User Innovation and Firm Boundaries: Organizing for ... · User Innovation and Firm Boundaries:...

1 From www.openinnovation.net/Conference/AOM2008/index.html 19 January 2009

User Innovation and Firm Boundaries: Organizing for Innovation by Users

Academy of Management, Anaheim, California August 11, 2008 12:20pm

Anaheim Convention Center, Room 203B

Last Updated December 12, 2008

These pages are about the symposium presentation held during the Academy of Management 2008 meeting in Anaheim.

Participants

The session was organized by Marcel Bogers (Ecole Polytechnique Fédérale de Lausanne).

Presenting their individual papers were Allan Afuah (University of Michigan), Lars Bo Jeppesen (Copenhagen Business School), Wim Vanhaverbeke (Hasselt University & Eindhoven University of Technology) and Joel West (San José State University).

These papers were discussed by Frank Piller (RWTH Aachen University) and Christopher Tucci (Ecole Polytechnique Fédérale de Lausanne).

Schedule

Slides are being posted as they are made available by the speakers.

• Introduction: User Innovation and Firm Boundaries (Marcel Bogers) • Presentations:

o Contrasting Open, Cumulative and User Innovation (Joel West) o A User Innovation Life Cycle Model (Allan Afuah) o Reframing the Role of Lead Users in Radical Innovation Using an Open

Innovation Perspective (Wim Vanhaverbeke) o Users as Complementors (Lars Bo Jeppesen and Kevin Boudreau)

• Discussant: Frank Piller • Discussant: Chris Tucci • Interactive Discussion

Abstract

Despite increasing evidence and recognition of users as innovators, our understanding of the role of users in the innovation process is incomplete. For example, it is of interest both to suppliers and users of technology to understand how they can create value and profit from user innovation. As users have unique needs and knowledge, there is a lot of scope for co-creating value, thereby challenging the current understanding of optimal firm boundaries. This symposium will consider

2 From www.openinnovation.net/Conference/AOM2008/index.html 19 January 2009

a broad range of conceptual and empirical support for such linkages, as well as the implications for organization theory, innovation management and firm strategy.

Academy of Management MeetingAugust 11, 2008

Anaheim, CA

“User Innovation and Firm Boundaries: Organizing for Innovation by Users”Presenter symposium 1

User Innovation and Firm Boundaries:User Innovation and Firm Boundaries:

Organizing for Innovation by UsersOrganizing for Innovation by Users (Short title: Organizing for User Innovation)

Symposium organizers: Marcel Bogers (Ecole Polytechnique Fédérale de Lausanne)

Christopher Tucci (Ecole Polytechnique Fédérale de Lausanne)

Presenter Symposium Academy of Management Meeting 2008

(Divisions: TIM, BPS, OMT)

Anaheim Convention Center, 203B Anaheim, CA

August 11, 2008 12:20pm-2:10pm


Anaheim, CA


User-Driven Innovation

• Users as sources of knowledge and even innovation (von Hippel, 2005)

– Local and sticky knowledge (Lüthje, Herstatt, & von Hippel, 2005; Ogawa, 1998; von Hippel, 1994, 1998)

• Underlying explanation: bounded rationality and local search (Helfat, 1994; Henderson, 1993; Hill & Rothaermel, 2003 Martin & Mitchell, 1998; Nelson & Winter, 1982; Rosenkopf & Nerkar, 2001; Simon, 1957; Stuart & Podolny, 1996)

• Manufacturers vs. users: different knowledge bases and innovations (cf. Franke & von Hippel, 2003)

• How can a manufacturer organize to optimally take advantage of users’ knowledge and innovations?


Anaheim, CA


Firm Boundaries

• Boundary between user and manufacturer –Distribution of problem-solving activities –Dynamic and non-traditional firm

boundaries (cf. Brusoni, Prencipe, & Pavitt, 2001; Jacobides & Billinger, 2006; Leonard-Barton, 1995; Pisano, 1994; Thomke & von Hippel, 2002; von Hippel, 1990, 1994, 1998)

• Redefining the innovative boundary of the firm (cf. Afuah, 2001; Chesbrough, 2003; Chesbrough, Vanhaverbeke, & West, 2006)

• New innovation models: hybrid R&D (cf. von Hippel & von Krogh, 2003; West, 2003)


Anaheim, CA


Organizing for User Innovation

• Relationship between innovation and vertical scope (Afuah, 2001; Jacobides & Billinger, 2006)

• Toolkits for innovation/user communities (Franke and Piller, 2003; 2004; Franke and von Hippel, 2003; Jeppesen, 2005; Jeppesen & Frederiksen, 2006; von Hippel and Katz, 2002)

• Co-creation of value, democratized innovation and open innovation (Chesbrough,

2003; Chesbrough, et al., 2006; Gassmann, 2006; Prahalad & Ramaswamy, 2003; von Hippel, 2005)


Anaheim, CA


Presenters

• Joel West (San Jose State University)

– Open, Cumulative and User Innovation

• Allan Afuah (University of Michigan)

– User Innovation Life Cycle Model

• Wim Vanhaverbeke (Hasselt University & Eindhoven University of Technology)

– Role of Lead Users in Radical Innovation

• Lars Bo Jeppesen (Copenhagen Business School)

– Users as Complementors

• Frank Piller (RWTH Aachen University)

– Discussant

Speaking OpenlyAbout Innovation

OpennessJoel WestSan José State

blog.OpenInnovation.net

Academy of ManagementAugust 11, 2008

25 words or less

1. Open, user and cumulative innovationare overlapping ways of examiningrelated phenomena.

2. The boundaries between thesetheories and researchers should bemore permeable.

What is “Innovation”?

Alternate uses of the term• Technological novelty (cf. “invention”)• Economic value (i.e., has a biz model)• Knowledge production

For today, use “big tent” (all of the above)

Focal Firm Suppliers Customers RivalsVertical

integration X

Userinnovation X † X

Cumulativeinnovation X X

Openinnovation X X X X

X = Sources of Innovation; † limited emphasis

Sources of Innovation

Vertical Integration

• Firms integrate to supply inputs &control outputs R&D is an essential part of integration Technology-based industries require large

R&D labs• Large producers of early 20th cent.• Basis of postwar MNC and TNC• Captured by Chandler (1977, 1990)

User Innovation

• From von Hippel (1988, 2005)• Users know their needs best• Goal: engage users in innovation

Use empowerment, other motivations Direct (toolkits) & indirect (feedback) Requires processes, tools, design

• Found in ever-wider domains

Cumulative Innovation

• Promoted by Scotchmer (1991, 2004) Also Nuvolari (2004), Murray & O’Mahony (2007)

• Initial innovation is rarely complete Thus, enable later technological progress

• Competitors build on each other Need rights to each others’ work Some IP regimes hinder C.I.

Research differs on motives

Open Innovation

• Chesbrough (2003, 2006, 2007)• Key points:

Find alternate sources of innovationEither markets or spillovers

Find alternate markets for innovation Central role of the business model

• Cognitive managerial paradigm• Framework consonant with UI, CI

Related Innovation Models

Cooperative innovation withoutmonetization:

• Open Science Cumulative knowledge production

• Free Software Shared production of shared good

Cf. “creative commons”: explicitlycumulative innovation

A Few Comparisons

BuildReputationalProfessionalOpen science

ShareIntrinsic?CommunityFree software

ExchangePecuniaryMarket exchangeOpeninnovation

Compete(various)CompetitionCumulativeinnovation

CooperateUtilityCooperationUser innovation

Vs. OtherInnovatorsMotivationsNormsModel

So What?

• Some are studying the same thing withdifferent names

• Some are studying similar things, butthe differences are crucial

• Some differences are normative ratherthan positive

• Plan: contrast, integrate the two

Thank you!

Joel Westblog.OpenInnovation.net

1

USER INNOVATION TECHNOLOGY LIFE CYCLE

Allan AfuahStephen M. Ross School of Business

University of Michigan

2

Technological

Political-Legal

EconomicSocial

Natural environment

INNOVATION

Combination/recombination and transformation of knowledge into new products/services that customers want

AGENTS (manufacturers, users, suppliers, people, etc)

KNOWLEDGE (tacit, sticky,

context-specific, dispersive, etc)

Role of the environment during Innovation: of the Political, Economic, Social and Technological (PEST) environments

Complementors

Competitors

Supp

liers

Substitutes

Buyers

3

INNOVATION


AGENTS (manufacturers,

users, etc)

KNOWLEDGE (tacit, sticky,

context-specific, dispersive

Role of the environment in User Innovation research

ENVIRONMENT (Competitive and macro or PEST)

E.g., Users (agents) are more likely to innovate when user knowledge is more sticky than manufacturer technical solution knowledge (Ogawa, 1998).

User innovation: e.g., Von Hippel (2005), Franke, N. & S. Shah (2003); Jeppesen, L. B. & L. Frederiksen (2004); Lakhani, K. R. & E. von Hippel (2003); Lüthje, C., C. Herstatt & E. von Hippel (2005); Shah, S. K. (2006)

4

Motivation for exploring user innovation life cycle

Innovation does not take place in a vacuum. Therefore neglecting the role of the environment gives us an incomplete picture

Moreover, since strategy is about matching internal strengths and weaknesses to environmental opportunities and threats to win, strategy scholars cannot afford to leave out half the picture

Could “Customer co-creation” and user innovation gospel have gone too far?

Users did not invent the transistor, microchip, or the Internet

Most patients cannot invent the drugs that they need

I focus on the technological part of PEST (political, economic, social, and technological environment)

Rate of change of technology can influence competitive conditions and therefore ability of firms to innovate

5

Assumptions

Users and manufacturers are boundedly rational and satisfising(not rational and profit maximizing.)

Knowledge can be explicit, tacit, context-specific, dispersive and available in large quantities

Innovation is defined as improvements in a product and therefore include inventions

There are many product life cycles in a technology life cycle

e.g., video game console technology encompasses many generations of video game consoles(products)

The technology life cycle starts following a radical technological change

6

Time

Rate of product innovations

Manufacturer technology life cycle

Utterback and Abernathy technology life cycle

7

In Pre-Early stage, users know little or nothing and cannot innovate. (How many of today’s Internet users knew what they wanted in the Internet early in the life of the technology?)

Number of customer increases as more and more customers also discover their latent needs

Manufacturers locked into dominant design or standard, AND complementary assets

Dominant design and standard increases number of customers but also limits choice and uniqueness of applications

Result: a lot more user product innovations

Time



USER INNOVATION LIFE CYCLE

Pre-Early life

Early life

Midlife Post-Midlife

Product life cycle

User innovation life cycle

8

Implications and Conclusions

Firms with complementary assets should outsource design innovations to users in the Post-Midlife stage of a technology life cycle

The number of suppliers and complementorswho can innovate should also go up over the technology life cycle

Crowdsourcing may hold more promise than most people think

9

Time



USER INNOVATION LIFE CYCLE

Pre-Early life

Early life

Midlife Post-Midlife

Product life cycle

User innovation life cycle

10

INNOVATION


KNOWLEDGEAGENTS (People,

manufacturers, users, etc)

Role of PEST (Political, Economic, Social and Technological) environments in User Innovation research

ENVIRONMENT (Competitive and

macro)

User innovation and firm boundaries: Organizing for Innovation by users

Reframing the role of lead users in radical innovation using an open innovation perspective

Wim VanhaverbekeHasselt University &

Eindhoven University of Technology

Symposium – AOM AnaheimWednesday, August 06, 2008

See lead user interaction in the context of value creation and

value appropriation

** DYNEEMA: DYNEEMA: DSMsDSMs strong fiberstrong fiber (20 times stronger than steel)(20 times stronger than steel)

•• Customers are not interested in technical characteristics ofCustomers are not interested in technical characteristics ofthe productthe product

•• Translate Translate product characteristicsproduct characteristics into sales argumentsinto sales arguments= show value of the product in the customer= show value of the product in the customer’’s value s value chainchain(e.g. (e.g. DyneemaDyneema in fishing nets: stronger, smaller twines, less resistance, lesin fishing nets: stronger, smaller twines, less resistance, less fuel s fuel

costs, OR higher speed, higher fishing productivity)costs, OR higher speed, higher fishing productivity)•• Make sure you can convince the whole value system Make sure you can convince the whole value system

the final customer the final customer

Value creation:Value creation:Technology has no value in itselfTechnology has no value in itself

Dyneema'sDyneema's technologicaltechnological features and features and valuevaluecreationcreation in different in different applicationsapplications

High m

odules, low

High m

odules, low

elasticityelasticity

RopesRopes

FiltrationFiltration in in foodfood & & chemicalchemicalindustriesindustries

SportswearSportswear

PersonalPersonal armourarmour

Nets / Nets / fishingfishing lineslines

Cut

Cut resistance

resistance

Heat

Heat -- conductible

conductible

UV

UV

-- resistantresistant

Chem

ical C

hemical resistance

resistance

Abrasion

Abrasion

resistantresistant

Impact

Impact resistant

resistant(high (high energy

energyabsorptionabsorption ))

Resistance

Resistance

to to m

oisturem

oisture

Low

Low w

eightw

eight(( floatsfloats

ononw

ater)w

ater)

Strength

Strength

(( ononw

eightw

eight basis)basis)

Dyneema applicationsRopes Bullet proof vestsFishing nets

Medical devices

Dyneema : Starting a screening process

Can it be done?Is Dyneema the right fiber for you. Is what you want technically feasible?

Is it a winning solution?The application should be a leading one. We'll help you identify all the benefits of your Dyneema application.

Is there a market for your application?Is there really is an end market for your application in the interest of both your business and DSM?

Is it worth it?Consider the implications in terms of R&D investment and marketing, and whether your market is big enough to justify all this.

Value capturing / appropriation

• Lead user interaction is necessary to detect what how value can be created: you have to know his value chain activities

• Knowing the value chain of the lead user implies you know his cost-structure

• Maximize your profits using "value based pricing"

• Conclusion: dark side of LU-interaction

Lead user interaction is a dynamic process with different

stagesA simplified model

Lead user interaction is a dynamic process

Opportunity recognitionin the early stages Value creation and

value appropriation inthe late stages

BM development

Different cognitive frameworks:Dyneema:• Strength per unit weight• Smaller twine diameter

Bargaining position of LU?• other lead users with whom the

innovator can collaborate• role of the lead user in developing

the market• role of the lead user in establishing

the value network• lead user is a major customer • cost structure is unknown to the

innovating firm• … but win-win situation: VA and joint VC are

interrelated

Laser technology applications : Micabs

Security and credit cardsSilicone keypads

Packaging: film and laminates

Cable, wire and tubing

Packaging: synthetic corks

E&E: MCBs and connectors

Animal Identification

Plastic caps & closures

Packaging: bottles

raw material

prod.

additive prod.

master batch prod.

compounder moulder OEMtarget customer

laser prod.

A B

raw material

prod.

additive prod.

master batch prod.

compounder moulder OEM

laser prod.

A B

C

D

Laser technology applications : Micabs

Adapted from Vercauteren (2007)

Analyzing value networks

VN-wide value creation• Rel .attractiveness of product offering• Configuration of VN• Value drivers• Etc…

Value distribution among VN-players• Everyone should be better off

than in competing offerings

VN-management• External transaction management• Supporting activities• Co-specialized assets development• Etc…

Set up strategies• Thin market problems• Risk sharing (contracts)• Etc…

Competing offerings• Existing and new

Government• E.g. environmental policy• NIS – Triple helix model

How open innovation makes lead user interaction

more complex?

Robert Kirscbaum, DSM: Research & Technology management, July – August 2005

License in

Spin in

Acquire

DivestSpin out

License out

Open innovation funnel

Current market

New market

Other firms'market

OI and consequences for lead user interaction

• Exclusive focus on a successful product introduction is no longer the case

• IP-licensing, spin outs, are other potential outcomes: profound impact on the return of the cooperation for the lead user

• Lead user may also be acquired• LU will have to negotiate up front about

the different possible outcomes/scenarios

Discussion

User Innovation and Firm Boundaries: Organizing for Innovation by Users

Frank T. PillerRWTH Technology & Innovation Management Group, RWTH AachenMIT Smart Customization Group, MIT, Cambridge, MA, USA

www.open-innovation.com

2

(c) Copyright 2008 - Frank Piller, www.open-innovation.com

3


4


The paradigm of closed innovation systems

Past: Innovation is best created by centralized research and development

the innovative genii was sought in separate organizational units, project management designs and incentive systems.

One important drawback of the centralized approach is that breakthrough innovations do not always originate in the R&D unit of the organization (Johnson & Huff, 1998; Robinson & Stern, 1998).

From firm boundary to mental boundaries: Breakthrough innovationare strikingly often unintended and originate in unintended loci of organizations. Management tries to stop radically new projects …

Example: AstraZeneca's management tried to stop the development of the ulcer medication Losec, however it became one of the world’s most successful prescribed medications (Fredberg, 2006)

5


By encouraging and considering the ideas and solution knowledge of a large number of individuals, new creativity is brought into the organization.

Weber (2004) observes in the case of Open Source Software that a dominant capability of its development system is to incorporate the "wisdom of the periphery” (Weber 2004, p. 225).

Special focus on the role of users (customers)

Presenters in Symposium (along with many others) believe that the closed innovation model is being supplemented/overtaken by an open model of innovation

6


Development of the literature Innovation networks with customers, suppliers, universities, etc.(Brown / Eisenhardt 1995; Chesbrough 2003; Freeman / Soete 1997;Laursen / Salter 2006; Lundvall 1992; Hirsch-Kreinsen 2004; Rosenberg 1982; Tidd et al. 2000)

"Voice of the customer" literature (Griffin & Hauser 1993; Katila & Ahuja 2002; Joshi & Sharma 2004 ... ): customer orientation in NPD

Lead users are a “product feedstock for manufacturers” (von Hippel 2005); task of firm is to capture autonomous user inventions (e.g. Anderson & Crocca 1993; Ciborra 1991; Enos 1962; Freeman 1968; Urban & von Hippel 1988; Ramirez 1999; Rice & Rogers 1980; Rosenberg 1976; von Hippel 1976, 1982)

Firms can organize the process of distributed / open user innovation (Chesbrough 2006; Chesbrough, Vanhaverbeke & West, 2006; Gassmann/Enkel 2004; Jeppesen & Molin 2003; Lakhani 2005; Ogawa & Piller 2006; Prahalad & Ramaswamy 2000, 2004; Reichwald & Piller 2006)

7


SolutionInformation

NeedInformation

Ideation

productdevelopment

concept development

market launch

Doing the right things

Doing things rights

Increasing the

efficiency

Increasing the

efficiency

Incre

asing

the

effec

tiven

ess

Incr

easin

g th

e

effe

ctive

ness

A (simple) framework to structure different contributions of the firm's periphery to innovation

8


SolutionInformation

NeedInformation

Ideation

productdevelopment

concept development

market launch

Doing the right things

Doing things rights

Increasing the

efficiency

Increasing the

efficiency

Incre

asing

the

effec

tiven

ess

Incr

easin

g th

e

effe

ctive

ness

A (simple) framework to structure different contributions of the firm's periphery to innovation

Lead User Idea contests

Communities

Lead User Idea contests

Toolkits for userinnovationBroadcasting

LaunchingCustomer

Communities

ToolkitsLead ExpertsBroadcasting of ProblemsDevelopmentCommunities

9


Integrating different perspectives, reminding us that users / customers are just one actor in the periphery of the firm

Review of "cumulative innovation" framework by Suzanne Scotchmer (2004) in addition to von Hippel and Chesbrough:

iterations and re-combinations of knowledge from diverse sources are core of any innovation process

Focus on ease of transferring and re-combining existing knowledge by any actor; thus going beyond the picture of autonomous actors innovating in their own domain

This also has implications for policy makers (sketched greatly in the paper) in order to create an environment where open innovation can foster

Joel West: Open, Cumulative and User Innovation

12


Counterintuitive model: The more a technology matures, the more users innovate; Challenging both the von Hippel and the Utterback-Abernathy models

Different focus ("functional novel" vs. "extending" innovation; technology vs. product)Source of "radical" innovation vs. source of continuous innovation (-> solution / need information)Users versus Lead Users

Previous research used stickiness of information as variable to explain the locus of innovation; Allen focuses on environmental factors, thus extending the recent framework

User innovation live cycle model is contributing to picture of firms organizing for user innovation

Allan Afuah: A User Innovation Techn. Life Cycle Model

13


Adapt the open innovation framework to understand and take advantage of the potential of lead user interaction; extending the dyadic relationship of a firm and its LU to a value network perspective

Reframing the LU construct into a dynamic relationship between users and firms along the entire innovation process (invention only becomes innovation by adoption)

Extensive case study in high-tech b-to-b context revealing the rich interactions between users and firms in the innovation process (we need more of this kind of research)

However, still the paradox of strong and weak ties between firmsand its customers

Wim Vanhaverbeke: Reframing the Role of Lead Users in Radical Innovation

14


Users act as unpaid providers of complementary goods to a firm’s platform (in this case, "modding" a computer game).

Empirical paper building on earlier research of co-development of software platforms across network of diverse actors

(1) Usage is stimulated by the number of user innovations (mods).(2) Innovating behavior responds positively to an increase in (lagged) usage.(3) Positive feedback effect in user innovation on two-sided platform models.(4) A firm's investment in tools to support user innovation fosters innovative behavior.

Paper also makes advantage of the large opportunities we have in researching user innovation as so much data is in the public domain.

Lars Bo Jeppesen & Kevin Boudreau: Users as Complementors

15


product / service

internal factors

external factor / customer integration

competences (pre-fabrication)

manufacturing, assembly

(fabrication)

internal factors

Capabilities

autonomous disposition of supplier

interactive disposition

Can service management be a role model for research onorganizing user innovation?Customers within the service (production and delivery) process are referred as “resource” (Lengick-Hall 1996; Wikström & Normann 1994), “productive resource”(Bitner et al. 1997), “human resource” (Schneider & Bowen 1995), or even as “partial employee” (Mills & Morris 1986; Bowers, Martin & Luker 1990) of the firm.

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Final questions

Today no one needs to be convinced that user innovation is important. How to innovate with users is the key question.

(Building on Peter Drucker, 1988)

Who is the user?

Capabilities and competences of innovating users (-> service marketing, mass customization research)

Capabilities and competences of firms to innovate openly with users ("Absorptive Capacity 2.0")

What is happening in the interactions of users and firms along the innovation process?

When is there enough of a good thing? ´Firms start to exploit users for their innovation process. Do we need user innovation governance?

User entrepreneurship ... when do users start to organize themselves?

What is the core of an organization?

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