Commercializing User Innovations by Vertical Diversification: The User-Manufacturer Innovator

Abstract

This paper explores a pathway to commercializing user innovations hitherto not studied, namely, the vertical diversification of a user firm into an upstream industry supplying capital goods, and subsequent coexistence of user and manufacturing units. Such coexistence creates synergies regarding innovation, marketing, and financials. It enables the manufacturing unit to benefit from user innovations in its new product development, while the user unit profits from improved tools. Yet, selling the firm's own user innovations risks loss of the competitive advantage originating from use of these innovations. We employ case evidence from firms in the fields of foundation engineering, tunnel construction, tea-packaging, and geological surveying to derive a set of five propositions regarding the conditions under which user-manufacturer diversification is attractive and viable in the long run. These conditions relate to innovation, marketing, the organization, and financial aspects. Our study offers three contributions. We show how user entrepreneurship can originate from established corporations rather than from individual user innovators; we carve out factors that favor the move toward and the success of user-manufacturer diversification; and we link user innovation and corporate strategy by showing how user innovation can affect the boundaries of organizations.

Strategic Transformation and Innovation towards Blue Ocean Creation in a Changing Corporate Reality

“…On the other hand, another new approach has come the last couple of years to reveal a new approach in the correlation between user-innovators and the manufacturers. This approach, as Block et al (2016) underline, is the approach, which emphasizes in the diversification between user-innovators and manufacturers as a new path way towards the commercialization of users-innovators.…”

“…As Block et al (2016) state, there are specific synergies between users and manufactures regarding the need knowledge, the solution knowledge, marketing and financials. The benefits for both the two parts, are connected with tight bonds on the way the specific case's conditions are related to innovation, marketing, organization and financials.…”

“…The benefits for both the two parts, are connected with tight bonds on the way the specific case's conditions are related to innovation, marketing, organization and financials. This is a very important implication for the manufacturing companies, which suddenly realize that "selling" their own users-innovation ideas, can jeopardize their competitive advantage (Block et al 2016). That can lead manufacturing companies to lose the very same advantage that they gained in the first place via the users-innovators approach.…”

User knowledge utilization in innovation of complex products and systems: An absorptive capacity perspective

“…It has been argued that in engineering-intensive environments, users that are involved should have high professional and technological competencies (Enkel, Perez-Freije, & Gassmann, 2005). There have, however, been reports of companies using so-called embedded users, that is their employees who also use the company's products, to contribute to innovation processes as they are likely to be knowledgeable of both market needs and technological solutions (Block, Henkel, Schweisfurth, & Stiegler, 2016;Roy & Sarkar, 2016). There have, however, been reports of companies using so-called embedded users, that is their employees who also use the company's products, to contribute to innovation processes as they are likely to be knowledgeable of both market needs and technological solutions (Block, Henkel, Schweisfurth, & Stiegler, 2016;Roy & Sarkar, 2016).…”

Qualitative Approaches for Studying Innovation as Process

“…Generalizability is a hallmark of this method, as these findings can be tested in other large sample based studies. Block, Henkel, Schweisfurth, and Stiegler (2016) used the "Gioia method" to induce new theory on "user-manufacturer diversification". The authors identified four cases where firms started out as user-innovators and then extended their operations to manufacture and sell the products of their innovative efforts even to competitors.…”