m01-m06 Flashcards
What is innovation according to Schumpeter?
Competition from the new which strikes not at margins of profits of existing firms but at their foundations -> innovation as destruction
What is innovation according to Baumol?
In capitalism, innovation becomes mandatory. All economic growth since 18th century due to innovation. -> innovation as competitiveness & growth
What are innovations according to Hauschildt?
new products or processes that differ significantly from what existed before
What is innovation according to Porter?
New way of doing things that is commercialized
What is innovation according to Afuah?
Adoption of ideas that are new to the adopting organization
What are the steps of innovation? (Hauschildt)
idea > discovery > research > development > invention > market launch (order may vary, borders fluid)
What is the difference between invention & innovation?
Innovation adds market launch
What are the two dimensions innovations can be categorized by?
needs (newness for market) (marketing) & newness of solution (R&D)
How is R&D distributed? (Who executes/pays?)
Concentrated on large companies, basic research funded by government
What is the principal-agent problem?
Agent is hired by principal to execute task but has contrary interests.
What is the interface problem?
Concerns are not mentioned or not listened to -> communication issues
Is Innovation an output or a process?
both
What are long-term patterns of technological change?
- cumulative & evolutionary
- most innovations = new combinations of existing technologies
- not smooth, automatic process
- some revolutionary changes can lead to waves of change
What are Kondratiev long-waves?
Connecting new pervasive technologies, waves of change/innovation, thought to be 50 yrs but becoming shorter
How does one technology produce outcome with ongoing development/time?
S-curve
1) Emergence
2) Rapid improvement
3) Declining improvement
4) Maturity (converging to limit of technology)
model has of course limitations, is not law of nature
How do two s-curves behave in relation to each other?
Often, when one technology reaches limit, other technology has developed to max movement in background and overtakes.
What problems of established companies can S-Curves solve?
- Current tech is over-estimated
- R&D budgets are linked to revenues (avoiding overspending or giving up)
- Misinterpretation of market signals due to biased attitute
- Lack of flexibility
- > can help to determine when to switch to new technology
How does the amount of firms in the market develop with the PLC?
Phase 1: performance (entries > exits)
Phase 2: differentiation (entries = exits)
Phase 3: price (entries < exits)
What categories does Rogers Adoption/Innovation curve know?
Innovators Early Adopters Early Majority Late Majority Laggards
Adoption Curve: What characterizes Innovators?
venturesome, active information seekers, able to cope with high degree of uncertainty
Adoption Curve: What characterizes Early adopters?
often opinion leaders, more locally integrated than innovators, sought by change agents as “local missionary”, can give stamp of approval on new idea
Adoption Curve: What characterizes Early majority?
interact a lot with their peers, rarely opinion leader, 1/3 of all members
Adoption Curve: What characterizes Late Majority?
adoption may be economically necessary or result of peer pressure, system must favor innovation
Adoption Curve: What characterizes Laggards?
near isolates in social network, past is point of reference, limited resources, tend to be suspicious of innovations and change agents
How can adoption behavior (in N= people who have adopted sth) be modelled?
growth rate dN/dt = N(t-1) * (Nmax-N(t))
-> first part “the more people that have sth, the more people will get it”, second part “when coming closer to max amount of people, growth gets slower”
What are technology producing sectors according to Pavitt?
Science-based (pharma, biotech) Specialized suppliers (software, tech consultancies) Scale intensive (bulk chemicals, electronics, automotive)
What are technology using sectors accrding to Pavitt?
Scale intensive (bulk chemicals, electronics, automotive) Supplier dominated (traditional services & manufacturing, eg pizza store) information intensive (banking, retailing, travel)
What are core drivers of innovation according to economists?
cost (whoever has lowest cost will do it) and benefits (whoever gains the most will do it) of innovation
What kind of companies are engaging more in innovation according to Schumpeter?
Arguments for both, small, entrepreneurial and large firms can be made. Changed his mind.
Radical price reduction by one firm, what happens if ex ante perfect competition exists (Arrow)?
ex ante: perfect competition, all firms have marginal cost of c -> prices driven down to c -> no firm makes profits
ex post: innovator has lower marginal cost c’ -> can charge price below c -> monopoly
Radical price reduction by one firm, what happens if ex ante company has monopoly (Arrow)?
ex post company still has monopoly but cannibalizes profits it had with old monopoly product.
Radical price reduction by one firm, what happens if ex ante company is social planner (Arrow)?
ex post stays social planner
What is a social planner?
Main goal: economic welfare. The more people can get a product without damaging company, the better. Sells for marginal cost.
Order ex ante perfect competition, social planner and monopolist from low to high after how much a company is willing to pay for innovation.
monopolist
firm in perfect competition
social planner
What is the efficiency effect and how does it influence innovation?
If innovation is only slightly better than existing products, it is more attractive to remain in monopoly than to become part of duopoly.
What is the cannibalization effect and how does it influence innovation?
If innovation is radical or drastic and supplants existing products, by innovation same company would loose profits from existing product.
According to empirical studies, does innovation come from new market entrants or existing firms?
New market entrants
What characterizes social benefits from innovation?
- typically exceed private benefits of innovator
- in principle this results in market failure
- scope for public policy intervention
What are liabilities of newness?
Problems new firms face and that result in them having bigger failure rates vs older firms.
What are advantages of new firms?
Organization related: flexible company structure, no path dependence -> open to pursue new approaches
HR-related: can hire people that exactly match the task at hand, averagely have more flexible employees
What are liabilities of smallness?
smallness empirically leads to higher failure rates (new firms often small)
What are advantages of smallness to firms?
Flexibility, short ways within company, fast decision-making, job satisfaction typically higher
What kind of innovation do leading firms often have problems with?
Disruptive Technologies/Innovations because they focus too much on existing costumers
What are disruptive technologies/innovations according to Christensen?
- technologically straightforward
- initially do not satisfy costumers in established markets but in niche/new markets
- established firms focus on making old technology better and better
- over time performance grows faster than market needs (of old and new technology in their respective markets)
- eventually new technology supplants old one in established, main market because it reaches threshold
- eg harddisk sizes and different markets (computer types)
What is the market share of entrants in sustaining change?
30-40 %
What is the market share of entrants in disruptive change?
80-90%
What is strategic intent?
Current point of view of long term future that company would like to create -> provides strategic theme for whole organization. Baseline for innovation and R and D .
What are the parts of a simple framework for innovation strategy? What are basic requirements for innovation?
Resources for Innovation
Innovative capabilities
Innovation strategy
Innovation processes
What types of resources for innovation do we know?
Financial
Human
Technological
Marketing (ownership of brands and access to lead markets)
Organizational resources (routines, procedures and practices)
Networking resources (partners)
What is the resource based view?
Resources & Capabilities of company are essential for firms success.
What are innovative capabilities?
Searching, Selecting, Configuring (coordination of inn. efforts), Deploying, Learning.
What is dynamic capability?
Capability to purposefully create, extend, modify existing resource base & capabilities.
What defines core capabilities?
VRIN
valuable, rare, inimitable, non-substitutable
can be source of sustainable competitive advantage
What differentiates competitive from sustainable competitive advantage in VRIN?
Competitive: only valuable and rare
Sustainable competitive: all four
What makes resources/capabilities difficult to imitate?
- Tacit (no one knows how it works)
- Path dependent (out of history)
- socially complex (from network)
- causally ambiguous (can’t tell from outside where adv comes from)
- protected by effective IPRs
- Unique by nature (eg location)
Three patterns for managerial R and D initatives.
1 Marketing-oriented managers direct scientists to what appear to be exciting markets (need pull)
2 Scientists look for new tech and scientific breakthroughs with commercialization potential (tech push)
3 Marketing and scientific specialists work together.
What are problems of technological push?
- Focus on what’s easy to research
- scientists might be too focused on one particular solution
- possible mismatch between generated idea and corporate interest
What are problems of market pull?
- Focus on most easily identified needs
- Once a technical solution to need is found, one may be to focused on that application
- market is locked into present products and can only think of incremental improvements
What are the four types of innovation strategy ranked from low to high after complexity of innovation process and resources and capabilities required?
passive, reactive, active, proactive (details m04_21)
Summary of innovation strategy
- use of innovative activity for the success of the company
- aims at fulfilling goals, gaps that come from higher-level strategies
- makes use of the company’s resources, capabilities
- transcends into how firm should organize and its approach to R and D
- Provides guideline on management of product and service innovation and tools needed in this context
Who benefits from an innovation?
Innovator, costumers, suppliers, imitators
What is costumer surplus?
Money costumers that would be willing to pay more than actual price save.
How do imitators benefit from innovation?
Can market the imitation while saving R and D costs.
How do costumers benefit from innovation?
Benefit when their valutaion of new product > its price.
How do suppliers benefit from innovation?
Can sell larger quantities.
What three factors does the profitability of an innovation depend on?
Appropriability regime
Life cycle phases
Complementary assets
What is appropriability regime/conditions?
Factors that influence possibility of profitable imitation of innovation.
eg legal protection, viability of secrecy, characteristics of technology
What is the difference between pre-paradigmatic and paradigmatic design phases is the PLC?
pre-paradigmatic are before innovation peak (=dominant design is established)
paradigmatic are after innovation peak
When in the PLC does it make sense to enter market and why?
shortly after dominant design is established –> no costs in unsuccessful innovation, can concentrate on process innovations
What are complementary assets?
Skills etc (eg manufacturing, distribution) needed aside from core know-how to make innovation successful
How can complementary assets be categorized?
Generic
Co-specialized (asset & innovation depend equally on each other)
Specialized (asset or innovation depend on the other)
How can complementary assets be achieved?
Contracting or integrating
What is the hold-up problem with contracting complementary assets?
One partner makes specific investment -> hold up problem can arise
eg supplier invests in specific machine for innovative product that can’t be used for anything else. supplier has weak negotiation position if buyer complains or renegotiates
When should complementary assets be integrated?
- assets are required for innovation
- assets are specialized
- weak appropriability regime
- asset is critical
- cash position ok
- competition is not better positioned
Who makes money when complementary assets are freely available/unimportant and imitability is low?
inventor
Who makes money when complementary assets are freely available/unimportant and imitability is high?
difficult to make money at all
Who makes money when complementary assets are tightly held/important and imitability is low?
party with technology and assets or bargaining power makes money
Who makes money when complementary assets are tightly held/important and imitability is high?
holder of complementary assets makes money
Profiting from innovation via product markets as a new entrant
- ability to acquire compl. assets to make innovation has value to costumers necessary
- incumbents maybe risk-shy and slow to respond
- aggressive, quick market entry
(competition)
Profiting from innovation via idea markets as a new entrant
- co-operate with other firms through licensing
- maybe sell whole company
- joint ventures
(cooperation)
What are risks of cooperation in an idea market?
- paradox disclosure: willingness to pay depends on understanding of idea, but understanding idea implies not needing to pay anymore
- without IPRs buyers can claim they knew it already
- Bargaining power of new firms low
- finding partners can be expensive & time consuming
How should R and D behave with the scope of profitability of innovation?
Focus on innovations that are either easily protectable or complementary to assets in which innovator has strong position
How does the EU rank in R and D intensity?
on same level in public R and D but lagging behind in private R and D
How do R and D of the EU translate to IP?
EU relatively efficient
How does the EU rank in the research space?
Highly, major player
How is R and D intensity spread within the EU?
heterogeneous
What is Horizon 2020?
Innovation program by EU. Focusing on wide knowledge base, collaboration with industry, market potential, applicability, small enterprises. Has higher budget than past programs 80bn.
What have been major problems of large European innovation programs?
Commercialization gap (focus on research not innovation), Bureaucracy, Large centralized projects with small results (politics put before science)
What are important IPR protection mechanisms?
patents
registered designs (cheaper and shorter than patents, difficult to enforce except for direct copies)
registered trademarks (brand)
copyright (artistic work)
What are the applications of different IPR protection mechanisms?
Patent -> Useful idea
Copyright -> Original expression
trademark & reg. design -> distinctive identity
Definition of a patent
Right of ownership over an invention, granted to an inventor by a government for a specified period of time. Bound to country it was given in. Cover inventions that contain new functional or technical aspects.
What are the requirements for sth to be patented?
Must be:
- new
- inventive step
- capable of industrial application
What cannot be patented?
Scientific discoveries without industrial applications
Scientific/Mathematical method
Aesthetic creation
Device contrary to accepted physical laws
In DE/EU: computer program (except if techn. novel), business method (except if techn. novel), invention of new animal/plant variety, medical methods
What is the timeline of a patent application process?
1) Priority date (day of application)
2) Priority year, timeframe to file patent elsewhere and still use priority date
3) 1.5 yrs application made public
4) ca 4 yrs patent granted/refused
What are benefits of patents?
- profits from use without imitation risk, licensing
- creates cost and entry barriers for rivals
- image, signaling (esp. for young firms seeking investors)
What are downsides of patents?
- Process cost
- opportunity cost to secrecy (application is made public)
- Detection and fighting patent violations can be hard/expensive
What’s the average cost of a patent at the EPO?
30000 €
What is dynamic efficiency of patents?
Patents can provide incentives for developing new tech
What is static inefficiency of patents?
Patents make actual use of new tech harder
What is the problem with patent infringements for small firms?
can be powerful tool, but cost, duration, attention needed can be difficult esp. when small firm is sued by larger firm
What defines a registered design?
- appearance of the whole or part of a product
- must be new and have individual character
What are advantages of registered designs?
- rel. cheap & fast
What are downsides of registered design?
- available only for products not processes
- country related
- no central policing
- hard to enforce
What are advantages of trademarks?
cheap
applies to one or more classes of goods and services
What are disadvantages of trademarks?
must be used in order to maintain protection
infringement self-policed
hard to distinguish when mark is to close
What is a copyright?
right against copying
applies mainly to artistic work, but also computer software
free & long lasting
arises automatically
What are problems of copyrights?
is self policed
infringements other than exact copies are hard to prove
public attitude
What are other strategic forms of protection apart from IPR protection?
confidentiality agreements non compete clauses secrecy complexity of designs lead time advantages revealing IP (if you make money with complement, eg Tesla & charging stations)
What are the most effective protective mechanisms to profit from innovation?
not patents
know how, superior sales or service efforts, lead time
