Jari Kuusisto 1 University of Vaasa

Diffusion of user innovations – A firm-level survey

Arja Kuusisto & Jari Kuusisto University of Vaasa, SC-Research ISPIM Barcelona, June 20, 2012

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Introduction

•  Focus on user innovation in firms • A cross-industry survey in Finland • Contributes to recent cross-industry surveys, in

particular: •  de Jong & von Hippel (2009), in the Netherlands •  Flowers et al. (2010), in the UK

• Key interest in diffusion of user innovations

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Research questions

• What is the share of user innovator firms? • What is the share of firms that transfer their innovations

to other companies - and under what conditions?

• What is the share of firms that systematically follow user innovations in their customer markets?

• What are the main obstacles in identifying and utilizing user innovations?

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Prior research into user innovations in firms has examined.. •  the nature of user innovations

•  modifying or creating entirely new process software and equipment •  the current study adds the category of user innovations in services

•  the frequency of user-innovator firms •  Firms commonly innovate their process software and equipment. •  There is marked variation in user innovation activity between sectors. •  E.g., in the Dutch survey on high-tech SMEs (de Jong & von Hippel 2009):

54% of firms reported user innovations in process software and/or equipment.

•  the transfer of user innovations •  11% - 25% of user process innovations are transferred to other firms. •  Pattern of selective revealing: user innovators mainly transfer their

innovations to suppliers with whom they have a pre-existing relationship.

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Prior research into whether and how firms follow user innovations by their customers • Research on how firms can benefit from users’

innovativeness in their development activities. E.g., by: •  building on the innovative solutions created in virtual user communities; •  providing potential user-innovators with ‘innovation toolkits’; •  opening up product architecture to encourage user innovations; •  working with lead users to solve specific challenges.

• But very little empirical research on the frequency of firms that follow user innovations, how they do this, and what challenges they encounter in the process. •  2% - 7% of firms reported they systematically make use of user

innovations in a survey of 366 firms in Sweden (Sandén et al. 2006)

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Data & method • Sample

•  379 ‘innovation oriented’ Finnish SMEs (10-250 employees) •  from various business sectors •  response rate reached 29%.

• Survey administration and key variables •  Web-survey. •  User innovations in software, equipment, service process within the past

three years. •  Innovation support from other firms and sharing of innovation with other

firms. •  Questions on user innovations that are created by customers:

•  Do you systematically follow? •  Which approaches or methods are employed? •  What are key challenges in the process?

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Findings: frequency of user innovations Types of user innovations Percentage of firms reporting

user innovation Software

Software modification Software new creation Software overall (at least one modification or new creation)

19.1% (64:335) 19.1% (62:324) 31.2% (101:324)

Equipment

Equipment modification Equipment new creation Equipment overall (at least one modification or new creation)

30.2% (97:321) 20.5% (65:317) 37.2% (119:320)

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Findings: transfer of user innovations • User innovations were shared with other companies in

34.6% of the cases •  17.3% of firms shared the innovation with a potential producer firm; and •  17.3% of firms shared the innovation with some other type of company

(e.g., another user company)

•  Our results validate a ‘selective pattern of revealing’ (de Jong & von Hippel 2009): When user innovations were transferred to a potential producer company,

•  in 100% of the cases, the innovating firm had a pre-existing relationship with this ‘receiving’ company; and

•  in 78.6% of the cases, the innovating firm had received innovation support from this producer company (advice, assistance, components).

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Findings: how firms follow user innovations in their customer markets • Only a fraction of firms had a planned program in use,

while the majority followed user innovations randomly

‘How systematically do you follow your customers’ new insights and innovations that concern your products or services?’

Percentage of firms (of 293)

‘We have a planned program to help us make use of client innovations’

‘We randomly make use of client innovations’

‘We do not make use of client innovations’

‘I don’t know / I don’t want to tell’

14%

70%

6.5%

9.5%

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Findings: perceived obstacles to making use of user innovations •  Important challenges were experienced!

Perceived obstacles to making use of user innovations (created by customers) – open responses classified under six thematic categories •  Inadequate customer capabilities

•  Need to protect customers’ intellectual property

•  Nature of the industry or business

•  Does not fit the firm’s innovation culture

•  Lack of relevant processes, working methods, and resources in the firm

•  Perception that the return on investment is too low

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Conclusions • User innovation is a significant source of new process

solutions across industries. •  Transfer of user innovations developed in firms:

•  The majority of user innovations are not shared. •  Sharing of user innovations is very selective. •  Many firms do not have incentives to search for application opportunities

for in-house innovations outside their firm?

• Making use of user innovations created by customers: •  Limited experience and critical attitudes are typical. •  How could the firms overcome perceived obstacles? Suggestions:

•  Managers need to allow new approaches and risk taking; •  New simpler methods and facilitation in their use by specialized actors; •  Could policy initiatives help balance the needs to protect the

developer’s IP while allowing user innovations to diffuse effectively?

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THANK YOU!

Funding for the NOMAD-project is provided by TEKES under FiDiPro-programme

SC-Research institute and NOMAD-project are hosted by the University of Vaasa

www.scr.fi