Customers as Innovators: A New Way to Create Value

How has GE Plastics fueled much of its growth, generated one-third of its new customer leads, and cut customer-service calls in half? It enables its customers to improve products—by accessing GE’s engineering knowledge and simulation software through its Web-based product-development “tool kits.”

Why doesn’t GE obey the mantra about listening to what customers want and then designing new products for them? It realized that understanding customers’ needs becomes costly and inexact as markets grow more segmented and customer preferences more complex, changeable, and hard to articulate.

Several companies have reinvented the R&D process: They equip customers with high-tech but user-friendly tool kits featuring computer simulation and rapid prototyping to develop their own new products.

To turn customers into “do-it-yourself” innovators, companies must develop the right tool kit and revamp their business models and customer relationships. And because the most profitable point along the value chain may shift to manufacturing, they must also develop affordable, high-quality custom manufacturing. Challenging, yes—but as GE has shown, potentially quite profitable.

The Idea in Practice

When Should Customers Be Innovators?

In traditional trial-and-error product development, manufacturers develop prototypes based on incomplete customer input, customers find flaws, and manufacturers refine the prototype—again and again.

Customer innovation breaks this cycle, enabling customers to handle iterations and saving you both time and money. It’s most valuable when:

• Customers increasingly want customized products, and your design and manufacturing costs are skyrocketing.

• Customers are complaining about product-development mistakes and delays.

• You already use computer-based simulation and rapid prototyping internally, and can manufacture custom products through computer-adjusted processes.

Customer-Friendly Tool Kits

Well-designed tool kits help you satisfy subtle customers’ needs, complete designs quickly, and manufacture the final product correctly the first time. Effective tool kits:

• help customers run experiments efficiently through rapid prototypes and computer simulations, without having to manufacture;

• use design language familiar to customers;

• contain standard design components and modules, so customers can create complex custom designs rapidly; and

• specify your production processes, so customers create producible designs.

Example: 

In the early 1980s, R&D engineers at large semiconductor manufacturers used many customer tool-kit elements—but hadn’t consolidated them into a system less-skilled customers could comfortably use. LSI Logic stepped into the gap, buying tool-kit pieces, making them customer-friendly through graphical user interfaces, and integrating them. LSI’s tool kits let customers test chip designs, using simulation and digital prototypes. The kits “speak” electrical engineers’ “language” (Boolean algebra), contain pretested circuit modules, and include vital information about LSI’s manufacturing processes. Virtually nonexistent in the 1980s, the newly created markets for such custom-integrated circuits reached about $15 billion in 2000.

Turning Customers into Innovators

After developing your tool kit:

• Retool your manufacturing operations for fast, low-cost production of tool-kit-based customer designs.

• Select initial customers to use the tool kit—those who need custom products quickly and have skilled engineers.

• Continually refine your tool kit to satisfy leading-edge customers.

• Adapt your business practices to capture new sources of value; e.g., working with small, low-volume customers.