Managing Digital Open Innovation with User Communities : A Study of Community Sensing and Product Openness Capabilities in the Video Game Industry

Abstract: Digital and open innovation has changed how product innovation occur and how it is managed by firms. Digital technology as an enabler of increasingly distributed innovation processes has in particular impacted firms’ abilities to draw on, and leverage, large numbers of external users and user communities to develop their offerings. In the video game industry, firms have developed and honed capabilities to utilize user communities as sources of information and modular user innovations. Empirical evidence of the performance effects in product innovation as well as conceptualizations of these capabilities is however lacking in extant research. Grounded in a dynamic capability perspective, this dissertation puts forward two capability concepts and tests their effects empirically in the context of the video game industry. First, the concept of a community sensing capability captures the firm’s ability to identify and internalize innovation-conducive information from user communities. This capability entails managing openness in the firm’s innovation processes. Second, the concept of a product openness capability relates to the firm’s ability to create and manage products functioning as platforms for continuous development and coupling of internal and external innovation. This, in turn, involves managing openness in individual products. Using both qualitative and quantitative methods, these capabilities are examined at the project level of analysis in relation to the financial performance of products and the speed of development processes. The findings show the capabilities to be indirectly related to the financial performance of products. The application of community sensing capabilities in development of video games increases the amount of information about user needs, demand and product use possessed by the firm, which in turn positively impacts performance. Designing products open to external innovation by users in turn increases the development speed of products, which positively impact the financial performance of products. The two capabilities are also shown to be interlinked as community sensing has a positive impact on product openness. The dissertation contributes at the intersection of open and digital innovation in addition to previous work on sensing capabilities. The work also holds practical relevance by showing the potential of utilizing user communities for digital product innovation.