The word Innovation stands for creative and new ideas transformed into new products, services or processes, which successfully penetrate the market.
Therefore, it is not enough to have a good idea. The customer must demonstrate that the invention can solve his business problem. To support this, it is recommended to integrate the customer into the development process from the beginning. In other words, you should involve the customer in the thought process when you plan a new solution. Instead, traditional R&D departments often try to find innovative solutions in isolation. They don’t show the solution to customers until it is nearly finished; or the fundamentals are fixed. R&D departments deploying co-innovation, on the other hand, use an iterative process of building, testing and evolving which integrates the customer and end-users. Leveraging knowledge from different sources, as opposed to focusing on the company’s internal knowledge, is an important ingredient for great innovations. 
The main focus of SAP’s Co-Innovation approach in On Demand for example, is to support the development of products, which better meet the needs of customers. We do this by integrating customers in the development process and placing their specific needs at the center of development. Providing a collaborative and cooperative environment where customers and external experts together with product engineers and designers share their needs and ideas enables software vendors to develop true innovations. Furthermore, these innovations are far more likely to meet market requirements faster and in a more targeted fashion.
The co-innovation approach is based on the idea of human centered design. This means that it starts with the users for which the product examines their needs and behaviors. These needs should be matched with products, technology and platforms that are technologically feasible and financially viable (see Figure 1). A human centered approach helps to get better insights into the customer’s behavior, needs and preferences. This, in turn, allows software vendors to develop products, which reflect exactly what the customer wants.  The idea to learn from the user’s experience has already been established in design literature for a long time. This is why the expression Design Thinking is often used to describe it. Nonetheless, Design Thinking is not limited to designers. It is increasingly recommended for business as well. Many big companies like BMW, P&G or Adidas provide successful examples of design thinking. At SAP, more and more departments are adapting this approach and gaining significant advantage. For software as a service (also known as On Demand), this approach is vital. The agile development approach provides for delivery cycles much faster than in the traditional development following the waterfall approach.
Design Thinking is more than customer integration. It is about trying, prototyping and improving things often and early by including the feedback and knowledge from customers and external experts in an iterative process. This means that product development has to be a process where you “learn from doing”.
You monitor achievements and iterate. At the same time, you discard areas where value based on feedback from customers and end-users is not perceived. In our experience, if a company is driven by engineering; the later this feedback is received the more difficult it is to process.
Following the ideas of Design Thinking, the SAP Co-Innovation process passes though three phases: Inspiration, ideation and implementation. Ideation consists of drawing inspiration for solutions via the needs of customers as relayed via stories reflecting a real life scenario. Ideation is the creation, development and testing of ideas. Lastly, implementation is where these ideas are delivered as solutions to customers.
In the inspiration phase, one gains insight into end-user behavior to understand their problems and needs. Customers themselves often do not even know what they are missing. Therefore, it is important to figure out their needs by observing them i.e. listening to their stories and seeing them in the context in which they work. Understanding the behaviors and motivations of end users allows software vendors to develop empathy for the customer. Empathy is the basis for developing solutions that really fit the customer’s needs.
To gain a deep understanding of the requirements, which need to be met, one needs to listen to the end-users who are the real experts. Nevertheless, it is necessary to include other experts and quantitative data to ensure such things as regulations, limitations and areas of opportunity are understood. In other words, one requires a 360-degree view of everything that might affect the design and implementation of a solution. 
In this inspiration phase, Co-Innovation consists of gaining a deep understanding of the end-user’s needs. Listening to them and learning about their daily work accomplish this. At the same time, one seeks to understand the constraints and general conditions under which they operate by adding further internal or external experts to the analysis.
Already at this stage, as well as at later phases, the practice of co-creation and communication can be improved by exploiting Web 2.0capabilities. For example, the SAP OnDemand Co-innovation team uses the collaborative platform SAP Streamwork to communicate with its customers and partners and with this is coming to better results.
After developing an understanding for what the customer really wants, ideas are developed and evaluated using a co-design approach. This is often done in workshops. By using a co-design approach, the knowledge from customers can be integrated into the solution development process. This often leads to innovations that are better adapted to the target context and thus more likely to be adopted.
As a foundation for the Ideation phase, it is necessary to translate the insights from the inspiration phase into new perspectives and areas of opportunity. To do so, it is necessary to create categories based upon patterns, themes and information relationships. 
Based on this, the development team starts searching for ideas. Techniques like brainstorming help them to think expansively and without constraints. Some ideas need to be prototyped, in order to communicate to others. This applies in particular to end-users. Prototypes help to make solutions tangible thereby making communication easier. The goal is not to be perfect, but to validate ideas, to develop a deeper understanding and to generate more ideas. They should be made with just enough effort, time and investment to generate useful feedback. It’s about building to think.
Different prototypes highlighting different aspects help to generate feedback that makes one rethink and redesign the ideas. Good feedback can be gained from customers who are involved in the design process. Feedback should, however, also be gathered from other constituents such as new customers, service providers, distributers, etc. This helps generalize the ideas. Prototypes can take various forms like physical models, role-plays or storyboards. The latter shows the user experience through a series of images and sketches. These methods are continuously used in the SAP Co-Innovationprocess.
One powerful design principle for SAP is known as “mobile first”. First, imagine a solution that can be deployed on a mobile device and iterate from there to a more browser-based solution. Simplification is hard but resonates very well with end-users.
This continuous loop of creating possible solutions, prototyping them, getting feedback, revisiting the problem and evolving solutions is focused on whole solutions and not their parts. The goal is to learn about the strengths and weaknesses of the solution within the context of the larger business problem being addressed.
After the idea has been improved through the ideation process, it is time to implement it. This includes thinking about its financial and technological viability. When evaluating financial issues, it is important to think about the value to the customer. With respect to technology, vendors need to look beyond their own capabilities and take stock in partner capabilities. Bringing a solution to market may require doing things differently. It is important not to be limited by current constraints within the organization.
Having a series of smaller steps that build toward a solution helps keep ideas alive and new insights flowing from customers. By rapidly developing mini pilots, the development team can learn what went well and where the customer is dissatisfied.
During the iterative process of prototyping, it is important to keep learning in order to improve the solution and to use resources more wisely. Even when solutions are established in the market, checking usage, collecting stories and getting user feedback is important for refinement and as a foundation for the next development cycle.
To enable the described solution development process based on Design Thinking, it is necessary to bring the different participants together and lead them through the design process. This requires a facilitator. At SAP, the Co-Innovation team fulfills this role. It is important that the people involved have deep domain knowledge so they can inspire customers from the start and keep the collaboration up and running.
Such a cooperative development approach allows significant advantages for a development organization. By working closely with customers getting information about their needs and input for improvement, the efficiency of the product development process is significantly enhanced. This is achieved by cutting the time-to-market and cost-to-market, while at the same time improving the effectiveness through a better fit-to-market. Ultimately, there is greater potential that the customer evaluates the solution as a real innovation.
Likewise, this approach has significant advantages for customers. The solution will better fit their needs and solve their problems better than any other solution. Since customers are an active part of the development process, they can influence it based upon their needs, and what the solution can deliver. Furthermore, customers can establish a better relationship to the solution and market themselves as innovative customers.
As discussed, the SAP Co-Innovation team has learned from the design approach. Therefore, they put customers in the focus of SAP’s OnDemand development approach. By orchestrating and leveraging stakeholders, experts and development engineers around the design thinking approach , the SAP Co-Innovation team helps pioneer real innovations.
By Thomas Arends, Mareike Bender, Sven Denecken , John Hunt
Co-Innovation LoB OnDemand
SAP AG, March 2011, Walldorf
 See (Müller-Prothmann & Dörr, 2009) p.7.
 See (Reichwald & Piller, 2009) p.47.
 See (Martin, 2004) p.11.
 See (Reichwald & Piller, 2009) p.9.
 See (Reichwald & Piller, 2009) p.9.
 See (IDEO, 2009) p.5
 See (Brown, 2008) p. 1, 8.
 See (Martin, 2004) p.10.
 See (Reichwald & Piller, 2009) p. 3.
 See (Martin, 2004) p 10. (Brown, 2008) p.4, 8., (Reichwald & Piller, 2009) p. 47.
 See (Martin, 2004) p.10.
 See (Brown, 2008) p.4, (IDEO, 2009) p.7.
 See (Martin, 2004) p. 11, (IDEO, 2009) p.32, 45.
 See (IDEO, 2009) p. 49.
 See (IDEO, 2009) p. 37f..
 See (Brown, 2008) p. 8.
 See www.ondemand.com
 This includes the knowledge about best practices among others.
 See (IDEO, 2009) p. 57 f..
 Opportunity areas are not yet solutions but rather a rearticulating of problems and needs in a generative future facing way. (IDEO, 2009) p. 71.
 See. (IDEO, 2009) p 52 ff.
 See. (IDEO, 2009) p. 52, 72.
 See (IDEO, 2009) p. 52, 71 and (Brown, 2008) p. 3.
 See (Martin, 2004) p. 11 and (Brown, 2008) p. 3.
 See. (IDEO, 2009) p. 81 ff..
 See (IDEO, 2009) p. 9.
 See (Reichwald & Piller, 2009) p. 173, (Piller, 2004).
 See (Reichwald & Piller, 2009) p. 86 f., 165.