Lead users Von Hipple, why users produce by their own and why do they reveal their
innovation: companies realize that they have benefits from exploiting users knowledge and in
particular lead users knowledge, examples of this may be customers survey, software errors
reporting and lead users method (Von Hipple). Lead users are users (common users are firms or
individual consumers that expect to benefit from using a product or a service) with two
characteristics: being ahead of normal users for their understanding of the product and having high
benefits from a solution to the needs they have. Examples are surgeons for surgery tools, Cern for
particular hardware and software development
Agency costs, why lead users innovate: companies want to have access to the knowledge that
the user developed, but when do users develop or modify products for their own use and when on
the other hand they share their knowledge with the company? To understand this choice there is
the model of the principal agent problem. The principal (users) and the agent (supplier), examples
of agency costs: costs to monitor the agent, costs associated with an outcome that could not fulfill
the requirement, potential hold up problem for unique needs (like a particular machinery). So, for
instance, Cern needs a particular machine to do an experiment and has to decide whether to build
it by itself or ask the market. So Cern has to evaluate all these possible costs related to the
principal agent theory. If these costs are too high, the choice is hierarchy and not market. So, due
to these costs, when users need a particular product with particular characteristics, often users
innovate on their own. So they develop or modify products on their own because it is too costly to
control the agent and they cannot trust the agent delivers the correct product. So users innovate
for this or sometimes for enjoyment or learning. Then why do they sometimes disclose their
knowledge to the company? The bottom line are
Information asymmetries: between users and producers. Users’ innovations are functionally
novel, they require user-need information and context of use information for their development.
Producers innovations are improvements on well known needs and require an understanding of
solution information for their development.
So for companies, due to the information asymmetry, it is important to understand how to have
access to this knowledge, so they need to know which incentives can induce lead users to disclose
their innovation. Sometimes they reveal it freely because there are mutual benefits like other
improvements or suggestions, or just for reputation.
This have 3 implications:
 producers can seek innovations developed by lead users and this can be the base for a
new profitable commercial product
 producers can provide toolkits for user innovation to draw them into joint design interactions
 users can become producers to diffuse their innovation (spin offs, users in a company using
a capital good or designing a product and want to improve it, they exit a company and they
do their own start up)