A Blog by Jonathan Low

 

Sep 21, 2016

Open Innovation: A New Approach To New Product Development

In a network-centric economy, a network oriented approach to research and development is logical - and productive. JL

Bob Tita reports in the Wall Street Journal:

The speed and knowledge needed to bring new products to market these days requires them to cast wide nets for know-how. To avoid a bias toward in-house R&D efforts, some companies have established separate product-innovation subsidiaries. “We could invent these things in our own labs but still not have the right products for our customers. If we do it together, we have a chance to create something really disruptive.”
At FirstBuild’s headquarters there’s a sign reminding all who do work at the appliance-development factory that “A prototype is worth a thousand meetings.”
It’s an operating tenet for FirstBuild and other companies trying to change the way new products are created by liberating the process from the confines of slow-moving, bureaucratic research-and-development departments.
Using a concept known as open innovation, companies are learning how to quickly harvest loads of ideas for new products from business partners, suppliers, consumers and their own employees outside of their R&D staffs. At the same time, they’re shrinking the time needed to create prototypes to months from years.
“It’s a totally different approach to developing a product,” says Jana Rosenmann, vice president for unmanned aerial systems for aerospace manufacturer Airbus Group EADSY 0.00 % SE. “It’s disrupting ourselves in a positive way,” she says, challenging the tradition of keeping product development “very much to ourselves.”
Need for speed
Open innovation got its start with Silicon Valley tech companies in the early 2000s. Industrial companies taking a crack at it say they’ve concluded that the speed and knowledge needed to bring new products to market these days requires them to cast wide nets for know-how. Technology and the knowledge to deploy it are evolving too quickly in many industries for corporate engineering and product-development research staffs to keep up on their own.
Airbus plans to assemble a prototype of a cargo-hauling drone based on the winning design from an open competition this summer that yielded 425 proposals for the unmanned aircraft in six weeks. Eight entries came from Airbus employees, but the winner was Alexey Medvedev, a Russian engineer from Siberia working on his own. He was awarded $50,000 and will receive royalties if his drone reaches the market.
The prototype is expected to make its debut at a drone trade show in October. After that, Airbus will decide whether to pursue production or continue to refine the design. An open competition also was conducted to develop software for the drone, which would be used to deliver emergency medical supplies.
Jay Rogers, chief executive of Phoenix-based Local Motors, which specializes in developing open-innovation prototypes of cars and managed the drone competition for Airbus, says the vetting process for the design entries quickly exposed flaws that likely would have taken longer to identify in a closed process, because companies are often reluctant to discard their own ideas.
“Holding on to your own intellectual property is very painful if you can’t make it work,” he says.
Siemens reaches out
To avoid a bias toward in-house R&D efforts, some companies have established separate product-innovation subsidiaries. Industrial conglomerate Siemens AG plans to roll out a unit called next47 in October to collaborate with Siemens’ customers, suppliers and startup companies on new products for Siemens core business lines, which include medical equipment and electrical gear. Next47 will be able to pursue unconventional approaches to product innovation, including design challenges and so-called hackathons where new software and prototypes are quickly produced.
One of next47’s inaugural projects is an electric motor for a hybrid-powered passenger aircraft that could significantly lessen jet-engine noise around airports and reduce fuel consumption by aircraft. While the engine-development plan doesn’t feature freewheeling, open competitions, Siemens considers the project a significant move away from its traditional in-house product-development processes by closely collaborating with a potential customer for the engine—Airbus.
“We could invent these things in our own labs but still not have the right products for our customers,” says Frank Anton, vice president in charge of the engine project. “If we do it together, we have a chance to create something really disruptive.”
FirstBuild is one of the most ambitious attempts at agile, open innovation. The company is a subsidiary of China’s Qingdao Haier Co. 600690 -1.52 % , which bought General Electric Co.’s appliance business earlier this year and retains the rights to the GE brand for appliances. FirstBuild is set up to mine ideas for appliances from amateur inventors, students and appliance users and produce small batches of new products for sale to test their appeal with consumers.
Rather than being based with other GE brand appliance operations in Louisville, Ky., FirstBuild is located on the main campus of the University of Louisville. The single-story, 30,000-square-foot microfactory features work benches, tools, welding equipment, 3-D printers and metal-cutting machinery to turn ideas into initial prototypes. Since it opened two years ago, more than 10,000 online members of FirstBuild have submitted ideas and about 8,000 people have visited the factory, including John Hicks, a retired IT manager who discovered FirstBuild in March.
Mr. Hicks, who lives in Louisville, is now part of a small team working on a wine rack aimed at tracking the user’s inventories of wine. The rack would generate data for a computer app that would notify consumers how many bottles they have in the rack and how many reds or whites were bought during a year, as well as maintain a record of favorite wines.
“I’m doing a lot of hands-on building,” says Mr. Hicks, 64 years old, who figures he spends about 10 hours a week on the project. The wine rack “is the nucleus of where a kitchen inventory management system could come from” to keep track of food in a refrigerator or cabinets, he says.
Ice nuggets
During its short run, FirstBuild has nurtured new products or features that are being integrated into GEappliances. Among them are a self-filling water pitcher that sits inside a refrigerator; an oven rack that pulls out automatically when the oven door is opened; a home-kitchen pizza oven capable of reaching 800 degrees Fahrenheit without needing special venting; and a countertop ice maker that produces ice nuggets, rather than crushed ice or cubes.
FirstBuild conducted a nugget ice challenge won by an entry from Mexico that produces about a pound of ice from two cups of water. Nugget ice is popular with consumers, especially in the South, where it’s prized for its ability to chill beverages quickly. It’s also easy for drinkers to crunch with their teeth.
FirstBuild test-markets its products by selling them first before forwarding them to GE brand engineers for consideration in GE appliances. FirstBuild products that receive a weak response typically don’t advance. To test the ice maker, named Opal, FirstBuild turned to Indiegogo Inc.’s crowdfunding and marketing website. FirstBuild hoped to generate about $150,000 of orders for the $449 appliance.
In Opal’s first month on Indiegogo, sales reached $2.7 million. For the moment, Opal will continue to be marketed as a FirstBuild product. Engineers for GE brand appliances are exploring the use of the ice machine’s technology in the brand’s appliance line.
“There’s no greater market research than somebody paying for” a product, says Wayne Davis, FirstBuild’s sales and marketing chief.

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