Extreme Innovation; Nearly Two-Thirds of New Products Fail after Launch. the Extreme Programming Methods Used in Software Engineering Show How Firms Can Adopt More Effective, Customer-Led Innovation Processes

By Sandmeier, Patricia; Gassmann, Oliver | European Business Forum, Autumn 2006 | Go to article overview

Extreme Innovation; Nearly Two-Thirds of New Products Fail after Launch. the Extreme Programming Methods Used in Software Engineering Show How Firms Can Adopt More Effective, Customer-Led Innovation Processes


Sandmeier, Patricia, Gassmann, Oliver, European Business Forum


Managing the development of product innovation is a severe challenge for industrial firms. Nearly two-thirds of new products fail after launch, largely because companies are under pressure to address rapidly evolving customer demand (Lempres, Z003). As a result, new product developers have recognised that they need to inject more customer know-how into their product innovation processes. In many "leading-edge" companies, R&D managers encourage the direct interaction of the development team with customers, in contrast with traditional practices in which the marketing department undertakes customer research and "throws the results over the wall" to R&D (Holman et al, 2003).

However, the effective structuring and management of such a product innovation process imposes several implementation challenges. Commonly used and predefined new product development processes don't always offer the required flexibility to respond to evolving customer requirements or new technologies in high-velocity industries (MacCormack et al, 2001). Extensive up-front planning wastes time and may even slow the pace of the process when the available know-how is incomplete or obsolete. More effective product development approaches are required, based on probing and learning (Wheelwright and Clark, 1992).

Empirical research has shown that the integration of cus- tomer know-how into the development of new products leads to & a higher degree of innovation, reduced risks and more precise % resource spending. Further, the value of considering so-called % lead users - users who recognise their product needs in advance [pounds sterling] of other customers and who significantly benefit from a new product solution--in the early stages of the innovation process has been demonstrated by von Hippel (1976,1988) and others.

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However, there are downsides to customer integration. These may include the dangers of customer opportunism, the reduction of the developer's direct control over the new product development process, the additional financial and time costs associated with managing the customer relationships, the generation of inaccurate or unrepresentative know-how due to the limited domain of customer expertise, the internal denial of inputs from outside the company (known as the "not-invented-here syndrome"), the leakage of proprietary information, and the allocation of property rights (Katz and Alien, 1982; Dolan and Matthews, 1993; Littler et al, 1995). To overcome these problems, new methods for obtaining contributions from customers and building these contributions into commercially viable new products are needed.

In the search for analogies to flexible product innovation approaches that successfully manage the intersection of customers and R&D, we found an emerging solution from the extreme programming (XP) methods used in software engineering. Here, the product innovation process is organised to ensure a continual flow of high-quality contributions from customers to the development activities surrounding a new product (Gassmann et al, 2006). The application of XP's customer integration and product innovation practices appears to be a potentially promising approach to solving the problems noted earlier. The application of XP in an industrial context is the aim of this study.

Research methodology

In the first phase, we explored product innovation processes and customer integration practices on a broad scale. This led to case studies on the factors and challenges in managerial practice among 16 product-developing companies that participated in expert workshops and contracted research projects: Bayer Material Sciences, Buechi Labortechnik, Endress+Hauser, Hilti, IVF Hartmann, Leica Geosystems, Mammut Sports Group, Model, MTU Aero Engines, Philips Lighting, Qiagen, Schindler, Sefar, Siemens Building Technologies, SIG Combibloc, and Zumtobel. All the companies are based in Germany, Liechtenstein, Switzerland or the Netherlands but are spread across different industries and range from small enterprises to large multinationals. …

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