Microsoft Customer Immersion Experience - Term Paper Example

?EXECUTIVE SUMMARY Open innovation is the growing constructive trend for sharing of knowledge for the improvement of global market structure and innovation processes. This essay focuses on defining the concept of open innovation and how it is different from the concept of closed innovation, what the essentials for open innovation are and how the culture of open innovation is established within the firm. The concept of open innovation has been supported by the example of pharmaceutical organization and it has been highlighted how pharmaceutical industry operate their strategy with respect to open innovation. Furthermore, theories of open innovation are also discussed including Customer immersion, Idea competitions, Innovation networks, Platforming and Collaborative product designs & development. Customer immersion has been discussed in detail due to its extreme importance for an organization and what application does it have in pharmaceutical organizations. In later part of the essay, general findings derived from the concept of open innovation have been shared. INTRODUCTION AND THE BASIC CONCEPT Open innovation is the growing idea throughout the world and many businesses are deploying their efforts to take advantages of this concept for their business development and growth. The concept of open innovation is based on the idea that firms should and can use both external and as well as internal ideas, and also external and internal ways to market, in order to enhance their technology (Chesbrough, 2003). The basic idea behind the concept is that no firm can progress in isolation, in this world of advancement, firms should or can make alliances with an external party either to create something innovative or to engage in some activity that promotes innovation (Chesbrough, 2006). This approach allows a firm to take use from an external source thus it is known as open innovation concept. For example, a firm can create an internal idea and then that idea can be marketed through external innovative channels to create something of value. THE CONCEPT OF CLOSED INNOVATION In contrast to the concept of open innovation, previously firms were much reliant on the idea of closed innovation, that was basically a secrecy approach of innovation, where a firms was self reliant for generating, developing and marketing its own idea. This approach of innovation required much control and there was a heavy emphasis on R&D department of such organizations (Gassmann, 2006). Closed innovative firms are much dependent on their internal capabilities and strengths only for idea generation. Firms operating in nuclear industries are mostly working in closed innovation environment. HOW OPEN INNOVATION WORKS Open innovation realizes the fact, that each participant possesses something of value and something that is unique and if the strengths of two or more such parties are linked then these can overcome the threat of external market environment and can capitalize a market opportunity better than the one done by a single participant alone. Firms operating in open innovation environment are dependent on both internal as well as on external sources for idea generation. Business practices such as licensing or joint ventures can be used as a source of gaining access to external ideas or practices. Movies are mostly made with collaborative efforts thus they can be regarded as an example of open innovation process (Van de Vrande, et al., 2009). Organizations based on the model of open innovation, focuses on maintaining strong relations with external parties at various stages of innovation development processes. Through this business model open innovation businesses are exposed to various external ideas sources through their clients, suppliers, distributors, research institutes, government, competitors, researchers and academic institutes. These organizations have an open boundary that always welcome the inflow of ideas because of which new areas for revenue generation are created (Chesbrough, Vanhaverbeke, & West, 2008). OPEN INNOVATION IN PHARMACEUTICAL SECTOR The case study, ‘Knowledge arbitrage in global pharmaceutical: a synthetic view of absorptive capacity and open innovation’ by Benjamin Hughes and Jonathan Wareham signifies the importance of R&D for the growth of pharmaceutical industry but despite of this fact, it has been observed that very varied form of open innovation is seen in various organizations operating in pharmaceutical industry especially with respect to strategy formulation. PRACTICES OF OPEN INNOVATION IN PHARMACEUTICAL SECTOR As research and development holds great importance in pharmaceutical sector, the case study ‘Knowledge arbitrage in global pharmaceutical: a synthetic view of absorptive capacity and open innovation’ states, that open innovation is an established phenomenon in pharmaceutical sector. Many pharmaceutical organizations value innovation and welcome them from any possible source either external or internal. Below, the aims of two companies have been discussed: ‘To look for innovation wherever we can find it, inside or outside the company – something we call open Innovation’ (Hughes, & Wareham, 2010) ‘To attract external opportunities to enhance our internal innovation through partnerships and alliances’ (Hughes, & Wareham, 2010) These aims clearly states that GSK realizes the importance of innovation for the growth of firms and does have an open approach to innovation. The concept of open innovation was even established further in pharmaceutical sector, with the enhancement of Bio-technology and its interdisciplinary requirements which made it essentials for firms to have collaborations with external parties for innovation rather than operating innovation independently (Hughes, & Wareham, 2010). And it is also that the natural dynamics of bio-technology actually laid down the foundations of open innovation in pharmaceutical sector (Hughes, & Wareham, 2010). There are many pharmaceutical organizations, all with different business models and strategy and all have different approaches to innovation either for closed form of innovation or for an open innovation. Different degree of open innovation activities are carried out in different organizations. Firms have their own ‘Innovation Strategy Map’ that ranges from a closed approach to an open, externally-focused innovation strategy. There are many evidences available that supports the fat that pharmaceutical companies spend 25% of their R&D budget externally (Hughes, & Wareham, 2010) and 90% of R&D innovation is in companies with small patent portfolios (Hughes, & Wareham, 2010). ESSENTIALS FOR OPEN INNOVATION SYSTEM For an organization to be good at open innovation system, it is essential to have support and services for partners, clearly defined intellectual property policies, Strong relation network, collaborative culture, Strategic alignment, sufficient funding, infrastructure and location, stakeholders’ support, adequate partners, organizational structure & governance and lastly key performance indicators (KPI) for innovation management. ADVANTAGES OF OPEN INNOVATION Open innovation proves to be beneficial for organizations in aspect of cost reduction in R&D as the cost gets shared between the collaborative parties. It also helps in gaining access to more and better resources through collaboration. In addition to this, there is a chance that the research and development process proves to be more accurate because of the mutual efforts and combined productivity of both the parties (West, J., & Gallagher, 2006) PHARMACUETICAL ORGANIZATIONS INCORPORATING THE CULTURE OF INNOVATIVE IDEAS AND CRTICAL THINKING Open innovation in pharmaceutical sector encourages thinking process within the organization. It does not limit the pathways to innovation. The organizations can inspire from any innovative idea either coming from top-down thinking, bottom-up ideas, innovation literature and external thinking, by engaging in conversations with companies both in and outside their sector. Due to this approach innovation comes from all directions and a better innovation can be expected. LIMITATIONS OF OPEN INNOVATION Open innovation must be supported by effective management practices, because when more than one party is involved, complexity for controlling innovation increases. There is a chance during the process of innovation; unintended knowledge gets shared between the collaborative parties which might prove to be harmful for one of the parties involved (West, & Gallagher, 2004) PHARMACEUTICAL ORGANIZATONS OFFSETTING THE RISK OF SHARING KNOWLEDGE However, in pharmaceutical sector, the risk of sharing of valuable knowledge to the collaboration partners is offset by the capability to utilize that knowledge again for the increasing their returns (Hughes, & Wareham, 2010). This has been done through value capture business models exercised by different firms. There are different processes available with these firms to use the complementary knowledge that are ‘process archtypes’. OPEN INNOVATION THEORIES Following are the models for open innovations: 1. Idea competitions 2. Innovation networks 3. Platforming 4. Collaborative product design and development 5. Customer immersion IDEA COMPETITIONS Idea competition is a model of open innovation that promotes diversity of ideas through collecting ideas from various participants. These participants are then rewarded for their submissions of ideas depending on the value, feasibility and the attractiveness of the submitted idea (Marais & Schutte, 2009). This method of the collection of ideas, allows firms to have a cost effective method for gaining valuable ideas that can help in the growth of business. In this way, through idea competitions firms eventually end up with ideas that are greater in number and high on innovation while creating new and many areas of market opportunity through the knowledge of better and deep understanding of customers’ or participants’ needs or wants. In this stage, contributors are the entire prosumer (providers plus consumers) base (Marais & Schutte, 2009). INNOVATION NETWORKS Innovation network is another model of open innovation which is largely related to the above model of idea competition with the basic difference that innovation networks are established to gather ideas for the solution of a pre-defined or pre-existing problem within the product design and development process whereas idea competitions are held to gather ideas for new products or its designs (Marais & Schutte, 2009). In this network, various participants are asked to provide their ideas about an identified problem and to propose a possible solution to that problem preferably in an innovative and cost effective manner. The participants are then provided incentives for the proposal of best solution to the problem. In this stage, contributors are the entire prosumer base. Incorporation of internal R&D efforts into collaborative R&D networks can result in increased speed and number of innovations (Marais & Schutte, 2009). PLATFORMING Platforming is model for open innovation that relies on exploring product usability innovation ideas for a new product. In this model, an almost done product is provided to the participants where these participants are then asked to use the products in innovative manner and to then assess its features and functions. This model tries to explore new and more ways of product functionality with emphasis on extending the platform for product functionality and usage to communicate greater benefits and features to its customers and increasing the overall value of the product for its customers (Marais & Schutte, 2009). The basic idea behind this concept is that, each individual is different and possesses unique ways of using and perceiving the product uses. The information of these ideas can help the organization to better and innovatively communicate the increased benefits of the new products. This model is for the pre-launch stage of the product. In this stage, contributors are the entire prosumer base. This idea of innovation can be backed up by strategies such as well developed incentive and reward schemes, fostering an active community for open communication (Piller, Ihl, Fuller, and Stotko, 2004). COLLABORATIVE PRODUCT DESIGN & DEVELOPMENT Collaborative product design & development model focuses on gaining the ideas from the contributors during the development process. This stage is also somewhat like the platforming but the difference is the stage in which contributors are asked for their ideas, in this model contributors get involved during the development process whereas in platforming contributors are asked for participation at pre-launch stage. In this case, the organization still has more control over the development of product, and can amend the way the product is being developed with the collaboration of its contributors. In this stage, contributors are the customers and suppliers majorly (Marais & Schutte, 2009). FOCUSED THEORY: CUSTOMER IMMERSION All the above models of open innovation provide sources of ideas at various product development stages and from different contributors. Out of all the above theories, customer immersion is one model that is of utmost importance as it provides the insight about the customers’ needs, wants, preferences and choices. Customer immersion helps in better understanding of customers and their behaviors that leads to a product purchase. CUSTOMER IMMERSION Customer immersion is a model for open innovation that relies on receiving ideas from customers through extensive customer interaction with the employees of the organization. This process is held mostly towards the end of product development processes. These ideas then help to upgrade the final product or service, with the inclusion of customers’ ideas or suggestions (Marais & Schutte, 2009). This model allows increased involvement of customers in product design and development process rather than any other model thus it also increase the chances of product or service being more relevant to the customer needs or wants as the product or service gets completed after the valuable intake of the end users. In this stage, contributors are the customers. EXAMPLE: MICROSOFT Microsoft believes in involving customers, because of which they established a program called ‘Microsoft Customer Immersion Experience’ that provides a dedicated place to discuss Microsoft productivity. It encourages discussion about how to efficiently and effectively use micro-soft in organizations (Acrodex, 2011). Approaches to Involve Customers There are many ways how organizations involve customers in earlier stage of product development. These approached include the use of web 2.0 tools, virtual product designs, virtual reality environments, digital collaborations to engage customers in the product development process and to incorporate their ideas related to the product. These approaches not only provide information about customers’ needs and wants but also promote open communication between the company and its customers. USE OF WEB 2.0 TOOL FOR OPEN INNOVATION Today, we see that there are many that are using web 2.0 tools to improve their relationship with their customers and to acquire valuable ideas from customers for product improvements and innovation. EXAMPLE: KRAFT Kraft has created a community using the tool of web 2.0 where it provides a forum to discuss new Kraft product where the customers give their feedback on new products and share their views about the products. This gives an opportunity to Kraft to improve their products based on gathered customers feedback, advices and insights. ANALYSIS OF CUSTOMER IMMERSION BASED OPEN INNOVATION Customers are the ones to whom businesses caters to, they are the ones for which businesses exist, they are the sources of revenues and income for an organizations thus organizations must keep their focus on meeting customer demands and adapting to the changing needs of its customers. If an organization fails to do so, it can eventually lead to losing its customer base and also the stream of revenue generation. So to keep the businesses running smoothly, customer immersion is one thing that can lead organizations to be best at customer satisfaction aspect. Thus customer immersion helps organizations to have a customer oriented approach for their businesses as it provides information about customers’ needs, wants, buying behaviors and preferences (Chesbrough, 2006). There are sometimes when customers are unable to clearly express their ideas or they are not clearly aware of what they want. In such a case if an organization aims to go for open innovation then it becomes a bit difficult for that organization to have easy access to customer’s ideas. In such a situation, a little more efforts have to be exerted from the part of the company and they have to find new or innovative ways to find ideas from customers. It can be monitoring their gestures, observing their product usage behavior, asking them about their reactions if certain situations happen. Customer immersion in many cases can be seen as an adaption from focus groups (Zaltman, 2003). Along with these there are number of more ways figure out what customers actually want. It does happen that theoretically things seem easy to execute but in reality they are hard to work on. One cannot solely rely on customers to give ideas, as there are many situations when organizations are moving towards some major or radical type of innovation, these are innovations that are the first mover, they create something new that previously did not exist in the society. In such a situation, no organization can expect customers to give them ideas for such innovation as customers can only give ideas about what they think is possible or what exists in their mind. But there are many things today, that previously were considered impossible to happen some years ago, but now they do exist and even people have become habitual of using them (for example: internet). So in such a scenario customers must be perceived as a source of innovation from where ideas can be gathered, either through observing them or through pondering over their daily problems. But one has to develop the idea and ask customers’ view over that idea and any suggestions for idea, product or service improvements. Ultimately, the whole process of customer immersion helps in signifying the importance of customers and their needs for the organization (Chesbrough, 2006). Due to customer immersion open communication has flourished between the customers and the organization due to which customers’ bonds with the organization has strengthened even more and those customers now have stronger relationship with the organization and it has proved to play an essential part in building customers’ brand loyalty. By allowing customers to have their input in very beginning of the product development stage, the chances of product being more relevant to consumer’s need, increases which also translates into product’s success in some way. As early involvement of customers take play here, there is also more opportunity for the firm to create early demands for that product through increasing anticipation among the customers and general audiences regarding the products which would eventually lead to increased awareness of the product even in introductory period (Chesbrough, 2006). CUSTOMER IMMERSION PRACTICE IN PHARMACEUTICAL ORGANIZATIONS Even in pharmaceutical sector, customer immersion has been used through an internet-facilitated user community. This facility helps pharmaceutical organizations to connect with its end user to the early innovation process. Thus obtaining their inputs and incorporating them in R&D and product development stages that help the organization to introduce more effective drug or medicines having less side-effect for the end consumers (Hughes, & Wareham, 2010). CONCLUSION Open innovation is extremely important concept for the growth of business. Many organizations are incorporating open innovation in their corporate strategy to gain competitive advantage. There are many pharmaceutical companies realizing the importance of innovation as the nature of industry is highly characterized by R&D efficiency but the approach of each organization towards innovation is different. There is a difference in ways how each pharmaceutical industry incorporates the culture of innovation it its organization. Furthermore, this essay helps in the better understanding of the various models of open innovation and how they can be utilized best to gain ideas of innovation from various sources. Customer immersion has been the most focused model of open innovation that relies on gaining insights from customers for better product development and design and its application in pharmaceutical organizations has been highlighted. This has been concluded from the essay that no organization can grow in isolation, it has to operate in an environment where there are many participants and all are essentials for any business to grow especially in pharmaceutical sector. Sharing of ideas for business development and marketing purposes, creates new doors of opportunity and adds value in overall market structure of an industry (Gassmann, Enkel, & Chesbrough, 2010). This approach believes in creating something innovative with the help of external sources and collaborations. The shift of this approach is more towards the blue ocean strategy rather than the red ocean strategy that is traditional and closed way of operating in the industry (Gassmann, Enkel, & Chesbrough, 2010). Through open innovation a win-win situation for all stakeholders is created leading to the growth of organization, customers, all other stakeholders and as well as of the entire industry. References Acrodex. (2011). 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(2009, October). The development of open innovation models to assist the innovation process. In 23rd Annual SAIIE Conference Conference Proceedings (p. 96). Piller, F., Ihl, C., Fuller, J., & Stotko, C. (2004, January). Toolkits for open innovation-the case of mobile phone games. In System Sciences, 2004. Proceedings of the 37th Annual Hawaii International Conference on (pp. 10-pp). IEEE. Van de Vrande, V., De Jong, J. P., Vanhaverbeke, W., & De Rochemont, M. (2009). Open innovation in SMEs: Trends, motives and management challenges. Technovation,  vol. 29, no. 6, pp. 423-437. West, J., & Gallagher, S. (2004). Key challenges of open innovation: lessons from open source software. San Jose State College of Business, mimeo. West, J., & Gallagher, S. (2006). Challenges of open innovation: the paradox of firm investment in open?source software. R&D Management, vol. 36, no. 3, pp. 319-331. Zaltman, G. (2003). How Customers Think: Essential Insights Into the Mind of the Market;[what Consumers Can't Tell You and Competitors Don't Know]. Harvard Business Press. Read More