Innovation can be categorized in many ways. One common approach has to do with how the innovation is discovered. For instance, an innovative product might be created in the labs of a company, in which case the innovation process is said to be "closed." If an innovation arises from tossing around a concept outside of a company, that innovation process is said to be "open." We could just as easily think of "closed" innovation as internal, secret, or proprietary, and view "open" innovation as external or public.
For a corporation to have a competitive advantage, it normally must own some form of defensible intellectual property that no other company has. This fact makes proprietary innovation crucial to the long-term success of the company.
Advantages of Open Innovation
Open source products are great examples of open innovation. The developer community at large modifies and expands the functionality of the product, and any company that markets the product normally manages its distribution and support. With this approach, the company gains some proprietary advantages when the open source product is expanded by the community, and the open product can drive utilization of the company's other proprietary products. In this scenario, open innovation drives the success of closed innovation.
Another way to look at the impact of open innovation on a product is to consider the commoditization of the product. Because all vendors of an open product derive income from its open innovation, that product is effectively commoditized from day one. (But the company will likely have thin margins on that product for the foreseeable future.)
One argument for open innovation is that it can prevent a company's internally generated ideas from metaphorically sitting on the shelf, collecting dust. This happens when a company, for whatever reason, is unable to convert innovative ideas into marketable products. When these ideas are reviewed and expanded through open innovation, they can become viable products, rather than just dust collectors.
Consumers and Disruptive Innovation
The explosion of social networking and the resulting continuous interactions among millions of people created the possibility of companies harvesting innovations from this pool of activity. After all, consumers know what they want, right? Unfortunately, in most cases, consumers seem to have little or no more predictive capability for innovations than the company might already have internally.
Customers generally know what they want from what is available. They rarely attempt to evolve those products and then share those innovations. If they do share, the odds are extremely high that the innovation will be an incremental change that adds little to the product's market value—and more likely results in increased product complexity. Many such incremental innovations come from consumer complaints: "The keys on the phone are too small," or "The screen is unreadable in bright light," for example. If a consumer develops a disruptive innovation, on the other hand, he or she is likely to recognize its value, immediately seeking to protect and independently market that innovation.
Innovations that are truly product- and market-disruptive normally come from a vast collection of complaints, resulting in a different product. An example is the shift from traditional cell phones to smartphones. Cell phones had become overly complex and difficult to understand and use, and it was almost impossible to expand their baseline functionality. Through structured menus and application libraries, smartphones solved these problems and created a market disruption.
Deriving Innovation from Consumer Interaction
How can we use social networks to drive innovation? Let's start by recognizing three facts:
- Most product-related interactions on social networks are either compliments or complaints. For example, "I love my new smartphone," or "I hate my new tablet computer," or "The cell phone service in NYC is terrible."
- Compliments drive copycat incremental innovations. At minimum, each company wants to be as good as its competition.
- Complaints drive incremental innovations in an attempt to resolve the complaint. Avoid becoming too focused on complaint resolution, because it can make you lose sight of the need for disruptive innovations to keep your products competitive.
Incremental innovations are useful in the early part of the product lifecycle. Over time, however, incremental innovations overly complicate the product, lowering its value to the consumer. Responding to too many compliments and complaints by changing the product can ultimately lead to the destruction of your product and market. You need to be very selective, since incremental innovations are almost a one-for-one response to compliments and complaints.
Disruptive innovation is a different story. Finding disruptive innovations normally requires a correlation of many compliments and complaints to find the true underlying potential for the product. For example, the following complaints point to the complexity and lack of flexibility of a device:
- The keys are too small.
- The keys are too large.
- The menus are too complex.
- Installing a new ringtone takes 20 minutes.
Responding to each complaint individually could cause you to create multiple devices, where one change could suffice for all four complaints. You'll also solve problems for only a small subset of your consumer base: "I want fewer features," or "I want more features." How do you resolve these issues incrementally without limiting the value of your product to some segment of your market?
Disruptive Innovation as a Response to Social Commentary
Apple created the iPhone as a response to a large collection of complaints about traditional cell phones. They created a touchscreen so that the form factor could be customized. They simplified menus by making the menus self-adapting and flexible. They solved the functionality problem by creating application libraries.
Social networks can be of tremendous value to innovation if used in the proper manner. If all you want is to know how your product is doing and respond accordingly, follow a path of incremental innovation by responding one-for-one to compliments and complaints. But if you want to find a disruptive innovation path for your product, you'll need to look beyond the one-for-one incremental model, sorting compliments and complaints by how they impact the consumer—not by how they impact your device.
The nice thing about this approach is that you can use open forum discussions in a social networking model to identify the information you need to create disruptions. You're utilizing an open-innovation discovery model in conjunction with a closed-innovation implementation model. Your company will still own the intellectual property and be able to compete aggressively in new markets of your choosing.
Social networking can tell you a great deal about your product and how to deliver incremental innovations. But it can tell you a whole lot more about your consumers and how to deliver disruptive innovations that they will buy. Look beyond the compliments and complaints, and you'll find your company's future.