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Where major innovations come from

February 21, 2017

Mismatch between reality and the perceptions of managers

Managers who want innovation to happen need to know what the most promising sources of innovation are. However, a recent survey of 1,758 decision makers from the private and public sectors in Austria has revealed that, in the overwhelming majority of cases, they labor under serious misapprehensions.

Prof. Nikolaus Franke, Academic Director of the Professional MBA Entrepreneurship & Innovation and Head of WU Vienna's Institute for Entrepreneurship & Innovation, on the best sources of innovation, the surprising findings of the survey and the most promising methods for organizing innovation efficiently.

lightning bolt

In virtually all lines of business, the capacity to innovate has become the single most important factor for achieving competitive success. Companies that have the ability to generate new products, new services, new business models and new processes can today grow faster and earn higher profits than ever before—companies that lack it run the risk of falling victim to creative destruction. Knowing where the next radical and potentially disruptive innovations will come from is, thus, absolutely essential for all types of organizations.

The most important source of innovation: users

For several years, it has been considered an established fact in innovation research that users are the most important source of innovation. Countless innovations, including the mountain bike, the heart-lung machine, “breathing” shoes, the airplane and the Internet, have been brought about by users who were trying to solve pressing problems and in doing so spearheaded trends. In a number of studies, Eric von Hippel (MIT) and fellow researchers have shown that many of the most important innovations in markets are based on ideas or prototypes put forward by users. In the age of “connectedness”, user innovation has become even more dominant. Today, forums and online communities make it really easy for users to network, exchange views and ideas, and close knowledge gaps. Given the importance of user innovation, the Austrian Federal Ministry for Transport, Innovation and Technology, and the Austrian Federal Ministry of Science, Research and Economy developed a national Open Innovation Strategy in 2016.

What do managers think? A recent survey done by WU Vienna and TUHH

To investigate the extent to which practitioners are aware of the significance of user innovation, the Institute for Entrepreneurship & Innovation of WU Vienna (Prof. N. Franke, P. Bradonjic, MSc.) and the Institute of Innovation Marketing of Hamburg University of Technology (TUHH) (Prof. C. Lüthje) have surveyed 1,758 decision makers from the corporate, political and academic worlds. They were asked to estimate what percentage of the most important innovations in the fields of medical apps, off-label drug therapies, disruptive innovation, scientific instruments, kayaking, windsurfing, mobile financial services, corporate banking and retail banking were attributable to the following sources: “users”, “producers”, “universities/research institutions” and “inventors/other service providers”. For all innovations featuring in the survey, there is available solid research-based information regarding their origins, making it possible to compare the aggregate estimates to the actual values.

Bottom line: Users are drastically underestimated

In total, the decision makers participating in the survey underestimated the significance of user innovation by 58%, i.e., on average, more than one person in two fails to realize that users are the most important source of innovation. Of the 1,758 respondents, only an infinitesimal minority—or nine individuals, to be precise—judged the value of user innovation correctly or overestimated it slightly; 99.5% of the managers believed that the number of innovations attributable to users was smaller than is actually the case. This underestimation can be observed across all industries, company sizes, hierarchical levels, functional units and educational backgrounds. Hence, it is safe to say that the perception of user innovation is consistently and systematically distorted.

Reasons for the distorted perception of user innovation

As for the reasons of this surprisingly clear results, two explanations seem most compelling. First, there is a lack of knowledge about recent findings in the field of innovation research. For a long time, traditional textbooks used to convey the impression that producers were the main drivers of innovation. What is more, companies that embrace user innovation and exploit it commercially hardly ever disclose its origin. As a result, many people are unaware of how powerful and creative the large community of users actually is. Second, external innovation is frequently regarded as a threat. “Not invented here” is a phrase often used to describe the widespread tendency among organizations to take a negative attitude toward creativity coming from outside sources.

What can be done to remedy the situation?

Those looking to tap into the enormous economic potential of user innovation should definitely seek to gain access to state-of-the-art methods and findings. Most managers have likely heard catchwords such as “lead user”, “crowdsourcing” and “innovation communities”—but how do these concepts work in practice? What methods are useful in what contexts? How can the search for innovation be organized efficiently? How does one create a sustainable user community ecosystem? The body of methodological knowledge is rapidly evolving. Those eager to seize the opportunities associated with user innovation should take action quickly because it's now or never.

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