3: Innovation, Technological Change & Adaptation Flashcards
Innovation in Industry Def by Van de Ven \+ 4 typical areas \+ 3 defining features of an innovative idea \+ 2 types \+ 1 association
= “Innovation is the development and implementation of new ideas by people who over time engage in transactions with others within an institutional order.”
innovation areas: § product § services § processes § Social, administrative, organizational
idea that is:
+ novel
+ useful
+ implemented!
types:
+ Radical = Create new knowledge and provide significant technological breakthroughs in products and processes
+ Incremental = Build upon existing knowledge base and provide small improvements in current product lines and processes
association:
+ with patterns of conduct and changes in competitive strategy (cost leadership – product differentiation)
Invention versus Innovation
converting cash into ideas
VS
converting ideas into cash
2 potential effects of innovation on production costs
- new tech may have a lower unit cost in function of volume
- new tech may have faster learning, and therefore a lower unit cost in function of cumulative production
Speed of Technological Change:
trend, seen how
accelerating, seen in time needed for use/ownership by 50% of population
7 Changes in sources of product differentiation
New product features Linkages between functions and complexity Timing New location and increased presence New product mix New links with other firms Enhanced reputation
innovation over the product life cycle in an industry
2 poles n 3 patterns (phases) in 8=2+2+2+2 dims:
product, then process innovation
patterns:
fluid/transitional/specific:
focus on functional performance, variation, cost cutting
driven by user needs/internal tech capabilities/pressure
change : from freq.ly major to increm. n cumul.
variability: from diverse to standardized
production process: from flexible to efficient but rigid
key prod. factor: from skilled labor to costly automation
plant: from small to large
materials: from general to specialized, w v. integration
Technological Discontinuities
cause
phenomenon
conseq. = strategic challenge
- RnD effort n inv. extend tech performance
- discontinuity = major shift in tech performance
- many firms lose market share, money, or independence
8=4+2+1+1 Rules of thumb to detect a tech discontinuity
§ RnD productivity appears to decline in firm n industry
§ RnD “new broom” managers underperform
§ RnD staff is divided by dissension
§ RnD misses deadlines
§ RnD expenses tend to vary a lot b/w firms
§ RnD inv. of smaller players goes into new tech
§ RnD refocuses from product to process
§ sales growth shifts into narrow segments
Disruptive technologies:
def by Christensen
+ innovation dilemma
+ 4=1+2+1 challenges
“Disruptive technologies are typically simpler, cheaper, more reliable, and convenient than established technologies.”
Investing in improvement of existing technologies or in emerging technologies
§ Firms in an industry depend on buyers and investors for resources
§ Small markets do not solve the need for revenue growth of large firms
§ Markets that yet do not exist cannot be analyzed and investment in building them are uncertain
§ Technology supply may not equal market demand
disruptive tech and high/low end markets
disruptive tech’s performance grows more steeply than established tech’s, therefore it typically conquers first the low-and then the high-end market due to different performance demands
disruptive tech on 6+1 entry barriers
overcome:
Economies of scale > New production technologies
Cost disadvantage > New production technologies
Product differentiation > Low-end market
Capital requirements > linked w RnD and manufacturing
Switching costs > 1st-time buyers
Distribution channels > new ones
remaining:
Government policies
Reverse Innovation:
goal
geographical implication
> Disrupt yourself!
> first in em., then in dev.ed countries
theory of disruptive tech:
4=2+1+1 critiques
§ Many case examples proved wrong later (iPhone would fail because competitors were very motivated to copy)
§ Disruptive innovation can reliably be seen only after the fact
§ Disruption is not always good
§ Disruption does not readily apply to all industries as claimed
disruption vs traditional thinking according to Eric Schmidt n Rosenberg
“Traditional, MBA-style thinking, dictates that you build up a sustainable competitive advantage over rivals and then close the fortress and defend it with boiling oil and flaming arrows.”
Open vs closed innovation:
3 key concepts
+ 6=3+2+1 principles
+ the firm commercializes both its own ideas and innovations from other firms and buyers.
+ The boundary between the firm and its environment is porous.
+ New markets are reached, too.
- make best use of internal n external ideas
- tap into other smart people’s knowledge
- exploit external RnD: buy it when needed, use it well
- reduce IP protection
- profit from others’ use of our intellectual property
- building a better business is more important than hitting the market first
open innovation as a collective (economic) model:
4 diffs. vs PRIVATE MODEL
§ Provision for public goods (non- excludable and non-rival) rather than APPROPRIATION
§ Innovation encouraged through monetary, reputational or other subsidy instead of IP PROTECTION
§ Free rider problem born out of FEARED FREE REVEALING a threat to continuous innovation
§ Innovator relinquish MONOPOLY CONTROL of knowledge produced, avoids social loss problem
open innovation: compound model
principle, 3 mechanisms
Innovators obtain rewards from private use and collective improvement
- Contributors to a public good can inherently obtain private benefits that are tied to dev of that good, through diffusion and network effects (because of learnt skills!)
- Benefits are available only to project contributors and not to free riders and represent a form of selective incentives
- Private benefits from network effect/community participation not available to free riders
3 peculiar aspects of open source SW
§ Users develop for personal benefit, then reveal at “close to zero” cost via internet (“scratch personal itch”)
§ Innovators expect low losses from free-revealing if they have low rivalry with potential adopters
§ Improvements provided by other developers who use the innovation for their benefit, and in turn benefit from revealing
2 diff. strats. for firms to search for external knowledge
w their defs., challenges, fruits n risks of exaggeration
External Search Breadth = Number of different search channels that a firm draws upon in its innovative activities
§ Period of trial and error effort to learn
>+ incremental innovations
>- lose attention, w decreasing performance
External Search Depth =
Extent to which firms draw intensively from different search channels/ sources of innovative ideas
§ Sustain interaction n shared understanding
>+ radical innovations
>- lose attention, resources, independence, w tumbling performance
Swiss case for open innovation
High CHF challenge
> search externally in depth, combine with high IT inv.
The 5=2+1+2 diffs. of blue vs red ocean strats.
+ revenues n profits view
- Create uncontested market space vs existing markets
- Create and capture new demand vs existing
- Make the competition irrelevant vs beat it
- Break the value/cost trade-off instead
- Align the whole system of a company‘s activities in pursuit of differentiation AND low cost vs just one
> most revenues from red, profits from blue oceans!
2 strats. for incumbents in red oceans
- defend
- create blue oceans WITHIN core biz
4 strategies for converging industries
- technology pioneer = create new standard for all
- market attacker = attack opportunity for convergence
- ecosystem aggregator = platform leader
- business remodeler
3 strategies to crack well-guarded markets
+ 2 general rules
- Leverage existing assets: Companies use what they already have, often supplementing their assets and resources with a partner’s, to overcome entry barriers.
- Reconfigure value chains: Entrants change the activities or the sequence of activities they perform to deliver value to customers.
- Establish niches: Enterprises develop offerings with features that don’t initially appeal to mainstream customers but attract customers in a fringe segment
+ use at least 2 of the above strats.
+ attack “indirectly”, where defences are weakest
4 rules to survive in fast changing industries
- chose architectural innovation as a technology strategy, and targeted new or emerging market segments as a commercial strategy
- in your industry, monitor any convergence toward architectural standardization
- if you are too early in a fast moving technology based industry (…you’re screwed) the probability of such organizations surviving is troublingly low, because
a. Existing capabilities render you uncompetitive in a post-dominant-design environment characterized by faster design cycle times, steeper ramps to volume production, and manufacturing standard products at low cost.
b. knowledge about markets and technology becomes obsolete - first-mover advantage might not hold true in fast-changing industries; there is a later critical entry window!
Innovation types: 2x2matrix
+ examples
+ overall principle
New Tech? No YES
New BM? YES Disruptive Architectural
NO Routine Radical
Disruptive: eg Netflix, Amazon, open source SW
Architectural eg personalized medicine for pharma, internet search for newspapers, digital imaging for Kodak n Polaroid
Routine eg new car series for BMW, new index fund for Vanguard, new film for Pixar
Radical rg biotech for pharma, optic fiber for telecoms, jet engines for aircraft manufacturers
=> no need to choose: rather, build a coherent innovation portfolio
