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Economics of Product Development by Users: The Impact of "Sticky" Local Information

  • Eric von Hippel

    (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

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    Those who solve more of a given type of problem tend to get better at it---which suggests that problems of any given type should be brought to specialists for a solution. However, in this paper we argue that agency-related costs and information transfer costs ("sticky" local information) will tend drive the locus of problem-solving in the opposite direction---away from problem-solving by specialist suppliers, and towards those who directly benefit from a solution and who have difficult-to-transfer local information about a particular application being solved, such as the direct users of a product or service. We examine the actual location of design activities in two fields in which custom products are produced by "mass-customization" methods: application-specific integrated circuits (ASICs) and computer telephony integration (CTI) systems. In both, we find that users rather than suppliers are the actual designers of the application-specific portion of the product types examined. We offer anecdotal evidence that the pattern of user-based customization we have documented in these two fields is in fact quite general, and we discuss implications for research and practice.

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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 44 (1998)
    Issue (Month): 5 (May)
    Pages: 629-644

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    Handle: RePEc:inm:ormnsc:v:44:y:1998:i:5:p:629-644
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    1. Ashish Arora & Alfonso Gambardella & Enzo Rullani, 1997. "Division of Labour and the Locus of Inventive Activity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 1(1), pages 123-140, March.
    2. Habermeier, Karl F., 1990. "Product use and product improvement," Research Policy, Elsevier, vol. 19(3), pages 271-283, June.
    3. von Hippel, Eric, 1990. "Task partitioning: An innovation process variable," Research Policy, Elsevier, vol. 19(5), pages 407-418, October.
    4. von Hippel, Eric & Tyre, Marcie J., 1995. "How learning by doing is done: problem identification in novel process equipment," Research Policy, Elsevier, vol. 24(1), pages 1-12, January.
    5. Michael L. Tushman & Ralph Katz, 1980. "External Communication and Project Performance: An Investigation into the Role of Gatekeepers," Management Science, INFORMS, vol. 26(11), pages 1071-1085, November.
    6. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    7. Richard R. Nelson, 1982. "The Role of Knowledge in R&D Efficiency," The Quarterly Journal of Economics, Oxford University Press, vol. 97(3), pages 453-470.
    8. Eric von Hippel, 1994. ""Sticky Information" and the Locus of Problem Solving: Implications for Innovation," Management Science, INFORMS, vol. 40(4), pages 429-439, April.
    9. Arora, Ashish & Gambardella, Alfonso, 1994. "The changing technology of technological change: general and abstract knowledge and the division of innovative labour," Research Policy, Elsevier, vol. 23(5), pages 523-532, September.
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