lecture 3 Flashcards
Firm growth and firm size (2 things)
the small firm eventually gains economies of size
As a corollary, firms with greater size continually ejoys excess capacity and unused resources
How are firms unused resources managed
core organizational problem - size increases the cost of monitoring and coordination of activities
Inducements for t he management team and administrative structure
Opportunities
resources:
In the context of Innovations & technology management, there is a complex interplay among three unique factors -
resources, managerial inducements, and uncertainty
The adaptation problem for the large firm
while firm size imposes organizational inertia and path dependencies, a firms adaptation to changes in external environment is crucially shaped by how managers organize the internal aspects of firms (illustrated above), helping firm-addaptation to secure a long term strategy
Executive examples:
1. microsofts adaptation of its business model and technological focus
- Philips reorganizing its business focus towards medical technologies
A resources- and managerial- based understanding of large firms
Performance differences among firms in the same industry:
Internal firm level factors
Internal firm level factors (a resources- and managerial-based understanding of large irms)
core assets and competencies
These are unique strengths deep inside that differentiate a firm
Managerial intentionality
This means that top level managers seek to balance private and common interests; recall the principal-agent problem
Innovative performance = superadditive function of resources and managerial incentives
ITM = f(resources) + g(managerial inducements) + h(Resources * managerial inducements)
Strategic fit
This means that the value of assets and competencies change with external environment
A firms goal (A resources- and managerial-based understanding of large firms)
A firms goal is to continually invest in development and renewal of their technological asset and competence base to achieve a strategic fit with the market environment
Three types of assets
Tangible
Intangible
Human
Tangible assets
1) financial (cash, securities, borrowing capacity)
2) Physical (plant, equipment, land, mineral reserves)
Intangible assets
1) technology (patents, copyrights, trade secrets)
2) reputation, brands, relationships)
3) culture
Human assets
1) skills/know how
2) capacity for communication and collaboration
3) motivation
Continual updating of capabilities
Functional capabilities (def)
Funcional areas such as operations, purchasing, logistics/SCM, design, engineering, R&D and new product development, marketing, distribution and sales, customer service, and financial management
Capabilities across a firms value chain activities
Organizational capabilities - coordination and orchestration among functional areas
A simple representation of the key organizational issues for large firms in the management of innovation
Information (e.g. costs) + know how (e.g. divisionalize) –> sales to current markets AND Capability updating
Capability updating coms from this and external learning (e.g. acquisitions, joint ventures, new people) and internal learning (e.g. reorganizing, accidents, experiments) as well as organizing and technological opportunities
Organizing and technological opportunities stem from Market opportunities
While it may appear straightforward, in reality, managing “capability updating” is an organizationally costly and intensive activity
Dynamic perspective to asset and capability updating
Imagine assets and capabilities as stocks and flows
A firm can modify its asset and capability base to gain and sustain a competitive advantage (corporate renewal)
e.g. Consider honda motor company
Honda is known for its prowess in combustion engine design and technology, however, it could decrease in value as consumers move toward electric powered cars, its current competency dissipates
How to strategize new technology development - invest in current battery technologies? or wait for new technological advancements
There are so many other examples: e.g. Google, apple or shell
Role of inflows and outflows in building distinctive competencies
Inflows: investments in resources
Intangible resources (dynamic capabilities, new product development, engineering expertise, innovation capability, reputation for quality, supplier relationships, employee loyalty, corporate culture, customer goodwill, know-hoq, patents and trademarks)
outflows: Leakage, forgetting
Imagine investment in resources to be the wasserhahn and the wasserbad is the intangible resources
Decision making under uncertainty - major questions for managers
1) who are most likely to use this; how big can this market get; what is the cost of marketing (creating awareness)
2) How much improvement does the innovation provide over previous solutions
3) does the innovation require enabling technologies (new knowledge, materials et cetera), and are these sufficiently mature and available
4) does the firm have resource sto accelerate market acceptance
5) how critical are complementary assets and are they available
6) how high is the threat of competitive entry
7) Can the firm withstand early losses (is there financial slack to absorb initial setbacks)
8) is the industry likely to experience network externalities opportunities
Internal factors of the firm
1) effectively tapping into individuals repertoire of existing skills and building new skills
2) incentive systems in place to encourage employees to try and develop new ideas, experiment and make mistakes
3) encourage cross-functional team activities (often times challenging)
4) The whole idea is to create a culture of innovation among employees (who are more like shareholders of the productive output of the firm)
Organizational decisions
information, information and more information (market intelligence)
Decision-making under uncertainty about future returns and scope
Uncertainty about investments in resources (what do we need)
1) board of directors
2) top level managers
3) divisional managers
4) other manager/team leaders
Costs, quality and functional value –> it is about balancing these three dimensions of a product/service innovation
Key organizational drivers in a corporate firms innovation strategy:
Internal champions and gatekeepers
1) senior executives have the power and authority to support and drive a project
2) they make important resource allocation decisions
3) They are also critical for ensuring cooperation and coordination among units
4) THey must have the skills and knowledge to carefully evaluate a project is going well and does not escalate costs for the company
Key organizational drivers in a corporate firms innovation strategy
Value chain linkages with customers and suppliers
1) customer centric appraoch helps better coordination of resources and activities for innovation
2) manage product and technological innovations by engaging with sophisticated consumers (lead users)
3) likewise, close cooperation with suppliers expands firms knowledge and helps improve production efficiencies
Need for external sourcing of innovation
Pressure that firms face due to environmental changes and competition
Limited capabilities to adjust to changes; lack of relevant up-to-date complementary information and assets
Time-compressed diseconomies of scale and scope
Flexibility and uncertainty
Pressure to act and respond fast
External options for corporate firms
Labour markets vs Strategic alliances/partnerships vs strategic networks vs acquisitions
