

    17 Henry Chesbrough (2006): “Open Innovation – Researching a new paradigm”. 18 EU (2006): “Monitoring industrial research: The Annual Digest of Industrial R&D”.

    0 %1980 2000

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

    Figure 5: acquisition of research and development from outside sources as a share of corporate investments in research and development

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    Instead of engaging in development projects alone, many companies choose to co-operate on innovation with suppliers, competitors, knowledge partners or enterprises from entirely different industries. For instance, 68 per cent of the respondents in a survey among European enterprises emphasise that more cooperation with external partners is part of their strategy for improving the company’s ability to accelerate the work on innovation.19

    There are several reasons why companies decide to open up their innovation pro-cess:

    • New ideas and trends spread globally in the course of a very short time. The time it takes to bring a product or a service to the market may therefore be a decisive com-petitive parameter. Here, it is a great strength to be able to apply the innovation work of other actors and gather other competencies and knowledge across geographical distances and organisational boundaries.

    • Cooperation with other enterprises is also an effective way to create the best possible

    returns on investments in innovation work. Innovation often involves considerable costs and risks. Cooperation offers the opportunity for sharing costs with others.

    • Last, cooperation and strong networks provide opportunities for companies with di-verse strengths and knowledge of the markets to venture jointly into new markets 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.

    There are several ways in which to work on open innovation: We may, for instance, make a general distinction between two types of open innovation processes.

    • In some cases, companies open up for a wide circle of uses, customers and sup-pliers, as for instance in connection with Open Source software.

    • In other cases, the innovation process is only opened up to the parties that are invol-ved in the cooperation, whereas it may still be closed to external customers, suppliers and other cooperation partners, etc.

    In both cases, however, open innovation means that patents, licences and intellectual property rights assume greater significance. The protection of rights is a natural exten-sion of opening up the innovation process. In concrete terms, to some enterprises in-novation consists in acquiring patents and rights to apply knowledge from other enter-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 to own products or services.

    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 for the individual company to organise itself, depending on, for instance, the industry in question, the competitive situation, the size of the company, its corporate culture, etc.

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

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    Example: Senseo coffee makerThe development of the Senseo coffee maker is an example of an open innovation process, in which two companies opened up to each other and developed a joint product based on the individual competencies of the two companies. Senseo is a coffee maker to be used exclusively with some special coffee bags. The coffee bag system is the outcome produced by cooperation between Philips (consumer electronics) and a Douwe Egberts (coffee roasting business). The two companies have jointly developed a coffee brewing 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 any questions concerning intellectual property rights have thus been defined in clear terms.

    Source: www.senseo.dk

    Example: LinuxThe Linux software project is an example of a development project in which the development has been fully 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.

    4. tHe danIsH cHallenGe

    The new trends within the work on innovation increase the need for knowing more about when companies benefit from working systematically on identifying realised and non-realised needs in the market and opening up the work on innovation. And there is a need for discussing how new approaches to innovation may in practice be integrated in enterprises so as to create new and profitable products, services or concepts.

    4.1. for whom and when are new approaches to innovation usable?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 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.?

    The key element of user-driven and open innovation is to catch trends and future ne-eds in the market rather than to focus on what is in demand or technologically possible today.

    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.

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    It can be an entirely different situation for small companies, for which high development costs may involve high risks, for the sole reason that the budgets are smaller and the financial resources slimmer. This increases the need for companies to select both the right tools from the outset and perhaps less extensive approaches that match their situation.

    Working with user-driven or open innovation does not mean that companies must re-frain from the work on, for instance, technology or research-driven innovation. As Fi-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.

    Changes like this can render a product or an entire business model obsolete very rapidly. Therefore, companies may have a need in many different contexts to identify which opportunities and needs will arise in the market. To this end, new approaches to the work on innovation are able to provide valuable input.

    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 on when the individual enterprise gains the greatest possible benefits from working on the individual approaches.

    Question for discussion: In which companies, industries and competitive scenarios are the new approaches applicable, and what effects can be expected?

    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-hods and tools to actually result in new products, services or concepts? And how the 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 of the innovation work. It is therefore important to clarify how the innovation process 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 companies’ point of departure can be different. Even the situations of small and large companies may differ widely. Some large companies may have the possibility of ope-rating their own department of user-driven innovation or buying consultancy services to identify the future needs of users.

    Technology and research-driven innovation

    Not technology and research-driven innovation

    Closed innovation process

    Identification of user needs very important in innovation

    Identification of user needs not important in innovation

    Open innovation process

    Figure 6: multiple dimensions of innovation

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    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 the identification of non-realised user needs and market needs may be more or less prioritised by the enterprise.

    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 engage in innovative work that is entirely open or completely closed. Different compa-nies assume different positions within the cube. For the individual enterprise, it is the-refore of key significance to establish which combination is most expedient.

    However, the decisive factor for the growth opportunities of Danish companies is to become wiser in relation to these matters. The companies that are best at innovation distinguish themselves not only by the resources they spend, but by their ability to engage in systematic development of ideas, selection of projects, development and commercialisation.20

    There is not much concrete knowledge today on how the different approaches to in-novation may be combined and systematised in the individual companies. Therefore, there is a need for discussing how new approaches to innovation may be anchored and managed, which competencies must be established internally in the company and 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?

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

    or saId In a lot fewer words

    Briefly stated, innovation is a matter of improving the earnings of companies by com-mercial application of new knowledge and ideas; either through introducing new and improved products or through the implementation of new processes, routines and pro-cedures.

    The traditional focus of innovation has been on research and technological develop-ment. However, the global development poses new demands on the innovation of Danish enterprises.

    If the innovation of enterprises is to hit the market with precision, it is of key significance 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 from existing and new business areas. One important part of the work on innovation is 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 about when companies benefit from working systematically on identifying realised and non-realised needs in the market and opening up the work on innovation. And there is a need for discussing how new approaches to innovation may in practice be integrated in enterprises so as to create new and profitable products, services or concepts.

  • www.brugerdreveninnovation.dk