Authors: Julian Waters-Lynch, Darcy W.E. Allen, Chris Berg and Jason Potts
Journal: Innovation: Organization & Management, published online 20 June 2025, pp. 1–17
Available at: Taylor & Francis Online
Cite: Waters-Lynch, J., Allen, D.W.E., Berg, C. and Potts, J. (2025), “Shadow user innovation: governing covert generative-AI use for dynamic-capability renewal”, Innovation, 1–17.
Abstract: Employees increasingly deploy consumer-grade generative AI at work without formal approval, creating value while evading oversight. We label this behaviour shadow user innovation (SUI) and position it at the nexus of both internal user innovation and shadow information technology (IT). Drawing on lead-user theory, affordance theory, dynamic-capability logic, and trust research, we model how acute work-process pain and strong concealability trigger SUI, and how expected gains relative to sanction risk shape whether employees disclose their findings. We provide a revelation-threshold equation that yields testable propositions. Because covert artefacts remain outside managerial sight, SUI creates a learning blind spot that stalls sensing, seizing, and reconfiguring activities. We offer a governance matrix – repressive, permissive, integrative, structural – linking each response to capability micro-foundations and trade-offs. Our contribution explains when hidden GenAI tinkering erodes control, and when it can be surfaced and scaled into adaptive advantage. We close by outlining a research agenda including ethnography, surveys, and sandbox trials to validate the model and estimate the organisational cost of suppression. This framework equips managers with tools to convert compliance risks into decentralised R&D capacity. More broadly, it recasts concealability as a first-order affordance that reshapes the economics of employee-led innovation. The result is a richer theory of how firms can govern emerging technologies without stifling their bottom-up benefits.
An earlier version circulated as the working paper “Managing Generative AI in Firms: The Theory of Shadow User Innovation” (SSRN, 2024).