Linking Customer Interaction and Innovation: The Mediating Role of New Organizational Practices

The notion that firms can improve their innovativeness by tapping users and customers for knowledge has become prominent in innovation studies. Similar arguments have been made in the marketing literature. We argue that neither literatures take sufficient account of firm organization. Specifically, firms that attempt to leverage user and customer knowledge in the context of innovation must design an internal organization appropriate to support it. This can be achieved in particular through the use of new organizational practices, notably, intensive vertical and lateral communication, rewarding employees for sharing and acquiring knowledge, and high levels of delegation of decision rights. In this paper, six hypotheses were developed and tested on a data set of 169 Danish firms drawn from a 2001 survey of the 1,000 largest firms in Denmark. A key result is that the link from customer knowledge to innovation is completely mediated by organizational practices.