Reviewed by R. Lemuel Lasher Democratizing Innovation(Cambridge, Mass.: The MIT Press, 2005) has a very straightforward proposition: The principal source of innovation is increasingly the users of products or services, not the producers or providers.

This is not entirely new. In his assumption-smashing book, The Sources of Innovation, von Hippel was arguably the first to challenge the myth that most innovation originates from the manufacturer of products or provider of services. This was in 1988. In his latest book, he has advanced his research and elaborates further on the implications of his theme of the user as innovator.

Although many users modify products for their own use, from computer hardware and software through industrial processes to high-end sports equipment, these innovations are concentrated among “lead users.” According to von Hippel, lead users, a concept he introduced in The Sources of Innovation, “are ahead of the majority of users in their populations with respect to an important market trend, and they expect to gain relatively high benefits from the solution to the needs they have encountered there.” Why is this so important?

First of all, if lead users are at the leading edge of important market trends, the needs they have now are the needs other users will have later.

Second, the innovations they develop to meet their needs often form the basis for improved commercial products.

The combination of these two concepts is by far the most important contribution of the book. Von Hippel cogently argues that by focusing on working with these lead users, companies increase the probability that they will discover innovative solutions that they can leverage and sell to their other customers. For companies seeking to increase their capacity to innovate, this argument provides a firm foundation for a strategy of innovating with customers, and doing so selectively with the market leaders. This is a much more effective basis for an innovation strategy than the more traditional approach of an ivory tower research team producing proprietary breakthroughs that are then “applied” to the market.

Von Hippel then examines why users want custom products, and finds it is because user needs are so heterogeneous that no standard product can meet them. How users behave when they can’t find what they are looking for in the marketplace, how they make innovate-or-buy decisions, is the subject of another chapter.

This is an area that has already been well researched and documented, but von Hippel brings fresh insight to the limits of both products and customized services in satisfying the virtually unlimited heterogeneity of user needs. His research shows a positive correlation between the heterogeneity of need and the number of products necessary to satisfy those needs. It can be inferred that this positive correlation is not a static condition, but a permanent feature of the interplay of services and products in solving customers’ problems.

This section gives us some real insight into the fundamental economics underlying the IT systems integration market. Market needs evolve, and they are driven by the same trends that define lead users. Because lead users are at the leading edges of those trends, the innovations they develop should later be attractive to other users.

We can draw a positive conclusion from this finding: Enormous growth opportunities are still latent in our core services industry despite the alleged commoditization of the IT services industry and the emergence of software-as-a-service business models that tend to be very disruptive to the systems integration market. If we can more effectively bring innovation to our services offerings, we should be able to identify those opportunities for growth.

I was not really surprised by von Hippel’s conclusions so far. My own practical experience and observations of working with customers had led me to many of the same conclusions. What came next, however, was truly surprising, shocking even. In the chapters, “Why Users Often Freely Reveal Their Innovations,” and “Innovation Communities,” von Hippel provides solid evidence on where, when, and why so much proprietary information is explicitly shared among professionals. He explains how this sharing is often tolerated or even sanctioned by companies, who, somewhat counterintuitively, benefit from this diffusion.

On this point, von Hippel’s works validate what Chesbrough, Gann, Salter, and Dodgson, et al, have been saying about the benefits, and indeed inevitability, of an “open innovation” ecosystem for companies. Such an ecosystem would have enormous strategic ramifications.

This book is an important contribution to the innovation debate. Von Hippel provides sound practical recommendations on how one could execute a lead user-centric strategy to intensify innovation within the enterprise. Services providers can be much more effective in serving their innovation agenda by seeing customers as the source of innovation and not as the ones to whom they bring innovation.

R. Lemuel Lasher is the director of CSC’s Office of Innovation.