Do Innovative Users Generate More Useful Insights? An Analysis of Corporate Venture Capital Investments in the Medical Device industry

Abstract

Users are an important source of innovation. Scholars have suggested that established firms will gain valuable innovative insights by working with user innovators. However, no study compares the extent to which knowledge sourced from innovative users, as compared to other external sources of knowledge, triggers the creation of new technologies and commercial products within established firms. This leaves established firms with little guidance when it comes to choosing where to search for external knowledge that ignites innovation. Based on existing empirical work in the literature on user innovation, we build a theoretical framework that explains why user knowledge will provide established firms with more ‘useful’ innovative insights than will other sources of knowledge. We test this claim in the context of corporate venture capital investment in the medical device industry. We find that established firms incorporate more knowledge from user innovators than from other sources of external knowledge into their patents and highly innovative products. Accessing the knowledge contained in user‐generated innovations enriches the product development outcomes of established firms. We trace the flow of knowledge from start‐ups to established firms using both an established method based on backward patent citation data and a novel algorithmic method that compares the content of regulatory documents. Copyright © 2013 John Wiley & Sons, Ltd.