How Web 2.0 is democratising innovation

How Web 2.0 is democratising innovation
By Georges Berzgal and Amal Johnson, of MarketTools

Published: July 11 2008 10:20 | Last updated: July 11 2008 10:20

Where do winning ideas come from? For most companies, the answer is from a select group of people in Research and Development, new product development (NPD), or marketing.

Today, however, a growing number of organisations are harnessing the power of the web to capitalise on the wealth of ideas among their customers and that often neglected source of inspiration, their rank and file employees. These companies are living the adage that there is “no monopoly on great ideas”, causing a shift in the direction of innovation while at the same time outsmarting the competition.

This shift could not have happened without the emergence of the internet and its evolution into what is commonly referred to as Web 2.0, a term that characterises the second wave of the internet where user-generated content and social networks drive significant activity.

The common practice in developing new products has been manufacturer-centric, highly process-driven, and limited to the domain of a small group of “experts” in the R&D and NPD departments. Companies usually start with trying to identify the “unmet needs” of their target audience. Those findings are subsequently translated by engineers and marketers into potentially new, or enhancements of existing, product concepts. These, in turn, are tested with consumers along several “stage gates” with the ultimate purpose of ending up with one or a limited number of “winning” products that can be launched in the marketplace.

Unfortunately, although this practice has been widely used for some time, its effectiveness at launching successful products has been dismal. Companies won’t openly discuss NPD failures but estimates range from 75-90 per cent depending on industry. Both direct and indirect costs, not to mention opportunity costs in terms of human capital and resources spent on failures, are substantial. An alternative model, the systematic use of broader origination of innovation, especially that involving end-customers, has been very limited and often haphazard. Until now.

The new model that is emerging is a more customer-centric model, or a variation thereof, and relies on the wisdom of crowds, rather than a handful of experts. This is a major shift in that companies are not just asking end-customers to identify their unmet needs, but they are also engaging them in helping invent new solutions to meet those needs; in essence, to be the outsourced R&D team.

This shift started, not surprisingly, in the technology industry with the open source movement that harnesses the power of hundreds (and in some cases thousands) of end-users to help develop or enhance software products. However, with the emergence and evolution of the internet to Web 2.0, and broad adoption and use of underlying technologies such as communities, chat, blogging etc by a mass market of internet users, this approach is increasingly being adopted by traditional multinationals such as Procter & Gamble, Phillips Electronics, Sara Lee, Del Monte, Lego, and Frito Lay, to mention a few.

We would suggest the pet foods division of Del Monte is a good example. The company used an online community to help develop and evolve a new product that took just six months to be launched into the trade. The community, called “I Love My Dog”, enabled Del Monte to tap into consumers’ own means of communication – blogs, chat rooms, message boards, podcasts, videos, and online groups – and bring together specific groups of people who share common interests or characteristics to create an ongoing, interactive dialogue.

The “I Love My Dog” community saves Del Monte a considerable amount of time by focusing on the ideas that their customers will most value which, in turn, gives the company a competitive edge.

Other companies, while not venturing as far afield as end-customers, are also dramatically changing the way they source, develop, and evolve new ideas by using internal crowds. PepsiCo’s snack food division, Frito Lay, has set up an employee community called an Idea Network and invited a broad swath of its employees (from marketing, finance, supply chain management and the factory floor) to join and participate in helping the company identify and develop new product ideas using, among other various tools, predictive market technology.

Frito Lay’s goal was to fill the development pipeline with great ideas. The company felt the best way to accomplish this was to rely on the collective wisdom of a crowd. Generating hundreds of innovative ideas, the company is now reviewing and refining them for strategic fit and consumer testing.

But does the democratisation of innovation mean the beginning of the end of R&D and NPD departments? Not any time soon. Despite earlier successes, there is still strong resistance from some companies to relax control of NPD, utilising end-customers, partners or employees to produce the next big idea. Additionally, there will still be a need for internal experts to drive new ideas through the development stages, and continue to apply their expertise.

However, the pioneers have come to realise that they are better served by embracing less control over the process (rather than fighting it) if it means faster innovation and the development of potentially more successful new products. The options are having 100 per cent control over an internal process that delivers a 75 per cent failure rate for new product development, or having some faith in the broader wisdom of a much larger audience.

Amal Johnson is CEO of MarketTools, an on-demand customer insight solutions provider, and Georges Berzgal is its managing director, Europe.
Copyright The Financial Times Limited 2008