Strategy

The Crucial Question

Become Better Faster, or Better to Become Faster?
Making a Plea for a Differentiated Approach
in Innovation Management

Photo: Chair, plastics, sawn, by Muyan Ole Lindena

Dirk Pracht, Frank Weiß

Innovations are a decisive lever for market success. But creativity is also under pressure:
product life cycles are becoming substantially shorter so that any lead resulting from
innovation does not last long. The promises offered by new innovation methods such as
open innovation and design thinking to accelerate the innovation process are examined
closely here.

8 Detecon Management Report • 1 / 2009


O
ur modern society, under the dominant influence of tech-
nology, lives according to the dictates of permanent social and
economic acceleration, as is shown in almost all social areas:
new knowledge is already old hat tomorrow, while in our private
lives we are under pressure to recognize and take advantage of
every opportunity life gives us. In the economic sector, the glo-
balization process sets the new tempo which controls our work
lives. So of course this trend can also be seen in the development
of new products and services as well as in the steady reduction
in the length of their life cycles in recent years. A drastic reduc-
tion in development times can be observed especially in the ICT
sector and in particular in the online and Web 2.0 environment.
Google Maps is a clear example of this process: the ­complete
application was developed and successfully launched on the
market in only eight months.
Innovation leadership increasingly short-lived
This clear tendency towards a shortening of product and ­service
life cycles can be seen in the most widely differing industries
and is not limited to the traditionally fast-living software ­sector.
The reasons for this development, aside from the generally
­accelerated technological progress, include above all the steadily
increasing competitive pressures from the continuing process
of globalization, the intense pressure from the capital markets
demanding substantial growth rates from companies, and acce-
lerated imitation by direct competitors, retailers’ own labels, or
no-frills producers. But the lessened loyalty of workers to their
employers and the concomitant possibility to simply buy up
the competition’s intellectual property as well as the increased
willingness of consumers to try something new are also contri-
buting factors.
The Crucial Question
All of these effects accumulate to create a situation in which
companies have less and less time to exploit the technological
leadership they have achieved and to earn the premium neces-
sary to refinance investments. The ICT industry in particular is
more and more frequently confronted with simple products or
services of the Internet and Web 2.0 sector which cast doubt on
the viability of complete business models of established enter-
prises. One such case was the development and spread of Voice
over IP services on the Internet, leading to a dramatic decline in
classic telephony sales.
If they are to master the increased competitive pressures and the
acceleration described above, thereby securing their turn­over
and profit in the middle to long term, companies will be forced
to strengthen their innovative abilities and to optimize their
­innovation processes. The pressure to achieve this by ­especially
cost-efficient means has also risen in view of the current world
economic crisis. The following discussion will consider two
­innovation methods, “open innovation” and “design thinking”,
which address the acceleration of the innovation process as well
as its cost efficiency. Can these approaches keep the exorbitant
promises they have made, and are they effective enough to
­generate advantages even in times of crisis?
Open innovation approach develops innovation potential
­beyond company boundaries
Open innovation is the opening of a company’s innovation pro-
cess and the integration of the environment into the innovation
activities. Exploration for new products, technologies, processes,
or business models can be conducted jointly with suppliers,
customers, partners, and/or competitors. ­Generally speaking,
9 Detecon Management Report • 1 / 2009
Strategy
a distinction is made between two types of open innovation
approaches: one aims at the acquisition of external knowledge,
while the other focuses on commercialization of the company’s
own knowledge through external cooperation. An important
prerequisite is the capability of internalizing external knowledge
(outside-in process) and of externalizing internal knowledge
(inside-out process). A visualization of the open innovation
paradigm, in particular the difference to closed innovation ap-
proaches, is shown in Figure 1.
There are various models available for the implementation. A
special case as well as the first mention of the open innovation
concept is the “Lead User Innovation” presented by E. Hippel
Figure 1: Closed Innovation versus Open Innovation
Closed Innovation
Company boundary
Ideas
Source: Detecon
10 Detecon Management Report • 1 / 2009
in 1986 and today the most widely used one. It incorporates
selected and especially progressive users, some of them from
other market sectors, in the innovation process. Lead users are
especially good at formulating future user requirements and eva-
luating them on the basis of prototypes, some of them created
by the users themselves. Customers are no longer merely passive
consumers, but active added value partners, and play an active
role in the design of products or services. Another special case of
developing external potential is the acquisition of startup com-
panies. Incorporating the startup as a (partially) separate unit
in the corporation is a way to maintain its innovative character.
Moreover, widely different models of cooperation between the
innovation partners are possible.
Open Innovation
Company boundary
Market Ideas Market

As a consequence of the loosening of the company borders, open
innovation expands the available innovation potential in terms
of finances and personnel. This can contribute to a shortening of
the innovation cycles. The investment in or acquisition of other
companies, for example, can significantly cut down the time to
market. Jacobs and Waalkens proved that a shortening of the
time to market is a fundamental motivation for the opening
of the innovation process in their study “Innovation Squared:
Innovation in the Organization of Innovation” from 2001. Be-
sides the opportunity to accelerate innovation, additional inno-
vation fields are suddenly perceived which would possibly not
be considered from a purely internal perspective.
Pioneers demonstrate what open innovation can do
In the study “Open Innovation in Practice: An Analysis of
­Strategic Approaches to Technology Transactions” published by
Dr Lichtenthaler (WHU – Otto Beisheim School of Manage-
ment) in 2008, it was determined that most companies have
not yet warmed up to the possibility of conducting innovation
activities beyond the company’s own borders. No differences
specific to any particular industry were determined. In the
course of the study, it was also proved that earnings potential is
improved in the form of higher return on sales when open inno-
vation methods are used. The Detecon study “Core Capabilities
of ICT Innovation Management” conducted in 2008 used the
ICT industry as an example to show that the internal innovati-
on sources were regarded as the most important by the surveyed
companies. But it was simultaneously determined that partner-
ships with suppliers, cooperation with external institutes, and
the acquisition of startups were regarded as important drivers in
the innovation process.
Successful examples of cross-company innovation activities in the
ICT sector are the cooperation between Apple and Nike and the
acquisition of external know-how by Cisco. The two companies
Apple and Nike have jointly developed and marketed the trai-
ning system “Nike+iPod” (www.nikeplus.com). A sensor which
has been built into the Nike running shoe transmits data about
The Crucial Question
the run to a receiver on the iPod. These data are communicated
to the runner during the training phase and can be evaluated on
a PC after the run. Cisco has implemented the open innovation
paradigm in a different form. More than any other company,
Cisco has understood how to obtain the required know-how ex-
ternally, e.g., through the acquisition of startups, venture capital
investments, or cooperative development ­ventures. By opening
up to external companies, Cisco has been able to push aside
the one-time leader Lucent. The Internet companies Yahoo! (the
example of the Flickr ­acquisition) and Google (the example of
the acquisitions of Android or YouTube) have been similarly
successful in acquiring external know-how.
Design thinking trains creativity
“Design thinking” is a process for the practice-oriented, creative
solution of problems which is used in the context of innovation
management for the generation and verification of innovative
ideas. In contrast to conventional innovation processes which
are heavily dependent on analysis, design thinking is characte-
rized by a creative process. Ideas are never rejected during the
early phase; instead, the attempt is made from the beginning
to try out as many of the proposed ideas by supplying experi-
mental prototypes to future users. Both the implementation of
prototypes and their immediate use by future users promotes
thinking outside the box and frequently leads to astonishingly
creative solutions and ideas leading to the next level.
The general procedure for design thinking is comprised of three
phases (see Figure 2, Page 12). The designer begins by evalua-
ting the future use context of the innovation (inspiration). This
is followed by the generation of ideas in interaction with users
and the testing of the ideas using prototypes (ideation). After
­various product ideas have been assessed, the most promising
approaches are commercialized on the market (implementa­
tion).
The inclusion of the users in the process goes far beyond the
simple conduct of surveys or market studies. The observation
11 Detecon Management Report • 1 / 2009
Strategy
and analysis of user behavior makes it possible to understand
and ­anticipate requirements in detail. It is important here to
­perceive as well customer needs which are still latent and of
which the users themselves are not even cognizant. Products
­developed in accordance with this paradigm do not as a rule
have a clearly defined group of buyers, but they awaken needs
which already exist and thereby successively generate demand.
In the ideal case, users are included throughout the entire
­innovation process ­during design thinking. So users can con-
tribute to the generation of ideas at the beginning (co-creation)
or ­provide support at a later date in the drafting and evaluation
of the ­product design (co-design). Understanding users’ needs
is a great advantage especially in the ICT industry because the
­in­fluence of the products on people’s daily lives is increasing
steadily in this ­sector. If only the example of cell phones is
­considered, it quickly becomes apparent just how much these
devices have ­affected the way we plan our appointments, com-
municate with other people, and structure our private and pro-
fessional lives.
Figure 2: Design Thinking
Desirability
Feasibility
Design Thinking
Inspiration Ideation
Source: Detecon
12 Detecon Management Report • 1 / 2009
Early test phases are decisive
An integral component of design thinking is to develop pro-
totypes even in the early phase of the innovation process. Pro-
totypes can be either physical or haptic prototypes or service
interfaces modeled using “touch points”. Whatever the type, all
prototypes serve to test existing ideas against the requirements
of the future users. Prototypes are created in an iterative process.
The design of the innovation is adapted on the basis of feed-
back. The important point here is to invest only as much effort
in the creation of the prototype as is necessary to obtain the
feedback which will result in positive changes. If a prototype is
developed too extensively in the early phase of the process, the
willingness to modify it again, perhaps even from the ground
up, will d
­ ecline.
Design thinking projects are characterized by interdisciplinary
project teams as well as by experimental prototypes and pro-
nounced weighting of user requirements. Technicians, business
Viability
Implementation

people, and psychologists all work together on the innovations.
This heterogeneity ensures that the technical feasibility, the
­viability, and the desirability (satisfaction of user requirements)
are given their due consideration (see Figure 2).
In terms of the entire innovation process, the integration of
users, as was the case for the lead user innovation, has a posi-
tive effect on efficiency. Assurance can be obtained at an early
stage that the right products or services are being developed.
More­over, the early prototype development leads to a reduction
in the development time because many of the hurdles during
implementation start to appear significantly earlier and can be
solved right away in the next iteration of the prototypes.
Creative exchange of ideas produces important drive
The pioneer in the successful utilization of the design thinking
methodology in the ICT industry was AT&T. AT&T Wire-
less (today Cingular) carried out a re-design of its wireless data
­service mMode in cooperation with the design company IDEO
in accordance with the described innovative approach back in
2003. AT&T managers were required to use the ­existing ­mMode
service to solve tasks such as finding a store in San Francisco
where they could buy the CD of a certain singer. The mana-
gers were forced to admit that the service was too cumbersome
and that they had had to fall back on conventional media such
as newspapers or the telephone book to complete the assign-
ment. This instructive experience provided the necessary drive
to ­adapt the mMode service and to orient it more closely to user
­requirements.
An example of a company today which orients its innovation
management to design thinking paradigms is SAP. The so-called
“Design Services Team” has been entrusted with the task of inte-
grating design principles into the SAP innovation management.
To perform their tasks, the team looks into user requirements
right at the workplace, for example, or generates experimental
prototypes with the aid of HTML and Flash. The creative ex-
change of ideas and the cooperation among employees is sup-
ported by an internal Web 2.0 platform which was introduced
at SAP by the Design Services Team during the so-called “Har-
mony” project in 2005. The next steps even include plans to
integrate the Web 2.0 approaches tried out in the company into
the SAP CRM suite.
The Crucial Question
Integration of external know-how permits cost-effective
­innovation management
If we now compare open innovation and design thinking, we
see that both of these methods integrate external know-how
into the internal innovation process of the company. The ­design
thinking approach incorporates the user right into the research
activities. The open innovation approach goes one step fur-
ther and aims to incorporate other partners such as suppliers
or even competitors along with the users. Furthermore, both
of the approaches have in common the aspect that the integra­
tion of ­external knowledge can take place at any phase of the
innovation process. The objective of the integration of external
know-how is the acceleration of the process which results when
certain aspects and preliminary developments can be brought in
from outside and do not have to be realized by the company’s
own ­efforts. Moreover, the active involvement of the users
­ensures that the “right” product is developed. Ultimately, this
also be­comes apparent in the faster and more successful deve-
lopment of a product or service. So both innovation methods
clear the way for the acceleration of innovation activities and
are ­especially useful as ways to master the rising competitive
pressure and the shorter and shorter product life cycles. But in
economically turbulent times like today, it is at least as impor-
tant to maintain cost-efficient innovation management with the
reduced innovation budgets.
The opening of innovation activities to the outside can cut ­costs
because the research activities are jointly financed or the required
technological expertise which would otherwise have to be deve-
loped by the company itself, possibly at a great cost of time,
effort, and money, is acquired immediately. ­Additional sources
of revenue may even appear when a company’s own ­innovations
can be sold to external partners. However, the ­earnings and cost
savings described are contrasted with an increase in expenditures
for coordination and the costs for interfaces. A study ­published
by Christensen et al. in 2005, “The Industrial Dynamics of Open
Innovation – Evidence from the Transformation of Consumer
Electronics”, points out specifically the possibility of increased
coordination and transaction expenses. For example, a secure
environment for the exchange of confidential information must
be implemented and the legal terms and conditions with regard
to the rights to innovations which have been jointly developed
must be created.
13 Detecon Management Report • 1 / 2009
14
Strategy

Detecon Management Report • 1 / 2009

Photo: Lady‘s shoe, sawn, bonded, by Muyan Ole Lindena

In the context of design thinking, the focus on low-cost and
pragmatic prototypes in the early research phases supports
cost-efficient innovation management. But if the strict prin-
ciples in this respect are not strictly observed, the production
of a large number of complex prototypes can cause the costs
of innovation to explode. Increased research costs can also be
incurred ­pursuant to the design thinking principle that ideas
should not be ­rejected early on. While this promotes the creative
­exploration of differing, perhaps promising approaches, it can
­simultaneously result in reduced efficiency of the innovation
activities.
Securing differentiation potential
In conclusion, it can be determined that both approaches en-
joy significant advantages with regard to speed and efficiency in
comparison with a closed innovation process such as that still
implemented in most companies today. The design thinking
approach, although innovative, involves increased expenditures
and can result in poorer cost efficiency during the innovation
process if there is a large number of complex prototypes. This
is not the case when the open innovation method is used be-
cause there are no comparable cost drivers. As a general rule,
the ­specific expenditures and costs must be monitored whenever
either of the approaches described here are used so that ­efficiency
can be assured.
Both approaches lead to a known phenomenon which is being
examined more and more closely: as a consequence of the
­utilization of advanced innovation methods by a larger and
­larger number of market participants, the possible differentia-
The Crucial Question
tion ­potential per market participant diminishes because every-
one is developing innovation capabilities which are becoming
in­creasingly similar. This dilemma, known as “strategic conver-
gence”, should be the basis of a highly differentiated evalua­tion of
the company’s own innovation strategy. It is much more ­difficult
for competitors to imitate the development of ­strategic capabili-
ties by the ­acquisition of “innovation cores” – as ­des­cribed using
Cisco as an example – but this requires market and technology
elucidation at the highest level in the innovation management.
This is where future market leaders should start their delibera-
tions, especially during times of financial crisis.
Frank Weiss studied information management at the University of Bamberg.
After working as a consultant for Accenture, he came to Detecon in 2007. As a
member of the group “Strategic Technology”, he focuses on new ICT technolo-
gies and ICT innovation management.
Frank.Weiss@detecon.com
Dirk Pracht is the head of the group “Strategic Technology”. His work ­revolves
around ICT innovation management and the analysis, evaluation, and
­implementation of strategic technologies in the ICT and telecommunications
­industry. Before joining Detecon, he worked in the unit “Business ­Information
Strategies” at Capgemini. Dirk Pracht holds a Master of Business Administra­
tion (Executive Global One MBA) from the Rotterdam School of Management
and a degree in computer science from the University of Karlsruhe (TH).
Dirk.Pracht@detecon.com
15 Detecon Management Report • 1 / 2009