Managing beyond firm boundaries: Leveraging user innovation networks

Doctoral thesis, 2006

Because innovations change and transform industries, they pose challenges for managers that have to make decisions to cope with a continuously changing competitive landscape. Firms need to develop new innovations to compete by releasing better products and services and at the same time be able to appropriate them to make money and survive. Developing new innovations can stem from firm-internal investments into research and development (R&D). Yet, firms are also dependent on relations with external actors as sources of innovation. Although these external sources of innovation are manifold, users have been shown to be one important source. Users develop customizations and new solutions that occasionally are brought back to the firm as inputs to the innovative process. More recently, the concept of user innovation communities has attracted a lot of interest. I bring forward an idea to view communities as dense user innovation networks characterized by multiplex ties to solve problems. In the context of free and open source software, they are dispersed all over the world, users lack financial compensation, intellectual achievements are attributed to the collective rather than a single actor, and formal planning in the classic sense is eschewed. Individuals that take part in user innovation networks share their achievements in a collective manner and at first glance appear to destroy the business for firms. At the same time, these networks provide an important resource which the firm can use to innovate. This dissertation focuses on how firms try to manage or being involved in these user innovation networks as part of the firm’s business. My aim is therefore to explore how new firms participate in user innovation networks and how they appropriate and protect returns. By analyzing the phenomenon of commercializing efforts for free and open source software (FOSS), I show how firms work with communities to create a competitive advantage. Drawing on extensive data collection from multiple case studies, archival analysis and network analysis, I address a largely neglected issue of the role of firms in FOSS. The thesis shows that participation in communities can yield a great advantage over competitors. For firms that attempt to leverage user innovation networks, having a beneficial position and membership in these networks is important. It expands the amount of possible resources a firm can draw upon to be innovative and stay ahead of competition. But it comes at a cost, as ties with these networks have a negative side and also limit the room for strategic action. My proposed term user innovation networks provide a more fine-grained analysis of how firms participate. Some individuals have affiliations with firms and links into larger network structures. I thus argue that even within this process that has been characterized as collective, firms sponsor some individuals in order to assimilate what happens in the user innovation network. Firms are more likely to sponsor individuals with networks positions that are more beneficial for orchestrating the network or assimilate what is happening. Theories typically underscore the importance of the internal resources or the role of networks, but this research shows that the interaction between internal resources and networks is the crucial issue. Firms act as brokers between the user innovation network and the market. The specific broker role is held by the individuals that firms dedicate to work in the networks. These individuals bring the expertise of user innovation networks to the firm where it is repackaged and integrated in internal products and services that fulfill a need in the market. Firms combine their network participation with internal expertise to bring new products and services to the market. Because of the uncertainty of how to appropriate returns, firms experiment with various kinds of strategies to align with communities, while at the same time being able to provide something novel to the market.