Notes on Democratizing Innovation by Eric Von Hippel
Notes on DEMOCRATIZING INNOVATION- by Eric Von Hippel
Why users innovate for themselves
Users
do it themselves rather than hiring a customizer because of agency
costs (i.e., cost of monitoring the agent), because their needs are
unique and they want to get precisely what they want, and also becuase
they enjoy innovating.Because innovation by users is widely
distributed, they need a way to leverage and combine their efforts and
avoid more than one user developing the same thing independently
(market failure). This problem can be avoided through “innovation
communities.” Innovation communities are successful (even though you
might assume that free riding would kill them) because innovators get
some private rewards that are not shared equally by free riders – the
innovations work best for the innovators so they don’t lose competitive
advantage by revealing them. “Open source software projects are object
lessons that teach us that users can create, produce, diffuse, provide
user field support for, update, and use complex products by and for
themselves in the context of user innovation communities.”
Why (lead) user innovation can be better than manufacturer-driven innovation
To
innovate you need two types of information: 1) what the need is and the
context in which it will be applied and 2) how the need has been
previously solved. Users have more of 1) and manufacturers have more of
2) and each tends to rely more on what they have. So in solving the
same problem a user might come up with a new way of doing something
while a manufacturer may come up with a modification to an existing
solution.“Manufacturers have an incentive to develop
innovations that utilize their existing capabilities—that are
“sustaining” for them. Customers know this, and a customer that is
considering switching to new technology is unlikely to request it from
a supplier that would consider it to be disruptive” assuming the
supplier won’t or can’t do it and fearing the supplier will decrease
service in expectation of losing the customerLead user innovations are “significantly more
novel than those generated by non-LU methods. They were also found to
address more original or newer customer needs, to have significantly
higher market share, to have greater potential to develop into an
entire product line, and to be more strategically important.”At 3M “lead user
projects were found to generate ideas for new product lines, while
traditional market-research methods were found to produce ideas for
incremental improvements to existing product lines.”
How firms can make profitable use of user innovation
“Firms can proactively affect the rate and direction of user innovation.”
(1) Produce user-developed innovations for general commercial sale and/or offer custom manufacturing to specific users.
(2)
Sell kits of product design tools and/or “product platforms” to ease
users’ innovation-related tasks—“toolkits for user innovation design”
as is done in the semiconductor industry….Need-intensive subtasks are
then assigned to users along with a kit of tools.”Example:
“StataCorp
of College Station, Texas. StataCorp produces and sells Stata, a
proprietary software program designed for statistics. It sells the
basic system bundled with a number of families of statistical tests and
with design tools that enable users to develop new tests for operation
on the Stata platform. Many advanced customers freely reveal tests they
have developed, other users then visit these sites to download, use,
test, comment on, and improve tests, much as users do in open source
software communities. StataCorp personnel monitor the activity at user
sites, and note the new tests that are of interest to many users. They
then bring the most popular tests into their product portfolio as Stata
modules. To do this, they rewrite the user’s software code while
adhering to the principles pioneered by the user-innovator. They then
subject the module to extensive validation testing…. The net result is
a symbiotic relationship. User-innovators are publicly credited by
Stata for their ideas, and benefit by having their modules
professionally tested. StataCorp gains a new commercial test module,
rewritten and sold under its own copyright. Add-ons developed by users
that are freely revealed will increase StataCorp’s profits more than
will equivalent add-ons developed and sold by manufacturers (Jokisch
2001). Similar strategies are pursued by manufacturers of simulator
software (Henkel and Thies 2003).Note, however, that
StataCorp, in order to protect its proprietary position, does not
reveal the core of its software program to users, and does not allow
any user to modify it. This creates problems for those users who need
to make modifications to the core in order to solve particular problems
they encounter. Users with problems of this nature and users especially
concerned about price have the option of turning to non-proprietary
free statistical software packages available on the web, such as the
“R” project (www.r-project.org).
These alternatives are developed and supported by user communities and
are available as open source software. The eventual effect of open
source software alternatives on the viability of the business models of
commercial vendors such as StataCorp and its competitors remains to be
seen.”(3) Sell products or services that are
complementary to user-developed innovations. “Opportunities to provide
profitable complements are not necessarily obvious at first glance, and
providers often reap benefits without being aware of the user
innovation for which they are providing a complement.”
Manufacturers should “systematically search for and further develop innovations by lead users.”
The
traditional focus on target-market users means that lead users are
considered outliers. Market research also usually identifies the need
but not user-developed solutions.“Listening to your customers”
is not the same thing as searching for lead users (Danneels 2004). Many
lead users have no incentive to lead, mislead, or even contact
suppliers that might eventually benefit from or be disrupted by their
innovations. They are simply solving their own needs via in-house
innovation.Lead users are a
much broader category than customers of a specific firm (e.g., in
advanced analog markets), and many have incentives that differ from
those of customers. Lead users don’t care about whether their
innovation is distruptive to the manufacturer.“user-developed innovations that are most radical
(and profitable) relative to conventional thinking often come from lead
users in “advanced analog” fields. (users who have related but more
extreme needs than any users in the target market).” Example: ABS came
from aircraft braking which had more extreme needs than automobile
braking.How to find advanced analog lead users: “Pyramiding” =
ask target market lead users to nominate. People with rare interests
tend to know others like them.How to find lead users in target markets: “at specialized sites or events”
One
might think that an alternative approach would be to identify lead
users before they have innovated but user innovation is likely to be a
widely distributed phenomenon, and it would be difficult to predict in
advance which users are most likely to develop very valuable
innovations.A video tutorial on identifying lead users: link
Application:
In the 3M
experiment 3 or 4–member “lead user teams” from the marketing and
technical depts. were coached through a process: “Teams began by
identifying important market trends. Then, they engaged in pyramiding
to identify lead users with respect to each trend both within the
target market and in advanced analog markets. Information from a number
of innovating lead users was then combined by the team to create a new
product concept and business plan…” (von Hippel, Thomke, and Sonnack
1999).” link to paperResult:
“Annual
sales of LU product ideas generated by the average LU project at 3M are
conservatively projected to be $146 million after five years–more than
eight times higher than forecast sales for the average
contemporaneously conducted “traditional” project. Each funded LU
project is projected to create a new major product line for a 3M
division. As a direct result, divisions funding LU project ideas are
projecting their highest rate of major product line generation in the
past 50 years.”
Reflections on market efficiency and the knowledge economy
- Markets
become more efficient as the information accessible to transaction
participants improves. New means of information aggregation are
radically reducing the cost and disrupting the business models of firms
that specialize in information collection - (Foray, D. 2004. Economics of Knowledge. MIT Press.) positions users at the heart of knowledge production. He says that
one
major challenge for management is to capture the knowledge being
generated by users “on line” during the process of doing and
producing….He discusses implications of the distributed nature of
knowledge production among users and others, and notes that the
increased capabilities of information and communication technologies
tend to reduce innovators’ ability to control the knowledge they
create. He proposes that the most effective knowledge management
policies and practices will be biased toward knowledge sharing. - (Weber, S. 2004. The Success of Open Source.
Harvard University Press.) The notion of open-sourcing as a strategic
organizational decision can be seen as an efficiency choice around
distributed innovation, just as outsourcing was an efficiency choice
around transactions costs.
