Co-innovation with B2B industrial customers: taking an application development approach
Setting the Stage
One kind of innovation activity in the process industries lies in the area of helping business-to-business (B2B) customers to make more effective use of supplied products and thereby assisting them in improving their processes and products. This area is generally designated “application development” by industry professionals, which can be defined as (Lager & Storm, 2013):
Application development is the significant development of the customer’s use of the supplying company’s own products. The development is primarily intended to optimize and to improve the customer’s production and/or production system or to give additional opportunities for other customer cost savings.
It is positioned – from the perspective of the application-developing company – at the interface between incremental product development, new business development and marketing. Application development in the process industries has so far been scarcely researched, but companies in the process industries have long since identified this area of development as one of high industrial importance.
Application development can be carried out directly with customers, with the customers’ customers, with the equipment supplier to the customer or in a collaboration with all actors.
The importance of innovation to long-term corporate survival and prosperity is universally acknowledged, and this often extends to both product and process innovation. Moreover, the results from our present research show that application development is, or should be, an activity of strong importance to most companies in the process industries (Storm & Lager, 2015). There are different drivers for companies to engage in application development; of these, one of the top-ranked drivers is an opportunity to build long-term sustainable customer relationships and secure future product sales (top line growth). Another high-ranked driver is an opportunity to learn about customer needs and feedback to own product development, which points out that application development provides important input to other company development areas.
The customer obtains different outcomes from application development, and the large span between 100% improved customer processes to 80% improved customer products is an interesting point for reflection (Lager & Storm, 2013). Resource allocation to application development with the customers varied in one study between 5% and 100%, with a mean value of 31%, and those resources were mainly allocated to well-known customers and application areas.
The most obvious target for application development is, naturally, the group of immediate customers in the supply chain, but application development with the customer’s equipment suppliers and end-users may be optional activities.
Since, in one of our studies, an average of one third of total company R&D spending were allocated to application development, it can be concluded that application development is a significant and important area of R&D for most of those companies. An average of 10% of company application development resources were spent on application development with the customers’ customers. The majority of all companies in one study carried out application development with the customers’ equipment suppliers, which indicates that collaboration between companies in the process industries and equipment suppliers is an important activity and an area of interest for further improvements (Lager & Storm, 2014).