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

52 Pages Posted: 11 Sep 2010 Last revised: 16 Oct 2015

See all articles by Jorn H. Block

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Joachim Henkel

TUM School of Management - Technische Universität München (TUM)

Tim Schweisfurth

University of Southern Denmark

Annika Bock

Technische Universität München (TUM) - Faculty of Economics and Business Administration

Date Written: June 30, 2015

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.

Keywords: user innovation, commercialization of user innovations, vertical diversification, user entrepreneurship, case study

JEL Classification: L25, O31

Suggested Citation

Block, Jorn Hendrich and Henkel, Joachim and Schweisfurth, Tim and Bock, Annika, Commercializing User Innovations by Vertical Diversification: The User-Manufacturer Innovator (June 30, 2015). Research Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1674903 or http://dx.doi.org/10.2139/ssrn.1674903

Jorn Hendrich Block

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Joachim Henkel (Contact Author)

TUM School of Management - Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80333
Germany

Tim Schweisfurth

University of Southern Denmark ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

Annika Bock

Technische Universität München (TUM) - Faculty of Economics and Business Administration ( email )

Arcisstr. 21
Munich, D-80290
Germany

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