CUSTOMERS AS INNOVATORS:

A NEW WAY TO CREATE VALUE.

Group 9
TIS
 INTRODUCTION

• Conventional wisdom emphasizes understanding customer needs for innovation

• Companies are adopting counterintuitive strategies: "tool kit for customer innovation"
includes user-friendly tools like computer simulation
• Capturing this value requires developing the right tool kit and revamping business models
• Successful transformation requires adapting business models and managing relationship
changes
A COSTLY PROBLEM – AND A RADICAL SOLUTION
• Traditional product development faces challenges due to the separation of customer needs and manufacturer

solutions
• Flavor company BBA's example: Customized flavor development involves multiple iterations with

customers
• Solution: Develop an Internet-based tool for customers to manipulate flavor profiles.

• Iterative process still present but solely driven by customers, reducing need for deep understanding of every

customer need
• Empowers customers to actively participate in innovation, speeding up product development

Key capabilities for effective customer tool kits:

• Design cycles and learning by doing
• User-friendly interface
• Pretested component libraries
• Information about production capabilities
 NEW APPROACH TO DEVELOP CUSTOM
PRODUCTS
• Prolonged expensive cycles of back-and-forth
between suppliers and customers
• High costs due to extended development cycles
• Struggle to achieve a mutually agreeable solution
• Time-consuming iterations between suppliers and
customers
Traditional
• Suppliers empower customers with tools and
resources to design and develop specific
components of a product independently
• Offers a transformative solution
• Traditional supplier-customer interface is redefined
• Enhanced Speed and Effectiveness
• Swifter, efficient, and better aligned with customer
needs
Customers As
Innovators
WHEN CUSTOMER INNOVATION MAKES SENSE
1. Shrinking Market Segments & Customization Demand
• Increased customer requests for personalized products

• Rising costs due to customization challenges

• Difficulty passing costs to customers

2. Iterations & Customer Feedback

• Multiple iterations are required before achieving solutions
• Slow response leads to customer dissatisfaction

• Risk of eroding customer loyalty

3. Advanced Technologies for Innovation

• Internal use of computer-based simulation and rapid prototyping

• Computer-adjustable production processes for customization

• Potential to extend technology toolkit to customers

 An Industry Transformed
• The custom chip industry faced challenges in the late 1970s with complicated and costly custom designs only for high-volume customers.
• Start-ups like LSI Logic and VLSI Technology disrupted the market by providing do-it-yourself tools for designing specialized chips.
• Customers benefited by getting what they wanted through experimentation, while chip companies profited by manufacturing customer designs.
• The market for custom integrated circuits grew from virtually nothing to over $15 billion, with hundreds of thousands of diverse end-user applications.
• The key to this market growth was the tool kit technology, enabling customers to design their chips and slash development times and costs.
• The semiconductor industry experienced a shift by incorporating human expertise into computer-based tools like CAD/CAM programs with tested modules.
• LSI integrated elements of the customer tool kit, creating a packaged solution allowing less-skilled customers to design their chips with little support.
• The brilliant insight was the development of gate-array technology, which standardized chip fundamental elements and separated manufacturer's and customer's
information.
• Customer tool kits based on gate-array technology offer a range of tools, use Boolean algebra for design, and contain extensive libraries of pretested circuit
modules.
• Recent technology like field programmable gate arrays (FPGAs) enables customers to become both the designer and manufacturer, using design and simulation
software.
 THE BENEFITS AND CHALLENGES
• Better at satisfying subtle aspects of customer
needs
• Designs usually get completed much faster
• Designs can be manufactured the first time
around correctly
• Enables business with small customers
• Expanding accessible market and number of
product innovations
• Reducing new entrants
Benefits
• Hard to create technically sophisticated products
• Requires a radical change in management mind-set
• Change can be traumatic
• Resistance from employees
• Computer-to-computer interactions replace intense
person-to-person contact
Challenges
 Five steps for turning customers into innovators

Developing a user-friendly tool kit for customers- tool to

1 run trial & error
adapted to production processes Evolving the tool kit continually-many customers will
4 need tomorrow what leading-edge customers desire
today

Increasing the flexibility of

2 production processes- fast & low- cost production of
specialized designs Adapting business practices-make it feasible to work
5 with low-volume customers

Carefully selecting the first customers

3 to use the tool kit- customers who have strong need of
custom products
 A PATTERN OF MIGRATION
• Adopting the customers-as-innovators approach requires companies to adapt their business strategies.
• Value generated by tool kits tends to migrate, necessitating continuous repositioning to capture the value.
• Initially, tool kits provide a short-term advantage for pioneering suppliers by reducing custom design costs.
• The tool kit ties customers to a single supplier, leading to a loss of customer leverage.
• Long-term, customer pressure leads to the emergence of third-party tool kits, causing manufacturers to lose

traditional value.
• Suppliers must eventually adopt tool kits to remain competitive.
• Case Example: Fujitsu initially resisted customer-centric innovation, but competition from LSI forced them to

adapt.
 CREATING VALUE WITH CUSTOMERS AS INNOVATORS

CAGR Data:
• Full-custom and application-specific ICs, Light
Grey - 12%
• Tool kits based on gate-array and standard-cell
technologies, Grey - 13%
• Field programmable technology - 29%
 WHAT MASS CUSTOMIZATION IS – AND ISN’T
• Mass customization involves customizing products for each customer.

• Mass-customized production enables cost-effective manufacturing of one-of-a-kind products.

• Example: Dell Computer allows customers to select components for custom PCs.
• Limitation: Mass customization does not
address the challenge of efficiently designing
novel custom goods.
• The article proposes using customer tool kits to

empower customers as innovators.

• Tool kits provide creative freedom to design

innovative custom products that meet specific

needs.
QUESTIONS OF VALUE
• Value migration and capture are crucial as customer tool kits become more widespread.
• Customers-as-innovators approach emerging in both B2B and B2C fields.

• Product configurators enable mass customization in various industries (e.g., Dell, eyeglass frames,

automobiles).
• Information product companies, like software providers, face significant impact.

• Danger of customers mass-distributing custom programs using free production.

• Open-source software's growing popularity can lead to a revolution in innovation and market

dynamics.
• Outsourcing innovation to customers accelerates product development and reshapes industries.
• Companies must adapt to changing markets and customer behaviors.
THANK YOU!
2022MBA001 Aarushi Shrivastava
2022MBA032 Meghna Chattopadhyay
2022MBA051 Subhamita Sikdar
2022MBA098 Pragadeesh
2022MBA117 Suthaneshraja S
2022MBA146 Hemant Srivastava
2022MBA165 N Ganesh Balaji
2022MBA166 N Sravya
2022MBA191 Vaishali Kumari