Users as Innovators

Edyta Kostanek
UCL, University of London
Innovation

The “functional” source of innovation depends upon

the functional relationship between innovator and
innovation:
§ An innovation is anything new that is actually
used (“enters the marketplace”) – whether major
or minor.
§ An innovation is a user innovation when the
developer expects to benefit by using it;
§ An innovation is a manufacturer innovation
when the developer expects to benefit by
selling it.
User and Manufacturer Innovations Differ

Users tend to develop “Functionally Manufacturers tend to develop “Dimension of

Novel” innovations: Merit Improvements”:

§ The first sports-nutrition bar § A better-tasting sports-nutrition bar

§ The first scientific instrument of a new § Improvements to an existing type of
type scientific instrument
Extent of user innovation (NESTA report, 2010)

§ 8% of UK consumers create or modify one or more of

the consumer products (such as cars, sporting equipment

or gardening tools) they use in order to better address
their needs.

§ 15% of respondents have modified or created process

equipment and/or process software for their own use over

the last three years.

http://www.nesta.org.uk/publicati
ons/measuring-user-innovation-uk
Types of user innovation (Tidd and Bessant, 2014: 298)
Examples of consumer product innovations

Category Example
Health Products Gatorade
Personal Care Protein-base Shampoo
Feminine Hygiene
Sports Equipment Mountain Bike
Snowboard
Apparel Sports Bra
Food Chocolate Milk
Graham Cracker Crust
Office White-out Liquid
Computer Application Software Electronic Mail
Desk Top Publishing
The World Wide Web
– A Lead User Innovation
“Berners-Lee did not set out to invent a contemporary cultural
phenomenon; rather, he says, “it was something I needed in my
work.”
He wanted to simply to solve a problem that was hindering his
efforts as a consulting software engineer at CERN.
Berners-Lee’s innovation was to apply hypertext to the growing
reality of networked computers.
He expanded the idea he had developed at CERN and made it
available on the Internet in the summer of 1991.
(Technology Review, July 1996, p.34)
History of “AOL Instant Messenger”

Instant Messaging is a User Innovation

§ By 1987 MIT Lab for Computer Science had thousands of
“Athena” workstations online and difficulties diffusing
system admin info rapidly. Developed “Zephyr” instant
message system.
§ MIT students begin to use for general instant messaging.
§ Other universities adopted Zephyr-like programs
First Commercial Product 9 years later
§ 1996 Israeli firm Mirabilis put out comml product ICQ
§ 1998 Mirabilis acquired by AOL

(Technology Review, October 2002)

LEGO

“Innovation is often something you don’t know

you need. Lead Users often create this future –
they react to trends and come up with
ingenious solutions to problems we perhaps
didn’t even know we had! We want to capture
this brilliance and ingenuity of Lead Users in a
systematic way, explore the high potential
ideas and co-create to expand the LEGO idea
in ways we haven’t yet imagined.”
(Kari Vinther Nielsen, https://www.youtube.c
Head of Lead User Lab at the LEGO Group) om/watch?v=apPLQTA
wszY
Examples and tools

http://www.innovation-portal.info/resources/3m-eric-von-hippel/
Open Innovations

Edyta Kostanek
UCL, University of London
The Emerging Innovation Agenda …

We will acquire 50% of our innovations from outside.

We expect a significant part of our offerings to be based on

innovation occurring within the open source community.

We expect our external innovation initiative to evolve from

technology acquisition to the sourcing of more complete product
concepts in the next few years.

We have set an internal target of sourcing 30% of our product

concepts from outside.
 Closed vs Open innovation
Closed innovation
All the best people are working for us
R&D creates profit only when we invent, develop and
market everything ourselves.
If we develop the product ourselves, we will be the first
on the market.
Winner is who gets the innovation to the market first.
We will win if we develop most of the ideas (an the best
of them).
We must have our intellectual property under control so
that our competitors can make advantage of it.
Open innovation
Not all the best people are working for us. We must work
with clever people within and outside our company.
External R&D can create remarkable value; to employ it,
we need absorption capacity, often as internal R&D.
R&D can create profit even if we do not initialize and
perform it ourselves.
To develop better business model is more important than
to be the first in the market.
We will win if we make best use of internal and external
ideas.
We must be able to profit from others using our
intellectual property and we must license the intellectual
property if it supports our business model.
Examples

Closed innovation Open innovation

Examples: nuclear industry, mainframe Examples : PC, movies
computers
Mostly internal ideas Many external ideas

Low workforce mobility High workforce mobility

Low role of the venture capital Active venture capital

Few new businesses, weak ones Many new businesses

Universities important as the sources of Universities are not important as the

ideas sources of ideas and people
Open innovation principles (Tidd and Bessant, 2014: 312)
Working with open innovation
Network-centric Innovation

Customers

Independent
Inventors Academia

Innovation

Non-R&D
Suppliers
Employees
Understanding the landscape ..…
Emergent
• Less defined / unstructured problem space
• Exploration, novelty
• Emphasis on ‘unknown connections’ in knowledge-base

Network
Leadership
Centralized Diffused
• Dominant player led • Community led
• More formal structures/linkages • More informal structures/linkages
• Hierarchical • Etherarchical
Innovation
Space

Defined
• Clearly defined/structured problem space
• Exploitation, efficiency
• Emphasis on ‘known connections’ in knowledge-base
The Four Models of
Network-Centric Innovation

Creative Jam
Emergent Bazaar Central
Innovation Space

Orchestra MOD
Station
Defined

Network Leadership

Centralized Diffused
Models of Network-Centric Innovation (1)

Orchestra
§ Focused on exploiting the market opportunities
based on an explicit innovation architecture that
is defined and shaped by a dominant firm
§ Role as the Innovation Integrator
§ Found in markets where a proprietary dominant
design has emerged
§ Emphasize modularity and innovation efficiency
§ Highly organized and coordinated innovation
processes & support infrastructure
§ Predefined script
§ Conductor or lead entity
§ Defined roles based on expertise
§ Hierarchical (formal) relationships
Boeing 787 Design & Development
Models of Network-Centric Innovation (2)

Creative Bazaar
• Focused on seeking out and bringing to
fruition new innovation opportunities that
meet the broad market and innovation
agenda of the dominant firm
• Role as the Innovation Seeker
• Emergence of new types of innovation
intermediaries (e.g. Innovation
Capitalist)
• Found in markets that are diverse in
terms of customer choices (e.g.
consumer products) or technology
application contexts (e.g. enterprise
computing)
Models of Network-Centric Innovation (3)

Jam Central Model

• Focus on exploring novel market/
technological problems
• Role as the Innovation Champion
• Members of the community together § Total Registered Solvers: 300,000+ from nearly
frame the broad parameters of the 200 countries
problem space § Total Solver Reach: 13+ million through our
strategic partners
• Found in markets where complex and
a diverse set of knowledge elements § Total Solution Submissions: 40,000+
have to be brought to bear to solve § Total Awards Given: 1,500+
novel & ill-defined problems
§ Total Award Dollars Posted: $40+ million
Models of Network-Centric Innovation (4)

The MOD Station Model

• Focus on exploiting the knowledge of a
community of ‘experts’ to address
market/technological issues within a
predefined problem space
• Role as the Innovation Catalyst
• Community of innovators come together
to create new offerings by “modifying”
existing innovations in ways that benefit
everybody
• Value appropriation and governance
mechanisms defined by the community
(includes social mechanisms)
 Benefits and Challenges
in open innovations

• conditions and context, e.g.

environmental uncertainty
and project complexity
• control and ownership of
resources
• coordination of knowledge
flows
• creation and capture of
value.

(Tidd and Bessant, 2014: 318)

Strategies to support open innovations

(Tidd and Bessant, 2014: 319)

Benefits of licensing

§ reducing or eliminating production and distribution costs and risks

§ reaching a larger market

§ exploiting other applications

§ establishing standards

§ gaining access to complementary technology

§ blocking competing developments

§ converting competitors to defenders.

JVs and strategic alliances
Why?
§ To build critical mass through co-
option.
§ To reach new markets by leveraging
co-specialized resources.
§ To gain new competencies through
organizational learning.
§ Speed: transitory alliances versus careful
planning.
§ Partner fit: network versus dyadic fit.
§ Partner type: complementarity versus
familiarity.
§ Commitment: aligned objectives versus
trust.
§ Focus: few, specific tasks versus multiple
roles.
Why alliances fail? (Tidd and Bessant, 2014: 325)
 Exploiting knowledge
and intellectual property
Edyta Kostanek
UCL, University of London
Generating and acquiring knowledge

• Learning from experience

• Learning from experimentation – R&D,

process improvement

• Learning from acquisition – scanning internal

and external environments
Types of knowledge

Explicit knowledge Tacit or implicit knowledge,

§ can be codified, that is § Personal
expressed in numerical, textual § Experiential
or graphical terms
§ context-specific
§ more easily communicated
§ hard to formalize and communicate
Intellectual property

§ A legal concept: Copyright, trademarks and geographic

indications, patents, trade secrets, plant variety protection

§ A social construct that defines “intangible” borders (as

opposed to tangible, real property borders)

§ A business asset that can be valued and traded

§ A policy tool to foster investments in innovation

Why Does IP Matter?
Why Does IP Matter?

§ Intangible assets account for 80% of a company's value (Source: Forbes, Oct. 2014)

§ Establishes protectable legal interests in the goods/services and the technology used to
produce them

§ Can be sold, licensed, or leveraged for profit

§ Royalty payments are an exception to UBIT

§ Attracts investment or acquisition

§ Provides a competitive edge by blocking competitors from market entry

§ Builds brand awareness and loyalty among consumers

Range of IPR mechanisms

• Patents

• Copyright

• Design rights and registrations

What is a Patent?

§ A right granted by government to an inventor for a limited time to exclude

others from:
§ Making, using, offering for sale, or selling the invention in the country
§ Importing the invention into the country

§ Utility patents (including business method patents) are the most common types of
patents

§ Design patents are also available

Patents

§ Novelty – no part of ‘prior art’, including publications, written, oral or anticipation.

§ Inventive step – ‘not obvious to a person skilled in the art’. This is a relative test, as the
assumed level of skill is higher in some fields than others.

§ Industrial application – utility test requires the invention to be capable of being applied to a
machine, product or process.

§ Patentable subject – discoveries and formula cannot be patented, and in Europe neither can
software (the subject of copyright) or new organisms

§ Clear and complete disclosure – note that a patent provides only certain legal property
rights, and in the case of infringement the patent holder needs to take the appropriate legal
action.
Examples of Utility and Design Patents
How Do Companies Protect IP?

§ Registering its copyrights and trademarks

§ Applying for patents on inventions

§ Keeping its trade secrets confidential and

limiting their disclosure

§ Obtaining signed NDAs
§ Engaging watch notice services to monitor new
IP application filings by other companies
How Do Companies Protect IP?

§ Monitoring the market and its competitors’ activities

§ Reviewing industry-specific trade papers, magazines,

and websites

§ Developing best practices for IP protection and

training employees on the subject

§ Enforcing its rights against infringers by sending

cease and desist letters, and when appropriate,
commencing litigation
How Do Companies Avoid Infringement?

§ Conducting a thorough investigation to obtain legal clearance of

all IP prior to use

§ Implementing policies and guidelines to reduce infringement risk

§ Educating employees about company policies and guidelines

§ Training employees about the types of IP that are most relevant to

their jobs and industry

Licensing IPR
Why?
• strategic freedom to operate
• access to knowledge
• entry to new markets
• establish technological leadership
• enhance reputation.
Advantages:
§ reduce or eliminate production and
distribution costs and risks
§ reach a larger market
§ exploit in other applications
§ establish standards
§ gain access to complementary technology
§ block competing developments
§ convert competitor into defender.
https://www.youtube.co
m/watch?v=lATj57E83LM
Methods for pricing licenses

§ Going market rate – based on industry norms (e.g.

6% of sales in electronics and mechanical
engineering).

§ 25% rule – based on licensee’s gross profit earned

through use of the technology.

§ Return on investment – based on licensor’s costs.

§ Profit sharing – based on relative investment and

risk.
Examples of patent battles

§ Apple aggressively defends its patents against alleged infringements, including HTC &
Samsung in 2011, seeking to ban sales of competing mobile devices.

§ Nokia won patent dispute regarding touch-screen technology with Apple in 2011, now
receives 2% iPhone revenues, in excess of $30 billion (£19 billion) annually.

§ Oracle launched a case against Google, alleging Android infringes Java patents, claiming
$6.1 billion (£4 billion) in damages.

§ Nortel sold its entire patent portfolio in 2011 for $4.5 billion (£2.8 billion) to a consortium of
firms: Apple, Microsoft, Sony, Ericsson & RIM (BlackBerry).

§ In response, Google acquired Motorola’s mobile telephony patents in 2011 for $12.5 billion
(£7.7 billion), because of the vulnerability of its Android platform.
https://www.youtube.co
m/watch?v=mJ171IktSXU
References

§ Rogers, E. M. (2003). Diffusion of Innovations. New York: Free Press.

§ Tidd, J. and Bessant, J. (2014). Strategic innovation management. John Wiley &
Sons.