• Like many products, the skateboard was originally developed by consumers for their own use. Children built the first skateboards by hammering roller skate wheels onto boards.

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When ‘consumer-innovators’ outspend firms on R&D

Researchers led by MIT Sloan School of Management Professor Eric von Hippel have found that consumers in the United Kingdom spend $5.2 billion annually on product development and innovation for their personal use, far outstripping the $3.6 billion that U.K. companies spend on R&D. Consumers in the United States and Japan are also significant “consumer-innovators,” spending $20.2 billion and $5.8 billion, respectively, on their own product design and manufacture.

In the R&D-intensive countries of the United States and Japan, consumers spend 33 percent and 13 percent, respectively, of the amount that commercial enterprises spend on consumer product R&D.

The research is published in the fall issue of MIT Sloan Management Review. The researchers, von Hippel, Susumu Ogawa of Kobe University and Jeroen P.J. de Jong or RSM Erasmus University, conducted first-ever national surveys designed to capture only real, new-to-the-market innovations that consumers had developed in their leisure time. They then applied out-of-pocket expenditures and time investment (evaluated at average wage rate for each nation) to calculate the total dollar investment.

The researchers use the evidence of the surprising extent of consumer innovation to propose a new, consumer-centric innovation paradigm. In Phase 1, users often innovate to create the products they want; then, in Phase 2, other users either reject or validate the initial innovation. If the innovation is validated through adoption, in Phase 3 the market has grown enough to be interesting to producing companies, which refine and commercialize the innovation for sale.

In an accompanying interview, Von Hippel notes, “producers tend to miss the fact that what the user has done [altering or transforming existing products] is a functioning product prototype, and arguably a more valuable piece of the innovation process than the product engineering the producer does to create a salable product.” He envisions a future where companies will shift their R&D resources and strategy away from internal development to focus on developing methods to systematically search for promising user innovations, and to give users better and better tools with which to modify their products.

“It’s funny, when you talk about free, user-generated design, some initially say ‘Oh, my God, this is terrible. Nobody will ever be able to earn a living again,’” says Von Hippel. “But in fact, modifying your innovation system to help users innovate via toolkits, and then utilizing free, pretested user designs, can improve producers’ success — and can insure users get what they want and can increase social welfare. It’s a good thing.”

Topics: Business and management, Innovation and Entrepreneurship (I&E), Marketing, Sloan Management Review, Technology and society, Consumers, Technology


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