Ch6. Technology-based Industries and the Management of Innovation

Question 1

Technology is not very important to established, mature industries.
a. true
b. false

Answer 1

b. false
p. 194

Question 2

Only digital technology is of interest outside of the science-based industries.
a. true
b. false

Answer 2

b. false
p. 194

Question 3

Most inventions are based on new technology.
a. true
b. false

Answer 3

b. false
p. 198-199
Most inventions are the result of novel applications of existing knowledge

Question 4

Innovation must involve the attempted commercialisation of a new invention, or new idea.
a. true
b. false

Answer 4

a. true
p. 198-199

Question 5

An innovation is more likely to diffuse more quickly throughout an industry if it is perceived as worth imitating by competitors.
a. true
b. false

Answer 5

a. true
p. 198-199

Question 6

Those firms who spend more on research and development are nearly always more successful at making profit from innovation.
a. true
b. false

Answer 6

b. false
p. 199-204

Question 7

An innovation which comes to dominate the market does not always lead to superior profits for the innovator.
a. true
b. false

Answer 7

a. true
p. 199-204

Question 8

The “regime of appropriability” refers to the extent to which the innovator can appropriate value i.e. make a profit.
a. true
b. false

Answer 8

a. true
p. 199-204

Question 9

The main factors in determining whether the innovator can make a good profit from an innovation are luck, and good timing.
a. true
b. false

Answer 9

b. false
p. 199-204
Four factors are critical in determining the extent to which innovators are able to appropriate the value of their innovation: property rights, the tacitness and complexity of the technology, lead‐time and complementary resources.

Question 10

Property rights in innovation mainly include; patents, trademarks and copyright.
a. true
b. false

Answer 10

a. true
p. 199-204

Question 11

If a firm or a person secures a patent, then commercial success is assured.
a. true
b. false

Answer 11

b. false
p. 199-204

Question 12

Having a patent is not much use if a rival is expert enough to quickly come up with an alternative way to achieve the same thing.
a. true
b. false

Answer 12

a. true
p. 199-204

Question 13

Regarding innovations, complementary resources are all the other things apart from the invention or idea necessary to achieve commercial success.
a. true
b. false

Answer 13

a. true
p. 199-204

Question 14

Which exploitation strategy is best for an innovation depends entirely on whether the innovator prefers to license out the underlying patent or copyright.
a. true
b. false

Answer 14

b. false
p. 204-206

Question 15

A major constraint for start-up innovators is that they are unlikely to possess sufficient complementary resources for exploiting their innovation.
a. true
b. false

Answer 15

a. true
p. 204-206

Question 16

Advantages are likely to accrue to a firm that is a first mover in a market where technical standards are important.
a. true
b. false

Answer 16

a. true
p. 206-208

Question 17

The risk of failure of an innovation is a combination of technological risk and market risk.
a. true
b. false

Answer 17

a. true
p. 209-210

Technological uncertainty arises from the unpredictability of technological evolution and the complex dynamics through which technical standards and dominant designs are selected.

Market uncertainty relates to the size and growth rates of the markets for new products. Forecasting demand for new products is hazardous since all forecasting is based on some form of extrapolation or modelling based on past data.

Question 18

Close co-operation with a major potential customer during innovation development is inadvisable, in case they copy the innovation themselves.
a. true
b. false

Answer 18

b. false
p. 209-210
Cooperating with lead users during the early phases of industry development, careful monitoring of and response to market trends and customer requirements is actually essential to avoid major errors in technology and design. It limits risk.

Question 19

Network externalities lead to positive feedback, so that products tend to rapidly coalesce to an industry standard.
a. true
b. false

Answer 19

a. true
p. 210-212

Question 20

It’s wise to manage the creative departments in a firm separately from the operational departments.
a. true
b. false

Answer 20

a. true
p. 215-219

Question 21

In the past decade the impact of technology has:

a. Been limited to science-based industries
b. Been limited to digital technologies
c. been pervasive, in particular because of the influence of digital electronics technologies
d. Overwhelmingly been about social networking services

Answer 21

c. been pervasive, in particular because of the influence of digital electronics technologies

Question 22

Firms innovate because:

a. The human race is naturally inventive
b. Competitive advantages tend to erode over time - so new ones need to be found
c. Consumers are always looking for the next new gadget
d. It gets boring doing the same old things

Answer 22

b. Competitive advantages tend to erode over time - so new ones need to be found

Question 23

Inventions are:

a. The creation of new products based on new technology
b. The creation of new products or processes, often based on existing technology and know-how
c. Usually the outcome of several decades of research
d. Usually the outcome of individual scientists or engineers, working alone

Answer 23

b. The creation of new products or processes, often based on existing technology and know-how

Question 24

Competitive advantage and technology are linked by:

a. Innovation
b. Corporate culture
c. Invention
d. Organizational culture

Answer 24

a. Innovation

Question 25

Invention and innovation:

a. are interchangeable terms- they mean the same
b. are different, unrelated concepts
c. are linked concepts. Innovation is the commercialisation of invention
d. Largely a matter of personal opinion

Answer 25

c. are linked concepts. Innovation is the commercialisation of invention

Question 26

An innovation diffuses:

a. Mainly on the supply side
b. By industrial espionage and leaked information
c. Through the purchase of products by customers and the imitation by competitors
d. Answers b and c

Answer 26

c. Through the purchase of products by customers and the imitation by competitors

Question 27

The cycle of innovation has recently:

a. Sped up
b. Slowed down
c. Become more aggressive
d. Become more uncertain

Answer 27

a. Sped up

Question 28

Innovation is no guarantee of success and fortune for the innovator because:

a. Success depends on the value created
b. Implementation of innovation may be a failure due to internal organizational factors
c. Success depends on sufficient value being created and a sufficient portion of that value being appropriated by the innovator
d. Nothing is guaranteed in the corporate world and in life in general

Answer 28

c. Success depends on sufficient value being created and a sufficient portion of that value being appropriated by the innovator

Question 29

The value created by an innovation is:

a. Shared equally among the players
b. Determined by customer loyalty
c. Captured by the player possessing the largest market share of the industry
d. Distributed amongst the various players involved in no certain way

Answer 29

d. Distributed amongst the various players involved in no certain way

Question 30

If a strong regime of appropriability exists, the innovator:

a. Cannot capture a significant portion of the created value
b. Cannot acquire the property rights of its innovation
c. Can capture a significant portion of the created value
d. Should try to sell its innovation to a large firm

Answer 30

c. Can capture a significant portion of the created value

Question 31

To determine the amount of the value created by an innovation that can be appropriated by the innovator, four factors are critical:

a. Complementary resources, the tacitness and complexity of the technology, corporate culture, and human resource management
b. Property rights, the tacitness and complexity of the technology, lead-time, and complementary resources
c. The tacitness and complexity of technology, lead-time, excellence of top management teams, and luck
d. Lead-time, complementary resources, relative bargaining power, and structure of the industry

Answer 31

b. Property rights, the tacitness and complexity of the technology, lead-time, and complementary resources

Question 32

The main examples of property rights with regard to innovations are:

a. Copyrights, patents, and trademarks
b. Patents, goodwill, and trademarks
c. Know-how, skills, and trade secrets
d. Trademarks, copyrights, and tangible assets

Answer 32

a. Copyrights, patents, and trademarks

Question 33

The extent to which an innovation can be imitated by a competitor depends on:

a. Whether the competitors’ experts are as clever as our experts
b. Whether a competitor can get a photocopy of the patent details
c. How ruthless the competitor is
d. How possible it is for the competitors’ experts to comprehend, codify and replicate the technology

Answer 33

d. How possible it is for the competitors’ experts to comprehend, codify and replicate the technology

Question 34

Lead-time in the context of innovation refers to:

a. The period of time during which a firm is the leader of an industry
b. The period of time it takes for equipment to arrive after it’s been ordered
c. The time it takes a follower to catch up
d. The time it takes for a competitor to realise you’ve done something innovative

Answer 34

c. The time it takes a follower to catch up

Question 35

Complementary resources include:

a. Ancillary products
b. Give-away promotional products such as free pens, mouse mats etc.
c. Bundled products. For example, for a PC, what software is included in the package
d. Financial, production, sales and marketing resources needed to gain market success

Answer 35

d. Financial, production, sales and marketing resources needed to gain market success

Question 36

If complementary resources are provided by third-parties, then the level of profit accruing to the innovator:

a. Depends on how reliable the outsource companies are
b. Depends on how commercially aggressive the innovator is
c. Depends on how non-specialised the outsourced functions can be
d. Depends on a good contracts negotiator, preferably a lawyer

Answer 36

c. Depends on how non-specialised the outsourced functions can be

Question 37

A patent is usually the best protection for an innovation.

a. This statement is correct
b. No one can confirm or disprove this statement
c. It depends
d. This statement is incorrect

Answer 37

d. This statement is incorrect

Question 38

The main advantage of licensing as a strategy to exploit innovation is:

a. It requires little involvement in complementary resources by the innovator
b. It’s a way to operate as a virtual company
c. It saves on costs, so is vastly more profitable for the innovator
d. It’s always successful and highly profitable

Answer 38

a. It requires little involvement in complementary resources by the innovator

Question 39

Nowadays, it makes no sense for an innovator to do everything themselves because:

a. This is an outmoded way of operating
b. It’s always cheaper to outsource
c. The world is just too complex in the 21st century
d. None of the above. It may make every sense

Answer 39

d. None of the above. It may make every sense

Question 40

The choice of a strategy to exploit innovation depends on two factors:

a. Luck and past experience in the industry
b. Characteristics of the innovation and a firm’s financial resources
c. Characteristics of the innovation and a firm’s resources and capabilities
d. The nature of the innovation, and how large the firm is

Answer 40

c. Characteristics of the innovation and a firm’s resources and capabilities

Question 41

One of the common problems with licensing is:

a. Licensees often seek to imitate the innovation themselves
b. The innovator is wholly dependent on the licensee’s commitment and effectiveness
c. The innovator cannot issue another lisence
d. Licensees are often bad payers

Answer 41

b. The innovator is wholly dependent on the licensee’s commitment and effectiveness

Question 42

The determinants of the choice between a leader versus a follower strategy are:

a. The extent of protection of the innovation, the nature of the knowledge involved, and the potential to establish a standard
b. The development cost of the innovation, the importance of complementary resources, and the shape of the economy
c. The extent of the protection of the innovation, the potential to establish a standard, and the importance of complementary resources
d. The potential to establish a standard, the relative powers of the other players in the industry, and the development cost of the innovation

Answer 42

c. The extent of the protection of the innovation, the potential to establish a standard, and the importance of complementary resources

Question 43

When complementary resources are critical to the market success of an innovation:

a. The technical risks are relatively unimportant
b. The costs and risks are amplified
c. A larger firm with established complementary resources is better placed than a start-up
d. Answers b and c

Answer 43

d. Answers b and c

Question 44

Small start-up firms without complementary resources often forge ahead as first-movers anyway because:

a. They are naïve and foolhardy
b. They often have no choice
c. By definition they are risk-takers
d. They are backed by huge amounts of venture capital funding

Answer 44

b. They often have no choice

Question 45

Risk in emerging industries is created by the following factors:

a. Market and technological uncertainties
b. Market and cost uncertainties
c. Rivalry and political uncertainties
d. Customer tastes and technology development costs

Answer 45

a. Market and technological uncertainties

Question 46

Technological uncertainty means:

a. Uncertainty as to which technical standards will be adopted or emerge
b. The uncertainty from it not being possible to predict how long it may take or even whether a technical problem will be solved
c. The uncertainty of whether a rival is secretly developing the same technology more quickly
d. All of the above

Answer 46

d. All of the above

Question 47

Cooperation with lead users is:

a. A risk because they may imitate the innovation themselves
b. A burden to costs and times the time of key people, so is best avoided unless they insist
c. Essential in some cases to ensure development follows a path which customers actually want
d. Useful because it makes the customer feel important

Answer 47

c. Essential in some cases to ensure development follows a path which customers actually want

Question 48

The only way to cope with true uncertainty is:

a. To be flexible enough to quickly react to the unexpected
b. Prepare multiple scenario plans
c. To construct a computer model simulation
d. To calculate all the risks and analyse the chances of success in a spreadsheet model

Answer 48

a. To be flexible enough to quickly react to the unexpected

Question 49

Standards are important in an industry because:

a. They underpin interoperability (where relevant) and facilitate industry growth
b. Every industry needs a market leader
c. They are imposed by the government and have the force of law behind them
d. Most industries cannot effectively function without standards

Answer 49

a. They underpin interoperability (where relevant) and facilitate industry growth

A standard is a format, an interface or a system that allows interoperability. It is adherence to standards that allows us to browse millions of different Web pages, that ensures the light bulbs made by any manufacturer will fit any manufacturer’s lamps and that keeps the traffic moving in Los Angeles (most of the time).

Question 50

Public versus private standards are respectively:

a. Standards set by public firms vs. standards established by privately-owned companies
b. Standards established by governments vs. standards set by companies
c. Standards available for all organizations and industry players versus standards owned by firms or individuals
d. Free standards versus standards users have to pay for

Answer 50

c. Standards available for all organizations and industry players versus standards owned by firms or individuals

Question 51

De facto standards suffer from the following weakness:

a. They are characterized by uncertainty
b. They tend to emerge slowly and / or haphazardly
c. They are characterized by high development costs
d. Rivals may not accept them and fight against their adoption by the industry

Answer 51

b. They tend to emerge slowly and / or haphazardly

Question 52

Network externalities exist when:

a. The value of a product for a customer lies in how many others he can connect to
b. The value of a product for a customer depends significantly on the number of other users of the same product
c. There are large benefits to other customers
d. There are huge drawbacks for other customers

Answer 52

b. The value of a product for a customer depends significantly on the number of other users of the same product

Question 53

A classic example of positive network externalities, illustrating that the value of a product is a direct function of the number of users, is:

a. Fashion items
b. The automobile
c. The telephone
d. Public transport, such as the train

Answer 53

c. The telephone

Question 54

Regarding de facto standards, a “tipping point” is when:

a. A certain threshold of market share is reached, beyond which it just keeps rising irreversibly
b. The market losers basically have to “tip” their excess product away
c. It’s as though the market losers “tip” their market shares into the winner’s bag
d. Customers finally realise who has the best product

Answer 54

a. A certain threshold of market share is reached, beyond which it just keeps rising irreversibly

Question 55

Where they exist, network externalities are critical phenomena because:

a. They create positive feedback which often leads to a winner-takes-all situation
b. They create a winner-takes-all situation which is unfair from a competition standpoint
c. Technological innovations tend to be resilient
d. Governments are more and more concerned with supporting networks

Answer 55

a. They create positive feedback which often leads to a winner-takes-all situation

Question 56

To win a standard war, a firm often needs to:

a. First identify the future standard and then assemble allies to win
b. Share the value created by its technology with third parties
c. Wait, and try to network and lobby the government authorities
d. Increase marketing and advertising

Answer 56

b. Share the value created by its technology with third parties

Question 57

The difference between “evolutionary” and “revolutionary” standards strategies is:

a. Revolutionary strategies are more dramatic, and so more effective
b. Evolutionary strategies maintain compatibility with what went before
c. Revolutionary strategies are more likely to gain investor attention
d. Revolutionary strategies show greater determination and commitment

Answer 57

b. Evolutionary strategies maintain compatibility with what went before

Advantage typically goes to the competitor that adopts an evolutionary strategy (i.e. offers backward compatibility) rather than one that adopts a revolutionary strategy.

Question 58

The essence to winning a standards war is:

a. Having the best technology
b. Building a strong market presence, and some powerful allies - complementors and leading customers
c. Owning the most intellectual property
d. Simply being the first in the market

Answer 58

b. Building a strong market presence, and some powerful allies - complementors and leading customers

Question 59

Creativity requires management systems that:

a. are quite different from those appropriate for promoting efficiency
b. offer individuals considerable freedom and flexibility
c. embrace diversity
d. all of the above

Answer 59

d. all of the above

Question 60

Creative activities require different organizational structures and management systems than operational activities so balancing creativity with commercial success is best achieved by:

a. establishing cross-functional teams
b. having a hierarchical structure with a clear line of command
c. having tight targets and performance measurement
d. Both b and c

Answer 60

a. establishing cross-functional teams