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Diffusion of user innovations A firm-level survey

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

Jari Kuusisto

University of Vaasa

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

Jari Kuusisto

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?

Jari Kuusisto

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.

Jari Kuusisto

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 (Sandn et al. 2006)

Jari Kuusisto

Data & method

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?

Jari Kuusisto

Findings: frequency of user innovations

Types of user innovations Software Software modification Software new creation Software overall (at least one modification or new creation) 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) 19.1% (64:335) 19.1% (62:324) 31.2% (101:324) Percentage of firms reporting user innovation

Jari Kuusisto

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).

Jari Kuusisto

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 Percentage of that concern your products or services? 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 dont know / I dont 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 firms innovation culture Lack of relevant processes, working methods, and resources in the firm Perception that the return on investment is too low

Jari Kuusisto

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 developers IP while allowing user innovations to diffuse effectively?

Jari Kuusisto

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

Jari Kuusisto