August 4, 2008

Producer vs. open innovation: Who wins?

Today I’m at the HBS-MIT User and Open Innovation Workshop 2008, being held on the HBS campus through Wednesday.

Design Rules, Vol. 1: The Power of ModularityOne of the first presentations was by two innovation heavyweights, Carliss Baldwin (of modularity fame) and Eric von Hippel (inventor of user innovation). Baldwin demonstrated a small amount of skepticism towards her co-author’s claims for user innovation, and in particular, von Hippel’s contention that “it will take over the world.”

The focus of their theoretical paper is on the creation of large complex systems. She began with the broad brush observation that producer innovation was the only game in town from 1750-1990, while interest in “free, open innovation” via user collaboration is a “newly important” way to realize such designs. The paper is set up as a contest as to which one will dominate. Due to her co-author’s perspective, Baldwin said “the answer had to come out one particular way.”

So who wins? The answer was: it depends. Each institution (innovation regime) has its own logic and strengths, and these interact with the technological profile of the artifact being innovated.

Baldwin presented a contingency model, with a theoretical framework mapping two dimensions of a technological cooperation: communication cost and design cost. Her 2-d rendering identified 9 distinct regions and outcomes.

She hinted at an even more complex solution: 4 dimensions, 15 outcomes. However, she concluded, “I don't want to be the author of that kind of model that no one will understand.”

Update 2:20 p.m. EDT: I sat in the 15 minute talk by Prof. Baldwin and got more details, below.

User innovation is an institutional form that co-exists with producer innovation, although one may dominate for some class of problems. For example, Chandler documented that public corporations now dominate certain parts of the value chain through scale and scope, even though sole proprietorships, partnerships and family businesses have not gone away.

The model assumes that for an institutional form to survive, each party gets benefits behind its costs (benefits might be non-monetary). But in a free (non-coercive) society, no one will continue to participate if the benefits don’t exceed the costs.

There are four institutional forms that could produce such innovations: two types of producers (entrepreneurial, large firm) and two types of user innovators (single user, user community). With all possible combinations of institutional forms (other than the null set) this would make 15 possible outcomes.

To reduce the domain into a 4-space, the researcher reduced the innovation process to four stages (and thus four types of cost):
  • Design: creating the instructions for the artifact
  • Production: translating the instructions into a tangible artifact
  • Communication: explain the artifact to others
  • Transaction: the costs associated with exchange between parties (i.e. zero with individuals)
Prof. Baldwin says that there still isn’t a paper; it’s in progress. I hope to be able to blog on the finished paper later on.

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