Section 6: Innovation Policy, Innovation Measurement

User innovation and the transfer of user innovations to producer firms is currently not well measured by government surveys and traditional statistical indicators. Colleagues and I are working to change this. Recently, Statistics Canada and also EIM in the Netherlands did initial surveys on these matters using new indicators designed for the purpose. Working papers reporting on these are below, and work on measuring innovation by end users of consumer products (consumers) is underway.

von Hippel, Eric, and Chen Jin. “The Major Shift Towards User-centered Innovation: Implications for China’s Innovation Policymaking.” Journal of Knowledge-based Innovation in China 1, no. 1 (January 2009): 16–27 (PDF)

Gault, Fred, and Eric A von Hippel. The Prevalence of User Innovation and Free Innovation Transfers: Implications for Statistical Indicators and Innovation Policy. MIT Sloan Working Papers. MIT Sloan School of Management, February 3, 2009. (PDF)

Abstract: Statistical indicators have not kept pace with innovation research. Today, it is well understood that many industrial and consumer products are developed by users, and that many innovations developed at private cost are freely shared. New statistical indicators will empower policymakers to take advantage of the latest research findings in their innovation policymaking, and will enable them to benefit from improved measurement of resulting policy impacts.In this paper, we report upon a pilot project in which a novel set of statistical indicators were deployed in a 2007 survey of 1,219 Canadian manufacturing plants. The plants all developed or modified “advanced” process technologies for in-house use. Responses to the survey showed that data on both user innovation and the transfers of these innovations could be reliably collected, and that novel findings important to policymaking would result. One such finding: About 20% of the user-innovators surveyed reported transferring their innovations to other users and/or equipment suppliers – and the majority of these at least sometimes did so at no charge to recipients. Since cost-free sharing of innovations is understood to result in greater social welfare than licensing for a fee, innovation rates being equal, this finding has important public policy implications. Current government innovation policies tend to favor and even to subsidize the obtaining of intellectual property rights as a means of encouraging innovation. If a significant fraction of user-innovators in the economy are already freely revealing their innovations – despite the availability of intellectual property grants – perhaps intellectual property rights policies should be reexamined.We propose that improved versions of the novel statistical indicators piloted here should be integrated into official statistics so that user innovation, and related matters such as voluntary spillovers of innovation-related information, can be better monitored, better understood, and better managed.

de Jong, Jeoron P. J., and Eric A von Hippel. Measuring User Innovation in Dutch High Tech SMEs: Frequency, Nature and Transfer to Producers. MIT Sloan Working Papers. MIT Sloan School of Management, February 2009. (PDF)

Abstract: A detailed survey of 498 “high tech” SMEs in the Netherlands shows process innovation by user firms to be common practice. Fifty four percent of these relatively small firms reported developing entirely novel process equipment or software for their own use and/or modifying these at significant private expense. Twenty five percent of the user innovations in our sample were transferred to commercializing producer firms. Many transfers were made without any direct compensation, i.e. 48% were simply given away.

Very importantly from the perspective of effective diffusion of user innovations, innovations with higher commercial potential for producers – and with more general appeal for users – are much more likely to be transferred. The pattern we document of frequent innovation by individual user firms at substantial cost, followed in many cases by voluntary, no-charge information spillovers to producers, suggests that “open source economics” may be a general pattern in the economy.

von Hippel, Eric A., Jeroen P. J. de Jong, and Steven Flowers. “Comparing Business and Household Sector Innovation in Consumer Products: Findings from a Representative Study in the UK.” SSRN eLibrary (September 27, 2010). (SSRN)

Abstract: In a first survey of its type, we measure development and modification of consumer products by product users in a representative sample of 1,173 UK consumers aged 18 and over. We estimate this previously unmeasured type of innovation to be quite large: 6.1% of UK consumers – nearly 2.9 million individuals – have engaged in consumer product innovation during the prior three years. In aggregate, consumers’ annual product development expenditures are more than 1.4 times larger than the annual consumer product R&D expenditures of all firms in the UK combined.

Consumers engage in many small projects which seem complementary to the innovation efforts of incumbent producers. Consumer innovators very seldom protect their innovations via intellectual property, and 17% diffuse to others. These results imply that official statistics partly miss relevant innovation activity, and that existing companies should reconfigure their product development systems to find and build upon prototypes developed by consumers.