Welcome back to part two of this new series brought to you by our friends at Wazoku, pioneers of what they call Total innovation, transforming how organizations solve challenges, drive growth, and deliver measurable results. As the world's only networked innovation marketplace, Wazoku connects people, ideas, and technology to create scalable impactful innovation you can discover more at wazoku. com welcome to part two of this series with eric von hippel on his concept of free.
User innovation .. Great to have you back, man. Thank you. We got great feedback from part one, and we're going to go a little bit deeper this time and show what Eric talks about as the division of labor between the users and then the producer on the other side. So maybe you'll give us a bit of context from that, Eric, and we're going to show Slides that eric is produced and that will guide those of you are watching us i will have a bit of empathy for those who are just listening along Yeah.
So last time Aidan and I had a great time and the focus of our conversation was really, look, everybody thinks manufacturers innovate, but actually, users do a heck of a lot of it. And so we talked about everything from skateboards to, mountain bikes to hands that people make for kids and, and said, look, look, this does not follow the economists consensus. argument that producers are the innovators. And I also mentioned that in my childhood, I was very aware that every kid built what he wanted.
He didn't wait around for Campbell's soup to make him a special can of soup. He, he, he said, no, I, I, I'm mixing up my own recipe. So, the question then comes, fine, you're saying that users do a lot, but is there anything that manufacturers do? Are we just simply saying, no users are the gods of the universe and it was all a mistake about manufacturers? And if that's true, what the heck are they doing with those giant R& D departments, they must be doing something.
So, when we study the division of labor between users and producers, we see each is doing a very different kind of thing, and each one is doing what makes economic sense for them. So, last time I talked about the fact that users innovate. Well, why aren't manufacturers developing the first skateboard? The reason is that manufacturers make their money. By selling a lot of something, there has to be a market there.
And so, if they're standing around saying There's a kid on a skateboard, shall we manufacture it? The answer is, beats me, I don't know if any kids will want it. It's a brand new market. And so, what users specialize in is pioneering. They're the first ones to create, PCs for personal use. They're the first ones to create 3D printers that users can use. They're the first ones to create sporting equipment. They're the first ones to create new kinds of cooking equipment, and so on.
And in each case, the issue is, That manufacturers are not being dumb if they don't venture into new areas because they depend on the existence of a market. And it's what users do that show whether there is or is not a market. Now, let me illustrate with a story about heart lung machines, a common thing that we hope you never need, a major innovation in medical areas. And what it was used for was. Stopping the heart.
If you had to, for instance, replace a a valve in a kid's heart, you couldn't just do it while the heart was beating. You had to somehow keep the blood flowing while stopping the heart so that you could cut out the old valve and sew in a new one. Well, so in the 30s, there was a situation where Basically, a lot of kids were getting really serious heart valve problems because of something called rheumatic fever that has since been dealt with largely.
And patients were dying on, kids were dying on cardiac surgeons. And it was very hard on them. They you can imagine the emotional pain of this for the surgeons as well as the families. So, people were saying, man, we have to figure out a way to stop the heart so that we can try to fix these valves which have been destroyed or replace them. Well, there was a man named John Haisham Gibbon who was basically very strongly feeling this.
He was a surgeon, and he went to different producers of medical equipment and said, Listen, I need a heart lung machine. I need a heart lung machine to save these people. And the manufacturers We're not, as it were, heartless. They, they said, we can't do that. Why can't you do that? Because we don't know if there's going to be a market. There's a lot more that goes into an operation to replace a valve. in a kid's heart than just the machine. You've got to come up with the surgeries.
You've got to come up with the source of valves. We don't know if you can do any of that. So, how can we invest a pile of money in a heart lung machine that will be useless until more innovations are done? So, they didn't. And this guy, John Hayes from Gibbon, got charitable money. And what he did was he built a a heart lung machine. He tried it on animals first and so on, and it took over 10 years to do all this.
And then he had a heart lung machine, he tried it on his first patient, it worked, saved the patient, and then other surgeons said, wait a minute, maybe John's got something here. The company still wasn't interested. That's not a market, that's one patient. But the surgeon said, wait a minute, wait a minute, wait a minute, let's go over and see what John's doing. So they went over and they stood around his operating room and he saw there was something real.
Then they said, okay, John, can we copy your heart lung machine design? He said, sure, and handed him a roll of block prints and blueprints. And then they went off to their hospital and in the basement of most hospitals, you've got a machine shop and so on that builds special equipment and they built it. All of a sudden you look at it from a producer's point of view and the producer sees, oh wait a minute there is a complete system here now.
They've found a way to get valves, they've figured out how to do operations, people are showing that they want to do it because they're making copies of the machine themselves. Time for us to get in there. Now was it sensible for them, the machine companies that make heart lung machines, to delay? From the point of view of economics, it was the only way they could behave. Was it sensible for John Haysham Gibbon to go ahead and do this? Yeah, it's the only way it could get done.
And so that's a division of labor, right? Pioneering of a new market is done by users, for good economic reasons. Well, then what do the producers do? The producers, hey, they've got these R& D labs, they must be doing something. What producers do is once there is a market. They improve the machine or the product. So what they did in the case of heart lung machines is they said, Oh, okay, now we can make a better pump. Now we can make the machine easier to clean.
Now we can make the machine so that it requires less blood to prime it. So that we can do all these things because we know it fits into a market. It's a dimension of merit because we know people will want it. Why will they want it? They will always want a more reliable machine rather than a less reliable machine. They'll always want an easier to clean machine than a less easy to clean machine.
So we, the manufacturers now, make a bunch of these machines, we compete with each other, on these dimension of merit improvements. And then when something fundamental has to change, where there's an issue of a new market, we're back to the users who are doing it, because we don't know if there's going to be a new market for this new version of the machine. One of the things away from your work but more into the.
Mindset of an organization is when you're that person who builds the thing or sees the opportunity or carves out a bit of time in your own, evenings or weekends to go after some piece that really interests you, you can get very frustrated with the organization going how can they not see it this is so obvious this is where it's going and it's so interesting Eric, i'm reading at the moment book.
By gary Hamel called leading the revolution and there's a chapter and he calls a corporate rebels and there's one story about this guy ken, i'm gonna butcher his name but he's the guy who basically created the playstation and like you said he was just interested he, he was interested in tinkering he started to fool around with this he saw that nintendo had this, Gaming console the sound was really crappy and he's like well maybe sony can build the new
sound card for you and he started to drive it within and then he was rejected with it from within and it was only that one of the senior managers a new. New president came in and he gave him permission to go okay there's something in this you go for it now i got your back and i just wanted to maybe talk about that because many of our listeners are either the CEO or the corporate rebel and both get frustrated.
Because the CEO often times your point is like we don't have the resources to allocate to this playing that you're doing on company dime and then the change makers clearly sees the future and i wonder how do you reconcile those two views. yeah that's a very good, That's a good point. And the thing is that, to build on your example, here's another example. The first digital camera was built by an employee of Kodak and he couldn't get any traction internally. Why couldn't he get any traction?
Because film is what they did, right? They had skilled people, chemists making film. They were selling film. They had a whole business model around film. And you're coming in here and saying, you It's equipment and no film. So two things. One is you can see where it's going, but you can also wait until there are these special niche markets that sort of show there's going to be a big enough market, right? You can wait around a little bit.
But the other side of it is that everything in your company, has been built to reward doing what you're doing. So, people running the film department, what are they going to get the heck? What, what, what, what on earth? They're going to resist like crazy because their whole domain is on that. The R& D people in Kodak, they were chemists. They weren't electronics engineers. What's going to happen when somebody says, Oh, in effect, we don't need you anymore. We need this other thing.
They're going to resist. So, what you find is that you have time as a big company to see this thing happening. Because, when you're a big company, You can get economies of scale, so for instance, Nestle can sit around and watch people develop new kinds of iced tea and all the rest of that, and not worry a bit, Nantucket iced tea, whatever it is. They don't have to worry a bit, they're just sitting there.
And then, they can offer a premium price for that company, because they can make it up on bigger distributions. Right? So, so, there is a timing issue here. They don't have to be there at the ragged edge when John Haysham Gibbon just has built one machine.
They can wait around until their economics fit, but when they do fit, they will find the individuals, like the CEO that you mentioned who listens, they will find that their whole company has been optimized around the idea of what you're making now. I remember well, there was an amazing innovation, that we did for a company and, the head of manufacturing was resisting. He was saying, no, no, keep it in the lab. It's not ready yet. No, no, no, no. Well, it was ready. No, no. Keep it in the lab.
So, I went out and I had a beer with him and I said, what the heck is going on? I, I'm not going to tell your managers, but what the heck is going on here? And he said, well, some years ago. We had a high scrap rate, so management put in a special bonus for me that I can get if I lower scrap rate. And every time we put in a new product, scrap rate goes up. So I ain't gonna do that, right? Isn't that amazing? And you'll find it, yeah, and you'll find it throughout the company.
Because you're really, I remember at 3M , They said to us, come up with new innovations. I said, fine. And then we came up with some new innovations and they said, Oh, we forgot to tell you. It has to be producible on thin film coding machines that also make post it notes. To them, it was obvious that they had to keep their, and so it was my stupidity, it was obvious that they had to keep their investment going, but boy, did it restrict their area of willingness to innovate.
And did you, With that guy that you had the beer with, did you get it over the line? Did you, did you get the reward system changed to enable it? No, mad, isn't it? I'm the company loses and this is so many of them hidden all the time in plain sight and sometimes it's the senior leader and the reason i really wanted to emphasize this is for the change maker or the corporate rebel or whatever you want to call a person they feel.
It's them and they failed and i really want them to know they don't it's not you it's sometimes the system is just wired differently and you're, you're the outlier unfortunately so you haven't failed and not to feel like a failure Yes, absolutely right. There was a company, digital equipment long ago making computers and, and also an operating system. And they said, ah, yeah, we're in touch with our users. We have a users group. It's amazing. Said, fine, can I come? And they said, sure.
And so I came to this users group and everybody was yelling at the guy from from, from the R& D department, software R& D department. Everybody yelling at, We have a much better operating system that we have built than you guys are selling us. Why the hell don't you switch over to supporting ours instead of that crap you sell? And the guy in the front was saying, yeah, yeah, yeah, I'll be sure to let everybody know. They said, you told us last year the same thing and nothing happened.
So me being a person of great poor taste, I trod along with him up to the R& D department. And, said we sat there and he was reporting back. And he said, yeah, they want they want us to support their system. And they said, yeah, yeah, that's very important. Let's write it down. So they wrote it down. And I noticed that it was item number 176 on their list. So I said, well, how many items do you get to per year?
He said, about 12. So I said, well, what you're really doing, because a lot of this is subconscious, what you're really saying is you're not going to do it. And they said, Oh yeah, yeah, maybe that's right. So, so I said, well, why aren't you going to do it? And there was a considerable discussion until they surfaced why they weren't going to do it. And the reason they weren't going to do it is they were rewarded both psychologically and by management, management. For writing their own code.
They didn't want to clean up user messes. Right? So, so, of course they would resist. But again the fascinating thing to me in this example is it wasn't really conscious behavior on their part. They're not evilly sitting there and saying I know it'll be good for the company but I'm not going to do it. We're also good at You know, messing together our own motives and not quite understood and the company's motives that resistance, again, is often the result.
one of the things to bring it to your work is so, to that exact point it's a user code issue that could be fixed and actually be better for the company likewise you're the r& d lab and. You fall in love with your own idea that came from you, even though there's a better idea on the list that comes up from a user or something that's been absorbed, observed by a salesperson in the field that brings you the next heart lung monitor Absolutely. It was happen all the time. happens all the time.
And what happens is if somebody observes an improvement in the field, for example, by the time it filters into the company, the company will think it invented it. Right? And so they'll, they'll keep everything in place and, and, and, oh yeah, our, our system of marketing research is working. Look, we're coming up with products.
Is not is not a window like so if you're the corporate rebel and you make it think you make the company think it's their idea that's a little bit of it i always talk about this that you need to be a credit maker not a credit taker not that. You don't want the credit but it's nearly impossible to get it I agree with you that the only way to get things through is to make other people think, that they have a big part in this.
The problem with it is that then you never service the problems in the system. You're not able to say, well, systematically it comes from over here. So we should go to users for solutions, not just needs. Right? So that's the, the structural change that needs to be made.
i love i love that i really got that from your work that these anomalies that sneak through, i'm sometimes there because maybe a leader who has power in our political prowess with inside the company back to you, And then you leave or they leave and then all of your pipeline drives up and your point the company doesn't get get better at something i'm going somewhere with this one i promise to our audience we will progress, i think this is so important aspects that they happen every
single place that i go to and there's a company i'm working with the moment, and they've had a massive hit with a product and now they're moving on to the next product and one of the problems is, that they're coming from the person who came up with the first product and when when they're looking at their pipeline there's a there's a bias towards backing their idea cuz that's what the other ideas came from when i can i go well your company is not can't depend on this person all
the time and to your point how do you then evaluate based on actually the need given the fact that it might start with this really small niche market. Yeah. So absolutely right. And I think, again, it comes back to division of labor. If you're trying to get something that's functionally new, where the user has to change what they're doing to incorporate it into their system of use, then it's got to be the user that does it.
If it's Dimension of Merit, it's gotta be you guys, because if I'm sitting there and I've got a rodeo kayak and I've made it so that I'm winning stuff, there are tons of features that I won't give a damn about, like decals on the boat and, and a softer seat that the manufacturer can do. He's not changing the sport. He's not changing what the users are doing. He's just doing Dimension of Merit improvements. And that's, that's what I'm doing.
That's great for companies because you can sell a ton of stuff on dimension of merit improvements. So again, so I think the, the, the difference that you ought to suggest to these companies is it's, it's, it's not about everything. Let's divide the innovation task into those two categories and optimize your system for each of them.
Beautiful segway for us to show a diagram here so we promise we'd share this diagram and it's it's one of the key diagrams that you'll get from from eric's work and again i will link again to eric kindly giving away that book but this. Diagram here that you'll be seen on our screen and maybe eric will just Yeah, for people who are just listening to us to what we're looking at yeah, let's walk through it. So. The Schumpeterian idea that manufacturers innovate does exist.
It's dimension of merit improvements and so on as we just discussed. And that's the bottom arrow here, and that's what you're taught in school, and that's very familiar to companies. Namely, you start with marketing research. You say, well, what do you need out there? What do you need? People come up with wonderful innovations like, I'd like more blueberries in your blueberry muffins, please, because you're looking at the center of the market.
And then you say, okay, we'll, we'll do a big development task and we'll make more blueberries into the muffins. And then you produce them and you sell them. And it's all about selling to other people. It's profit oriented. It's by volume, by scale. Now, the thing that I've been talking to you earlier today about is this other arrow. It's the arrow that people who are in open source will be familiar with. The other arrow is. what I've described. It's the user saying, I need something.
And if you look at this set of arrows here, you'll notice that the top arrow begins earlier to the left than the bottom arrow. And this is because The user, as we said, pioneers on new functions. They do it first. They do the heart lung machine first and so on. And they're self rewarded. That doctor was not about to sell heart lung machines. He was doing surgeries he needed to do. Then what happens? As I mentioned in the case of John Haysham Gibbon, he opens it up.
Other people, he gives them the diagrams. Other people can improve it. Peer to peer diffusion happens, as in the case I mentioned with John Haysham Gibbon. Other surgeons picked up what he did. Now, those are the two arrows. They're very separate. They're two separate paradigms. But they do interact, as we can get into now. Namely, innovation designs come down at some point from the user pioneers to the producers. And things that producers make can be modified by users. It's innovation support.
It's, it's ways, you don't start building a car from scratch. You take a car and you mess around with it to make a car that can be a race car and so on. So there's a kind of a circle of interdependence here, but there are two separate Now maybe, Aiden, go to the next slide. I want to make a distinction here.
What you see here is again those two arrows, and what we've talked about is, yes, the user innovates first in the case of pioneering, what you see here is the first mountain bike, and then when there are a lot of mountain bikers, that big red arrow happens. And the manufacturer said, Oh, okay. I'll start to make mountain bikes like that. Okay. That's what we've been talking about. And you can see from this picture, the user thing on the top is in the beginning, just practically copied.
by the producers. Yeah, we'll manufacture. Those are the first little producers come in because it's still not something like a million bikes a year. It's 10, 000 bikes a year and it builds from there. Okay, now go to the next slide. What we're talking about here is interactions between the two paradigms. Now this, this is something very important and I don't know if we have time to get into it today, but maybe I'll just tee it up. The thing is, let's take the story of the mountain bike again.
Okay. Hardware, as I just mentioned, goes down to the producer eventually the producer says, okay, now there's 10, 000 mountain bikers, we're going to make a mountain bike. The only reason that anybody wants a mountain bike is because you can do new things with it. You can go down mountains, you can jump, you can do all sorts of stuff. So, techniques are part of the value of a mountain bike. How do you mountain bike? And what you see there is that's peer to peer diffusion largely.
There's nothing much for manufacturers to sell there. Certainly not products. So what you end up with is the companies that make the hardware are dependent upon user innovation in the technique arena in order to increase the value of their hardware. Now you can see here this particular example of these two images. Mountain bikers first just rode down mountains and the bikes were made sturdier in order to be able to do that. But then they started to jump. Now, what happens when you jump?
What happens when you jump is you start coming down with a hell of a bang. And so, users were experiencing this. Manufacturers, Didn't know about it, but a user would come down with a hell of a bang and think this is a really bad idea. So the first guy to actually do a hardware modification to make a suspension was an orthopedic surgeon who said this is really bad for my back.
And so what I'm gonna do is I'm gonna put in a seat post there that has a spring in it to reduce the the impact and that was the first version. Now, I'm What happened then was the hardware guys come in and they say, Okay, we now see that you guys want a suspension. We can make an improved suspension. And so that's what in the bottom there. But notice, again, the whole riding technique thing is not sold by producers. They're selling a bike that can support the technique.
But they didn't develop the technique and they typically are producers of products. They're not coaches, so they don't make any money from techniques, but they depend on it. And so this is another form of what we were talking about today, which is a division of labor between users and producers with respect to innovation. So maybe we'll leave it there for beautiful beautiful man i have one for you that came to mind inspired by our series one of the things i do is i write a weekly article and.
I just love the way serendipity happens all the time so i'm listening to this book called why zebras don't get ulcers by robert sapolsky, and he mentions in a study that he did actually and it was based on this work done by two cardiologists in the nineteen fifties roseman and.
Friedman from memory and what happened was Sapolsky to have this line that you're gonna love this man he said if you want to know, if the elephant in the zoo has a stomach ache don't ask the vet ask the cage cleaner and Sapolsky he goes on to say that will that that quote will never take off which is why i actually like i love this. What, what, what he builds on what the guys observed was.
They had a an upholstery, replacement guy come into their offices and he said to them, what the heck are you guys doing to your patients? I've never seen any wear and tear like that on chairs.
They were cardiologists and they'd noticed that they were going through chairs like nobody else had gone through chairs but they assumed that that's what the speed at which people are going through chairs , and they were the ones who came up with this concept of type a personality these real anxious people that they were sitting on the edge of the chairs scratching the chairs waiting to be seen Oh and, I'm in even more that they notice that in the car park that these type
a's have reversed into the spaces in the morning because they saw these people in the morning cuz they always get the earliest appointment so they wouldn't have to wait, reverse into their spot so they could be straight out of the blocks the minute their appointment was over and where i'm going with this what occurred to me was, that observation nearly slipped past them and it wasn't, them that observed it, it was the upholsterer the upholsterer comes in and
they didn't immediately listen to him they actually observed the time and time again ago, maybe we should actually lean into that a little bit and i thought this would be a nice parting message for our audience and from your observation is how does an organization, tune in to those people who are making those observations all the time but nobody's listening Yeah.
It's again, part of your story about, so I'll tell you a funny story about, you remember when there was AOL and dial up and all that stuff, right? Remember? I remember those horrible tone Yeah, yeah, yeah, yeah. And so basically what you would do is you would unplug the phone. Actually, you would unscrew the thing if it was wired into the wall, and you'd hook on your computer. And then if you were in a rush, you'd forget to put the phone back on.
So what was happening was the cleaning ladies were saying, Hey, the phone's in the middle of the room again. And the maintenance guy would say, Oh yeah, that happens. And he'd come up and put it back on. Now notice, there was nothing about wire people doing that. Because it wasn't wired into the innovation system. Right? So they would do that. And then, the maintenance guys got tired of doing this. This was Hilton Hotels, I think I was talking to the guy. Anyway.
Maintenance guys got tired of doing this, so the maintenance guys said, okay, we're going to use special screws so that they can't open the thing. So of course everybody brought special screwdrivers and opened them anyway. And then they said, fine, we're going to weld this thing shut. And so they did that and then people started cutting the cord so that they could connect up. And finally, it got to somebody who said, why don't we try to figure out why the hell this is happening?
But the issue is, and it's to your point, the issue is the machinery is not set up to observe it. The room cleaning people were not supposed to be in the innovation section. The maintenance guys were supposed to fix stuff. They weren't supposed to figure out why it happened. And you ended up with this huge delay before people said, Oh, internet in the room. That's what they're doing.
and then some other hotel does this and then you copy them and you had the answer right there in front of you know i don't know if it happens you are at the moment when you travel. Same for me i bring a hdmi with me so i can plug it into my computer and into the tv but in most hotels it's inaccessible you're trying to reach the end of the phone was taking the tv off the wall nerdy smashing the tv, i'm going why don't they just make that accessible for people cuz most people bring.
Like the screen is a dumb screen to most people and they have their netflix or whatever who do or whatever they're projecting onto the screen. Yeah. So it's still there man it's still everywhere Everywhere all the all the time and you know i'm very grateful to you for sharing the anecdotes are gold man i absolutely love the anecdotes . Brilliant to have you on the show of free innovation eric van hippel thank you for joining us. Delighted. Really enjoy the show, Aiden. Thank you for having me.