One of the difficulties I encounter when explaining the concept of customer innovation is that the "Innovation" word is traditionally associated with products and technology. There is a section in The Only Sustainable Edge by Hagel and Seely Brown that eloquently defines Innovation from a much broader organisational and strategic perspective:
We underscore the importance of innovation but we use the term more broadly than do most executives. Executives usually think in terms of product innovation as in generating the next wave of products that will strengthen market position. But product-related change is only one part of the innovation challenge. Innovation must involve capabilities; while it can occur at the product and service level, it can also involve process innovation and even business model innovation, such as uniquely recombining resources, practices and processes to generate new revenue streams. For example, Wal-Mart reinvented the retail business model by deploying a big-box retail format using a sophisticated logistics network so that it could deliver goods to rural areas at lower prices.
Innovation can also vary in scope, ranging from reactive improvements to more fundamental breakthroughs... One of the biggest challenges executives face is to know when and how to leap in capability innovation and when to move rapidly along a more incremental path. Innovation, as we broadly construe it, will reshape the very nature of the firm and relationships across firms, leading to a very different business landscape.
Although Hagel and Seely Brown's book provides a great analysis of capability-building and new innovation mechanisms at the edge of organisations (through new dynamic forms of firm-firm collaboration) and specialisation, their discussion largely omits the customer-firm colloboration, open innovation perspective. But, from Hagel's most recent post and article in the Mckinsey Quarterly, this seems like it could be the subject of their next book! Here is a quote from the article:
Cocreation is a powerful engine for innovation: instead of limiting it to what companies can devise within their own borders, pull systems throw the process open to many diverse participants, whose input can take product and service offerings in unexpected directions that serve a much broader range of needs. Instant-messaging networks, for instance, were initially marketed to teens as a way to communicate more rapidly, but financial traders, among many other people, now use them to gain an edge in rapidly moving financial markets.