1 © Carliss Y. Baldwin and Kim B. Clark, 2004 Who is the User? The Employment of User-Designers by User-Firms Carliss Y. Baldwin Harvard Business School.

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


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)


My question for today

Does the “power” of user innovation rest on founder-owners or employees?

Start sketching …


Three parts to problem-solvingPerceive functional gap— Users comparative advantage



Close the gap— Designers with domain knowledge



Close the gap— Designers with domain knowledge

Allocate resources— Entrepreneurs or

financiers with economic knowledge


Shorthand Notation

User

Designer Owner or Agent


Wedgwood Configuration: 3 in 1

User

Designer Owner, NOT Agent

THIS CONFIG-URATION DOES NOT SCALE!


Configuration 1 (Classic)

User

Designer (might be a User, too!)

Owner NOT Agent

User-owner buys a solution designed by someone else


Configuration 2 (Von Hippel?)

User

Designer Owner NOT Agent

Owner HIRES User-Designers to solve specialized problems


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


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)


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)


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


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


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)


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


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


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!


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!


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


Thank you!

1 © Carliss Y. Baldwin and Kim B. Clark, 2004 Who is the User? The Employment of User-Designers by User-Firms Carliss Y. Baldwin Harvard Business School.

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