Innovation Management - Sino-Danish Center

16 January 2015-1st Semester-110,040 Characters, 46 Normal Pages

Case study, Xiaomi

Integrating User-driven Innovation and the Organizational Design
Jens Giver Pedersen, Anders Spile Christensen, Xiangying MENG, Jiayi RAO – Supervised by Yimei HU

Abstract
Xiaomi is focusing on being the most user-collaborative mobile internet company, which constantly exceeds user
expectations, through innovations in software, hardware and Internet services. The rapid growth of Xiaomi benefits
from the way it classifies its users, and engage them in product development processes. The project studies the reason
why Xiaomi chooses users as external partners, and investigate how they collaborate, by using the cross-sectional
case study method.

摘要
本文主要研究小米公司在软硬件与互联网服务方面所应用的粉丝驱动模式。小米的快速发展得益于其对用户进行精
确分类并鼓励用户参与产品设计与研发过程。本文将利用时点法与案例法展示小米选择用户作为外部合作伙伴的原
因以及其合作方式。

Introduction the smartphone industry reached 27 % in the sec-

There are currently more than 1.4 billion s-
martphones in the world. In comparison there are
only 2 billion computers in the world, and with
a market growth of 1.8 million smartphones per
day, having a smartphone is basically the norm
nowadays. The smartphone is always within arm’s
reach, and a recent study even shows that 9 out of
10 searches on your smartphone, leads to some sort
of action, and more than half of these actions leads
to some sort of purchase (Forbes – 2013). In oth-
er words, the smartphone has become an essential
part of our consumer behavior.
The multi-billion dollar smartphone industry
is currently being led by five large companies, Sam-
sung, Apple, Xiaomi, Lenovo, and LG. As of third
quarter in 2014 these combined had more than a 50
% market share. The year-on-year growth within
ond quarter of 2014. Android managed to capture
a market share of around 85 % of this increase. An
interesting development amongst these five major
companies within in the smartphone industry is be-
ing illustrated by the latest report done by the In-
ternational Data Corporation (IDC), depicting the
smartphone vendor market share. The mentioned
development shows the rise of a relatively new com-
pany, which by the third quarter this year was able
to overtake the third place within the smartphone
industry, with a 5.2 % market share. The name of
the company that through the past four years has
gone from zero percent market share to respective-
ly 1.0 % to 2.1 % and now has risen to 5.2 %, is
Xiaomi.
Xiaomi was founded in 2010 by the renowned
angel investor and entrepreneur Lei Jun, who had

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Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
Content Table
Abstract.....................................................1
Introduction..............................................1
List of Acronyms......................................3
Problem Background..................................3
Problem Formulation................................3
Research Questions...........................................3
Problem Limitation...........................................4
Methodology...............................................4
Paradigm..............................................................4
Ontology..............................................................4
Epistemology.......................................................5
Research Design.................................................5
1.Theoretical Framework........................8
1.1 Open Innovation.........................................8
1.2 Want Find Get Manage Model...................10
1.2.1 Want-Diffusion of Innovation.........10
1.2.2 Find-Scouting.....................................12
1.2.3 Get-Participatory Design................13
1.2.4 Manage-Organization Structure.......14
2.Case Analysis......................................16
2.1 Research Question 1................................16
2.1.1 Diffusion of Innovation..................16
2.1.2 Xiaomi Scouting Strategy................19
2.2 Research Question 2................................22
2.2.1 Xiaomi User Categorization............22
2.2.2 Engaging users in innovation........23
2.2.3 The role of social platform..........26
2.2.4 Maintain sustainable innovation...28
2.2.5 Synergy between Xiaomi and users.29
2.3 Research Question 3................................33
2.3.1 Current Formal Structure................33
2.3.2 Capabilities needed for Xiaomi.....34
2.3.3 Formal Structure VS Capabilities.34
2.3.4 Restructuring organization............35
3.Conclusions..........................................36
3.1 Conclusions...............................................36
3.2 Reflections...............................................37
References................................................39
Scientific Articles........................................39
Non scientific Articles................................40
Books..................................................................40
Appendices................................................41
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a vision of creating a company, that made it possi-
ble for the consumer to acquire a high-end quality
product, at a reasonable price. Xiaomi is primar-
ily focusing on the Chinese and adjacent markets,
which is why the company name to most people
outside of Asia, may be unknown, despite it being
the third largest smartphone company in the world
(IDC - 2014).
When Lei Jun founded the company, he put
together a team consisting of skilled people from
various companies such as Google, Microsoft, Mo-
torola, Yahoo etc. These were all brought togeth-
er for the purpose of bringing Lei Jun’s vision to
life. What really sets Xiaomi apart from the rest of
the industry is the philosophy stated on their web-
site, which clearly indicates the concept of the com-
pany. Xiaomi has been engaging their fans from
the founding of the company, through social media
where a two-way communication has been facilitat-
ed. This has contributed to the process of develop-
ing new products, which has the aim of satisfying
the needs of their fans.
Henry W. Chesbrough has through his re-
search on how companies are able to generate new
ideas with external partners, stated ”not all of the
smart people work for us so we must find and tap
into the knowledge and expertise of bright individ-
uals outside our company” (Chesbrough H. W. -
2003). This is exactly the belief that Xiaomi’s phi-
losophy emphasizes. To include and engage exter-
nal partners in order to acquire the best possible
solutions. The purpose of this project is to exam-
ine how Xiaomi effectively have managed, and are
able to improve their interaction with fans.
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
List of Acronyms
• Fans - For this paper an understanding of ”fans”
will entail a consumer that is actively engaged in
the product and the development hereof.
• Community of users - In this paper we define
”community of users” as a group of users who ac-
tively participate in the design and development
of a product and have a relationship consisting of
sharing, communicating and disseminating infor-
mation and knowledge about the product. When
they use community toolkits for innovation, they
become creation communities.
• Crowdsourcing - In this paper, crowdsourcing is
defined as an open call to source traditionally gen-
erated by a large group of undefined individuals
or a community of users
Problem Background
The Xiaomi phenomenon has taken China by
storm, with triple digit growth from third quarter
of 2013, to the third quarter of 2014, and are now
the third largest seller of smartphones in the world.
Xiaomi has unlike any other smartphone company
a devoted budget of only 1 % of its total revenue
to direct marketing. The largest producer of s-
martphones, which is currently Samsung, are using
close to 5.5 % of their revenue on direct marketing
(Bloomberg - 2014). Moreover, Xiaomi is pricing
their smartphones around half the price of the de-
vices offered by their biggest competitors, Apple
and Samsung (Harvard business review - 2014).
Xiaomis’ current success has many aspects to
it, but one of them is the society of Mi-fans that sur-
rounds the company. These fans are actively pro-
moting Xiaomi-products on social media and blogs,
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and are being embraced and encouraged by the
company to do so. These fans are also co-creating
and co-designing new Xiaomi products which is
very interesting in regards to the development of
open innovation (Shih, Lin, and Luarn, 2013).
Having recognized the amount of value these
fans bring the company through interaction on the
social media platform, the question of why other
technology firms haven’t done this is.
Problem Formulation
With the outset in the above, the overall prob-
lem formulation of the project is as follows:
How can Xiaomi structure their organization
to more effectively engage creativity of their fans?
This raises the following questions, why would
a company engage its fans at all? Where would
they find the right fans to collaborate with? How
would they collaborate with these? And how would
they have to structure the organization to have this
sort of collaboration?
Research Question
1) Why would a technology company like X-
iaomi include fans in their organization and how
would they find the right fans?
2) Which types of user collaboration is impor-
tant for Xiaomi as a consumer electronics compa-
ny?
3) How can you structure an organization like
Xiaomi to effectively engage its fans?
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
Problem Limitation
Since this project is only focusing on assump-
tions for a certain type of industry, and only one
case will be included in the research, our findings
will not necessarily be applicable to other compa-
nies, despite them being in the same industry. The
assumptions will be clarified within the work with
each of our research questions. The findings in the
project can, however, be used as inspiration to oth-
er companies who seek to develop a more collabo-
rative approach, towards its’ external environment.
Furthermore, the projects only focus is on the Open
Innovation aspect of the Xiaomi case, since this is
the most relevant to our project. Due to the limit-
ed time to conduct the project, no interviews have
been made, and no other primary data have been
obtained.
The project is conducted from a company’s
point of view, and does not take the consumer or
the societies point of view into account.
Methodology
Paradigm
The interpretivistic approach is the ideal for
our research (Bryman – 2012 p. 30). To fully
understand our use of the interpretivistic paradig-
m both ontology and epistemology is thoroughly
being described in regards to philosophy of sci-
ence. Following an understanding of the use of
the methodology, methods and techniques will be
outlined in order to comprehend the ”package” of
fundamental assumptions that a paradigm consists
of. Model 1 provides an overview of the research
method of the project.
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Figure 1: Overall research approach
Ontology
For interpretivism in regards to ontology, Bry-
man emphasize that a given social phenomena and
the meaning of it, has an existence that is depen-
dent of social actors (Bryman – 2012). The individ-
ual creates its own meanings, attitudes, lifeworld
etc. and with an outset in these cognitions, a fun-
damental understanding of the social world arises.
According to Kuada, the interpretive paradigm re-
quires investigators to perceive their actors as en-
gaged in continuous interpretation, meaning cre-
ation and sense-making of events, and their con-
texts. These investigators subscribe to the view
that human beings do not passively respond to
what is going on around them (Kuada – 2012 p.
77).
With our project, a part of the Xiaomi cor-
poration will be investigated. To acquire the nec-
essary knowledge, we will scour through available
empirical data such as scientific articles, research
papers, and company homepages, as well as rele-
vant theoretical research papers. These will be the
sources used to conduct our research upon. We will
be using an interpretive approach on the gathered
information. From the interpretive point of view,
our analysis will be the interpretation of materi-
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
al from people who are within our field of study.
Hence, the benchmark of answering our research
questions will be their perception of the ”truth”,
within their respective fields.
Epistemology
For a researcher grasping the social world with
an interpretivistic scope, observations of the indi-
vidual and its perception is the cornerstone of the
analysis. Hence, the knowledge gathered is not be-
ing tampered with, but rather sought to be under-
stood in the context in which it occurred. The epis-
temology for this branch, is according to Bryman
how it: ”... requires the social scientist to grasp the
subjective meaning of the social actor” (Bryman –
2012 p. 27).
The type of epistemology called antipositivis-
m will be the prime approach used in this project.
The assumption that a certain individual direct-
ly involved in a given environment has an accu-
rate understanding, is the reasoning behind this.
Understanding and interpreting the social world is
our approach throughout the project. According to
Kuada it is possible as an external observer to view
the social world as it is, and still locate the actual
truth (Kuada – 2012 p. 73). The choice of this the-
ory is also closely related to our choice of method of
analysis. We use the general inductive method of
analysis and by incorporating a substantial amount
of articles, we are able to create consensus between
several social researchers, as to how we define cer-
tain aspects of our case. In this way, antipositivis-
m is our way of understanding the general idea in
the researchers society, about different aspects of
the Xiaomi case. Moreover, we acknowledge that
we have our own interpretation based on our edu-
cation and understanding of the world. This will
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also influence the main points we get from working
with our collected data. In relation to the Xiao-
mi case, and to give an example, we need to define
what is meant by the ambidextrous organizations,
in the final part of our research paper. To solve
this we combine the points from the two articles
we have chosen in relation to this subject, and in-
terpret them based on our education in relation to
ambidextrous organizations. Thereby we interpret
what the researchers who originally conducted re-
search on the matter defines as ambidexterity, and
at the same time influence it ourselves (Bryman –
2012).
Methodology
When choosing what kind of methodology you
want to use, it is essential to be aware of what y-
ou want to know, and why it is important. Baring
that in mind, the research object of this project is
best being examined by primarily using the cross-
sectional design, by incorporating elements from
the case study approach.
The prime research design chosen for this
project is the cross-sectional design. The cross-
sectional design has been chosen due to the very
limited amount of time, we have to conduct this
research paper. We simply do not have the time to
collect longitudinal data or conduct experiments.
Looking at our problem formulation, we will be
comparing a theoretical point of view with a con-
ceptual approach, to reflect upon an ideal solution
for Xiaomi. This also results in a primarily theo-
retical project.
Research Design
The cross-sectional research design is often
used when static and structured observation is be-
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
ing used as methods, for data gathering. Since we
employ a research strategy founded in qualitative
data within the cross-sectional case study, our ap-
proach will tend to be inductive (Bryman 2012).
Baring this in mind we are aware that a purely
inductive approach is almost never possible, and
we acknowledge that some deductive and abduc-
tive aspects does influence our project as well. As
interpretivism subscribes to understanding a given
social world from the points of view of people, and
the intentions underlying their behavior, the induc-
tive method is the primary approach. This mean-
s basing conclusions on specific observation rather
than logical arguments that may not be necessarily
supported by empirical evidence. When choosing
the qualitative method you are studying the expe-
riences, attitudes, meanings as the individual per-
ceives them, and interpreting these to make sense
of a given phenomenon or situation.
• Cross-sectional Design
Cross-sectional design entails collecting data at
a certain point in time, all analysis relies on dif-
ferences in the sample at that point of time. In
the cross-sectional design the groups” are con-
structed on the basis of existing differences in
the sample and the sample is divided up into
groups according to the category of the indepen-
dent variable to which they happen to belong (De
Vaus – 2001 p. 171). In regards to this project,
we are analyzing why and how Xiaomi chooses
to cooperate with its fans and a representative
sample among technology field is necessary, if
we are to generalize from results obtained in a
sample to the wider population. However, we
do not include a representative sample but use
a theoretical approach to our case in order to
test theory in practice and thereby drawing some
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generalizations based on theory on what might
work for technology companies. Cross-sectional
design can have more success than other designs
in achieving representativeness based on theory.
To answer which type of external collaboration
is best for Xiaomi, a thorough description of the
process of innovation diffusion of Xiaomi is need-
ed. Cross-sectional designs are well suited to
descriptive analysis, at least for descriptions of
things as they are at a given point of time. How-
ever, cross-sectional designs have been criticized
for their weakness at the level of causal analy-
sis. Since no specific causal relationship would
be included in the project, cross-sectional design
is the most optimal given our circumstances and
the overall research design frame.
• Case-study Design
Case-study designs are suited to situations in-
volving a small number of cases with a large num-
ber of variables. The approach is appropriate for
the investigation of cases when it is necessary to
understand parts of a case within the context of
the whole case (Bryman – 2012 p. 69). In this
research, both the descriptive case study and the
explanatory case study design are applied.
Due to the fact that good description is the pre-
condition of good explanation, the descriptive
case study design in the project consists of an in-
troduction to the Xiaomi case and has a focus on
its external collaboration with its users and fur-
ther highlights the important role of user-driven
innovation and the want, find, get, manage mod-
el. As mentioned we have chosen just one part of
the Xiaomi case and focuses on the open innova-
tion part of the company and especially the par-
ticipatory innovation. We have chosen theories
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
and concepts I order to conduct our explanatory
as well as our descriptive analysis of the case.
Explanatory case study seeks to achieve both
more complex and fuller explanations of phenom-
ena. They seek to achieve idiographic as well
as nomothetic explanation, which in the project
refers to the fan-centric collaboration model in
Xiaomi. Among categories according to the d-
ifferent relevance to theory testing, theory de-
velopment and using existing theory the project
is using the existing innovation diffusion theory,
user-driven theory and open innovation theory
and so on. As a consequence, the specific ex-
planatory case study design used in this paper is
a clinical case study design.
Research methods used in this paper such as par-
ticipant observations is being used to keep an
open mind in relation to combining our data and
the theories. This is how Bryman describes the
inductive approach, which aligns with the con-
cepts being used within the paradigm of this pa-
per (Bryman – 2012 p. 71).
• Data Sampling
For our method of data collecting, we have cho-
sen non-probability sampling and more specifi-
cally, convenient sampling. This type of sam-
pling is chosen solely based on the accessibility
of data. As we have had limited time to conduc-
t this project, we simply do not have the time
to conduct large data collections. Furthermore,
convenient sampling is often used when study-
ing organizations, and is more prominent than
samples based on probability sampling. One of
the major flaws with probability sampling, is the
lack of validity as it is not representative for a
population. For our research paper, we try to
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generalize based on theory and not the data we
collect. In this way, we address the biggest flaw
in convenience sampling (Bryman – 2012 pp. 200
– 202).
From having a cross-cultural group we have
gained access to databases which would not be
accessible otherwise. The library at Peking Uni-
versity has been one of our sources of data as well
as the Chinese magazine “Executives” and the
Chinese UCAS library. In this way, our cross-
cultural group, expand our convenient sampling
to grasp both Chinese and Western sources of
information, broadening the boundaries of where
we are able to seek information, in regards to our
project.
• Evaluation of the Case Study
Case study focus’ on a large number of variables
while other designs rely on controlling out the
influence of other variables and focusing on the
influence of a very limited number of variables.
Hence, one strength of applying case studies in
this research is that it attempts to understand
the significance of particular factors within the
context of the whole Xiaomi case, rather than by
screening out this context. Due to the fact that
the unique user-driven model exists in a given
cultural context, specific market environment, or
special characteristics of the company itself.
As a consequence, the case study in this project
has the potential for good internal validity based
on a more thorough understanding of the mean-
ing of Xiaomi’s particular external collaboration
with its users (De Vaus - 2001).
In regards of making statistically valid general-
izations beyond that particular case, case study
is lacking external validity. But case studies
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
do not strive from this type of external validi-
ty. They do theoretical generalization instead of
statistical generalization (De Vaus - 2001). The-
oretical generalization involves generalizing from
a study to a theory. Case study is designed to
help develop, refine and test theories by using the
logic of replication. Findings of a case study can
be tested by repeating case studies under differ-
ent conditions. Regarding the research question-
s, the findings of the most important collabora-
tion type for company like Xiaomi and the most
effective organization structure could be tested
by replication in other companies in the same
technology field, and then develop and refine the
theory of user-driven, innovation diffusion and
organizational structure. Hence the theoretical
generalization is achieved.
• Analysis Design
Figure 2: Inductive approach
For our analysis design we have chosen to use
general inductive analysis. We use this in the
sense that we have gathered a number of sec-
ondary data. To be able to say something with
some kind of certainty we have to break down
this material in order for it to make sense. In
the general inductive analysis you read through
all qualitative data, before you assemble the au-
thors points of view on the things that matter to
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the research project. Then you categorize those
based on all the empirical data we have collect-
ed, and then we are able to say something about
what the tendency is within the case of Xiaomi
or, if there are any outstanding points of view. It
resemble grounded theory a little bit but with the
general inductive analysis we don’t have to state
any hypothesis before we begin, we simply have
to let the authors tell us about their thought-
s, and analyze based on our grouping of these
thoughts. Below is a model illustrating general
inductive analysis. (Bryman – 2012 p. 568-569)
1 Theoretical Framework
1.1 Open Innovation
Open innovation is a new way of thinking. The
basic assumption regarding this concept is that no
business is an island, meaning that you cannot s-
tand alone and you will have to engage the envi-
ronment around you. Open innovation means that
you tap into other people outside your company, to
profit from their knowledge and resources. This al-
so means that you don’t have to be the inventor of
something to profit from it, a better business model
beats getting first to market, and if a firm manages
to benefit from both internal and external ideas,
they are a lot stronger than competitors who are
not able to do this. The idea of gaining a competi-
tive advantage from open innovation is therefore to
cooperate with the environment around the firms,
in order to better be able to bring innovations to
the market, and not necessarily be the first to do
this, in order to have competitive advantage. The
idea of open innovation is illustrated in figure 3.
Henry Chesbrough introduced open innovation
as a concept for the first time back in 2003. He was
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
Figure 3: Open innovation model
frustrated that the gap between academia and the
corporate world was too wide thereby meaning that
the collaboration between corporations and the u-
niversities was too low, and the firms did not take
advantage of the many good projects and ideas that
the students and professors was working with. He
therefore enrolled in a PhD program to become
a professor after working for several years in Sil-
icon Valley. After working as a professor for some
time he wrote the book ”Open Innovation” which
described how companies could profit from work-
ing together with its external environment. Today
there are titles all around the world labeled ”Open
Innovation Manager”. The corporate world have
found out that working with its external environ-
ment can be very lucrative for your business and
have several good aspects including reduced costs,
acceleration from idea to market, increased differ-
entiation, and the creation of new revenue streams
for the company.
Since we are working with the Chinese com-
pany Xiaomi, we have chosen open innovation to
be our overall concept for this project. This also
means that we are working with open innovation
theories and have designed our theoretical frame-
work to grasp the ideas of open innovation. The
company Xiaomi is very actively engaging its ex-
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ternal environment and have a business model that
seeks to work together with its users and fans to
create and improve products and processes within
the firm. This is why the theories chosen within
this project will all be related to the open innova-
tion concept and this relates to our overall theory as
well. Henry Chesbrough defines open innovation as
”the use of purposive inflows and outflows of knowl-
edge to accelerate internal innovation, and expand
the markets for external use of innovation, respec-
tively.” In regards to our project we interpret this in
terms of the flow of knowledge between Xiaomi and
the companies external collaborators. Xiaomi has
millions of fans and users and therefore the com-
pany has to identify who to collaborate with and
how to collaborate with these individuals. Further-
more the company will have to formally structure
itself to be able to engage with these fans, without
letting the fans come too close to or influence too
much on the company operations.
To come up with a solution of these challenges
we adopt the ”Want, Find, Get, Manage” (WFG-
M) as our theoretical framework. This model was
developed back in 2004 by Gene Slowinski and was
created as a solution to issues within the medical
industry in regards to insourcing. It has later been
adopted to consumer products, food, technology
and other markets. The model is a ”good practice”
which has worked for many companies. The model
is designed to enable companies to asses which indi-
viduals are the most essential to them and then in-
source these into the company. It has been proven
to work for a lot of companies but since it varies
from company to company it has only been defined
as a ”good practice” and not ”best practice”.
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
1.2 Want, Find, Get, Manage Model
The model is divided into 4 phases where com-
panies have to complete a certain task within each
phase in order to proceed to the next phase. For
this project we have created three research ques-
tions which will all be answered by moving through
the four phases within the Want, Find, Get, and
Manage model (WFGM model). As the WFGM
model is our theoretical framework we will use the-
ories related to open innovation. The reason for
using this specific model in the case of Xiaomi is
that the company has a very unique business mod-
el, and other technology firms could learn a lot from
the way Xiaomi interacts with its external environ-
ment. The use of the WFGM model in the case
of Xiaomi will hopefully outline an approach oth-
er companies could embrace and effectively learn
from in order to be able to collaborate with its ex-
ternal partners. In the following section we will
move through the WFGM model and describe how
we are going to use the different phases in relation
to our research. Since we are using a general model
as our framework, the following section will be ded-
icated to further explanation on how we are going
use its phases in relation to our object of investiga-
tion. We are altering the model to be able to say
something in regards to the overall company of Xi-
aomi, instead of only grasping insourcing in regards
to specific project.
1.2.1 Phase 1:Want-Diffusion of Innovation
In the first phase of the WFGM model a com-
pany has to define which targets it is opting to
engage and what capabilities these targets should
have. In order to specify what type of targets Xiao-
mi should be engaging, we have taken into account
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Figure 4: Overall theories used in four phases of Want, Find, Get,
Manage model
what capabilities the company is searching for and
what goals it is seeking to fulfill. To do this we have
to look at the vision of Xiaomi which is defined on
the company website.
In this project we focus on the concept of open
innovation in regards to Xiaomi. This means that
from our interpretation, the most essential elemen-
t in Xiaomi’s vision is the transfer of knowledge
between the company and its fans. To investigate
this, a selection of the theory diffusion of innova-
tion has been made, because its focus is mainly
on describing how knowledge is being spread and
shared amongst participants and it is also explain-
ing which actors that is important to engage in or-
der to acquire new knowledge for the company to
build upon.
• Diffusion of innovation
With the theory diffusion of innovation we want
to acquire a deeper understanding of the rela-
tionship between new technology and new ideas
in regards to how, why, and with what rate these
are being spread amongst users through commu-
nication in cultures. The forming of innovation is
being examined by observing channels over a cer-
tain period of time, where the communication a-
mongst participants in a social system is the pro-
cess where the diffusion occurs. The diffusion of
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
messages with information shared between par-
ticipants through communication on the social
platform is vital to fully grasp in order to benefit
from the shared knowledge. By understanding
this process, a company like Xiaomi will be able
to efficiently allocate their resources to best en-
gage and benefit from interacting with their fans.
For Xiaomi to pursue their vision of creating a
fan base that can contribute to the R&D process,
understanding which kind of fans to engage is a
”must”, which is why we have chosen to use the
theory diffusion of innovation, because it facili-
tates access to this information.
The theory was originally published in the book
Diffusion of Innovation by Evertt Rogers in 1962
and has been republished multiple times, with
the latest fifth edition in 2003. Rogers argues
that four overall elements are what causes the
spread of the an idea: 1) an innovation, 2) that is
communicated through certain channels, 3) over
time, 4) among the members of a social system
(Rogers, E. M. - 2003).
When Rogers talks about innovation he is refer-
ring to an idea, practice, or object that is being
perceived as something new by an individual. S-
ince most of the innovations discussed by Rogers
are categorized as technological innovations, an
acknowledged definition of technology is neces-
sary. A technology consists of the two parts,
hardware and software. Hardware being the ac-
tual tangible object, whereas the software is the
intangible tools within the object (ibid).
The messages being shared amongst individuals
in the social system is taking place through the
communication channels. This can either occur
in the mass media channels or in interpersonal
11
Innovation Management - SDC
channels. When an individual chooses to adop-
t an innovation it is often due to an evaluation
done by another individual within the same so-
cial system. These individuals evaluating inno-
vations are characterized as role models. An im-
portant aspect of diffusion is the likelihood of
heterophility being present. Heterophily is a ter-
m used to describe the degree of differences a-
mongst group members in regards to education,
social status, beliefs etc. A result of the com-
munication taking place between individuals who
are heterophilous, certain problems with the ef-
fectiveness of the communication will arise (ibid).
The element of time in the process of diffu-
sion can be depicted through five steps. First,
the knowledge is passed along by an individ-
ual to, secondly, persuade another individual,
that thirdly accepts or rejects the innovation and
fourthly chooses whether to implement the new
idea and last but not least confirms the deci-
sion. During this process the decision-making
individual is seeking further information to eval-
uate whether the new technology or idea is to be
adopted or rejected. The basis of the final de-
cision is made with an outset in the uncertainty
related to the innovation and the expected con-
sequences of implementing it (ibid).
When looking at the social system in which the
process of joint problem solving happens, the
structure that dictates the approach and the es-
tablished common rules are what defines the out-
come. The interconnected units in the social
system act upon the norms set for behavioral
patterns which also facilitates stability and reg-
ularity. However the structure of the social and
communication aspect can both be hindering and
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
helping the diffusion of innovation (ibid).
1.2.2 Phase 2:Find-Scouting
From solving our first phase of defining which
targets Xiaomi will have to engage, we move on to
actually finding those actors.
The find phase will consist of 3 parts. First we
want to establish why you have to scout for indi-
vidual capability providers and which errors might
occur in this process. Secondly we want to establish
the definition of a social media platform. And for
the final part, we want to analyze based on the X-
iaomi case, how a company successfully can use its
social media assets to single out important individ-
uals whom the company is interested in collaborat-
ing with. Therefore the theory will also consist of
three main topics; The spectrum of collaboration,
Defining the ”Social Media Platform” and The Xi-
aomi scouting strategy.
• The Spectrum of Collaboration
The collaboration spectrum was developed by
Shoshanah Cohen and Joseph Roussel and was
first published in their book Strategic Supply
Chain Management: The 5 Disciplines for top
Performance (2005).
The collaboration spectrum was originally de-
signed to illustrate how to most effectively collab-
orate with the supply chain of a company. How-
ever, this model is well suited for illustrating how
firms should collaborate with their external envi-
ronment and how they should go about this. The
model shows that the most effective way of col-
laboration is with a few individuals and then hav-
ing an extensive collaboration with these. From
theory regarding diffusion of innovation we de-
fined the targets that Xiaomi would want to
12
Innovation Management - SDC
Figure 5: Collaboration Spectrum
have extensive collaborations with. Therefore,
the spectrum of collaboration suggests that the
most effective solution would be to engage few
individuals who could provide the capabilities X-
iaomi is looking for, and then having an extensive
collaboration with these individuals. The model
will also be used in regards to the social media
platform and how Xiaomi targets specific indi-
viduals to avoid loss of resources and time.
• Social Media Platform
There are numerous definitions of what the social
media platform exactly is. For this research pa-
per we have chosen to work with the definition by
Kaplan and Haenlein from their research paper
”Users of the world, unite! The challenges and
opportunities of Social Media”. This research pa-
per describes how social media is a very valu-
able asset for firms if they are able to control
it. This definition is therefore the most accurate
in regards to our project as it conducts research
from a firm’s point of view regarding social me-
dia. The definition is; ”Social Media is a group
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
of Internet-based applications that build on the
ideological and technological foundations of Web
2.0, and that allow the creation and exchange of
User Generated Content.”(Kaplan and Haenlein,
2010)
• Xiaomi Scouting Strategy
Xiaomi have built up a huge fan base around it-
s products and services. This means that they
have to choose from millions of fans, trying to
find the best individuals to collaborate with. We
are going to analyze research papers and figuring
out how they are using their social media plat-
forms and their forums to sort out which fans to
collaborate with.
1.2.3 Phase 3:Get-Participatory Design
In the two previous phases we have defined
who Xiaomi is looking to collaborate with and how
to use their unique social media platform to engage
these individuals. To move on we have to define
what type of alliance they should have with the ex-
ternal collaborators they want to engage. To do
this we will use the concept of participatory inno-
vation and the theory of user-driven innovation.
• Lead User and Participatory Design
Lead-User approach and Participatory Design is
the main focus throughout this phase.
Users have been regarded as an important source
of innovation in many industries, especially in
hi-tech industries (Baldwin, Hienerth, and von
Hippel-2006). Whether or not the product is
promising in mass market is decided by how ac-
curately this type of product innovation reflects
user needs. Lead users are those users who expe-
rience innovative product ahead of commercial-
ization. They usually have the ability or profes-
13
Innovation Management - SDC
sional skills to redesign and adapt the product in
order to predict further needs (Franke, von Hip-
pel, and Schreier- 2006). Lead users are usually
involved in the initial exploration phase where
the task is to define problems.
Eric Von Hippel labels participatory design as a
design and development processes in which end-
users were invited to participate and contribute,
not simply as critics and evaluators of product,
but as co-designers. Participatory design work-
s as a complementary way to gain knowledge of
end users’ work and context (von Hippel-2006).
Participatory design works as a method to bring
diverse stakeholders together who confront each
other with very different perspectives of a cer-
tain kind of issue. In participatory design, par-
ticipants are invited to co-operate with techni-
cians, engineers, designers and developers during
innovation process, bringing about new ideas to
optimize the product.
This type of approach is particularly diffused in
hi-tech industries, such as computer - and smart-
phones industries where participatory design in-
dicates full participation practice taken by user-
s both in software, hardware, service and repu-
tation (Greenbaum&Kyng-1991; Muller& Kuhn-
1993; Schuler& Namioka-1993).
• User Communities
Traditionally, firms themselves were responsible
for their research and development of products,
nowadays it is important to accurately assess the
user’s needs before starting the process of defin-
ing and developing a product. User communities
do not only facilitate the sharing of users’ needs
but it also accumulates their knowledge and ideas
regarding existing and new products (Brown and
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
Duguid-1991;Murray and O’Mahony-2007; von
Hippel-2007).
Back in 1988 von Hippel stated that the innova-
tion generated by user communities can be char-
acterized though three major strengths. First-
ly, the user community facilitates a forum where
problems can be viewed from diverse perspec-
tives and a broad set of shared knowledge can
be used to figure out solutions to these problem-
s. Secondly, the innovation generated by users in
a community could be accumulated and trigger
even more innovation. Thirdly, the user commu-
nity provides a considerable sum of novel ideas
and effective detection of flaws of designs.
One specific kind of user community is one that
centers on the brand of a focal producer firm.
O’Guinn defines this kind of brand community
as ”a specialized, non-geographically bound com-
munity, based on a structured set of social rela-
tionships among admirers of a brand”. Brand
communities are composed of individuals who
share the same interest in a particular brand
(Algesheimer, Dholakia, and Herrmann-2005; M-
cAlexander, Schouten, and Koenig-2002). Such
a brand user community has great impact on
consumers loyalty, it often uses motivations to
engage users in co-creation process (Franke and
Piller-2004; Kim, Bae, and Kang-2008; Sawhney,
Verona, and Prandell-2005).
• User Community’s Toolkit for Innovation
Von Hippel defined the user toolkit for innova-
tion in terms of the isolated user whose need-
s are directly realized in the results of his or
her creation, during which users build dense re-
lationships with the firms. Such relationships
has a strong impact on knowledge creation and
14
Innovation Management - SDC
the community’s innovation efficiency (Farag,
Jarvenpaa,Majchrzak-2011; Frey, Luthje - 2011).
In these user communities, the user creations and
innovations are discussed, adjusted and renego-
tiated by means of virtual tools that facilitate
a cycle of design by trial and error (Thomke -
1998).
The toolkits used in a community support inno-
vation and increases the value of user creations.
A user toolkit in a community helps the firm ori-
ent its development to improve its product. Thus
the toolkit and innovations issuing from a user
community forms an innovation system based on
cooperation and interaction between community
and firm. To determine the role of the innova-
tion toolkit in this system, we need to examine
the users’ creative and innovative activities, as
well as their relation with the firm’s innovation
process.
1.2.4 Phase 4:Manage-Organization Struc-
ture
In the final part of the project, we will be re-
flecting upon how Xiaomi could structure their or-
ganization to easily collaborate with its external
environment. We will be working with different as-
pects and theories regarding organizational struc-
tures in order to create a complete picture of what
are essential when structuring an organization like
Xiaomi. In order to complete this analysis we will
incorporate research papers and articles as well as
organizational theory to determine what capabil-
ities an organization like Xiaomi has to integrate
into their organizational structure, in order to suc-
ceed with their operations. Finally we will complete
our analysis with a recommendation for Xiaomi in
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
regards to how they could structure their organi-
zation. The following will be a brief introduction
to the theoretical topics we will touch upon in our
analysis. The level of analysis within our third part
will be an intra-organization analysis, where we fo-
cus on how to incorporate external knowledge into
the company (Vanhaverbeke – 2005).
• Ambidextrous organizations
The ambidextrous organization is very loosely
defined in literature. The idea is that an orga-
nization has to be able to exploit ongoing op-
erations while exploring new possibilities for
the company to invest into. In regards to X-
iaomi, this will relate to the degree of hav-
ing a mechanic and formal structure within
the company supporting the day-to-day oper-
ations, while being able to exploit the huge
amount of knowledge from fans and external
collaborators. This theoretical topic will also
be used in regards to our reflections as to how
Xiaomi can successfully structure themselves
(O’Reilly III, C. A. Tushman, M. L. -2004).
• Open systems – Contingency Theory
We are going to use the open systems theory
and we have chosen to focus on the contin-
gency theory with specific focus on the role
of the environment when reflecting upon how
Xiaomi could structure its organization. This
theory was introduced in the 1960s and build
on the idea that an organization can survive
base on the throughput of resources from it-
s external environment. Based on the con-
tingency theory, the organization within the
open systems theory will therefore be defined
by the environment around it and what this
environment dictates. We will use this theory
15
Innovation Management - SDC
to help build our ”best possible fit” for Xiao-
mi within the Chinese market it is currently
engaged in.
• Organic organization
The organic organization is concerned with
how the organization works and how it is
managed. The organic organization is made
in contrast to the mechanic organization and
primarily focuses on a more informal struc-
ture within the organization. The organic or-
ganization is more informal and will be used
in this project to clarify some of the capa-
bilities that are needed in the fast changing
hi-tech market where Xiaomi operates. The
overview of the organic versus mechanic or-
ganization can be found in appendix 1.
• Matrix Design
The matrix organization is often used when
you are working with larger projects. The
design is characterized by its horizontal flow
of skills and information through the various
departments, as showed in the model in ap-
pendix 2. Employees in a matrix organization
will often report to their respective manag-
er on a day to day basis. Furthermore the
employees are required to report the overal-
l progress of the project they are engaged in
to the head of the department. This proce-
dure is an important element of this struc-
ture, because it constantly gives the people
in charge an idea of the development. In the
case of Xiaomi, we will use some of the qual-
ities from the matrix organization structure
when we describe the functions the successful
organization needs to have in order to cope
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
with the changing environment.
Figure 6: Cenceptual Framework
2 Case Analysis
This is the chapter where we use our theory on
the data we have collected. In this chapter we will
include our work with research question 1-3. This
will be the chapter we will base our conclusion on.
We have chosen to divide it into working with each
question separately and then draw on the summary
or previous conclusions when we move further down
thorugh our research questions.
2.1 Research Question 1
Research Question 1: Why would a technology
company like Xiaomi include fans in their organi-
zation and how would they find the right fans?
The first research question will be investigated
in this section.
We would like to investigate why it is a good
idea for technology companies to engage its cus-
tomers and fans in the process of developing its
products. We would like to focus on the increas-
ing change in the way companies collaborate with
its external environment and especially with its
customers. ”Users are widely acknowledged as a
valuable source of creativity and knowledge in the
16
Innovation Management - SDC
development of new products”(Wheelwright and
Clark-1992).
As a result of the global technological develop-
ment that has been happening for the past decades,
multiple opportunities have risen for companies to
take advantage of. One of which is the online di-
mension, that through the invention and refining
of the internet now facilitates an opportunity to
gather knowledge from entities no matter their ge-
ographical location. If used correctly, this approach
can also be cost efficient. For Xiaomi, this oppor-
tunity has made it possible to implement an online
system that is able to separate their users by cate-
gorizing them into groups where relevant data can
be obtained. To fully benefit from the gathered da-
ta and the knowledge hereof, a deeper understand-
ing of how the communication is being spread is
essential. For Xiaomi to generate the most value
from the interaction with their users, an analysis
of the type of user and its capabilities will be de-
fined.
2.1.1 Diffusion of Innovation
• The Innovation
With the outset in Rogers definition of an inno-
vation, as stated in the theoretical framework, an
understanding of how the users in a social net-
work adopts an innovation will be investigated.
The special characteristics of a new innovation as
perceived in a social system by its members are
what determines the rate of adoption. This is
being viewed through the following five main at-
tributes: 1. relative advantage, 2. compatibility,
3.complexity, 4. trialability, 5. observability.
The relative advantage is the extent to which the
prior products capabilities is being exceeded by
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
the newer version in the eyes of the user, and is
positively related to the adoption rate of these.
A concept called overadoption is explaining the
degree to which, despite experts predictions, is
being adopted by users. This could occur if users
see the product as a preventive innovation, which
entails the product being perceived as a good
investment for future needs. With compatibili-
ty the product is being judged according to the
timely context where past -, present - and fu-
ture values and needs of potential adopters are
being analyzed (Rogers, E. M. - 2003). The time-
line for Xiaomi’s new smartphone releases com-
pared to its competitors is approximately twice
as long due to their business strategy. However
when Xiaomi is releasing their new smartphones
they tend to be the best on the market, hence
one could argue that it is seen as a secure and
good investment for future needs for the con-
sumer. A fear for most hi-tech companies is the
possibility of their products being too advanced
and complex for the consumer to use, and there-
by having a negative influence on the adoption
rate. For Xiaomi and their products, the inter-
action with their customers facilitates a solution
in which they are able to counteract beforehand.
Due to the social networks where the users and
employees of Xiaomi communicate, the trialabil-
ity which is the process where new products are
being tested on a limited basis is a constant on-
going process because new ideas pitched by the
company are being evaluated on a regular basis
by the users themselves. Due to the construc-
tion of Xiaomi’s online platform the observabilty,
which is the option for the users to see the results
of an innovation, has always been available and
contributed to a positive rate of adoption (ibid).
17
Innovation Management - SDC
• The communication channels
When a company’s strategy revolves around a fo-
cus on using media to increase the adoption rate
of a product, two very different approaches can
be used. The two approaches that is referred to
are operating with the following communication
channels; the mass media and the interpersonal
channel. Depending on the goal of implement-
ing these channels in the business strategy, the
mass media approach is in general more effective
for spreading the brand awareness, whereas the
interpersonal channel facilitates a space that is
effective for forming and changing attitudes to-
wards new ideas. The high exposure from the
mass media strategy does not necessarily lead to
adoption of a product, because individuals have
varying thresholds of adoption (Marsden, P. V.,
Joel P. - 1990). For Xiaomi that effectively has
managed to exploit the benefits of the interper-
sonal space, a direct link between the rate of
adoption and their community’s ability to influ-
ence the shaping of the products has shown great
results. One of the elements Xiaomi’s social sys-
tem has succeeded with is the characterization
of different user-groups. A certain group of user-
s that especially has a great impact on the rate of
adoption is the opinion leaders. An opinion lead-
er is an individual that is able to influence others
through their behavior and attitudes. Opinion
leaders acts as important entity in the diffusion
network, and are often localized and used in dif-
fusion programs (Rogers, E. M. - 2003). A com-
munication network is consisting of interpersonal
individuals that are functioning interdependent-
ly to nurture the adoption of innovations through
linked patterns and flows. To optimize this pro-
cess, the network should make sure the presence
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
of heterogeneity, hence the degree of having an
environment that fosters innovation, is there in
order to generate the best value from the diffu-
sion within the network (ibid).
• The Time
Diffusion of innovation is a constant ongoing
process through different phases in time. Five
stages that the element of time can be perceived
as; knowledge, persuasion, decision, implemen-
tation and confirmation are all part of a process
in which the individual undergoes a process of
determining when a product is suited for adop-
tion. Every single individual has a threshold that
needs to be surpassed before an adoption of a
new product can occur. These individuals can
either be characterized as early adopters, early
majority, late majority or laggards. Understand-
ing when individuals are willing to take a risk
and adopt an innovation is key for a company
(Valente, T. W. - 1996).
The mentioned five elements that explains at
what time an individual is willing to adopt an
innovation, are for a company like Xiaomi quite
essential to manage. The reason for it being es-
sential is the fact that it facilitates the abilities
to minimize the level of rejection and is able to
speed up the process for the later adopters. One
of factors that can contribute to a shorter time-
frame of adoption is the level of ties within the
individuals’ personal network. Individuals seek
information during the process of making a deci-
sion to decreases their uncertainty before a pos-
sible adoption.
According to Rogers, the question of how a com-
pany like Xiaomi can determine what and when
individuals take risks, is what should be inves-
18
Innovation Management - SDC
tigated to improve the adoption rate. When an
evaluation of a product has been made by a sci-
entific expert, most individuals take the gathered
information into consideration before an adopt-
ing a new innovation. However an actual adop-
tion does often not occur based solely on an ex-
perts evaluation, but on the near peers evalua-
tions of it. The interesting element for a com-
pany like Xiaomi, is locating the peers that has
the ability of influencing others through their s-
tatements, hence opinion leaders, and incorpo-
rate them into their development process.
• The social system
To understand what and how a certain outcome
from a social system is being generated, the deci-
sion process is the subject of investigation. The
social structure that dictates the common rules
of communication is the outset in which individ-
uals within the system acts upon. The rules are
often being established by the lead users, that
have been able to contribute and create the most
trustworthy profile, and thus have a greater val-
ue to the company, hence the opinion leaders.
To benefit fully from the use of a social system
and the structure hereof, Xiaomi has to allocate
its change agents carefully in order for them to
influence the right individuals on the forums. A
”change agents’” task is to divert a present atti-
tude or opinion towards an innovation in order
to implement one that is deemed more desirable
(Rogers, E. M. - 2003).
When diffusion of new ideas and innovations are
being presented to the users through a social sys-
tem, lots of different opinions towards these are
of course being made. However the actual deci-
sion on whether to adopt or reject it is what is
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
of interest to Xiaomi.
To understand how individual independent deci-
sions of whether to reject or adopt certain inno-
vations are being made, a distinction will be p-
resented as different innovation-decision-making
processes. The first type is called ”optional
innovation-decisions”, where the individual is
making a decision based on other peers’ evalu-
ations. Second is called ”collective innovation-
decisions” where a consensus on the forum will be
the used to make the decision. Thirdly we have
the individual that is making a decision based on
the ”authority innovation-decisions” that is rely-
ing on a few individuals with a greater amoun-
t of power, knowledge or technical capabilities.
Lastly we have the ”contingent innovation deci-
sion” where two or more of the above listed de-
cision processes are being used simultaneously.
For Xiaomi to influence their users way of mak-
ing decisions, understanding which kind of pro-
cess they are going through while making them,
are of great use to them.
Figure 7: The Diffusion Process
The fact that Xiaomi is able to gather knowledge
from their users concerning new ideas, needs, in-
novations and desires for apps or products, have
19
Innovation Management - SDC
been a big part of their success. Having a forum
where the users diverse capabilities are able to
foster new ideas and innovations, is truly some-
thing Xiaomi have been able strive upon. Being
able to gather lots of information from a huge
database with actual users that all have a differ-
ent point of view is facilitating a unique opportu-
nity for discussion and problem solving. For Xi-
aomi to utilize the output from their users in the
best manner, locating and cooperating with cer-
tain users are necessary. By locating and work-
ing alongside their lead users, Xiaomi is able to
not only utilize their feedback and input, but as
well influence them in regards to adopting new
innovations and products. Hence locating the es-
sential users are of great importance to Xiaomi.
2.1.2 The Xiaomi scouting strategy
Xiaomi has built up a huge fan base around its
products and services. This means that they have
to choose from millions of fans, trying to find the
best individuals to collaborate with. We are going
to analyze the situation of Xiaomi with the outset
in the following models, to see how they are using
their social media platforms, and their forums to
sort out which fans to collaborate with.
• The spectrum of collaboration
The spectrum of collaboration was initially creat-
ed to illustrate the collaborative approach firm-
s should have when working with their supply
chain management. This model shows what the
connection between number of collaborators and
to what extend the company chooses to cooper-
ate with its supply chain. However, this mod-
el is suited to illustrate the collaborations with
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
a company’s external environment as well. On
the vertical axis of the spectrum of collaboration
model as shown in the theory section, is the ex-
tent of collaboration and on the horizontal axis
is the number of relationships. As seen in the
model, there are different stages of collaboration
raging from just transactional relationship to a
synchronized relationship. The worst cases for a
company is to have either too many relationships
with a high level of collaboration, which cost too
many resources, or having too few relationships
with very little collaboration which would result
in a very little return from the collaborations.
In the case of Xiaomi the issue would definitely
be having too many relationships as the company
has millions of fans who all want to participate
in the creation of the newest Xiaomi products.
To avoid spending resources on fans who do not
provide the capabilities that Xiaomi is looking for
in their process of collaboration, Xiaomi will have
to identify only the most important individuals
to them, in order to maximize from the joined
efforts. Therefore, Xiaomi must have a system
to scan through millions of fans in order to scout
for the most important capability providers.
• Xiaomi’s collaborative approach to fans
With the social media gaining an increasingly
more important role in the globalized corporate
world, the demand for a clear social media strat-
egy is more important than ever. For Xiaomi
this strategy has been developed to grasp the
demands of their huge fan base. First of all the
vision of Xiaomi is in regards to what the fans
of the company wants. In Xiaomi the manage-
ment is quite use to incorporating the social net-
working websites in their working process. These
20
Innovation Management - SDC
websites include the Chinese SinaWeibo, RenRen
and Facebook as well as numerous forums regard-
ing Xiaomi’s products. On these sites, the man-
agement including the CEO Lei Jun, post around
100 responses every day to their fans questions
regarding the company and its products. Many
companies would most likely have sales staff or
even a PR-manager maintaining the contact with
the company’s fans. However in the case of Xi-
aomi, the management is valuing and dedicating
their time to the fans’ concerns, which as a result
creates a good relationship that facilitates active
forums on the social media platforms (Shih, Lin,
and Luarn, 2013).
Xiaomi has built a vast network where fans can
talk to each other and effectively communicate
with the company. This have resulted in a very
active fan base who is surrounding the compa-
ny and constantly pitches new ideas about how
to improve products as well as how to market
these. But as seen in the spectrum of collabora-
tion model it is not possible for Xiaomi to have
an extensive collaboration with all the fans with-
out wasting resources. This is why Xiaomi have
developed a system to identify which fans they
want to collaborate with.
What Xiaomi successfully has done is codify their
systems to calculate the value for each of their
fans. These values are being calculated through
internal algorithms that are sorting the fans’ val-
ue based on factors such as; number of com-
ments, participation level and level of impor-
tance. This could be described as technological
knowhow or specified skills in regards to design
and product development. With the outset in the
score-based system they are able to categories
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
their fans in certain groups. By doing this they
are able to identify the individuals they want to
approach in order to create collaborations with
these individuals to solve a task. To keep the fan-
s excited, they give fans with high grades more
permissions and perks, and thereby more respon-
sibility.
Furthermore they give high graded fans the a-
bility to answer other fans requests, decreasing
the workload on the management and company,
by outsourcing the task of responding to minor
question from fans. This fan-to-fan approach is
also encouraging other fans to participate more
in the social media platforms of Xiaomi in order
to get better grades and thereby get more perks,
you can compare it to modern day video games
where you often have to complete a task in order
to level up and thereby get more perks.
This is how Xiaomi uses social media as their
platform for scouting. They use this platform
to in-source individuals who are interesting for
Xiaomi to collaborate with when developing new
products and services.
• Summary of research question 1
For a technology firm like Xiaomi to successfully
engage and include their fans in the process of
developing their products, understanding their
user-base is essential. Locating and understand-
ing what the users are capable of contributing
with, have been sought investigated through the
”want” and ”find” sections. With the ”want”
section, a thorough analysis of the capabilities
certain users contain have been made, and with
an outset in the findings, we are able to con-
clude upon why a technology company like Xiao-
mi should include fans in their work. Within the
21
Innovation Management - SDC
social system where Xiaomi engages their fans,
the ongoing process of diffusion of innovations is
facilitating knowledge that fuels the development
of new products for Xiaomi. Furthermore it has
been discovered that by collaborating with opin-
ion leaders, the thresholds for other users can
be overcome faster, hence a faster adoption rate
can be achieved. Throughout the ”find” section
it has been clarified how Xiaomi can locate and
engage the essential groups of users. Having an
internal system that can identify what users work
with is vital, due the huge amount of users. A
technology firm should include their fans in their
working process, because the above stated advan-
tages are of great importance in order to acquire
even more fans ”customers”, hence achieve eco-
nomic growth as seen with in the case of Xiao-
mi. Furthermore, the find phase does clarify the
places Xiaomi is finding the fans, but the specif-
ic grouping of users and to what extend Xiaomi
is collaborating with these, will be thoroughly
analyzed in the 3 phase of the WFGM model fol-
lowing this part.
2.2 Research Question 2
Research Question 2: Which types of user col-
laboration is important for Xiaomi as a consumer
electronics company?
The second research question will be investigated
in this section.In order to answer the second re-
search question, we would like to first investigate
Xiaomi’s categorization method to distinguish dif-
ferent types of user groups. After this we are going
to look at what kind of cooperation is employed
during three different development phase of new
products and what kind of role the Xiaomi forums
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design Innovation Management - SDC

Table 1. Categories of Xiaomi users by privileges and professions

Special Team Category Duties and responsibilities

Board Master is in charge of the post arrangements, cutout of malicious flooding posts, adding
Board Master
’essence’ to some posts.

Consultant Team is responsible for finding problems in the system, providing feedback to the firm in
Consultant Team
time and bringing about suggestions as well as answering other fans’ questions.

The major task for resource team is to offer various resources such as software, e-book, theme wall-
Resource Team
paper and so on to users.

They are responsible for gathering local Mi-fans in the same city and organizing events regularly,
Inter-City president
besides, they also gather professional Mi-fans to answer technique questions of ordinary users.

Cool-play group are required to post their experiencing report titled by the topic which could be
Cool-play group about digital product, life experience, computer game experience, travelling journals and surrounding
products as well as Geek events.

The way they participate in Xiaomi forum is taking photos and sharing graphic knowledge within
Camera team
the camera team.

play in this process. Since Xiaomi’s forum is the key
linkage between users and company, understanding
the importance of this social platform is necessary
to comprehensively answer how Xiaomi could main-
tain sustainable innovation capability from users.
frequency of signing on the forum represents the
activity level of the user, and according to this,
Xiaomi classifies users into seven levels- Mi-forum
pass-by, Mi-forum novice, Mi-forum acquaintance,
Mi-forum new star, Passionate Mi-fan, Big Mi-fan,
Gold Mi-fan.

2.2.1 Categories of users of Xiaomi
The users are one of the most important re-
sources for Xiaomi. The way Xiaomi classifies it-
s users is an effective practice to profit from user
engagement. To fully understand how the classi-
fication contributes to a well-organized operating
system of the user community, it is necessary to
initially look inside the user structure on the given
forum. To gain an all-rounded knowledge of users,
Xiaomi employs three levels of criteria to classify
users; activity level; privileges and professions and
engagement level. Their relations and differences
are illustrated in figure 8.
The first criteria of classification is their ac-
tivity level. To accurately indicate users activity
level, Xiaomi applied a signing system that every
member logging in the forum need to sign. The
After this, Xiaomi grades users according to
users’ privileges and professions and distinguish
them between ordinary user teams and special user
teams, which are illustrated in Table 1. The ordi-
nary user teams is loosely structured and users in
that team obtain a lot of space to share with each
other about products and the firm itself. On the
contrary, special user teams is much more strict-
ly regulated. Except for the employees of Xiaomi,
other members of special user teams include the
following categories in Table 1.
The structure of special teams are not fixed,
new members can join in if they got high grades
from other team members, at the same time, exist-
ing members with an unsatisfying grade will go to
ordinary teams. Special team members are acting
not only as a consumer, they are also co-operators

22
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
Figure 8: Three classification criteria and their relations
of the forum, so they have more privileges and are
more skilled than ordinary team users.
In this project, we are using the third level of
criteria - the different engagement level in prod-
uct innovation- to categorize Xiaomi users. Based
on their engaging activities, users are classified in-
to lead users, participatory designers and inspired
users. Lead users are closely involved in the innova-
tion process of Xiaomi; participatory designers are
opinion leaders who are valuable resources in terms
of creating ideas and suggestions; inspired users are
ordinary fans who provide quantitative data infor-
mation for product innovation, which is illustrated
in Table2.
2.2.2 Engaging users in different innovation
phase
After the classification of users into lead user-
s, participatory designers and inspired users, their
working role is illustratively defined. Even though
23
Innovation Management - SDC
Xiaomi’s forum is not operating a face-to-face sys-
tem and the participators are anonymous, it does
not hinder the interaction under certain roles nor
their co-innovation engagement. Specific users are
included in specific development phases. We split
the whole innovation process into pre-development
phase, the development phase and commercial de-
ployment phase, which is illustrated in figure 9.
• Pre-development phase
In the early pre-development innovation phases
in which firms primarily worked with concepts
and ideas instead of prototypes or features, most
of the data collected come from close interaction
with a smaller set of users, or even lead users.
The users were actively and consciously involved
in brainstorming ideas, as well as prioritizing cer-
tain concepts.
Rather than individually develop the MIUI-
system within the company, in August, 2010, the
first version of Xiaomi smartphone was undergo-
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design Innovation Management - SDC

Table 2. Categories of Users of Xiaomi according to engagement level

User Type Acting Role Participatory Work Core Benefits to Xiaomi

The privileges they obtain include to trying out the new ver- On the media social platfor-
sion of system during the probationary period ahead of launch m/forum, they are ranked high
Real fanciers Lead User
and then to experience, test and evaluate the new MIUI sys- and labeled ”The Honored De-
tem and even the right to veto down the new version. velopment Team”

This type of users are in

All the other senior users in the Xiaomi forum except ”The
large number and it is the
Honored Development Team”, such as the forum moderator,
Passionate Mi Participatory foundation of the social me-
the consulting team, the resourcing team who have the right
fans designer dia platform-Xiomi forum and
to communicate with the product Research and Development
most of them are opinion lead-
department.
ers.

There will be a survey on the most popular new function of Ordinary fans also own the
Ordinary the phone and the winner would be awarded with popcorn, right to grade the new system,
Inspired users
Fans and the name and photos of the proposer or designer of this which would influence the di-
function will be posted in the forum. rection of the development.

ing a private beta test. The engineers of Xiaomi
selected 100 users as the first batch of users. All
these 100 users were from various backgrounds,
most of which were technicians or enthusiastic
system developers with professional knowledge.
Lead users of Xiaomi can obtain the original ver-
sion of the MIUI system ahead of time so that
they can report their experiences with focus on
the problems they find and then, propose their
solutions. Users view the product from differen-
t perspective compared to Xiaomi engineers, so
they are better at detecting problems that engi-
• During development
neers find harder to see. Furthermore, lead users
recombine need-related information with insights
from other fields and experiments until they ac-
complish a novel solution that is addressing the
needs (von Hippel - 2005).
Anioco, Krishnan and Ulrich suggest four cate-
gories of different content types on innovation;
performance, design, usability and functionali-
ty. The reason for Xiaomi to involve profession-
al lead users in the pre-development phase is to
focus on functionality improvement. Users’ ex-
perience enables them to develop new functions
that are practical and applicable in a real life
setting. In addition, professional lead users can
leverage their knowledge to create new ideas to
new functions (Morrison-2000). As key role in
pre-development phase, lead users provides main
values such as: capabilities for describing their
specific needs; they are skilled enough to devel-
op new ideas and concepts in relation to the new
products and they can pick up the pace on the
development process to minimize expenditures.
During the next innovation stage, different set-
s of data from users were collected. Features
and product ideas with users are tested before
the product is deployed onto the market. These
teams employ different techniques to gain user-
s feedback. In this phase, qualitative rich user
inputs are gathered through crowdsourcing and
dialogues.
Pisano and Verganti defined crowdsourcing as an
open call to source traditionally generated by a
large group of undefined individuals or a com-

24
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
munity of users. Before launching on the mass
market, Xiaomi would invite qualified users in
forum to do the beta test. Data about the users’
behaviors are collected automatically when the
users download the system and other user inputs
are gathered trough forum surveys as a crowd-
sourcing method. The concept of crowd sourcing
was first brought up by Jeff Howe in 2006. There
are three basic characteristics of crowd sourcing:
based on internet, open production and volun-
tary engagement. Users who participate in the
design of Xiaomi-innovation are well educated
and in charge of their own free time. Further-
more, they have a very strong desire to share
their knowledge with others. The way they ex-
press their opinions is based on the internet and
because they are not satisfied being a pure con-
sumer and service receiver, they voluntarily join
the co-innovation. The consumer in this process
acts as both information receiver and informa-
tion sender, not only Xiaomi looks for consumer
feedback, the consumers are also acquiring prod-
uct details, updating schedules, other users’ ex-
periences and react based on these informations.
• Commercial deployment phase
Once the product was deployed and placed on the
market, companies could receive input through
tests online. Data from users are collected in
order to optimize certain features of the deployed
product or as input for new developments.
One third of the functions deployed on Xiaomi’s
products come from users. The high frequency
of updates on the MIUI system is very demand-
ing, and the attributions from the fans are of
great importance to keep this process going. Xi-
aomi consequently posts the updating journal on
25
Innovation Management - SDC
their forum every week, showing the debugging
and new functions development. This update has
to be carefully done due to a short timetable.
This development model is called ”Orange Friday
Model” named after the system updating patch
released on Friday.
In the updating journal, a video is included to
present how the new function works, what is the
new feature and how this function is developed
in order to give a visualized active perception.
Hence, the users can fill the experiencing report
to vote for the newest function, if the degree of
satisfaction is above 30%, the development team
and the engaged users will be awarded the ”Pop-
corn Reward”. The experiencing report is, in-
stead of sophisticated data input, made up with
mainly four questions, are you happy with this
new updated version? Which is your favorite
new function? What is your expectation about
the system next week? Which function is most
useless? At the end of the updating journal, X-
iaomi shows their sincere respect and thanks to
those Mi-fans who contributes to the new func-
tions with valuable ideas.
Firms open their product design to user commu-
nities during the development process, and get
the users involved in the production and post-
production processes, where they are contributing
with innovative content and development within
the product functionalities. As product innovation-
s are being presented online, these can be adapted
and modified by users from the pre-development
phase to commercial deployment phase, the bound-
aries between production and post-production be-
comes fuzzy, leading to continuous product renew-
al and continuous flexibility of firm and community
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
boundaries.
Figure 9: Types of user input among innovation process
2.2.3 The role of social platform–Xiaomi
Forum
Clear user classification and an engagemen-
t practice scheme is not enough to complete the
co-innovation process, a platform with well-defined
roles is a must. The Xiaomi forum is not defined as
a traditional and simple chatting community or in-
formation board, it functions as a channel for quick
and transparent communication, through which X-
iaomi acquires both explicit and implicit informa-
tion from users. It also works as an innovation
tool and service provider that facilities users en-
gagement. In addition, the Xiaomi forum has on-
going operations providing data, for which the au-
tomatic data collection system embedded in forum
is responsible.
• Channel of communication
Xiaomi forum, as well as Xiaomi account on
Weiblog, Wechat acts as a transparent and quick
way for the communication to users. The reply-
ing rule of Xiaomi is that employee who in charge
of addressing feedback to users must send it with-
in 15 minutes.
26
Innovation Management - SDC
Recent research on the co-design of product with
users attempts to describe the interconnection-
s between the users’ needs and the company’s.
The traditional way of combining the users’ need-
s and the product design was through marketing
research while this type of approach soon pre-
sented limitations. This approach did not reach
areas connected to users’ actual experiences and
thus an actual shift could not really happen with
the ‘design with users’.
In the paradigm of collaboration between firms
and users to co-design products, the users’ need-
s could be categorized into three degrees: users
say; what users do; what users think. Explic-
it needs can be identified by listening to what
the customer say, which is the traditional way of
communicating with customers. It seemed this
approach enables the customers to lead the di-
rection of the new product because what they
tell the firm is what they want. However, this ap-
proach is limited since it only catches the observ-
able needs of customers and ignores the unex-
plored area related to what the customer knows,
feels and dreams (Sanders-2002). Traditional
marketing analysis is aimed at identifying the ex-
plicit knowledge of customers, what people say is
based on their past experience and does not re-
veal their true feelings about their tacit or latent
needs.
When doing the marketing research question-
naires or being involved in the customer feedback
collection activities hosted by the firm, little s-
pace and time is available for customers to fully
describe their needs. In addition, firms usually
observe customers’ needs at one point in time or
during a certain period of time, rather than ob-
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
serving and updating users’ needs all the time.
Multi-lateral platform can act as an effective and
efficient channel to catch users’ explicit, implicit
and latent needs.
• Innovation tool and service providing tool
Various factors have increased the potential and
decreased the costs of searching for innovation
from external sources. One of the essential fac-
tors has been the growing availability of informa-
tion and communication technologies. The rise of
the Internet has played an important role in en-
abling searches for external sources of innovation
by facilitating technology intelligence (Veugeler-
s, Bury, and Viaene-2010). Acquiring Innovation
from external sources usually involves effective-
ness of interaction in which the platform plays a
key role.
Xiaomi distributes a certain number of human
resources in the Xiaomi forum. By now, Xiaomi
has almost 4,000 employees, 1,300 of them work
as operators of these forums. The platform are
used to select the most popular and valuable sug-
gestions from the users and work as a platform
where they can express their opinions freely. In
this forum, all the system engineers can view the
users’ perceptions and ideas directly. Xiaomi has
always encouraged its engineers to contact user-
s through social media platforms. On average,
every engineer in Xiaomi replies 150 posts week-
ly and every post regarding the MIUI system is
labeled a status, such as already received; solv-
ing; already solved; already verified. The overall
replying system works as a simplified debugging
system.
Xiaomi provides their services to users through
the social media platform. Users only need to
27
Innovation Management - SDC
register one Xiaomi account and can then get
10GB cloud space to store all the history infor-
mation on their Xiaomi phone. Even users that
lost their phone and their private information can
be recovered from here.
Innovation toolkits enables verification of qual-
ity of member’s contribution, and their efforts
can be validated after being uploaded onto the
company’s site.
• User data provider
There is no specific user research departmen-
t in Xiaomi. The users are directly linked to
the management teams as well as the engineers,
who make the whole research and design pro-
cess transparent with a strong sense of involve-
ment by users. In spite of the trend of big da-
ta used by other hi-tech companies to gain the
customers insight, Xiaomi regards the data pro-
cessing method as being stiff, instead, every em-
ployee in Xiaomi could communicate with users
by person via Weibo or forum and get the feed-
back the first time and solve the problems in
time.(Jeppesen L.B-2006)
There are two types of registered members in X-
iaomi forum, one is a Xiaomi smartphones user
and the other type is A non-Xiaomi smartphone
user. The forum has a function called Authen-
tification of users to effectively distinguish these
two types of users. Xiaomis’ smartphone user-
s could use their identified IMEI code and SN
code to complete the registration process and will
then be marked with an orange identification. By
means of this mechanism, Xiaomi can track the
actual participation of smartphone users in the
forum and collect their activity data.
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
2.2.4 Mechanism to maintain sustainable
innovation from users
Under a specific acting role on the Xiaomi fo-
rum, participation of users covers the overall in-
novation process from the beginning of the devel-
opment to the post-optimization after commercial-
ization has occurred. Because Xiaomi is capable
of collaborating with users, which is its remarkable
advantage, it is able to keep its favorite position on
the market. Xiaomi has a mechanism to maintain
sustainable innovation from users that are; develop-
ing attractive products; continuously updating the
platform and integrating related stakeholders. On-
ly by implementing these sustainable inputs from
users, Xiaomi can keep a sustainable competitive
advantage.
• Appealing product is the key
The chasm of CEO is not enough to sustainably
attracting users to contribute to the innovation
process, appealing product with high quality is
the key. Xiaomi has applied the product inno-
vation process described as ”Quick developing,
Quick updating” to continuously optimizing Xi-
aomi phone to appeal users. The basic premise
of this type of development model is the original
product is presented with many problems, but
the product is released quickly for users to detect
problems and the product could be adapted and
optimized. On the contrary to this innovation
model, traditional product development models
employed by hi-tech companies such as Microsoft
would spend first the couple of months on plan-
ning and then another couple of months on de-
signing and developing. The final phase is testing
which is conducted in the last few months. As
a consequence, the total time spent on develop-
28
Innovation Management - SDC
ment is up to two years. In Microsoft, no produc-
t could be released without finishing the testing.
Although this type of R&D process makes sure
that product is launched through thorough de-
velopment steps, it has no time advantage(Kim
J.H-2008).
Instead, Xiaomi regards their users as product
managers as well as experience testers. Once the
problem is detected, the development direction is
corrected right away. The engineers and techni-
cians of Xiaomi are not afraid of making mistakes
when developing MIUI system and they are en-
couraged to release the new versions even though
it is not perfect, because the problems of system
could be solved very quickly. So Xiaomi phone
is much closer to users’ needs.
• Update platform
As the most important communication channel is
the Xiaomi updates Forum, this is established to
guarantee the components are adjusted for effi-
ciency .Since August 1st 2011, the Xiaomi multi-
lateral platform has been updated according to
the new functions on the Xiaomi smartphone.
The interactive pieces of the forum is expanded
with new ones and enriched with new contents in
the existing pieces. The overview of Xiaomi Fo-
rum updating condition is presented in Table3.
Xiaomi kept updating its platform to better en-
gage their users and to maximize their contribu-
tion to product innovations, removing outdated
boards or groups along with adding more mod-
ern and useful components. Thus, users’ ideas
can be expressed in more convenient and effec-
tive ways, which does promote sustainability of
users’ engagement(Lee, Jen Fang-2012).
• Integrating related stakeholders- firm, prod-
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design Innovation Management - SDC

Table 3. Xiaomi Forum Updating Overview

The firm supports the creations made by the
Time Platform Updating Milestone
Xiaomi smartphone user registration system users, this is done by making new tools avail-
2011.9
went online able and providing necessary data and basic tech-
XiaomiHonoured Development Team went on-
2011.10
line
nological online equipment. Such toolkits al-
Xiaomi smartphone college went online low community members to involve themselves in
Resource team went online
the creative process of developing innovation and
Xiaomi smartphone college went online
2011.11 Inter-City Meeting went online firms use them to promote and make use of user
Daily Signing function released innovations. The community works as a compe-
2012.3 Board Master Assesment System released
tition platform for different ideas that helps the
Geek Zone went online
2012.7 ROM Zone went online company gaining the much desired user-created
2012.9 Xiaomi smartphone college revisioned
content, and thereby be able to directly adapt
2012.12 Xiaomi Family went online
2013.2 Cool-Play went online products to meet particular needs as expressed
2013.5 APP Channel went online by their users.
2013.7 Xiaomi Forum revisioned
MIUI Development Team revisioned Traditionally, producers are in charge of the de-
2013.12 Signing system upadated
signing new products and their perceptions of all
2014.5 VIP User Registration system went online
2014.11 Global Development Team established the users requirements are mainly being predict-
ed by analyzing the sales. These firms separate
R&D, production and sales so that time lag ex-
ucts, users and community
ists to receive accurate feedback from produc-
The Xiaomi forum community connects the com-
t users. In addition, because the production is
pany with its users, by having a product where
not invertible, customers who want to experi-
the co-creation can be viewed as bridge between
ence new functions have to buy new product, in
the two. Stakeholders are integrated in the user
that sense, producer and consumer are separated
community through mutual interactions.
- firm and users are separated. However, Xiaomi
In order to encourage users’ to participate in co- forums breaks boundaries between producer and
creation and sustain the positive effect of users consumer, hence multi-lateral Xiaomi stakehold-
involvement, Xiaomi opens its product and ser- ers are integrated together.
vice boundaries to better absorb the users contri-
These four aspects of efforts made by Xiaomi
butions and service quality. The way of enhanc-
guarantee the firms capability to keep exciting
ing the status of the most active users increas-
their users and motivate them to contribute fur-
es their involvement in the product developmen-
ther throughout the innovation process.
t. Once the existing users feel like they really
makes some difference to the product develop-
2.2.5 Framework for synergy between Xi-
ment, they will spontaneously attract new users
aomi and users
to be members of the online community, thus
their motivation and involvement is maintained The company culture plays an important role
and more users will support the community. in the willingness and ability of the organization to

29
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
successfully profit from external sources of innova-
tion. ”Paying enough attention to our fans” is the
essence of the company culture in Xiaomi.(Shin,
Lin and Luarn – 2012)
Focused on the relationship building process,
Xiaomi spends a certain amount of time to under-
stand users’ needs, to grasp users’ insights, employ
motivation methods and construct consumer loyal-
ty.
• Comprehensive understanding of users needs
Figure 10: Maslow’s hierarchy of needs in user innovation of Xi-
aomi
The priority of synergy strategy is comprehen-
sive of users’ needs. Only by gripping both the
explicit and implicit even latent needs, the inno-
vative product can sustain being attractive and
will urge the users willingness to keep a long and
far-reaching relationship with the firm.
From Maslow’s hierarchy of needs, a human-
s needs could be described using the terms
”physiological”, ”safety”, ”belongingness” and
”love”, ”esteem”, ”self-actualization” and ”self-
transcendence” as a shape of a pyramid where
the most fundamental levels of needs are at the
bottom and the need for self-actualization at the
top. Physiological needs are thought to be the
most important and they should be met first. It
30
Innovation Management - SDC
is also applicable to the smartphone industry in
which the physiological needs implies the most
basic function needs, like dialing, texting, apps
and so on.
With their physical needs relatively satisfied, the
individual’s safety needs take precedence and
dominate behavior. In the sense of smartphone,
the safety requirement refers to private informa-
tion safety. Since the smartphone is the most
frequently used tool for individuals in daily life
to receive and send information, people are more
careful about their information safety, an ad-
vanced safety system would be appealing to user-
s. Regarding first two levels of needs, Xiaomi has
no competitive advantage. However, Xiaomi is
more capable in the high level needs requiremen-
t by method of users’ community.
The third level of human needs is interperson-
al and involves feelings of belongingness. Xiao-
mi forum is the exact link to all Xiaomi users.
When users log on the forum, participate in the
discussion with other users who share the same
interest online and when they meet with each
other offline to take part in the real activities
such as an inter-city meeting, their needs of be-
longingness is met. The fourth level of Maslow’s
hierarchy of needs is the need to feel respected;
this includes the need to have self-esteem and
self-respect. The technicians and engineers are
replying fans questions in time and the manager-
s, even the CEO, interact with users frequently
which indicate the high respect to users. Esteem
presents the typical human desire to be accepted
and valued by others, Xiaomi offers a platform
for users to engage in the designing process with
professional technicians and these activities give
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
users strong sense of contribution or value.
The last need is to be recognized or realized.
Maslow describes this level as the desire to ac-
complish everything that one can, to become the
most that one can be. Xiaomi makes their users
become conscious of their potentials by actively
inviting them and helping them to engage in it.
Members in special user team are highly recog-
nized by their distinguished dedications. Ordi-
nary users are also recognized for their effective
feedback and suggestions.
In the light of Maslow’s hierarchy of needs, the
way Xiaomi understand users’ needs is showed in
figure 5.
• Accurate grasp of users’ insight
The online platform is useful to gain users
insight. It is based on the feature of the in-
ternet as it is helping reducing the distance
between individuals drastically. The Xiaomi
forum, one of the numerous online platforms,
works as one of the most effective channels to
gain abundant user insight.
Constant updating of internet necessitates
more accurate and comprehensive under-
standing of consumers’ minds for three fol-
lowing reasons. Firstly, forum breaks the lim-
itation of space, enlarging the range of room
of multi-lateral interaction, by enabling long-
distance communication. Xiaomi firm does
not need to allocate human resources to dif-
ferent cities collect consumer feedback from
different region, and the forum is cost-saving
since it is beyond the concept of space. Sec-
ondly, the form of interaction has changed
31
Innovation Management - SDC
from face-to-face conversation to posts, chat-
ting room, boards and e-mails. Post is the
basic element on Xiaomi Forum. By read-
ing and responding to posts from users, Xiao-
mi could enhance its understanding of what
users want and why they want it. Posts also
reflect users’ own perceptions of product and
function which provides an ’in-depth’ under-
standing of users minds. By 5th, January,
2015, the total number of posts on Xiaomi fo-
rum has reached 23.8-87.049. Posts are zoned
on various boards, the most popular ones are
Xiaomi news broadcast; Mi-fans lives; Ap-
plication zone; Product zone; Activity zone;
Service board; Computer games; ROM zone;
FAQ zone and so on. There are more than
sixty sub-boards under each main board.
Thirdly, the frequency of interaction has in-
creased dramatically, immediate information
transformation technique enables high fre-
quent information interaction. This charac-
teristic of the internet platform is of signifi-
cance to avoid time lag of grasping consumer
insight. User insight is extracted from suffi-
cient instant information which is updating
very often. By scanning all contents from
users in time, Xiaomi is better apprehending
the inner nature of users’ comments, more ef-
fectively than other smartphone companies.
Almost all the employees are required to focus
on the Xiaomi forum and other social media
platforms. This approach ensures that every
opinion or complaints from users are received
in time, which improves the efficiency to grasp
the users’ insights.
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design Innovation Management - SDC

Table 4. Interactive activities for loyalty construction

Inter-activities Activity Description

Inter-City Mi-ting is based on specific city and the Mi-fans in that city. The registered users in
Inter-City Mi-ting Xiaomi forum could apply to be the president of Mi-fans in one city who is responsible to hold
activities and set up the organization structure

Popcorn national tour is initiated by Xiaomi company. Compared to Inter-City Mi-ting, Xiaomi
Popcorn national tour founders, software and hardware engineers, community managers are all participating in the popcorn
national tour and would communicate with fans face to face.

Mi-fans meeting is the activity that are targeted to mainly lead-users who could meet with the
Mi-fans meeting managers and technicians of Xiaomi. This kind of activity is beneficial for the users to talk about
the product development deeply.

Mi-fan festival Mi-fan festival is held annually as a reward to fans.

Although Xiaomi does not own any physical stores, it has Xiaomi Family to provide repairmen service
Xiaomi Family
and technical support.

• Users loyalty construction–Interaction on While firms may wish to incorporate external

community animation
The way Xiaomi constructs user loyalty is based
on various activities held by in the Xiaomi Fo-
rum. To attract new members and to stimu-
late and recognize members’ status and encour-
age them to create new contents, Xiaomi allo-
cates different users into different boards and
guides them to engage in the discussion. For the
horizontal interaction between fans, Xiaomi firm
plays the key role to organize and manage, while
the extensive activity from on-line to off-line re-
quires the collaboration of all the Mi-fans. Users’
loyalty construction activities consist of mainly
five types which are illustrated in Table 4.
innovations into their product, this depends on
motivating external partners, namely users in
this project. Motivation strategy is distinguish
between pecuniary and non-pecuniary incentives
for obtaining external innovations. User innova-
tion emphasizes the latter type of motivation.
For pecuniary motivation, Xiaomi rewards con-
tributable users with virtual money-Mi-copper.
Although his type of pecuniary reward is sym-
bolic, users can benefit of discounts when pur-
chasing Xiaomi product.
For user innovation, the non-pecuniary benefits
include meeting their own needs as well as di-
rect and indirect benefits of sharing their new-

• Motivation and reward strategy ly developed knowledge in their community (von

Given the large variety of possible sources of ex- H-2007). The prevalence of knowledge sharing

ternal innovation in a firm’s value network, firms can often be explained by the direct benefit-

are challenged by how to maximize the supply s users gain from freely revealing their knowl-

of innovation that originate beyond their bound- edge (Harhoff, Henkel&von Hippel-2003). Com-

aries. Motivating external stakeholders to sup- munity members may benefit from privileges and

ply innovation is particularly challenge because recognition-which is regarded as status reward.

of the possible misaligned interests between these • Summary of research question 2

stakeholders and the focal firm(von H-2005). After analyzing how Xiaomi engages its users in

32
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
innovation processes, we found out that Xiaomi
firstly categorieses its users into different types
according to three criteria, in order to perceive
their capabilities and accurately grade them. As
to maximize the benefit from users’ participation
in product innovation process, Xiaomi engages d-
ifferent specific groups of users in different devel-
opment phases. During this process, the Xiaomi
Forum works as the key linkage between com-
pany and users because specific groups receive
needed information and contribute their knowl-
edge on different boards, and this type of multi-
lateral communication is necessary for compa-
ny to cooperate with external partners. Xiaomi
makes fully use of the platform to promote inter-
actions and synergy with users. The way Xiaomi
collaborates with its various users by the method
of building and updating the forum is the key to
integrating related stakeholders and effectively
involve them in the co-innovation process.
2.3 Research Question 3
Research Question 3: How can you structure
an organization like Xiaomi to effectively engage its
fans?
The third research question will investigated
in this section.
With this question we would like to summa-
rize our findings in the previous questions and re-
flect upon which organization structure would be
ideal to successfully collaborate with its customer-
s. Through the work with the first 3 phases of
the WFGM model, an investigation of what kind
of users Xiaomi should be collaborating with, and
what capabilities these should possess, has been
sought completed. It withholds information about
33
Innovation Management - SDC
what users from the social media platform their
organization should seek to incorporate, in order
to gain the most beneficial output, from their ex-
ternal partners. The following section will contain
an analysis on which capabilities the organization-
al structure of Xiaomi should possess, to engage in
the best possible collaboration with the individu-
als who can create value for the company. After
this, a comparison of the capabilities of their cur-
rent structure to the ideal capabilities will be con-
ducted. Lastly, a recommendation on how Xiaomi
could structure itself, in order to gain the needed
capabilities, will be conducted.
2.3.1 Current Formal Structure
The current structure of the Xiaomi organiza-
tion is a divisionalized form (Pengfei, Ding – 2013).
This structure is shown in appendix 4. The divi-
sionalized form has both strengths and weaknesses.
First of all the structure is known for having verti-
cal lines of communication, and skills. The current
structure of Xiaomi is placing each of the founders
in control of an area. They have to manage their
departments input and output independently from
the others. With this structure information within
the company is traveling through multiple channel-
s, before reaching its final destination. This type
of structure is also known for having independen-
t teams, working without including other depart-
ments in the process (Mintzberg – 1980;Ihl, Piller,
and Wagner - 2012). Furthermore, the manage-
ment of Xiaomi is very focused on having contact
with the fans, which can be seen though the inter-
action on the social media platforms, which is being
prioritized on a daily basis (Shih, Lin and Luarn -
2012).
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
2.3.2 The capabilities needed in the Xiaomi
organization
”One of the more enduring ideas in organiza-
tional science is that an organization’s long-term
success depends on its ability to exploit its current
capabilities, while simultaneously exploring funda-
mentally new competencies (Levinthal and March
1993, March 1991).”
The idea of the ambidextrous organization is
one of the primary focuses of Xiaomi. When an
organization chooses to emphasis the attributions
of an ambidextrous organization, an important el-
ement is having a sound management team, who
are willing to make radical decisions based on the
company’s current situation (O’Reilly, Tushman –
2004). When working with the concept of ambidex-
terity it is possible to adjust your organization, to
have two distinct sections of the company, where
one focuses on exploiting and the other focuses on
exploring. Xiaomi has to separate their business
in to two parts. One part has to be exploiting
the current business and will include, production,
marketing, R&D, financing and HR among others.
This part of the business will not be changed by
fans but will be the platform where fans can de-
velop and market ideas. This will be the formally
structured core of the company.
The other part of the company will be the part
that changes with the demands from fans. This
part will be everything in regards to Xiaomi’s exter-
nal environment, and will be defined in the collab-
oration between the company and the fans (Shih,
Lin and Luarn – 2012). This section of the compa-
ny should grasp everything in regards to product
development, and be very flexible. This will be the
part of the company to explore new possibilities.
34
Innovation Management - SDC
This means that the structure of the company is
very much in relation to the environment, in which
the company operates.
To elaborate on this, the open systems contin-
gency theory is very useful. For Xiaomi the open
system organization theory is essential. With the
current business model in Xiaomi, the flow of ideas
from their environment is what defines the compa-
ny. This also means that it has to adapt to the
environment to keep having a flow of information
streaming through the company, in order to con-
tinue having their current business model. What
this means for the structure of the organization is
that it has to be very adaptive to the needs of fan-
s, and more importantly, is has to make sure that
the collaboration between fans and the company is
unhindered by bureaucracy.
Summarizing the capabilities, the organization
of Xiaomi has to possess, to collaborate effectively
with fans. It has to have a solid core structure
where the company is able to develop projects in
cooperation with fans. The company has to let the
demand from the fans determine what products to
develop, and which goals to pursue. Furthermore,
the structure within the organization needs to allow
all sections of the company, to have some kind of
collaboration with fans.
2.3.3 The current formal structure com-
pared to the capabilities needed
We assume that the current structure of Xi-
aomi is a divisionalised form (Mintzberg – 1980).
The main capabilities of this structure are out-
lined in the beginning of this chapter. The divi-
sionalized structure possesses many of the capabil-
ities needed by the Xiaomi organization. However,
the current structure of the organization is non-
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
Figure 11: Our idea of restructuring organization structure
collaborative between the different products. The
power is generally very decentralized which is also
a very good idea in some cases. The issue in Xi-
aomi might be difficulties in collaborating between
the departments. A centralization of specific parts
of the business could help to a more collaborative
approach within the business and might help the
company save resources (Ihl, Piller and Wagner -
2012). To centralize some parts of a company of-
ten means that these parts become less flexible. For
Xiaomi to centralize some parts of their business,
would probably give fans a more effective platfor-
m to develop ideas, and a less bureaucratic line of
communication within the company (Ihl, Piller and
Wagner - 2012).In the current structure of Xiaomi,
each product facilitate contact with the fans, in the
respective area and try to collaborate most effec-
tively with these. This is also the solution we are
looking for, but in our perspective, the fans have
to create the products and then the teams develop
and market these. In the current structure, the de-
velopment part takes fans wishes into account, but
it does not base its production solely on the wishes
of fans. Therefore, there might be issues as to how
35
Innovation Management - SDC
the fans exactly collaborate with the company, and
as the company have the divisionalized form, there
is no overall platform for the development of prod-
ucts, which varies from department to department
(Ihl, Piller and Wagner - 2012).
2.3.4 Our idea on restructuring the organi-
zation
Based on our analysis of the capabilities need-
ed within the Xiaomi organization, we have created
a formal structure that we believe could help Xiao-
mi to be more resource efficient, and more effective
in collaborating with fans. The model looks like
this.
• Explanation of the model
Our model is built upon the basic framework of
a matrix organization, but with a few moder-
ations. We have chosen to centralize some of
the operations within the company. These oper-
ations include HR, Marketing, R&D, production
and financing. This means that these different
departments is formally structured within the or-
ganization, and will take care of their respective
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
field, within each of the products the company
looks to create. On the other hand, there is the
specific product, which is currently controlled by
each of the founders. We believe that this is a
very good idea, and that it should continue to
be this way. The changed part in our restruc-
turing is the creation and development of prod-
ucts. This will now be based almost exclusively
on the wished of the MI fans. This structure
does not prohibit the company from introducing
new products, but the fans should participate in
defining the capabilities of these products.
Furthermore, we illustrate that Xiaomi have col-
laboration between certain departments and its
fans. This illustrates that Xiaomi should be able
to insource people in their formal structure with-
in HR, Marketing and R&D primarily.
In our model, the fans demand certain products
or changes. Then the departments in charge of
their product contacts R&D and informs them
about the changes demanded by the fans. The
R&D then has the possibility to contact the in-
dividual fans they are interested in collaborat-
ing with. When this is completed, the respective
team can keep fans informed on the state of the
given project, and when the project is complet-
ed, the fans will help diffuse knowledge about the
innovations and thereby, help market the new
product or service.
We believe that this organizational structure
would help save Xiaomi resources by centraliz-
ing some of their operations. It would increase
the inter-firm communication and help close the
gap between the different teams. It would help
create a strategy for the development of product-
s and services based on the demands from their
36
Innovation Management - SDC
fans. And in addition, it would create a platform
for development where fans know the processes
within the firm.
• Summary of research question 3
In the work with our third and final research
question we found the capabilities needed in the
structure of Xiaomi. Furthermore we compared
these to the current structure of Xiaomi and con-
cluded that their current structure did not meet
all the criteria we believe is essential for the or-
ganization. We then moved to creating our own
idea, of the best possible structure for the Xiao-
mi organization, in order to effectively cooperate
with fans and at the same time have a strong
core within the company. We found that a ma-
trix organization with fans being the main source
of product ideas is the best solution. Further-
more we suggests that Xiaomi centralizes part of
its core operations in order to make a platform
for easy commercialization of ideas and a plat-
form where they can easily insource fans to the
company.
3 Conclusions
3.1 Conclusions
When we started working with this project, we
found the uniqueness of Xiaomi, in regards to their
exponential growth interesting. We chose to work
with open innovation as a main concept of analysis,
and more specifically, we chose to investigate the
fans of Xiaomi and the collaboration between the
two entities. We found the WFGM model to suit
our needs, since it facilitated the needed tools for
answering our problem formulation, along with the
research questions. The WFGM model have proven
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
to grasp the combination of open innovation, in
regards to user-driven innovation, while including
the organizational aspect as well. After identifying
how to solve each of the steps in the framework, we
chose theories accordingly.
What each of the step revealed gave us the
tools to depict the current situation for Xiaomi, and
we were able to acquire the needed knowledge of
related theories to answer our problem formulation
along with our research questions.
By understanding exactly what capabilities
the fans on the Xiaomi forum was able to contribute
with, the types of users to collaborate with was de-
fined. Through the diffusion of innovation, multiple
new ideas and innovations can be located and inte-
grated in the development of new products. Hence,
locating the users that are able to contribute with
essential knowledge is what Xiaomi should to be
emphasizing.
The mentioned users who Xiaomi is able to
benefit from, are what we call lead users. These
users are to be found within the large group of X-
iaomi fans. We found that it is not possible for
Xiaomi to collaborate extensively with their entire
fan base. Hence, categorizing their fans though a
coding system is the ideal method to locate the ex-
act fans Xiaomi wants to collaborate with.
To maximize the benefits from collaboration
with users, Xiaomi classified users into 1) lead user-
s who participate in the initial development phase,
2) participatory designers who are engaged in con-
tinuous optimization of products and its functions,
and 3) ordinary users who are labeled as inspired
users, who offer quantitative user data. To main-
tain innovation input from users sustainably, Xi-
aomi updates its forums frequently, which serves
as the key linkage between the firm and users, to
37
Innovation Management - SDC
more efficiently communicate with all three types
of users. By engaging all related stakeholders in
the innovation process, Xiaomi can achieve a com-
petitive advantage in product innovation and keep
synergizing with their users.
In the final part of our paper, we establish
what capabilities the organizational structure of X-
iaomi should possess to effective collaborate with
their fans. After defining these, we compared their
current organizational structure to the capabilities
needed. We therefore created a formal organiza-
tional structure, which emphasized the capabilities
of their fans, along with the companies’ capabil-
ities. Based on our findings, we then presented
the organizational structure we acknowledge as the
”best possible fit”.
3.2 Reflections
When we reflect upon our project, we see a
way of structuring an organization, in order to cope
with open innovation. Xiaomi have succeeded in
creating a collaborative approach, which is con-
trolled by the demand of the market. This gives
them a better chance of creating commercial suc-
cessful innovations, and thereby maintaining a sus-
tained competitive advantage.
What this project has established, is a frame-
work for other technology companies are able to
learn from. Despite the case focusing solely on X-
iaomi, this framework is based on the concept of
open innovation, and the ideas and reflections can
easily be implemented in other companies. A tech-
nology company does not have to collaborate as
extensively with its external environment as Xiao-
mi, but it could definitely learn something from the
collaborative approach Xiaomi has emphasized.
Our initial choice of using the WFGM model
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design Innovation Management - SDC

as the theoretical framework was initially to have

a proven theory to shape our project. However, as
we have been conducting our research it has be-
come clear, that this framework will also make it
easier for companies to actually choose a single step
in the model where they might be struggling, and
seek inspiration in our way of solving this particular
step. This also enables our project to be separated
into single steps, which might be easier overcome
and implement in a company.
We feel that by conducting this project, with-
in the WFGM model, we have made it fairly easy
for adjacent companies to copy our method of solv-
ing each step, even when the findings might not be
identical due to our base case being Xiaomi.
We think that our project could serve as an
inspiration to other companies, in regards to how
technological company could shape their strategy
for insourcing external partners and shape parts of
an overall open innovation strategy for the compa-
ny.

38
Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design
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Case study, Xiaomi-Integrating User-driven Innovation and the Organizational Design Innovation Management - SDC

Appendices

Appendix 1: Mechanic vs. Organic organizations

Appendix 2: Example of a matrix organization

41