Open Innovation Networks and Virtual Worlds

Contents

Online Communities

Virtual Worlds

Contact

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Online Communities

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Objective Evaluate the best in class corporate Open Innovation Network (“OIN”) communities, specifically

focusing on how companies are using these communities to “seed innovation” Examine the latest technological advancements in OIN development

Deliverables Identify the best in class companies and approaches for seeding innovation through OIN communities Provide recommendation from our interview and findings Identify other issues which have arisen during our Key Innovation Leader interviews

Project Scope

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Best in class companies are using online communities for market research, seeding innovation, communitybuilding, and brand building.

Companies using online communities include:

J&J Toyota Google General MillsApple Starbucks Sony DellIBM McDonald’s Yahoo BMWCoca-Cola Chrysler eBay General Motors

Online Communities

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Communities are being used to seed innovationMarket research from communities has been helpful in developing, beta testing, and enhancing existing products.

Internal communities help foster a culture of innovation as well as improve employee retention.

Our research has shown that some companies are employing representatives to monitor non-affiliated company specific blogs.

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Internal Communities External Communities

Usually those communities are developed to facilitate the exchange of information between employees.

Any community developed for the purpose of bringing-in members outside the company. Often, these communities are developed to host the company’s consumer products.

Types of Online Communities: Internal vs. External

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Open Closed

These communities are open to anyone willing to participate. There are options for inviting members, but usually, members join due to their own volition and desire.

Members are usually invited or recruited. Better relationships are built and members are able to

connect with one another More intimate Opportunity to develop relationships Remuneration is not mandatory Incentives offered are often minimal

Types of External Online Communities: Open vs. Closed

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Types of External Online Communities: Open vs. Closed (cont’d)

Open community participants tend to be younger; closed community participants span a broader age demographic based on relevance and purpose of the community.

Open communities are public domains; closed communities are private domains and offer a dedicated community.

Small is “In” (300-500 member communities): Status and self-esteem; Affiliation; Sense of community; Assistance and opportunity to help others.

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Benefits Drawbacks

Open to all users (potential higher participation) Likely more diversity among participants “Shot-gun effect” – the more people involved, the

more opportunity for a good idea to emerge Great opportunity to build brand loyalty,

recognition, and public relations Excellent opportunity for company and brand

exposure Compensation is less likely to be expected from

participants

Higher ratio of “white-noise” (likely more irrelevance than closed)

Much more unwieldy to manage Potential to lose the sense of community, which may

have attracted members in the first place; such as building relationships or being heard

Often less commonality than closed

External Open Communities

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Benefits Drawbacks

Great place to build true relationships between participants (“members”)

More control over demographics (since the members are recruited)

More interaction and rapport among memberswhich build relationships

Ideal for specific initiatives or areas of specific interest with the company

Great opportunity to build communities, brand loyalty, and public relations

Members have a better chance to feel a sense of commonality

Smaller population May find difficulty recruiting the right members If community is not selected carefully, there is

potential for a possibly less diverse population Members may expect some form of compensation for

their services (although still much cheaper than traditional market research)

External Closed Communities

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Overcoming BarriersCommunities allow for freer communication and better input than focus groups.

Outside ideas can help foster internal discussions; e.g. – Improve design and functionality of next-generation products, critiques of early stage applications, product extensions. (i.e. Stents - Drug Coated Stents)

Companies who provide compensation, often do so in response to an IP issue. Many participants feel rewarded just to be part of the system.

Regarding legal hurdles and intellectual property, companies need to be specific about ownership of ideas submitted to communities.

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Perceived Value & ROIIn early stages, not enough quantifiable data is available to adequately assess ROI.

Hard to gauge and quantify.

One large consumer products company was required to justify return the first several years, but after consistent ROI’s of ~400%, management was satisfied with the investment.

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History & Participants Purpose Infrastructure

Originally, market research participants (all members recruited)

Currently, two close groups (both consisting of women) who now share ideas among one another called Idea Exchange

Participants are willing to sign off IP rights, just so they can have a voice in the company

Compensated with a small package of goods

Mostly used for market research purposes (feedback on certain ideas from within the company)

Now there are innovative initiatives integrated into the research community

There is a lot more trust among members of the online community in comparison to face to face focus groups

People feel free to share ideas and feedback as a result

Constantly looking to improve the technologies used

Initiatives can be as focused as preferred gift wrap and broad as connecting and caring

Most of the community work is outsourced to Communispace

Hallmark’s Online Community

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Thomas Brailsford, Hallmark Manager of Advancing Capabilities

“There is a difference between a community and a panel.”

“They all have visibility to each other and they set up their own surveys and their own bulletin boards.”

“When you get into a community environment, 200 –400 people is about all you can manage in a community. When you get bigger then that you really can’t wrap your brain around the connections and people start to break off into smaller groups.”

Hallmark Insight

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Participants Purpose Infrastructure

Strictly limited to individuals with a patented technology

Ranges from academics, inventors, small research firms, large research firm

Strictly created to provide a portal for technology submission

Since technologies are already patented, they are promoted to the respective division of General Mills at a much higher percentage than other sites (about 40% promotion rate as opposed to 5% or less in other companies)

Produced Go-Gurt Fizzix technology from site submission

Team is set up to perform weekly analysis of submitted ideas

General Mills to give feedback within 30 days

All are members of an innovation department within General Mills, so there are other responsibilities accompanying their duties to the G-WIN website

General Mill’s Online Community

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Participants Purpose Infrastructure

Open Community - submissions can come from anyone

Kraft attempts to provided feedback within 6 weeks of participants submitting ideas

Provide a new avenue for innovation within Kraft

One-way process (little interaction between participants and Kraft)

Looking to use a non-confidential list of areas which specifically need to be addressed or improved

Every idea submitted is filtered by a small group working in the “Innovate with Kraft” department, and if the idea shows promise it is then delegated to the respective department within Kraft

Kraft’s Online Community

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Participants Purpose Infrastructure

Employees within Intuit as well as users who have recommendations for and are proficient with Intuit’s software

Participants may be rewarded with free products for their involvement or even money if used in pilot studies

Intuit takes it one step further and will utilize community members in research projects or pilot runs

Brand building, market research, innovation, building communities

Features have been added to TurboTax and QuickBooks as a result

Excellent subject pool for specific research initiatives (members are familiar with the process and software)

The site is run by employees of Product Management and Development

Intuit’s Online Community

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Intuit Executive responsible for Online User Feedback Program

“We feel that our program not only rewards our customers with product or gift certificates, but we create an environment which allows our customers feel that their ideas are of great value to us.”

“There are a number of features, which have been added to TurboTax and QuickBooks, which were directly influenced by our user feedback programs.”

“We make it easy for our customers to get involved with the creation of new ideas. One of the things we will do is go out into the field and experience our client’s environment to see how they interact with the product. It is an immersive experience, which lasts one hour or more.”

Intuit Insight

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Participants Purpose Infrastructure

Open Community – but mostly women who have comments & questions regarding laundry

Brand building (wanted to put a face to the Clorox product

Provided a platform for Clorox to communicate and connect with consumers

When people have questions about products, the feedback is taken back to scientists

Spread awareness of new products

Established in 2005 Promote Dr. Laundry via

Clorox.com and through select packaging

Two employees handle the blog site

Dr. Laundry (leader of R&D team) runs the site, and through participants submissions is able to explore research & development

Currently very low-tech (just Q&A) but looking to expand

Clorox’s Online Community

Observations Purpose Infrastructure

Feedback options - Easy to use and broken down into numerous categories – with the promise that “we read everything, but can’t always respond”

Apple evaluates ideas from external resources and matches them up with internal teams

Mostly centered around features, bells and whistles; or in some cases service additions to existing products.

Team of employees who peruse both the affiliated and non-affiliated Apple blog sites to look for ideas or feedback which are community property

Great management support Each Product Group is

responsible for maintain ideas generate through OIN communities.

Apple’s policy is that it does not accept submissions unless the ideas are provided with no expectation for compensation

Apple’s Online Community

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Apple Executive responsible for Internal Innovation Strategy

“We evaluate ideas from external resources (communities) and match them up with our internal teams, which are segmented by product category.”

“While most marketing and innovative executives are quick to extol the benefits of external open innovation networks, almost everyone agrees it’s a me-too agenda. The practicality of using the information just is not there.”

“External innovation communities are marketing and public relations devices … hyped by academic types and authors as the next coming … in reality, no one will be able to verify there is a return on investment in creating and monitoring them…it’s like other ‘next wave’ concepts whipped up by people who are the furthest removed from the reality of business and technology.”

Apple Insight

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Participants Purpose Infrastructure

J&J representatives, customers, researchers, and academics

Rewards are usually in the form of research grants or medals provided by J&J

Build relationships, share information, prevent contamination of IP, & ensure submitters timely feedback

Used for innovation purposes and a forum for researchers, academics, and J&J representatives to share ideas

Drug coated stents and Splenda are examples of products created as a result of these communities

Created a software program which is used in conjunction with IdeaPoint

Each division has their own specific version of the software and it is through this software that ideas are exchanged

Johnson & Johnson’s Online Community

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Participants Purpose Infrastructure

Open Community including internal support and mediation from DELL

Dell provides a number of interactive ways for customers to share and learn with others. They encourage open conversations and believe everyone has something to contribute

User generated ideas Best ideas (most promoted)

jump to top of list Dell moderators address ideas Actual production potential Very user friendly

IdeaStorm, Blogs, Forums, Videos, Web Feeds, Podcasts, Information Portal, Dell in Second Life, Wiki, Customer Reviews, and Multinational Reach

Dell’s Online Community

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Then Now

Initial ideas came from manufacturers

Companies were afraid to show early ideas or prototypes to early adopters or lead users because they were afraid it would set a bad expectation

Companies did not want to show users an imperfect design

Companies are moving to open innovation – outside innovation for ideas

Companies are recognizing best source for ideas & insights may be from their own customer base

Companies should embrace customers who tinker with technology themselves and there biggest pundits

Academia’s View of Communities: Seeding Innovation

Stefan ThomkeHarvard Business SchoolWilliam Barclay Harding Professor of Business Administration

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Open Closed

Pros – Once companies elect to really open up their innovation networks, they have to figure out what to do with all the stuff that comes in over the transom. For example:

Pros – IBM celebrates its InnovationJam, involved ~ 60k internal IBM participants in a 72 hour period. From that input, IBM distilled 10 new innovation themes for the company.

Cons – What they DON'T say is how the 60k inputs turned into 10 themes.

Pros – More closed networks (or "gated communities") overcome many problems communities have, such as IP issues.

Pros – There are deeper ties, so it is easy to solicit and get relevant stuff, and less filtering is required as well.

Cons – They are unlikely to range as widely as more open networks. So if a company is truly trying to develop a new business area that is not adjacent to the current business, a gated community may not include enough diversity to attract sufficiently different ideas for the business to consider.

Academia’s View of Communities: Open vs. Closed

Henry ChesbroughHaas School of Business University of California BerkeleyAdjunct Professor / Executive Director, Center for Open Innovation

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Technology

The general consensus of companies interviewed is that the one common thread among online community participants is their proficiency with technology; specifically the internet.

Most companies believe that they are not taking full advantage of the technologies available, and do not seem to be bothered by this fact.

Hallmark uses digital images of product ideas to receive critique from users before launching or even producing a finished good, saving the company time and money in the process.

Each division of J&J has business unit software that is “division logo specific”, but uses the same software company wide.

Some companies are using tracking software to determine which ideas are most popular via clicks, replies, etc. to expedite their efforts in recognizing the best ideas.

“Companies today must create a coherent social strategy by focusing on relationships – not technologies...” Charlene Li (Forrester Research)

Virtual Worlds

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Studies are being performed by accomplished research firms within Virtual Worlds (“VW’s”) such as Second Life and Active Worlds to assist residents and companies:

Build a strong presence Gain insight about what they should offer in VW’s How specific offerings will be received Focus group studies are also being performed by companies to gain feedback about new offerings

There have also been large scale studies performed by research firms soliciting responses to questions about real-world global shopping preferences.

Research being performed in Virtual Worlds

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Types of Virtual World Research

Primary & Secondary Market Research Segmentation Analysis Demographics & Psychographics Behavioral Studies Brand building Research New Offering Testing

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Research BenefitsCompanies can gain insight from early adopters and users.

Specific market segments and audiences are key to research initiatives and lead to healthy brand building in VW’s.

Research further expands the understanding of demographic and psychographic characteristics, including lifestyle behaviors and purchase preferences that drive buying decisions.

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OpportunitiesVirtual Worlds are growing quickly. Venture capital, technology, and media firms have invested more than $1 billion dollars in 40+ virtual worlds companies from October 2006 to October 2007.

Residents and users of VW’s are now able to buy goods and become exposed to over 100 existing and new brands.

There are new opportunities emerging in VW’s for B2C and B2B businesses to work in a whole new arena. Companies can use online virtual worlds to network and develop projects, sell services between each other, and conduct commerce in an immersive 3D environment.

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Second Life is a 3-D virtual world created by its Residents. Since 2003, it has grown explosively and today isinhabited by millions of Residents from around the globe.

“The World” - a vast digital continent, teeming with people, entertainment, experiences, and opportunity. Users are surrounded by the creations of your fellow residents.

Because Residents retain the rights to their digital creations, they can buy, sell, and trade with other residents.

“The Marketplace” currently supports millions of US dollars in monthly transactions and thrives with business opportunities and ideas.

Second Life

User Hours (in Millions)

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Sun Microsystems American Apparel

On Oct. 10, Sun Microsystems held a press conference with John Gage, chief scientist at Sun. The company created an area called Sun Pavilion, where a video blog of all of Sun's activities will be streamed. There were 60 avatars at the press conference -- in Second Life terms, that's a full house.

American Apparel launched a virtual store in Second Life in July, 2006. The hip T-shirt maker is debuting styles before they are launched in the physical world and is offering cross-promotions. Visitors to the virtual store receive 15% off real-world purchases.

Companies utilizing Second Life:

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Toyota Reebok

Toyota's marketing plan for its hip, boxy Scion includes an art gallery in Los Angeles (Scion Space) and sponsored screenings of indie films (the Scion Independent Film Series). Now the pop-culture-aware carmaker is also a presence in Second Life, where it offers a virtual version of the Scion xB.

Reebok is allowing avatars to customize the company's RBK range of shoes in Second Life, the same way they can do in real life on the Reebok Web site. People will be able to wear the same designs in RL and SL.

Companies utilizing Second Life:

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Some of the most innovative companies have created online communities, however there remains a question as to the usefulness of these communities.

Internal community networks are a rich and powerful resource of innovation and idea creation. The amount of data generated from virtual worlds and external communities can be voluminous but, managing this data can be difficult. External communities may serve a better function as public relations, marketing, and/or market research forum for users who seek to be involved and “heard”, while giving the perception that the organization values feedback.

When beginning a community, we have found that companies that start small, then broaden their scope have had the most success. Establishing the social component, then introducing the innovation aspect once the community is in place has proven to be a successful model. Most users participate in external communities regardless of tangible reward possibilities. They simply enjoy the social interaction and intrinsic qualities these communities are able to provide.

Summary

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Final ThoughtsCommunities have a wealth of potential if used correctly. There are different community types for different company purposes and it will be the strategy involved with determining the correct community for the client’s purpose which creates the most differentiating benefit for creating these communities. Harrison Hayes works with clients to educate and determine which customized community approach works best for our clients.

To learn more contact Harrison Hayes.

www.harrisonhayes.com

Contact: Bill Smith, Managing DirectorPhone: 704.906.3402Email: wsmith@harrisonhayes.com

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