APPROPRIABILITY, PROXIMITY, ROUTINES AND INNOVATION

Paper to be presented at the DRUID Summer Conference 2007 on APPROPRIABILITY, PROXIMITY, ROUTINES AND INNOVATION Copenhagen, CBS, Denmark, June 18-20, 2007 EXPLORING KEY CHARACTERISTICS OF LEAD USER WORKSHOP PARTICIPANTS: WHO CONTRIBUTES BEST TO THE GENERATION OF TRULY NOVEL SOLUTIONS? Christoph Hienerth Department of Industrial Economics and Strategy ch.ivs@cbs.dk Marion Pötz Vienna University of Economics and Business Administration marion.poetz@wu-wien.ac.at Eric von Hippel MIT Sloan School of Management evhippel@mit.edu Abstract: In this paper we explore key characteristics of lead users based on a sample of 81 lead user workshop participants. We find that lead users from analogous markets, particularly those reflecting high market distance, contribute solutions that are significantly more novel than do lead users from target markets. We also find that lead users with a high level of direct use experience make better contributions than do equally qualified individuals without such experience. These new insights enable a more efficient search process for lead users and allow tailoring the set of workshop participants to the goal of generating breakthroughs. JEL - codes: O31, -, -

Exploring key characteristics of lead user workshop participants: Who contributes best to the generation of truly novel solutions? Abstract Truly novel ideas and concepts constitute the first step towards radically new products or services (e.g. Cooper and Kleinschmidt 1994). Research on the sources of innovation shows that particularly lead users are capable of coming up with new product concepts that are both truly novel and of value to the market as a whole in the future (e.g. von Hippel 1986, Urban and von Hippel 1988, Morrison et al. 2000). It has been suggested that lead users from advanced analog fields may be the most likely sources of the most radical and potentially profitable new ideas (Lilien et al. 2002). In this paper we provide the first empirical exploration of this possibility. Our analysis is based on a sample of 81 lead users that were identified in the course of 10 lead user projects conducted between the years 2003 and 2006. We find that lead users from analogous markets contribute concepts that are significantly more novel than do lead users from the target market. Our findings show that the novelty of concepts contributed is a function of the market distance of a lead user between his/her analogous market and the target market problem. In contrast, technical distance has a negative influence on the novelty of concepts. We also find that idea contributors that have direct and effective user experience make better contributions than do equally qualified individuals without such experience. We can further provide empirical evidence that the level of use experience of a lead user workshop participant significantly influences the generation of most innovative solutions. These new insights should enable a more efficient search and selection process for lead users and allow tailoring the set of lead user workshop participants to the goal of generating breakthrough innovations. 1

1. Introduction The generation of truly innovative new product ideas and concepts is a key task for firms on their way to a breakthrough in the market (e.g. Cooper and Kleinschmidt 1994). Integrating external problem solvers, like lead users, into a firm s new product development activities is a promising approach to support this task (e.g. Urban and von Hippel 1988, Morrison et al. 2000, Lakhani 2006). As proved by several empirical studies, a person s lead userness is significantly related to the likelihood of generating commercially attractive innovations (e.g. Franke and Shah 2003, Morrison 2004, Franke et al. 2006). Following lead user theory, the lead userness of a person is defined as (1) his/her leading edge position on an important market trend and (2) his/her level of expected benefit from an innovation. With the lead user method, companies can systematically find and integrate these leading edge persons into their NPD efforts (von Hippel, 1986, Urban and von Hippel 1988). The lead user method has proved its high potential for successful idea generation in various industries by companies like 3M, Nortel, Johnson&Johnson or Hilti (Herstatt and von Hippel 1992, von Hippel, Thomke and Sonnak 1999, Gruner and Homurg 2000, Olson and Bakke 2001, Herstatt, Lüthje and Lettl 2002). Empirical research on the lead user method shows that lead user generated concepts are considerably better rated regarding novelty, originality, market share and strategic importance than concepts generated with traditional idea generation techniques (Lilien et al. 2002). Lead user concepts show, on average, an over eight times higher sales potential than traditionally developed concepts and are likely to generate breakthroughs (for a recent review on the lead user method see also Lüthje and Herstatt 2004). In spite of this seemingly enormous potential, finding and integrating the right lead users is still a tricky task in real lead user idea-generation projects. Although few studies have further investigated characteristics that differentiate lead users from more ordinary users and thus help to ease the identification process (e.g. Franke et al. 2006, Lüthje et al 2005, Schreier and Prügl 2006, Schreier et al. 2006), little is known about which type of lead users really contribute best to the generation of most innovative concepts. For example von Hippel (2005, p. 134) reports that experience shows that user developed innovations that are most radical (and profitable) relative to conventional thinking often come from lead users in advanced analog fields. Also Lilien et al. (2002, p. 1055) argue that learning from lead users outside the target market increases the likelihood of generating breakthroughs and call this a speculation that requires further investigation. But so far, there has been little empirical research on the quality of contributions of lead users from analogous markets in lead user 2

workshops. Furthermore it is still not clear where the benefit from a lead user s innovation (2 nd lead user characteristic) is derived from. It has been known for a long time that a high benefit from an innovation positively influences an entity s investment in finding an innovative solution (e.g. Mansfield 1968, Schmookler 1966). The benefit depends on an person s or firm s functional role and can be derived from using an innovation or from selling it (e.g. von Hippel 1988, Lüthje et al. 2005, Baldwin et al. 2006). Persons or firms can change their functional role over time, e.g. from benefiting as a user to benefiting as a seller, whereas any functional role is a potential source of innovation (e.g. von Hippel 1988, Hienerth 2006, Baldwin et al. 2006). Although Schreier and Prügl (2006, p. 25) showed that lead users tend to have more use experience in the underlying field, we still know little about the effects of a lead users source of benefit and his/her level of use experience on the novelty of the generated ideas and how this works for lead users from analogous markets. In this paper we explore key characteristics of lead users that contribute best to truly novel concepts in real lead user projects. Our analysis is based on a sample of 81 lead users that were identified in the course of 10 lead user projects conducted between the years 2003 and 2006. Contrary to existing studies, we are thus able to further investigate lead user characteristics on the basis of lead user workshop participants for the first time. Our research confirms that additional to the well known lead user characteristics being ahead of an important market trend and high expected benefit there are other key characteristics of lead users that make truly innovative results in lead user workshops. We show that a lead users market origin (whether he or she comes from the target market or from an analogous market) and source of benefit (whether he or she mainly benefits from an innovation by using or by selling it) significantly influence the novelty of developed concepts. Thus giving evidence to the existence of analogous market effects (lead users from analogous markets contribute to concepts that are more novel than lead users from the target market) and use effects (lead users mainly benefiting from using an innovation contribute significantly better to the generation of novel concepts) in the context of lead user studies. To deepen the understanding of these effects we can further provide first insights into the nature and role of distance between the target market and the analogous market and the influence of the level of use experience of lead users, both in the target and in analogous markets, on the novelty of generated concepts. Our findings show that analogous market effects stem from a high market distance of a lead user between his/her analogous market and the target market problem, whereas technical distance has a negative influence on the novelty of concepts. Although a 3

lead user s main source of benefit can change over time or both sources of benefit (benefit from using and selling) coexist with regard to a certain problem, the level of use experience of a lead user workshop participant significantly influences the generation of most innovative solutions. These new insights should enable a more efficient search and selection process for lead users and allow tailoring the set of lead user workshop participants to the goal of generating breakthrough innovations. In this paper we will first review related literature (section 2). Next we present our research context and methods (section 3). In section 4 we present our empirical findings and discuss their implications in section 5. 2. Review of related Literature Lead user characteristics Research on the sources of innovation reveals that, contrary to conventional thinking, users have often been the originators of commercially important product and process innovations in many different fields ranging from scientific instruments to sports equipment (for an overview of studies, see von Hippel 2005). But as this user innovation activity is not equally spread over the bulk of users, taking a closer look at what makes the difference between users who do or do not come up with attractive innovations suggested itself. A first promising answer was provided by lead user theory: Users who already face needs today that the rest of the market will only experience in the future (being ahead of an important trend in a market place under study) and expect relatively high benefits from a solution that addresses their advanced needs (expecting high benefit from an innovation) are likely to come up with particularly attractive innovations (von Hippel 1986, 2005). Urban and von Hippel (1988) could first give empirical evidence to lead user theory and showed that in the field of printed circuit CAD software concepts developed by lead users were more attractive to the market place than concepts developed by more traditional marketing research methods. Further studies in the fields of surgery (Lüthje 2003), web server software (Franke and von Hippel 2003) and library information systems (Morrison et al. 2000, 2004) confirm the positive relationship between a person s lead userness and the attractiveness of innovations. The most recent and rigorous evidence to support lead user theory empirically is provided by Franke et al. (2006). In their study they analyzed the two lead user characteristics, (1) being at the leading edge of an important market trend and (2) high expected benefit from an innovation, in the field of 4

kite surfing using continuous multi-item scales. They found that a high intensity of lead user characteristics has a significant positive impact on the likelihood of generating commercially attractive user innovations. Contrary to previous assumptions that being ahead of an important market trend explains innovation attractiveness and expected benefit explains innovation likelihood, Franke et al. (2006) could first show that the leading edge position of a person in terms of an important market trend (in this study the trend was to perform more radical kite surfing jumps) predicts both innovation likelihood and innovation attractiveness. Thus giving an indication that companies searching for most innovative solutions should focus on users who are at the leading edge of an important market trend (Schreier and Prügl 2006). This is supported by classical problem solving literature showing that a person s real world experience blocks him/her from finding truly novel ideas (e.g. Duncker 1945, Allen and Marquis 1964). Although also leading edge persons might be affected by this effect called functional fixedness, their constraints by existing solutions and past experiences are clearly lower as they already live in the future (von Hippel 1986). Whereas the first lead user component being ahead of a market trend is already clearly marked off, it is still an open question where exactly a lead user s benefit from an innovation (2 nd lead user characteristic) is derived from and how potentially different sources of benefit effect the quality of output in terms of truly novel products or services. It has been known for a long time that a high benefit from an innovation positively influences an entity s investment in finding an innovative solution (e.g. Mansfield 1968, Schmookler 1966). The benefit depends on a person s or firm s functional role and can be derived from using an innovation or from selling it (e.g. von Hippel 1988, Lüthje et al. 2005, Baldwin et al 2006). Although the users benefit from an innovation is more direct in nature and related to using new or improved products (Schreier and Prügl 2006), persons or firms can change their functional role over time, e.g. from benefiting as a user to benefiting as a seller or experiencing both sources of benefit at the same time. Hienerth (2006) for example report that rodeo kayak users first highly benefited from an innovation in the rodeo kayaking field by using it to conduct better and more innovative tricks and thus win competitions. Then some users started building kayaks for others in their community and finally even founded their own firms, thus their functional role changed and their source of benefit was derived from selling an innovative solution. Given that those user entrepreneurs still continue rodeo kayaking, they both benefit from using and selling an innovation in the rodeo kayak field at the same. As any functional role is a potential source of innovation (e.g. von Hippel 1988, Hienerth 2006, Baldwin et al. 5

2006) it is likely that lead users might derive their benefit not solely from using an innovation but also from selling it. But as the process of becoming leading edge with respect to a certain problem includes intensive preoccupation with existing solutions it is likely that the level of use experience effects the generation of innovative products and services. Lead users reflect high levels of use experience (e.g. von Hippel 1988, Lüthje 2004; Lüthje et al 2005). Schreier and Prügl (2006, p. 25) provide first empirical evidence and report that lead users tend to have more use experience in the underlying field. It can be assumed that pure sellers (benefiting from an innovation solely from selling) would lack this use experience and thus come up with less attractive innovations. Use experience relates to learning from experience and product usage and thus generating knowledge by directly acquainting oneself with existing solutions (e.g. Russell 1948, Alba and Hutchinson 1987). Further characteristics that seem to make a difference in the quality of a (lead) user s innovation can be found in his/her resources at hand. Franke et al. (2006) for example provide evidence that users local resources (e.g. technical expertise) positively influence the attractiveness of an innovation. This is supported by Lüthje et al. (2005) who show that users employ their local stock of information to develop innovations. A user s technical knowledge and skills will determine the type of solution that he/she will finally develop. Additionally to their findings with respect to use experience, Schreier and Prügl (2006) further report on positive relationships between a person s lead userness and his/her consumer knowledge (know how from various, e.g. magazines, beyond product usage), locus of control and innovativeness (measured by Kirton s Adaptive versus Innovative Personality Inventory). Although it has been suggested that lead users from advanced analog fields may be the most likely sources of the most radical and potentially profitable new ideas (Lilien et al 2002, von Hippel 2005), existing literature mainly focuses on analyzing users within a specific field the target market. So far, there is only anecdotal evidence for the potential of lead users from analogous markets for the creation of mostly innovative solutions. Herstatt et al. (2002) for example report on a lead user study with Johnson & Johnson Medical for the creation of innovative solutions for infection prevention in medical surgery. In that lead user study a valuable analogous market was found in the computer chip industry in which avoiding air pollution plays an even more important role. Also 3M regularly integrates lead users from analogous market in their innovation projects. In the case of a study concerning improvements of surgical drapes a leading edge veterinary surgeon and a leading edge make up artist 6

contributed to the generation of breakthrough surgical drapes. Both were facing the same need concerning infection control but in different (analogous) market and had already developed solutions for their specific needs that they could transfer to the target market of surgical drapes (von Hippel et al 1999). Connecting these observations to literature reveals that, although experience and expertise in a given field is an important driver for the creation of innovative solutions, also leading edge experts or lead users may be blocked by a phenomenon called functional fixedness (e.g. Allen and Marquis 1964, Chrysikou and Weisberg 2005, Duncker 1945, Gavetti et al 2005, Larkin et al. 1980, Magee 2005, Mokyr 2002, von Hippel 1988, Walberg 1988, Weisberg, 1993). Functional fixedness refers to the fact that individuals are constrained by their past experience and thus are only able to find novel solutions within their own solution space. Although Morrison et al. (2004) found that the actual development of innovations has a positive effect on a person s lead userness, a intensive development activity in a specific field comes along with an increasing functional fixedness in that field as expertise and experience rise at the same time. Psychologists suggest that using analogies can help overcoming this functional fixedness (e.g. Gick and Holyoak 1980, Genter et al 1997). This can either be achieved by stimulating analogical thinking (e.g. Dahl/Moreau 2002, Genter 1989, Gordon 1961, Holyoak and Thagard 1995) or by directly asking problem solvers, e.g. lead users, from analogous markets (e.g. Franke and Pötz 2006, Lakhani 2006, Lilien et al 2002). Analogous markets are linked to the target market by sharing a similar need or facing the same trend, e.g. the antilock braking system for cars was originally developed in the aircraft industry and then transferred to the automobile market (von Hippel et al. 1999). Both markets were linked together by sharing the strong need for braking quickly and safely. Because lead users from analogous fields are less likely to be blocked by existing solutions and can often transfer existing solutions of their market to solve the target market s problem, it is plausible that they come up with more innovative solutions. Thus the market origin of a lead user might be a central characteristic when it comes to the generation of truly novel new product concepts. Furthermore the level of distance between the analogous problem solver and the target market problem seems to influence the success of finding innovative solutions. In the context of analogical thinking Dahl and Moreau (2002) found that the percentage of far analogies used by the problem solver had a significant effect on the originality of the outcomes. Lakhani (2006) provides first empirical insights into this distance effect in the context of diverse fields of expertise. He found out that successful problem solvers were more often located at the 7

boundaries or outside the actual problem field with fields of greater distance are more likely to provide innovative solutions. To investigate the origin of the provided solutions, Lakhani (2006) had a closer look at how much the problem solvers had to modify their existing solutions to solve the target market problem. Thus he focussed on the technical aspect of distance between two different fields of expertise. But the distance between two fields has both a technical and a market component (e.g. Dahlin and Behrens 2005, Frishammer and Hörte 2005, Rosenkopf and Nerckar 2001, Rosenkopf and Almeida 2003, Stuart and Podolny 1996, von Hippel 2005). This means that the target market and possible analogous markets don t only differ in terms of their technical solutions but also with regard to their customers and customer needs. But so far there has been only little research on which component influences the generation of truly novel solutions in which way. Lead user method The lead user method is a systematic way for identifying and integrating lead users into firms new product development efforts (e.g. Urban and von Hippel 1988, von Hippel 1988, Herstatt and von Hippel, 1992, Lilien et al. 2002). It refers to a multi stage approach starting with the definition of a problem field and ending up with the generation of innovative solutions for that specific field (for a recent review of the process see Lüthje and Herstatt 2004). Once the problem field is defined, an interdisciplinary team identifies major needs and trends that are relevant for the search field in question by using secondary data research and interviews with market and technology experts. The trends identified then constitute the main directions for searching for users at the leading edge of those trends. To identify users at the leading edge several search techniques can be applied (e.g. von Hippel 2005). Screening the population of users for lead user characteristics is one possible way but can only be applied economically for small populations and is restricted to a search within the boundaries of this population. Another search technique is called pyramiding. In a pyramiding search process the searcher uses a system of referrals to network him/herself towards the top of the pyramid (the lead users with regards to a certain trend). In a recent study Prügl (2006) compared the efficiency of screening and pyramiding and could first show that pyramiding outperforms screening for the purpose of lead user search. During a pyramiding search process it is also likely that lead users in the target market may refer to relevant analogous markets. As they have been struggling with their specific problems for a long time they might have already looked beyond their own boundaries to solve them (von Hippel 2005). According to Lakhani (2006) another approach for finding lead users is to broadcast the problem in question into an online 8

community and get in contact with successful problem solvers. In agreement with Linus s Law ( Given enough eyeballs, all bugs are shallow, Eric S. Raymond, 1999) it switches the direction by publicising ( broadcasting ) unresolved issues or requests for improvement e.g. in internet forums while appealing to lead users intrinsic motivations and/or offering to them extrinsic incentives for useful solution contributions. It is very likely that behind a good idea or solution one can identify a potential lead user (Jeppesen and Frederiksen 2006). Idea competitions for the identification of lead users follow the same idea of broadcasting a problem and finding solutions and the persons behind these solutions. The setup as an idea competition should promote the number and quality of problem solvers (Piller and Walcher, 2006, Toubia 2005). Once lead users are identified they are invited to participate in a two to three days lead user workshop in which lead users together with representatives from the firm work on the development of innovative new product concepts. Typically a lead user workshop has around 10 to 15 participants with a maximum of one third coming from the firm initiating the lead user study (e.g. Lilien et al. 2002). Successful applications of the lead user method in various industries indicate the potential of the lead user method for new product development (e.g. Herstatt and von Hippel 1992, von Hippel, Thomke and Sonnak 1999, Gruner and Homurg 2000, Olson and Bakke 2001, Herstatt, Lüthje and Lettl 2002). A first empirical comparison of the outcomes of lead user studies with ideas generated by more traditional market research techniques shows that lead user generated new product concepts are considerably better rated in terms of their level of innovation and sales potential (Lilien et al. 2002). Development of research question New product concepts generated in lead user workshops are likely to constitute the basis for breakthrough innovations, e.g. in the case of 3M each funded lead user project was projected to create a new major product line for a 3M division (Lilien et al. 2002). So far we know that theoretically lead users participating in a lead user workshop should highly reflect the two main lead user characteristics being ahead of an important market trend and highly benefiting from an innovative solution and access local resources like their technical experience (e.g. Franke et al. 2006). Furthermore it is likely that they have a high level of use experience and come from both the target market and relevant analogous markets (e.g. Schreier and Prügl 2006, von Hippel 2005). Nevertheless little is known about which of these characteristics really contribute to the generation of truly novel solutions. In our study we address this research question by analyzing the participating lead users in 10 lead user 9

workshops. Answers to this question should help to better understand what really influences the generation of truly novel solutions in a lead user project and thus enable to tailor the search processes for lead users accordingly. Method Context for empirical research The context for our empirical study refers to ten lead user projects that were conducted between 2003 and 2006. All lead user studies did include the standard four stages: the definition of a search field, the trend search, the search for lead users and their ideas and finally the lead user workshops (e.g. Lilien et al. 2002, Lüthje and Herstatt 2004). Data was gathered at all stages of the lead user studies, including information about the search process for lead users, the actual lead user workshops and post workshop coding of lead user characteristics. Tracking all lead user projects in a standardized manner allows us to draw upon a large sample of individual lead users and their attributes. The lead user projects were conducted with companies from different industries and different size classes. Table 1 gives and overview of the projects including the respective search fields. Insert Table 1 about here The lead user method was employed to develop truly novel solutions for different products and services in each lead user study. The variance in projects enables general insights into the development of innovative concepts with the lead user method and the characteristics of the participating lead users. We controlled for effects caused by the composition of the individual workshops finding no significant differences related to the industrial background of the companies hosting the lead user studies. All lead user projects were done within a time frame of four months. In order to collect data and measure the dependent and independent variables we used a multistage process, drawing upon different sources of data (audio and video recordings and transcripts, transcribed interviews, secondary data from journals, reports, memos, and coding) and controlling for effects typically arising in interview and workshop settings (Miles and Huberman, 1994). The data collection process started with the search for lead users, employing pyramiding and broadcasting methods to identify lead users. Further data was 10

collected during the identification and selection of lead users and at the lead user workshops by tracking information about the individual lead user characteristics and the way they developed innovative concepts. The measurement of the dependent variable was done at the end of each lead user workshop by having the company representatives evaluate the generated concepts with regards to their novelty, value and realizability. The measurement of the independent variables was organized during a special coding workshop designed according to key suggestions for intercoder reliability (Lombard et al. 2002, Krippendorf 2005). Coding was done by selected observers of the lead user projects. All together, 3347 persons were contacted during the interview processes for trend and lead user identification including interviews with representatives from the companies hosting the lead user studies, industry experts, users and lead users. Recorded data approximately includes 80 hours of audio and 50 hours of video. Detailed data about the process of the lead user projects, the individual stages, as well as a description of the search processes and the generated outcomes were summarized in project reports for each project. The following methods part of the paper is organized with regards to the consecutive steps taken. We start with a description of the lead user identification process. Then we show how the novel solutions were generated during the lead user workshops and give information on the final sample of lead users. Following, we describe the measurement of the dependent variable and of the independent variables. We used different sources to measure the data needed for our model, thereby reducing single source and single method bias (Podsakoff et al. 2003, see the measurement in more detail below). We address other potential biases and our strategies to deal with resulting pitfalls throughout the corresponding individual passages. Data Lead User Identification Our data comprises information about 81 individual lead users taking part in ten different lead user projects. In order to identify and select the lead users for the lead user projects we employed the two search methods, pyramiding and broadcasting (von Hippel et al. 2005, Prügl 2006, Lakhani 2006). In both search approaches data about the ideas mentioned and characteristics of potential lead users and lead users selected for the participation in the lead user workshops was tracked. 11

To secure comparability of the search results (based on interviews with potential lead users) we conducted an interviewer training in every lead user project and used standardized interview forms and broadcast strategies that were adapted to the respective search field. By doing so we tried to avoid biases caused by interviewer/researcher effects (Miles and Huberman 1994). In addition we used feedback from the informants (interviewees, e.g. industry experts and lead users) in both, the second (trend identification) and third stage (lead user identification). We thus weighted the evidence about promising trends and lead user ideas in order to avoid single informant biases (Miles and Huberman 1994, Podsakoff et al. 2003). As the search for lead users first requires the identification and selection of important needs and trends (Lilien et al. 2002), we start with a description of the number of trends identified and selected. The average number of trends identified throughout all the lead user projects is 14, whereas the minimum is 6 and the maximum is 33. On average 100 interviews per project with technology and market experts including a number of users were conducted to derive at the trends relevant for the search field in question. The interview process was accompanied by a widespread secondary data research in literature, data bases, websites and online forums. The average duration of the trend search process was 4 weeks. Trends were selected (1) according to their relevance for the search field and their transferability to the search field and (2) based on the frequency of citations in interviews and secondary data. Relevance and transferability were rated by the company representatives using a 10-point scale with 1=very low relevance/transferability and 10=very high relevance/transferability. The trends with the highest ratings on both dimensions and a high number of citations were finally selected to constitute the basis for lead user identification (on average 3 trends per project). Based on the selected trends pyramiding and broadcasting techniques were used to identify potential lead users. Again, we conducted a training to secure standardized procedures during the pyramiding interviews and for the broadcasting in online forums. While we used pyramiding in all lead user projects conducted, broadcasting was used in the last 5 projects, starting after first empirical insights on the method (based on Lakhani 2006). With regards to pyramiding, the average chain length (number of interviews) to derive at the target point, the lead user, is 2.08 given the use of appropriate starting points as suggested by von Hippel et al. (2005) and Prügl (2006). With regards to broadcasting, we used 65 different online 12

communities and started 71 threads. Altogether, we received 266 answers with 23% of the answers providing a concrete idea for the search field in question. Both in the pyramiding and the broadcasting process the searchers tracked information concerning the interviewees lead userness, market origin, technical know how, use experience, previous innovative activities and ideas for the search field in question. The information gathered was collected in the form of lead user profiles giving a detailed description of each potential lead user workshop participant. In total, we identified 247 lead users from the target and analogous markets using pyramiding and broadcasting as search tools and invited 81 to the final lead user workshops. The selection of invited lead users was done by the company representatives using based on the lead user profile. Tracking the generation of novel solutions The generation of truly novel solutions is the main goal in every lead user project. These solutions are generated during the lead user workshop which represents the last stage of the lead user project. For the tracking of novel solutions a standardized procedure was used. That procedure includes 1) the design of the structure of the lead user workshop itself and 2) the tracking of information along the lead user workshop. With regards to the design of the lead user workshop, one design was used throughout all lead user projects. It provides for a standard group work of the lead users invited to the workshop. In subgroups of six people, three lead users worked together with one member from the company, one moderator and one person doing the documentation of the communication and development progress with respect to the innovative concepts. All together, three working sessions were done over two days supplemented by presentations of the results of each subgroup in plenary sessions including feedback and discussion. With regards to the tracking of information, documentation includes written data collected by the person doing the documentation in the sub groups, audio data from recording the work in the sub groups and additional video data from the main presentations in the plenary sessions. Additional, all written data generated by the lead users themselves (flip charts, drawings, etc.) was collected and electronically filed. Using a standardized procedure allows to control for workshop effects and to evaluate potential differences in the contributions of individual lead users. In this project however, no significant differences concerning the individual workshops and the contributions of lead users in the subgroups could be identified. Work in the subgroups that lead to the novel concepts was rather a very interrelated and interactive 13

process, not allowing to code differences of contributions within the setting designed at this stage. In total, 40 innovative solutions were generated in all lead user projects tracked. Sample and sample characteristics The sample consists of 81 lead users that were invited to participate in the 10 lead user workshops. The mean age of the lead users invited is 42.1 years (ranging from 23 to 78 years). Concerning education, 59.3% of all lead users have an academic degree, while 40.7% have not. Looking at the distribution of lead users concerning their main source of benefit from an innovation two different groups can be identified: One group has a strong benefit from using the innovations only. That group is referred to as users as they conform to the traditional definition for users and their functional benefit (von Hippel 2005). The people in the second group benefit from selling i.e. supplying innovations. Although their main current benefit is derived from selling innovations, interestingly all participants either benefited from using in the past (change of functional role over time) or benefit from using and selling in parallel their. That is a slightly developed version of the user/supplier/manufacturer definition given in von Hippel (2005) meaning that suppliers as well as users can be leading edge persons for lead user projects. In the sample both groups are nearly equally represented with the percentage of users being 46.9% and the percentage of suppliers being 53.1%. From the total of 81 lead users, 48 are from analogous markets, while 33 come from the target market with respect to the particular project. As proposed by literature (e.g. Lilien et al. 2002) the analogy relationship between target and analogous markets is based on sharing the same need or trend. With the exception of one single individual, all lead users had already performed innovative activities in their field and 81.5% of them had even supplied one or more innovative solutions to the search field during the interview processes prior to the workshop. Measurements Dependent Variable Following previous research (Lilien et al. 2002, Lüthje and Herstatt 2005, von Hippel 2005) the most important aspect in a lead user project is the true novelty of the concepts generated. However, other aspects that have to be taken into account are the potential value of the concepts (do they really solve the problem?) once transformed into new products or services and their realizability towards marketable products. Therefore, a main condition for a positive outcome of a lead user project is concepts that show true novelty, with the additional 14

conditions of potential value and realizability. This is in line with the more traditional literature on new product development (Damanpour 1991, Christensen et al. 1998, Calantone et al. 2006) which identifies multiple predictors for successful innovations around the actual innovativeness of concepts, ideas or prototypes. Therefore, in the model explored in this study, novelty is the central dependent variable. Additionally we control for the potential outcome of the innovative concepts with regards to their value and realizability. All three variables were evaluated for each concept at the end of each lead user workshop. Representatives from the company (in each case three to four persons from different departments like R&D, marketing or production) rated the developed new product concepts according to their novelty, value and the realizability. Choosing those characteristics also enabled an expectation of the importance the concepts would later on have inside the company. For the evaluation process insights from the intercoder reliability website hosted by Lombard, Snyder-Duch, and Bracken were applied, with reference to Lombard et al. (2002) and Krippendorf (2005). First, equal rating schemes and explanations were used in each lead user workshop to secure comparability of the ratings. Second, all company representatives were instructed in the same way. Reference points were set for each variable according to innovations developed inside the companies (a value of 2.50 was set to represent a successful new product development project). Thus, results are always relative to innovative activities inside of the companies hosting the lead user project and can so be compared across the projects. The concepts were first rated on 5-point scales ranging from 1= low novelty/value/realizability to 5=high novelty/value/realizability. Next, the mean values were constructed for each concept and variable. Results were discussed with the company representatives. They had the option to agree or disagree with the generated results and explain their rating. By using a two step approach full agreement could be reached. The final result of the coding is thus an agreed evaluation for novelty, value and realizability for each concept at each lead user workshop. Contributions of individuals were double checked by analyzing the audio and video documentation from the workshops and by discussing the teamwork with the assisting moderators of each group. Evaluation of the concepts can be attributed to the individual lead users within the group as the generation of the concepts is a closely interactive process. This approach is supported by the research on teamwork and team processes of heterogeneous individuals in groups (e.g. Rousseau et al. 2006). 15

Results of the concept evaluation show high values for all concepts regarding all three variables (see table 2). Controlling for the reference point set (2.50) shows significant positive values for all variables implying that all generated concepts score significantly higher than company internal projects, not only in novelty (being the main goal in lead user projects) but also concerning the potential value and realizability of the concepts (confirming the results in Lilien et al. 2002). Insert Table 2 about here Additionally, correlations between the individual variables (concept evaluations regarding novelty, value and realizabilty) were analyzed. There is a significant negative correlation between novelty and value (-0.344, p=0.002) and between novelty and realizability (-0.359, p=0.001). In contrast, there is a significant positive correlation between value and realizability (0.417, p<0.000). So, although all concepts show significant positive values compared to standard company internal projects on novelty, value and realizability, the more extreme the degree of novelty the less the potential value and degree of realizability of the concepts. This is not untypical compared to experiences in new product development (e.g. Rogers 1995), expressing that there seems to be an optimum degree of novelty for an immediate transfer to the market. Beyond that point, evaluation of value and realizability seems to decrease due to the impossibility to imagine the precise outcome of the project. The significant positive correlation between value and realizability can be interpreted accordingly. Independent variables The independent variables refer to the characteristics of the lead users invited to the lead user workshops. As mentioned above, data for the independent variables was collected after the ten lead user workshops by coding. The information used for coding was collected prior to each workshop (interview transcripts, lead user profiles, descriptions of innovative ideas for the search fields and relevant secondary data) and during each workshop (audio files and also workshop reports). Using various forms of data facilitated the coding process and enabled coders to draw upon several sources of information about the lead user workshop participants. In two coding workshops, 32 coders rated the lead user workshop participants according to nine different aspects: (1) trend position and (2) expected benefit from an innovation (together building the lead userness) rated on a 5-point scale with 1=very low and 5=very high; (3) main current source of benefit coded with 1=benefit from using and 0=benefit from selling an 16

innovation; (4) use experience (how much the person is experienced in using or applying the solution in his/her own market) with 1=very low and 5=very high; (5) market origin (coming from the target market in which the problem/search field is located or from an analogous market) coded with 0=target market and 1=analogous market; (6) market distance (the distance between the target market and the analogous market in terms of market related characteristics like customers, needs, products, etc.) with 1=very close and 5=very far; (7) technical distance (the distance between the target market and the analogous market in terms of characteristics of the technical solution like function, size, weight, complexity, etc.) coded with 1=very close/little modifications necessary and 5=very far/many modifications necessary; (8) technical knowledge (how much the person knows about how the technical solution works and how it can be modified) with 1=very low and 5=very high; and (9) innovative activities related to the search field (intensity of innovative activities that are related to the target market search field and trends) coded with 1=very few and 5=very many. The coding was done by observers who had participated in the lead user workshops knowing the method but being blind to the purpose of this study. Detailed written information about the lead user workshop participants (including lead user profiles, interview protocols, workshop protocols and transcripts and additional background information about the market the lead users operate in and their innovative activities prior to the lead user workshop) was supplied for each coder at both coding workshops. Coders were matched with the lead user workshops they had been part of. At least 3 ratings per lead user workshop participant and variable were generated. In the workshops a multistage (in our case five step) approach as suggested in Krippendorf (2004) and Hayes and Krippendorf (in press) was used to ensure a proper rating of the variables. (1) The first step was a rater training, giving examples for each variable and defining reference points for the rating. (2) Next, each coder rated all the variables assigned. The result of that stage was an individual rating from all raters. (3) Following, the results were analyzed and the differences in the ratings were shown. The raters were encouraged to articulate their thoughts and explain their ratings among each other without changing their ratings immediately. (4) In a second coding round the raters could change their ratings individually, if they wanted. (5) The final results of the coding were presented to all raters and discussed. No more changes were needed after that discussion. For computing interrater reliability Krippendorf s alpha was used as it is the only measure that can process more than 17

two raters and metric data (see Krippendorf 2004). The values for interrater reliability generated are well above the recommended minimum levels (being above 0.80 as recommended in Krippendorf 2004): trend position: 0.90; expected benefit: 0.86; source of benefit: 1.00; use experience: 0.93; market distance: 0.97; technical distance: 0.96; technical knowledge: 0.95; market origin: 1.00; innovative activities related to the target market: 0.92. The data used for further analysis in the paper is the mean value out of all coder ratings. The data was also checked for multicollinearity and extremes in residual values without identifying noticeable problems. To control for workshop effects (bias caused by nested data from individual workshops) the search field background (business to business vs. business to consumer products or services) was analyzed without identifying significant differences in causal relationship with the dependent variable. Further control variables used for the characteristics of leading edge people invited to the workshops are age and education. Findings Following the theoretical framework developed above and the research question formulated this section is divided into three parts. The subsequent section gives a descriptive overview of the key variables analyzed. Following, effects caused by the source of benefit and the market origin (target versus analogous market) are analyzed by comparing means with regards to the novelty of the concepts generated. Last, the central part of this section deals with multivariate analysis, relating key characteristics of the leading edge persons invited to the lead user workshops to the novelty of the final concepts generated. Additionally two multivariate models regarding the value and realizability of the concepts generated are presented in order to control for further effects. Descriptive results Descriptive results give first insights into the distribution of characteristics of the lead users invited to the lead user workshops (see table 3). Insert Table 3 about here Starting with the traditional lead user construct, here referred to as lead-userness (an index of the leading edge position and the expected benefit from innovations), the high mean of 3.89 expresses the leading edge quality of persons invited to the lead user workshops (as expected). Similarly, the use experience (with a mean of 3.09) and the technical knowledge (with a mean 18

of 3.94) have been coded very high for all lead user workshop participants. The high value of use experience shows that the persons invited have actively made contact with the products or prototypes or problems that were related to the topic of the lead user workshops. The high value for technical knowledge is an indication that the lead user workshop participants were able to technically understand the problem and develop solutions with their accumulated level of knowledge. The value for innovative activities related to the search field (mean of 2.85) is slightly lower. This is caused by the mix of lead users from target markets and analogous markets. Looking at the mean value for individuals form the target market alone, the mean value is much higher (at 3.39). However, leading edge persons from analogous markets have also had innovative activities related to the target market problem being connected over the trends in the particular search fields. The two remaining measures, market distance and technical distance express the similarity or dissimilarity of key variables in the field of activities of the invited person related to the search field. Basically both values here are lower because invited lead users who come from the target market have no market or technical distance at all (therefore have been coded with a value of 0). Regarding the market distance (differences in types of customers, products, etc., see above) the slightly higher mean value shows that people from far analogous markets were invited (with coding on the full range of the scale). The technical distance (differences in functionality of products or solutions, size and weight, complexity, etc.) is lower with extreme values only being coded up to a maximum of 4. This might be due to two aspects. One is that lead users from closer technical fields were invited. Another, more plausible explanation as noticed in the lead user workshops is that technical understanding or know how can often easily be transferred from analogous markets regardless of the actual characteristic of the existing products, solutions or technologies used in the search field which is a clear difference to market characteristics. Summarizing these first impressions we can show that lead user workshop participants highly reflect well known lead user characteristics as described in lead user theory. Additionally, new aspects seem promising to further characterize lead users to be invited to a lead user workshop. These aspects mainly concern the distance they have from the target market (analogous market effects) and the level of use experience. 19

Effects from source of benefit and market origin As already discussed in the literature section the current main source of a lead user workshop participant s benefit (using or selling) and his/her market origin are two aspects that are important to test regarding the novelty of the concepts, their value and realizability (see table 4) Insert Table 4 about here Concerning the source of benefit, lead user workshop participants were coded according to their current main role, benefiting more from selling innovations (code 0) or benefiting more from using an innovation (code 1). So, although individuals can show a certain degree of use experience, the benefit they derive from an innovation can be assigned to one of the two main roles stated. Concerning the characteristics of the innovative concepts generated there is a significant difference between lead user workshop participants who mainly derive their current benefit from using (referred to as users) and those who currently mainly expect benefit from selling innovations (referred to as sellers). Users have developed innovative concepts that are significantly more novel than those from sellers (p<0.01). Regarding the value of the generated concepts and the realizability there is no significant difference between the two groups. A conclusion from that result is that lead user workshop participants who mainly expect benefit from using an innovation can develop significantly more novel concepts while they do not fall back regarding value or realizability compared to participants who currently derive their main benefit from selling an innovation, thus indicating use effects. As all sellers had also a certain amount of use experience (because they changed their functional role over time or combine both roles details see methods part), we will later on use the variable use experience in the regression analyses. The second aspect that allows a grouping of lead user workshop participants is their market origin. Lead users invited to the workshop came both from the target market as well as from analogous markets. Where are the differences here regarding the outcome of the innovative concepts? Again there is a significant difference regarding the novelty of the concepts. Lead users from analogous markets have developed more novel concepts than lead users from the target market (p<0.05). Regarding the value and the realizability of the innovative concepts there is no significant difference. This result is interesting in two aspects. First it confirms thoughts that have been raised in existing literature about the advantages of people outside the target contexts for new product development who can help to unblock functional fixedness. 20

Second, there are again no significant differences regarding value and realizability of the innovative concepts generated between lead users from the target market and those from analogous markets. This has implications on the potential composition of teams for developing innovative concepts: Lead users from analogous markets can come up with more novel concepts while there seems to be no significant difference to lead users from the target market considering the other important aspects of innovations: value and realizability. The distance to the search field and the knowledge lead user from analogous markets can provide concerning other (maybe more advanced) technologies and other market characteristics seems to give them an advantage concerning the novelty of their ideas for the target market problem. Characteristics of lead user workshop participants related to the novelty of solutions This section deals with the results obtained from analyzing the causality of characteristics of lead user workshop participants with regards to the novelty of the final concepts developed at the workshops. As already shown in the method section and in the descriptive results above all concepts have scored significantly positive and better than ordinary company internal projects regarding value and realizability. In the following multivariate analyses we therefore focus on the most novelty of concepts as a dependent variable. Insert Table 5 about here The model (see table 5) includes three control variables (age, education and the industrial setting of the workshops) in addition to the main aspects to be analyzed, lead userness, use experience and previous innovative activities, different aspects of distance to the search field problem and technical knowledge. The control variables selected do not have a significant influence on the novelty of the concepts generated. That concerns personal, general characteristics of the lead user workshop participants (as age and education) as well as influences from the industry background of workshop (dummy coding, 0=B2C and 1=B2B). All other variables seem to have a significant, although different influence on the outcome, the novelty of concepts generated. The two strongest causal effects concern the lead userness (p<0.01) and the market distance of the people invited to the workshops (p<0.05). Thus, leaduserness plays an important role for the degree of novelty, as already shown in other studies about lead users and their impact on the outcome of innovative concepts. Interestingly, the market distance has an even stronger effect, showing that people from analogous markets who 21

have experiences with different products, different customers and customer needs without being functionally fixed can contribute more to truly novel concepts. Furthermore, the technical knowledge of a lead user workshop participant also has a positive relation to the novelty of the concepts (p<0.05). Technical knowledge seems to be a prerequisite to be able to develop an idea from a very early stage to a concrete concept. Use experience has a lower but still positive and significant influence on the novelty of the concepts generated (p<0.10). The results confirm yet another aspect of lead users in relation to the novelty of concepts: the amount of use experience they have. More precisely, it does not only matter to have the central lead user characteristics (leading edge position on a trend and expected benefit from an innovation) to develop more novel concepts. There is an additional aspect of what experiences an individual has already made by using products or solutions in various applications (including everyday situations as well as collecting application experiences by experimenting a lot with the object or technology). Therefore it seems beneficial for the novelty of the concepts generated that individuals exhibit that kind of characteristic naturally (because they belong to the group of users) or because they have involved themselves within their professional setting in finding out more about the applications of their innovations (when they belong to the group of sellers). Another effect that might seem to be unexpected at first is the negative value for the innovative activities related to the search field problem (p<0.10). Results of the model show that the higher these innovative activities of a lead user workshop participant are, the lower the novelty of his/her solutions will be. An explanation here is that lead user workshops are targeted towards truly novel concepts, radical breakthroughs. So, arguing from the perspective of the innovator developing a great number of various inventions or generating many ideas does not automatically mean to be able to develop a radical concept. Additionally, individuals that might have innovated too much in a certain field might be functionally fixed to their existing solutions and keep on developing similar solutions. hat effect is also a rather logical complement to the positive effect of market distance. In combination one could argue that lead users will try to apply the solutions they know or have been used to work with. In the case that they come from an analogous market (which means market distance) they will be advantageous for an innovation project while when they come from a very close field or even from the target field they might not be able to produce the same high degree of novelty. It has though to be mentioned that an optimum mix of people will lead to the best result of a lead user workshop and that the effects that are shown here for the first time are only an indication 22

for more complicated contexts that have to be considered. In line with that is the value of the last characteristic, the technical distance of lead users to the target market problem (search field). In the model that value is slightly negative (p<0.10), expressing that it is important to have a close technical relation to a problem in order to being able to develop really novel concepts. So while it seems to be important to have a greater distance concerning market aspects, a close technical relation between the target and an analogous market somehow seems to be an enabler to realize truly novel ideas conceptually, i.e. to develop them further as to the stage of a basic idea. Summarizing the model from a technical point of view it is promising that a number of effects that have been anticipated by literature seem to be quite strong, given the rather small number of cases. Although significance levels of the variables tested are not always below the 5% or 1% level they still allow clear conclusions from the data set given. Discussion The goal of this study was to reveal which characteristics of lead user workshop participants might be most important to search for when aiming at truly novel solutions. That is clearly the case when organizing a lead user workshop but it might also be applicable for rather general aspects of innovation projects when aiming at very radical ideas. Our findings show that next to well know lead user characteristics like the leading edge position on important market trends and the expected benefit from an innovation there are other key characteristics of lead users that make truly innovative results in lead user workshops. We show that a lead users market origin and source of benefit significantly influence the novelty of developed concepts. Thus giving evidence to the existence of analogous market effects (lead users from analogous markets contribute to concepts that are more novel than lead users from the target market) and use effects (the level of use experience positively influences the generation of truly novel solutions). To deepen the understanding of these effects we can further provide first insights into the nature and role of distance between the target market and the analogous markets on the novelty of generated concepts. Our findings show that analogous market effects stem from a high market distance of a lead user between his/her analogous market and the target market problem, whereas technical distance has a negative influence on the novelty of concepts. While in the context of real lead user studies existing research has focused on the different outcomes of lead user projects (e.g. Lilien et al. 2002) this study is aimed at the input side of a 23

lead user project by analyzing the effects of different characteristics of lead user workshop participants on the novelty of the generated outcome. Our findings can help to better understand what really influences the generation of truly novel solutions in lead user projects and thus enable to tailor the search processes for lead users accordingly. Firms conducting lead user studies in the future are well advised to integrate lead users from far analogous markets in terms of market characteristics but with a relatively low technical distance and high levels of use experience and technical knowledge. Doing so, they can really make a cooperation with lead users, e.g. in the form of a lead user workshop, a platform for the generation of breakthroughs. Further to tailoring the search processes for lead users, companies can also use our findings for generating the optimal mix of participants in a lead user workshop. As one person might not have all characteristics combined at once, with the selection of a heterogeneous group of lead users from the target market and analogous markets and lead users with a high level of use experience and those with lots of technical knowledge outcomes of lead user projects might be most innovative. The analysis of lead user characteristics with regard to the quality of concepts generated by group work during the lead user workshop is clearly a limitation of our study. Tracking the individual performance of lead users throughout lead user workshops would thus be an interesting aspect for further research. Also with respect to the independent variables surveying all lead user workshop participants could provide further insights into their characteristics thus complementing the results of the coding workshops. Although it seems quite plausible that distance somehow refers to a market and a technical component, further analysis on the nature of distance, e.g. with regard to advanced market effects, and effects of different levels of distance could provide new insights into the topic. These new insights might again support the search and integration of lead users in particular but also more general address the question of which external problem solvers contribute best to generation of breakthrough innovations. 24

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Table 1: Overview of lead user projects Project Industry Employees Sales Search field No. volume 1 Drilling oil and gas wells 49,919 $19,949.80 M Value added services at petrol stations 2 Alcoholic and other 38 $22.20 M beverages Functional beverages/packaging 3 Communication 553 $97.70 M Decision support for air traffic systems (for air traffic controllers control) 4 Electrical and electronic equipment 7,852 $5,933.30 M B2B communication systems for office workplaces 5 Escalators and elevators 782 $255.20 M Pre-assembly, transport and insertion of escalators 6 Software consultancy and supply for logistic 45 $2.8 M B2B stock logistics systems 7 Telecommunications 244,000 $76,322.90 M Stability monitoring for truck-cranes 8 Construction machinery, cranes 3,087 $665.90 M Online entertainment for broadband networks 9 Escalators and elevators 782 $255.20 M Step chain systems 10 Motor vehicle parts and 90 $101.25 M accessories Crush protection for passenger cars Information based on 2005 data from Amadeus database and Thomson Gale. Table 2: Results of concept evaluation Novelty Value Realizability Average a 3.80 3.70 3.50 T = 22.00*** T = 14.53*** df = 80 df = 80 mean diff. = 1.20 mean diff. = 0.99 t-test for single sample, T = 19.18*** test value=2.50 b df = 80 mean diff. = 1.29 n=40; ***p<0.001, two-tailed tests a mean values, five point rating scale: 1=very low, 5=very high b average company internal concept Table 3: Descriptive results of key characteristics Variable Mean SD Min Max Lead userness a 3.89 0.71 2 5 Innovative activities related to the search field b 2.85 1.10 0 5 Use experience a 3.09 1.33 1 5 Market distance b 1.69 1.63 0 5 Technical distance b 1.01 1.03 0 4 Technical knowledge a 3.94 1.16 1 5 n=81, a five point rating scale: 1=very low, 5=very high, b six point rating scale: 0=no activities / no distance, 5=many activities / high distance 30

Table 4: Comparison of means of source of benefit and market origin Variable Novelty Value Realizability Source of Using (n=38) 3.95** 3.66 3.42 benefit (current main role) Selling (n=43) 3.64** 3.74 3.55 Market origin Target market (n=33) 3.62* 3.79 3.53 Analogous market (n=48) 3.90* 3.64 3.46 All values are means, n = 81; one tailed t-tests for independent samples Five-point rating scale: 1=very low, 5=very high; **p<0.01; *p<0.05 Table 5: Regression results explaining novelty of innovative concepts Variable Standardized coeff. Standard error p-value Constant 0.453 0.000 a Age 0.091 0.006 0.453 a Education 0.035 0.135 0.752 a Industrial backround of workshop (B2B/B2C) 0.001 0.135 0.996 a Lead userness 0.376 0.122 0.006 b Use experience 0.174 0.059 0.093 b Innovative activities related to the search field -0.236 0.081 0.056 b Market distance 0.391 0.070 0.021 b Technical distance -0.290 0.112 0.067 b Technical knowledge 0.271 0.069 0.022 b n=81; R² = 0.33, R² adjusted = 0.25; F = 3.88 (p<0.000); df=9, a two tailed; b one tailed 31