Chapter 5

Summary

From this chapter, we learn the basic steps to product development. It’s actually surprisingly simple and comprises of only 4 steps: Design, Build, Run and Analyze. In breaking down the 4 steps, I will attempt to explain and give analogies to building a new car:

In the design phase, firms use existing designs to create a new and novel solution. The existing designs do not have to be flawed, but little improvements over time could be made. In this phase of our imaginary car building, a car design firm uses a newly refined metal for the car’s body to reduce its weight, and subsequently, its fuel efficiency. Next comes the build phase, where models or prototypes are created to be ran in experiments. Our car firm then sends blueprints and schematics to the nearest laboratory and a prototype is built. The run phase consists of the test model or prototype is simulated for use in real environments. This is where all the experiments occur, and raw data is recorded. The analyze phase is when the findings are assessed and improvements are made.

Throughout the entire process, we stumble onto the idea of ‘Sticky’ information. The idea of sticky information comes from the cost to transfer one piece of knowledge or information to another place; the greater the cost to transfer the information, the more sticky it is. The important role of sticky information comes from the idea of private knowledge and information: millions of dollars are spent every year on research, and many companies are not so eager to give away their private knowledge for free. For example, the stickiness of information creates a ‘catch-22’ of sorts for a small upstart circuits company: if a firm doesn’t know much about circuit design, they would have to pay for sticky information to get a start, but if the firm does not have the budget, then they are at a dead end.

Reflection

Through reading the chapter, I’ve realized that sticky information is almost everywhere. Last summer for example, my parents owned an old Panasonic TV in their bedroom that cut out parts of the image. Being the technology wiz in the house, I promised that I would help fix it. After spending an entire afternoon researching the model of the TV, I found out that the service manual was readily available online – except at the cost of $24.95. It seemed ridiculous to me that a 500kb pdf file would set me back $25!

In the end, I did purchase it under my parents’ rationale that spending $25 to be able to service the TV through a set of keycodes was better than spending $250 on a newer TV. I knew the practice of costly information existed but I never thought it would affect me, albeit in a small, trivial fashion.

Chapters 3-4

Studies are beginning to show users are first to develop and make significant modifications to products. The results also show that the rate of innovation by users is affected by the degree of commitment to or interest the users have in the product they are helping to improve. For example, university surgeons are likely to innovate when it comes to their instruments because they are very invested in the performance of those products.

There is evidence that product innovation is concentrated among “lead users.” This is because they are typically at the leading edge when it comes to market trends and they anticipate high benefits from obtaining a solution. Many lead users have access to products before the general public so they can detect problems early and help make changes that will benefit most users. They are also very useful at finding problems because of their vested interest in a product or industry. As intensity of hobby interest goes down, it’s likely that rates of user innovation drop too.

Libraries provide an excellent example of user modification. Many libraries found it difficult to find outside vendors that would provide needed/desired modifications to Online Public Access systems (“OPACs”). It became increasingly common for libraries to then hire their own in-house programmers to make needed modifications. Libraries that made their own modifications were found to have the qualities of being lead users. Many of the improvements made by libraries were later used by the manufacturers themselves to improve the OPACs.

Users are often highly heterogeneous when it comes to specific needs. They may differ for many reasons such as available resources and pathway from original state to preferred condition. The diversity of needs among users suggests a need for highly heterogeneous products. This makes things very difficult for manufacturers because they have many considerations when designing products that they want to appeal to many users. In some cases, the most important or most desired characteristic of a product may be unique per user. Users must decide between developing their own solution and paying for someone else to develop it for them.

Several studies have attempted to estimate how much users are willing to pay (WTP) for innovations. The problem with such evaluations is that results often tend to overestimate WTP. In a study involving von Hipple, it was found that costs of improving software often prevent users from making changes to their versions of Apache to the point where they would be completely satisfied.

It is often more cost effective to innovate than to hire a manufacturer when there is only a small amount of affected users or customers. This often saves time and money that would be wasted contacting, creating specifications for, and contracting a manufacturer. It may not even be worthwhile to the manufacturer unless a hefty price is paid.

User-innovators receive additional benefits from innovating for themselves. Much like a puzzle is not valued for the end-result, programmers were found to work on open-source software for intellectual stimulation, to improve their own programming skills, and for the creative experience. The programmers surveyed also mentioned that having control over their own work made the process more appealing and rewarding.

Chapter 2

Summary


Chapter 2 begins by introducing the idea of innovations facilitated by the product consumers themselves. Although it makes sense when you think about it, it conflicts with the idea that technological innovation occurs only in million dollar research laboratories and done only by men in white labcoats. More surprisingly, about 80% of cost reduction methods are attributed to minor innovations, according to Hippel. No matter how trivial the finding, it plays a large role in the overall scheme of advancement.

That may be good news to most ears, but the harsh reality is that not everyone is the next Einstein or Newton when it comes to making great technological discoveries. That’s why we have a ‘Lead User’. The Lead User theory tells us that most user-developed products come from people with ‘lead user’ characteristics, which are: the ability to stay ahead of the game in the technology field and being able to anticipate high benefits as a result of the innovation. In layman’s terms, lead users are more likely to develop significant products if they are on the leading edge of the technology field so they can anticipate needs that future users will be facing. In addition, the more that the lead user will anticipate great rewards from developing the product, the more he will invest.

As examples, Von Hippel gives us his own life experiences in the printed circuit board (PCB) industry. From a computer trade show, he sorted out users who contained the characteristics of a Lead User by finding technicians who 1) had worked with the densest PCBs, thus being the most innovative and 2) were dissatisfied with their company’s methods, thus wanting a higher reward and willing to put in higher investment. From the pool of selected technicians, they did indeed confirm the Lead User Theory when they found out 87% of the technicians in the Lead User category had modified their own PCBs outside of work.

Reflection

Other examples were given but I enjoyed reading the PCB example the most, since it struck a chord with my own life. As a guitarist and amplifier enthusiast, there’s a large, but niche market for amplification modification. Most rock fans will know Marshall and Fender like they know the names of their parents, but most do not know the innovative history behind the two companies. Marshall amps were actually created by copying and tweaking the schematics of Fender amps, and Fender amps were first made through copying and tweaking the valve-tube manual from RCA. It’s crazy to think that such small innovations created two of the biggest amplification companies today, and the field of PCBs isn’t such a stones throw away from tube amplification technology.

Welcome

Eric von Hippel discusses in Democratizing Innovation the developing trend for consumers and competitive firms to innovate on their own instead of leaving it to the "out-of-the-box" and "unorthodox" thinkers. 

"von Hippel shows that, in fields ranging from surgical instruments and software to kite surfing, customers often come up with new products of new ways of using old ones. Some companies encourage their customers to modify their merchandise. Others, however, do not: when a devoted user of Aibo, Sony's robot dog, wrote applicatons that would allow the Aibo to dance to music, Sony threatened the man with a lawsuit."
— James Surowiecki, The Wisdom of Crowds