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Open innovation tools: Strategies for Kiva

Table of Contents

1. Introduction ............................................................................................................ 2

2. Kiva ........................................................................................................................ 3

3. Recommended open innovation tools .................................................................... 4

3.1 Lead user innovation ....................................................................................... 4

3.2 Crowdsourcing ................................................................................................ 6

4. Innovation intermediaries ...................................................................................... 6

5. Anticipated difficulties........................................................................................... 8

6. Conclusion ............................................................................................................. 9

References .................................................................................................................... 10

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1. Introduction

The business environment has transformed drastically in the 21st century with the

advent of highly advanced information communications and computing technologies

and the globalisation of markets. These transitions have largely benefited consumers

through (1) increasing the availability and accessibility of knowledge, (2) increasing

consumer power with wider product/service choices and (3) facilitating the global

connectedness of consumers (Teece, 2010).

Competition between businesses has thus intensified, making a well-developed

business model coupled with strong strategy analysis the key to businesses gaining and

maintaining a competitive advantage (Teece, 2010). A successful business model is

determined by its composition of (1) customer value proposition, (2) revenue formula,

(Johnson et al., 2008), (3) market and organisational architecture (Smith et al., 2010),

(4) value chain structure, (5) cost and profit calculations, (6) competitive strategy

(Chesbrough, 2010) and (7) management of an open innovation strategy (Grassman and

Enkel, 2004; Grassman et al., 2010).

In particular, open innovation has gained increasing attention and importance in both

theory and practice over the most recent decade, fuelled by the globalisation and

democratisation of knowledge, and the rapid advancements in Web 2.0 technology.

According to Grassman and Enkel (2004), open innovation presents various advantages

to businesses such as cutting innovation cycle, reducing research and development costs

and expanding human and physical resources beyond that supplied by the

organisation’s internal network.

Open innovation transforms the ways organisations manage and utilise intellectual

property (West and Gallagher, 2006, pp. 82), facilitates the democratisation of

innovation (von Hypel, 2005, pp. 2) and ‘distributed cocreation’ (Bughin et al., 2008,

pp. 112), with tools such as intermediaries (Howels, 2006), crowdsourcing, open

source and lead user innovation.

In view of the increasing interest in open innovation, its perceived benefits and potential

to revolutionise business models, this paper seeks to make recommendations to Kiva,

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a micro-financing social enterprise, with the aim of helping it to expand its social

impact.

The report will be divided into five sections, the first providing a brief introduction to

Kiva and its use of open innovation to date, the second suggesting other open

innovation tools that Kiva can use and the third discussing tools that Kiva should not

consider. The fourth section presents the anticipated difficulties that Kiva, as an

organisation which already implemented a well-established open innovation process,

may face in introducing new open innovation tools and the fifth section concludes the

paper.

2. Kiva

Kiva is a non-profit organisation based in San Francisco, founded in 2005 by Matt

Flannery and Jessica Jackley, with the aim to lend money to a global network of low

income entrepreneurs and students online. Kiva’s mission is to “connect people

through lending to alleviate poverty”, and it has since worked with 293 field partners

and 450 volunteers across 86 different countries to serve 1,263,993 lenders with

$681,828,775 in loans (Kiva, 2015).

Kiva cooperates with field partners, which are microfinance institutions charging an

interest, to administer loans in the field. These field partners also work with 450

volunteers who will collect success stories from lenders for publication as well as

ensure the smooth implementation of Kiva programs. Kiva’s success is wholly

dependent on the crowdsourcing of (1) microloans from lenders and (2) grants from

foundations, corporate sponsors and donations from lenders themselves.

Crowdfunding appears to be the main open innovation tool adopted by Kiva to support

its foundational moral concept of generosity and social justice, and to fund their vision

of financially empowering poor people across the globe. The following section seeks

to explore other open innovation tools that Kiva may be able to implement so as to

further exploit the global knowledge pool to design services and products which

respond to pressing social needs

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3. Recommended open innovation tools

3.1 Lead user innovation

Lead users of a product, service or process are defined by von Hippel (1986) as

portraying two key traits, namely (1) displaying novel needs months or years before the

general population but are generalisable to the marketplace, and (2) attaining immense

benefits from acquiring a solution which fulfils their needs.

As a micro-financing industry aided by a technological solution, Kiva provides a novel

service, subject to rapid transitions in technology, economic reality and development

needs. There is thus a need for Kiva to source for inputs from lead users to customise

radical solutions which will continue to have a social impact.

According to von Hippel and Riggs (1996), the process of engaging lead users will first

involve the identification and sourcing for such individuals. In the case of Kiva’s

industry, a recent agenda of the development community is that of gender equality and

employment (self/formal) as a means to poverty alleviation. Such a development

concept has contributed towards a growing group of unemployed women and youths

being encouraged to participate in economic production through entrepreneurial

activities.

Being unemployed and unable to access formal financial institutions, this group of

female and youth entrepreneurs would be rather likely to require micro-financing

services to fund their activities in years to come. The above forecast takes into account

the stability of development ideologies and the persistence of unemployment and

poverty across the next few years.

Responding to von Hippel and Riggs’ (1996) and von Hippel’s (1986) steps for

implementing a lead user approach, this study has identified an emerging market of

female and youth entrepreneurs as lead users. Kiva would need to (1) analyse the needs

of a select group of successful female and youth entrepreneurs, (2) project these needs

onto the general market and (3) observe solutions adopted by them in funding and

growing their own businesses.

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Engaging lead users in a joint partnership for product innovation is likely to contribute

towards the creation of a new generation of products relevant to the typical user in

future (Herstatt and von Hippel, 1992). In the case of Kiva, a partnership successful

female and youth entrepreneurs, selected via interviews to determine the (1) novelty of

their solutions in implementing their entrepreneurial ideas, and (2) ability to work with

the Kiva project team, would be established.

This process of selection and engagement with lead users is projected to reveal the need

for complementary services such as training in financial management, business

development and management which is determined to be relevant to the general market.

Such knowledge allows Kiva to extrapolate from the existing alternatives adopted by

lead users and expand their product offerings.

In so doing, Kiva may consider providing online training and education to the general

lender. Such a move may contribute towards ensuring the rightful use of funds towards

entrepreneurial activities which leads to the generation of adequate profits for loan

repayments and poverty alleviation.

In so doing, Kiva is likely to attract more donors/lenders due to increased confidence

in the benefits of the loan and the ability of borrowers to repay. In terms of borrowers,

Kiva’s support beyond the financial aspect may attract more users who are interested

in acquiring skills necessary to become a successful entrepreneur, which will enable

them to contribute towards bettering the livelihoods of their families.

The choice of lead user innovation for Kiva is thus justified by its potential to exploit

field knowledge to (1) identify and respond to leading trends in the market, (2)

customise new products and service concepts which will prove to be in demand in

future, (3) increase the speed and lower the cost of new service development, and (4)

strengthen teamwork within the Kiva team through the development of a cooperative

relationship necessary for implementing the lead user method, all of which are

dimensions discussed by Herstatt and Hippel (1992) in a case study of Hilti AG, a top

construction manufacturing business.

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3.2 Crowdsourcing

According to Brabham (2008), crowdsourcing refers to an online business model which

exploits the creativity of networked individuals to customise business solutions.

Brabham’s (2008) definition would imply that Kiva is involved in crowdsourced

funding since the resource exchange is that of a financial and not intellectual nature.

Just as crowdsourced funding is beneficial for Kiva and has become the basis of its

operations, crowdsourcing may also present various opportunities for Kiva. For

example, Kiva is currently dependent on field partners as middle persons, which incurs

a rather significant cost on borrowers.

While the additional cost does not affect Kiva’s operations, it does not align entirely

with Kiva’s social emphasis of the common good. Through the use of crowdsourcing,

Kiva may be able to arrive at an alternative strategy for fund distribution and reduce its

reliance on field partners and the associated cost imposed on borrowers.

Crowdsourcing may be implemented through a permanent, online open call for

technical solutions, with rewards such as recognition or employment to implement the

proposals.

The use of crowdsourcing presents various advantages to Kiva, such as (1) empowering

lenders and the general public through encouraging their participation in the

development and configuration of Kiva’s operations, (2) benefiting from the experience

and expertise of a diverse consumer base (Kleemann et al., 2008), (3) cost advantage

in terms of free knowledge resource and (4) competitive advantage through network

effects (Cook, 2008).

4. Innovation intermediaries

Open innovation intermediaries are defined by Chesbrough (2006, pp.139) as

“companies that help other companies implement various facets of open innovation”.

Intermediaries offer different types of services such as (1) interpersonal services

sourcing for knowledge and establishing relationships relevant for their clients’

innovation needs or (2) technological platforms facilitating knowledge diffusion and

transfer between firms (Howells, 2006).

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In terms of interpersonal services, Kiva does not demonstrate a need for such forms of

intermediation. As a social enterprise, Kiva has attracted the broad participation of

partner organisations who willingly contribute external resources and opportunities

towards Kiva’s vision.

Kiva’s established partnerships range from financial and accounting firms to research

and technology institutions to consumer goods retailers. In consumer services, Kiva

receives support from TripAdvisor with a reviewer engagement programme while

Dermalogica cooperated with Kiva to launch a joinFITE campaign which is a global

open microlending platform harnessing the powers of technology and consumer action.

In addition, HP established a five year partnership called Matter a Million to engage its

employees in supporting entrepreneurs across the globe.

Kiva also receives financial services from businesses such as Moody’s and Ernst and

Young. As for research and technology, PayPal provides Kiva with access to research,

technology, workplace, resources, volunteers and fund transfer services as an official

partner. Innovations for Poverty offers knowledge through its intensive research on

poverty alleviation while Google offers free advertisements through Google Adwords.

With a broad network offering such diverse knowledge and expertise, it is apparent that

Kiva possesses a strong concept to develop external partnerships. As such, the use of

intermediaries to aid the transfer of knowledge and technologies between Kiva and

other firms and organisations does not seem necessary, and would be considered as an

inappropriate tool for Kiva.

With respect to the use of web-based technology as an innovation intermediary as

discussed by Lichtenthaler and Ernst (2008), there seems to be no immediate need as

Kiva does not present any technology needs, having already established a sound

technological solution for the microfinance industry.

Furthermore, through the use of crowdfunding, Kiva is highly capable of establishing

online links for technological transactions and hence does not need to engage another

internet based infrastructure for such a function. Also, there may be substantial added

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costs for such services which Kiva, as a non-profit organisation depending on

intellectual property contributions from well-established organisations, may be unable

to afford.

5. Anticipated difficulties

Although Kiva depends on the community to fund its endeavours and may be

considered to be adopting Pisano and Verganti’s (2008) open and flat network

(innovation community), its organisational structure appears to operate more as a

closed and flat network (consortium).

In particular, Kiva has a small number of collaborators with identified skillsets which

will support its operations. Its board of directors and advisors also possess experiences

and capabilities which match its collaborators and are directly relevant to the micro-

financing technological solution proposed by Kiva’s founders.

In adopting a crowdsourcing or lead user approach, Kiva would have to change its mode

of collaboration to that of Pisano and Verganti’s (2008) open and flat network

(innovative community). This transition poses difficulties as Kiva may not have the

manpower to cope with increased number of participants and solutions which may not

be immediately relevant to the organisation. Kiva’s flat structure, which decentralises

decision making and screening of incoming ideas, may further complicate/politicise the

process and make it even more time consuming.

Another difficulty is that of teamwork as identified by Fredbreg et al. (2010),

expressing that externally oriented, highly networked teams are more likely to succeed.

While Kiva’s team is widely networked and externally oriented, this pertains to a rather

targeted and elite circle of experts. With lead user innovation, individuals without

similar industry experience or knowledge may be recruited. Such externalisation may

disrupt teamwork as differences in ideologies, opinions and even status may lead to

conflict.

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6. Conclusion

In conclusion, Kiva adopts a crowdfunding strategy which has been successful in

engaging community participation to financially support its vision. Kiva also

crowdfunds for contributions in cash or in kind from corporations and institutions with

expertise useful towards its running.

Kiva’s open innovation approach, coupled with its social vision has facilitated its

development of a strong network of external players. To expand its reach however,

Kiva may consider implementing lead user and crowdsourcing open innovation tools.

The first allows Kiva to learn from the field, with the potential to aid Kiva in creating

services which may be desirable in future, the latter may generate novel technical

solutions that can enhance Kiva’s operations.

The use of innovation intermediaries is discouraged as Kiva already has the capacity to

source for its own networks and resources and is unlikely to require an external agent

which adds to the overhead costs of running. Anticipated problems with regards to the

adopting of new open innovation tools which Kiva may face includes transitions in

organisational structures and collaborative networks which may be disruptive to

teamwork within the workplace.

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