Creating Breakthrough Products and Services with the Lead

Creating Breakthrough Products and Services with the Lead User Method Professor Eric von Hippel MIT Sloan School of Management evhippel mit. edu @

Essential Definitions The “functional” source of innovation depends upon the functional relationship between innovator and innovation: n n n An INNOVATION is anything new that is actually used (“enters the marketplace”) – whether major or minor. An innovation is a USER innovationwhen the developer expects to benefit by USING it; An innovation is a MANUFACTURER innovation when the developer expects to benefit by SELLING it. Copyright © 2003 Eric von Hippel

How we discovered that users develop many major new products Innovations Affecting First Device Major Improvement Minor Improvement Gas Chromatography 1 11 - Nuclear Magnetic Resonance Spectrometry 1 14 - Ultraviolet Spectrophotometry 1 5 - Transmission Electron Microscopy 1 14 63 Total 4 44 63 Copyright © 2003 Eric von Hippel

First device used in field developed and built by: Innovations Affecting % User Mfg. Gas Chromatography 83% 10 2 Nuclear Magnetic Resonance Spectrometry 80% 12 3 100% 6 0 Transmission Electron Microscopy 72% 44 17 Total 77% 72 22 Ultraviolet Spectrophotometry Copyright © 2003 Eric von Hippel

Gammaflow : A Completely Automated Radiommunoassy System Source: Science Vol 194 October 1976 Copyright

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 1991. Technology Review, July 1996, p. 34 Copyright © 2003 Eric von Hippel

Examples of Important Consumer Product Innovations Category Example Health Products Gatorade Personal Care Protein-base Shampoo Feminine Hygiene Sports Equipment Mountain Bike Mountain Climbing-Piton Apparel Sports Bra Food Chocolate Milk Graham Cracker Crust Office White-out Liquid Computer Application Software Electronic Mail Copyright © 2003 Eric von Hippel Desk Top Publishing

History of “AOL Instant Messenger” Instant Messaging is a User Innovation n By 1987 MIT Lab for Computer Science had thousands of “Athena” workstations online and difficulties diffusing system admin info rapidly. Developed “Zephyr” instant message system. MIT students begin to use for general instant messaging. Other universities adopted Zephyr-like programs First Commercial Product 9 years later n 1996 Israeli firm Mirabilis put out comml product ICQ n 1998 Mirabilis acquired by AOL Copyright © 2003 Eric von Hippel Source: October 2002 Technology Review

Ongoing evolution of Wi-Fi User Activities to Date n n n Users discover possibilities and begin free sharing of wireless networks Users Modify Wi-Fi antennas to greatly increase range Widespread implementation occurs – travelers find “hot spots” as they travel, can get Internet access, send e-mail from the highway etc. Traditional Supplier Responses? n No one will want it – no network security n We think this might be service stealing… should stop. Copyright © 2003 Eric von Hippel Source: October 2002 Technology Review

Users aren’t always the innovators Innovations Samples: User Manufr Suplr Other NA Total (N) Scientific Instruments 77% 23% - - 17 111 Semicon & PC Crd Process 67% 21% - 12% 6 49 Pultrusion Process 90% 10% - - - 10 6% 94% - - - 11 10% 90% - - - 5 8% 92% - - 4 16 Industrial Gas-Using 42% 17% 33% 8% - 12 Thermoplastic-Using 43% 14% 36% 7% - 14 Wire Stripping Equip 25% 75% - - 2 8 4% 13% 83% - - 12 58% 27% - 15% - 48 Tractor Shovel Related Engineering Plastics Additives Connector Attaching Equip Sports Equipment Copyright © 2003 Eric von Hippel

Factors influencing the sources of innovation 1. Relative ability to profit from an innovation n Firm with highest innovation-related profit expectations most likely to innovate. 2. “Sticky information” transfer costs n Firm with stickiest local information needed for innovation most likely to innovate. 3. Agency costs n 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 n 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!) Copyright © 2003 Eric von Hippel

User and Manufacturer Innovations Differ Users tend to develop Functionally Novel innovations: n The first sports-nutrition bar n The first scientific instrument of a new type Manufacturers tend to develop Dimension of Merit Improvements: n n A better-tasting sports-nutrition bar Improvements to an existing type of scientific instrument Copyright © 2003 Eric von Hippel

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!”) Copyright © 2003 Eric von Hippel

Lead users are now facing “emerging needs” Only lead user prototypes available Commercial versions

Product area selected for pilot test of lead user methods: Computer-Aided-Design systems Used to

In PC-CAD Lead Users were innovating Routine Users were not Expected Lead Type of Questions We User Attribute Asked At Front of What are your: “High Density” n Avg. Number of layers? Trend? n Avg. Line width (mils)? (1988 data) High Need For “Are you satisfied with your Improved present PCB CAD system? System? Active In Did you build own PCB Solving Own CAD System Problem? Number in Sample Copyright © 2003 Eric von Hippel LEAD Users Routine Users 6. 8 11 4. 1 15 No It’s OK 82% Yes 1% Yes 33 99

Performance Assessment of Lead User Research at 3 M Research Team: Prof. Gary Lilien, Penn State University; Prof. Pam Morrison, University of New South Wales; Dr. Kate Searls, ASI Associates, Mary Sonnack, Division Scientist, 3 M; Prof. Eric von Hippel, MIT For the complete article and other Lead User Videos and articles: Go to leaduser. com on the Web Copyright © 2003 Eric von Hippel

Overall study outcomes The 3 M Assessment study showed: 8 X Higher Sales in Year 5 $146 vs. $18 Million per concept “The highest rate of new product line generation in 50 years for the 5 Divisions tested. ” Copyright © 2003 Eric von Hippel

Assessment Results: Lead User vs. Non-Lead User Funded Ideas LU Ideas (n=5) NON-LU Ideas (n=42) Sig. “Newness” of Idea n Novelty compared to competition 9. 6 6. 8 0. 01 n Newness of needs addressed 8. 3 5. 3 0. 09 Projected Profitability n % market share in year 5 68% 33% 0. 01 n Estimated sales in year 5 $146 m 18 m 0. 00 Strategic Value n Strategic importance 9. 6 7. 3 0. 08 n Fit with Strategic plan 9. 8 8. 4 9. 24 Fit with Business n Intellectual property protection 7. 1 6. 7 0. 80 n Fit with mfr. Capabilities 7. 8 6. 7 0. 92 n Fit with distribution channels 8. 8 8. 0 0. 61 Copyright © 2003 Eric von Hippel Note: Items measured on 10 pt. Scale, 10=high, 1=low

Essential Definitions “Breakthrough: ” n Determines Future Business Growth and Margins n Major Product line >20% of Division Sales Incremental improvement: n Valuable to existing business n Extension to existing line Incremental Traditional 3 M Method LU Method At 3 M Copyright © 2003 Eric von Hippel Breakthrough 41 1 0 5

Lead User concept generation projects cost more than traditional ones Person Days Traditional 3 M concept development stage Lead User concept development stage At 3 M Copyright © 2003 Eric von Hippel Total Cost 60 $30, 000 154 $100, 000 (plus coaching)

ACTIVITY: Think about possible Lead Users in your markets Step 1 Select a specific market & specific majortrend to think about Step 2 Brainstorm possible lead users withinthat target market n n Step 4 Which ones have a high incentive & the resources to solve their leading edge needs? Brainstorm possible lead users outsidetarget market n Step 4 Which types of individuals or firms have needs at the leading edge of the trends? Which types of users in other fields & applications are facing a similar need but in a more demanding form? Specify what you might learn from each type of LU Copyright © 2003 Eric von Hippel

Example of searching for lead users outside your target market Medical X-Ray Instead of a board of leading radiologists… Look for users facing higherneeds than anyone in target market: Examples: People who need even high resolution than anyone doing medical imaging Image enhancement (“pattern recognition”) specialists Copyright © 2003 Eric von Hippel Experts in semiconductor chip imaging Experts who process photographs from space probes