Democratizing Innovation.

Author:Gallaway, Terrel
Position:Book review
 
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Democratizing Innovation, by Eric von Hippel. Cambridge: The MIT Press. 2005. ISBN 0262002744, $29.95. 204 pages.

Traditional models of innovation have failed to keep pace with changes in how and where and by whom innovation takes place. While economists as early as Adam Smith have recognized that end users often figure out how to make something better, the conventional model of innovation is based on entrepreneurs finding a need and filling it. In Democratizing Innovation, Eric von Hippel argues that changes in information and communication technologies are helping to revolutionize this process by giving individual users the tools to create the next generation of consumer and capital goods. He also argues that national policies and firm strategies for encouraging innovation have, in many cases, failed to keep pace with new realities and are therefore largely ineffective. Readers might be wary of yet another technology-is-changing-everything kind of a book. Democratizing Innovation, however, stands out because it is based on extensive research, solid reasoning, and keen insight. In my view, von Hippel has created an important work which deserves a wide audience.

The democratization of innovation refers to the phenomenon of innovations being increasingly generated by the users of a good or service. These users might be consumers or businesses. For example, a world-class cyclist may come up with an innovation to improve the functionality of her equipment or a consumer electronics company may do its own custom designing of a microchip to be used in one of its products. In both cases, the impetus for the innovation, as well as the innovation itself, comes from the users rather than the companies manufacturing bicycles or microchips. The high transactions costs of producer-generated innovations help spur user innovation. Such costs include delays, producers' higher regulatory and liability exposure, and monitoring costs necessary to overcome the principal-agent problem. That is, how does a user know that a producer is offering the best innovation possible for the user rather than the one that simply best fits the producer's expertise and capabilities?

Von Hippel also argues that information tends to be sticky. He defines stickiness of a unit of information as the "incremental expenditure required to transfer that unit of information to a specified location in a form usable by a specified information seeker" (p. 67). He offers several explanations of why information...

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