1 © carliss y. baldwin and kim b. clark, 2004 who is the user? the employment of user-designers by...
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1 © Carliss Y. Baldwin and Kim B. Clark, 2004
Who is the User? The Employment of User-Designers by User-Firms
Carliss Y. BaldwinHarvard Business School
MIT Innovation LabBoston, MAApril 15, 2004
2 © Carliss Y. Baldwin and Kim B. Clark, 2004
Some history Josiah Wedgwood William Perkin vs. August Hofmann
– “the academic-industrial knowledge network”– Germany “beat” Britain in dyes
Andreas Bechtolscheim (e.g.) – user-designer-founder
James Gosling (e.g.)– User-designer-employee (albeit highly
optioned)
3 © Carliss Y. Baldwin and Kim B. Clark, 2004
My question for today
Does the “power” of user innovation rest on founder-owners or employees?
Start sketching …
4 © Carliss Y. Baldwin and Kim B. Clark, 2004
Three parts to problem-solvingPerceive functional gap— Users comparative advantage
5 © Carliss Y. Baldwin and Kim B. Clark, 2004
Three parts to problem-solvingPerceive functional gap— Users comparative advantage
Close the gap— Designers with domain knowledge
6 © Carliss Y. Baldwin and Kim B. Clark, 2004
Three parts to problem-solvingPerceive functional gap— Users comparative advantage
Close the gap— Designers with domain knowledge
Allocate resources— Entrepreneurs or
financiers with economic knowledge
7 © Carliss Y. Baldwin and Kim B. Clark, 2004
Shorthand Notation
User
Designer Owner or Agent
8 © Carliss Y. Baldwin and Kim B. Clark, 2004
Wedgwood Configuration: 3 in 1
User
Designer Owner, NOT Agent
THIS CONFIG-URATION DOES NOT SCALE!
9 © Carliss Y. Baldwin and Kim B. Clark, 2004
Configuration 1 (Classic)
User
Designer (might be a User, too!)
Owner NOT Agent
User-owner buys a solution designed by someone else
10 © Carliss Y. Baldwin and Kim B. Clark, 2004
Configuration 2 (Von Hippel?)
User
Designer Owner NOT Agent
Owner HIRES User-Designers to solve specialized problems
11 © Carliss Y. Baldwin and Kim B. Clark, 2004
The Configurations are NOT mutually exclusive
Owner-founder problem-solving can be supplemented by BOTH Classic and Von Hippel problem-solving
In “modern” corporations, we lose the owner-founder altogether– Owner-founder replaced by passive shareholders
– Get “layers of agents”— the Board of Directors, Senior Management Team, and Specialists
Not if, but where, when and why
12 © Carliss Y. Baldwin and Kim B. Clark, 2004
Von Hippel Problem-Solving: Benefits
Relative to Wedgwood, User-Designer-Employee (UDE) accelerates work on problems– Solutions don’t have to be very good if the discount
rate is positive and the “Owner’s delay” is long
– E.g., suppose owner needs to get a PhD!
Relative to Classic, UDE can achieve more precise targeting of functional gaps vs. “mass-produced” solutions (Bessen)
13 © Carliss Y. Baldwin and Kim B. Clark, 2004
Von Hippel Problem-Solving: Costs User-Designer-Employee (UDE) IS an agent Therefore:
– Choice of which problems to solve may not be identical to the owner’s (problem-ranking conflicts)
– Choice of solutions may not mimic the owner’s (problem-solving conflicts)
We have all experienced these agency problems!
– After a while, the owner (or the owners other agents) may even not understand what the UDE is doing (need equivalent Ph.D)
14 © Carliss Y. Baldwin and Kim B. Clark, 2004
Digressions
Examples of UDEs– Internal MIS groups– Process engineers– Accountants– HR professionals
The “Rashomon” enterprise– Same place, different perceptions
» IBM in the early 1990s; DEC until demise
15 © Carliss Y. Baldwin and Kim B. Clark, 2004
Our research
Seeks to explore the nature of this deep agency problem
We are in a theory-building stage All results preliminary and model-
dependent
16 © Carliss Y. Baldwin and Kim B. Clark, 2004
Base Case:Designers=UDEs They come out of “school” capable of
solving problems (in some domain). Their knowledge is non-transferrable. They can rank designs = solutions to
problems. They care about money, effort and the
quality of designs.– u(w, x1, …, xM, e)
17 © Carliss Y. Baldwin and Kim B. Clark, 2004
Base Case:UDEs are employed by User-firms
Designers come out Designers User-firmsof school and get jobs:
IBM
BMY
"Tech"
GE
AMZN
GM
LU
KnowledgeDivide
Greater Economy
18 © Carliss Y. Baldwin and Kim B. Clark, 2004
Some preliminary results/conjectures
UDEs are in a symbiotic relationship with “Professional Schools” – like MIT and HBS
Once they are entrenched in a domain of knowledge, the Schools may have NO interest in improving “their” graduates’ ability to estimate the economic value of solving a specific problem
Intuition: Less precise problem ranking = More employment = More demand for schooling
19 © Carliss Y. Baldwin and Kim B. Clark, 2004
More preliminary results/conjectures
UDEs will want to create the following “institutions”– Library—ex post revelation of designs
– Signup sheets—ex ante declaration of design intentions
– See “Architecture of Cooperation” on economics of these institutions
These institutions are Good News for the UDEs’ employers– Support/Subsidize!
20 © Carliss Y. Baldwin and Kim B. Clark, 2004
The “Tom Sawyer” Model
Tom Sawyer’s fence Knowers vs. Competitors in the UDEs’ domain
– Knowers want the solution with least effort
– Competitors want to WIN (fame, glory and warm glow)
Tweaking the Library+Signup Sheets institution to disclose “winners” greatly changes the Competitors’ incentives to play
A very Machiavellian strategy!
21 © Carliss Y. Baldwin and Kim B. Clark, 2004
Bottom Line It makes good economic sense to create user-
designer-employees (UDEs)– Most important: Doesn’t preclude other problem-solving
approaches
But “behind the walls” created by the UDE’s specialized knowledge, strange games can go on– Schools’ game: fuzz up the economics of problem-solving
– Library’s game: share solutions, reduce redundant effort
– Tom Sawyer’s game: Knowers entice Competitors to solve their problems and share the solutions for fame and glory
22 © Carliss Y. Baldwin and Kim B. Clark, 2004
Thank you!