User innovation and knowledge sourcing: The case of financial software

Abstract According to user innovation literature, users can create important innovations and the novel functionalities embedded in those user innovations often become the sources of subsequent innovations by both other users and manufacturers. However, manufacturers are often hesitant in commercializing an innovation created by a single user due to the uncertainty around the market demands. We propose that such hesitancy will decrease when an increasing number of other users source knowledge elements from the focal user innovation and reproduce the novel functionality. Once the focal user innovation is commercialized by manufacturers, other users can purchase the novel functionality from the market rather than reproducing it in house. We propose that users capable of drawing on innovation resources are more likely to maintain in-house reproduction of the focal user innovation than users low on innovation resources. By using the Vector Autoregressive (VAR) model and Impulse Response Function (IRF) analysis method, we analyze knowledge sourcing activities from financial software patents data, and the findings provide empirical supports for our propositions.