Commercializing User Innovations by Vertical Diversification: The User-Manufacturer Innovator

This paper explores a pathway to commercializing user innovations hitherto not studied, namely, thevertical diversification of a user firm into an upstream industry supplying capital goods, and subsequentcoexistence of user and manufacturing units. Such coexistence creates synergies regarding innovation,marketing, and financials. It enables the manufacturing unit to benefit from user innovations in its newproduct development, while the user unit profits from improved tools. Yet, selling the firm’s own userinnovations risks loss of the competitive advantage originating from use of these innovations. We employcase evidence from firms in the fields of foundation engineering, tunnel construction, tea-packaging,and geological surveying to derive a set of five propositions regarding the conditions under whichuser–manufacturer diversification is attractive and viable in the long run. These conditions relate toinnovation, marketing, the organization, and financial aspects. Our study offers three contributions. Weshow how user entrepreneurship can originate from established corporations rather than from individualuser innovators; we carve out factors that favor the move toward and the success of user–manufacturerdiversification; and we link user innovation and corporate strategy by showing how user innovation canaffect the boundaries of organizations.