Strategic Management of Technological Innovation - Schilling - 4th edition - BulletPoints

BulletPoints 1: Introduction

• Technological innovation is the act of introducing a new device, method, or material for application to commercial or practical objectives.

• The aggregate impact of technological innovation can be observed by looking at gross domestic product (GDP). The gross domestic product of an economy is its total annual output, measured by final purchase price.

• Sometimes technological innovation results in negative externalities.

• Technological innovation is the creation of new knowledge that is applied to practical problems.

• Study after study has revealed that successful innovators have clearly defined innovation strategies and management processes.

• It takes about 3,000 raw ideas to produce one significantly new and successful commercial product. The innovation process is thus often conceived of as a funnel.

BulletPoints 2: Sources of Innovation

Innovation can arise from many different sources:

• Individuals;

• Research efforts of universities, government laboratories and incubators, or private non-profit organizations;

• Firms: Firms are well suited to innovation activities because they typically have greater resources than individuals and a management system to marshal those resources toward a collective purpose.

• Networks of innovators: One of the most powerful agents of technological advance.

• An idea is something imagined or pictured in the mind.

• Creativity is defined as the ability to produce work that is useful and novel.

• Novel work must be different from work that has been previously produced and surprising in that it is not simply the next logical step in a series of known solutions.

• A product could be novel to the person who made it, but known to most everyone else. In this case, we would call it reinvention.

The personality traits deemed most important for creativity include:

• Self-efficacy;

• Tolerance for ambiguity;

• Willingness to overcome obstacles and take reasonable risks;

• Intrinsic motivation.

• The creativity of the organization is a function of creativity of the individuals within the organization and a variety of social processes and contextual factors that shape the way those individuals interact and behave. The organization’s structure, routines, and incentives could thwart individual creativity or amplify it.

• Idea collection systems are relatively easy and inexpensive to implement, but are only a first step in unleashing employee creativity.

• Creativity training programs encourage managers to develop verbal and nonverbal cues that signal employees that their thinking and autonomy is respected.

• Sometimes monetary rewards undermine creativity by encouraging employees to focus on extrinsic rather than intrinsic motivation.

One of the most obvious sources of firm innovations is the firm’s own research and development efforts. Research can refer to both basic research and applied research.

• Basic research is effort directed at increasing understanding of a topic or field without a specific immediate commercial application in mind.

• Applied research is directed at increasing understanding of a topic to meet a specific need. In industry, this research typically has specific commercial objectives.

• Development refers to activities that apply knowledge to produce useful devices, materials or processes.

• The science-push approach assumed that innovation proceeded linearly from scientific discovery, to invention, to engineering, then manufacturing activities, and finally marketing.

• The demand-pull approach argued that innovation was driven by the perceived demand of potential users.

• Complementors are organizations (or individuals) that produce complementary goods, such as light bulbs for lamps or DVD movies for DVD players.

• Doing in-house R&D helps to build the firm’s absorptive capacity, which refers to the firm’s ability to understand and use new information.

• To increase the degree to which university research leads to commercial innovation, many universities have established technology transfer offices.

• Governments of many countries actively invest in research through their own laboratories, the formation of science parks and incubators.

• Science parks often include institutions designed to nurture the development of new businesses that might otherwise lack access to adequate funding and technical advice. Such institutions are often termed incubators. Incubators help overcome the market failure that can result when a new technology has the potential for important societal benefits, but its potential for direct returns is highly uncertain.

• Private nonprofit organizations also contribute to innovation activity in a variety of complex ways.

• Technology clusters may span a region as narrow as a city or as wide as a group of neighboring countries.

• Knowledge that is complex or tacit may require frequent and close interaction to be meaningfully exchanged.

• The benefits firms reap by locating in close geographical proximity to each other are known collectively as agglomeration economies.

• Knowledge brokers are individuals or organizations that transfer information from one domain to another in which it can be usefully applied.

• Technological spillovers occur when the benefits from the research activities of one firm spill over to other firms. Spillovers are thus a positive externality of research and development.

BulletPoints 3: Types and Patterns of Innovations

• The path a technology follows through time is termed its technology trajectory.

• Product innovations are embodied in the outputs of an organization.

• Process innovations are innovations in the way an organization conducts its business, such as in the techniques of producing or marketing goods or services.

• Radical innovations are very new and different from prior solutions.

• Incremental innovations are a relatively minor change from existing practices

• An innovation is considered to be competence enhancing if it builds on the firm’s existing knowledge base.

• An innovation is considered to be competence destroying if the technology does not build on the firm’s existing competencies or renders them obsolete.

• An innovation is considered a component innovation (or modular innovation) if it entails changes to one or more components, but does not significantly affect the overall configuration of the system.

• An architectural innovation entails changing the overall design of the system or the way that components interact with each other.

• Both the rate of a technology’s performance improvement and the rate at which the technology is adopted in the marketplace repeatedly have been shown to conform to an s-shape curve.

• When a technology’s performance is plotted against the amount of effort and money invested in the technology, it typically shows slow initial improvement, then accelerated improvement, then diminishing improvement.

• A discontinuous technology is a technology that fulfills a similar market need by building on an entirely new knowledge base.

• The technology diffusion is the spread of a technology through a population.
  The s-curve model above suggests that technological change is cyclical. After diminishing returns, the technology will be displaced by a new technological discontinuity.

• The emergence of a new technological discontinuity can overturn the existing competitive structure of an industry, creating new leaders and new losers. Schumpeter called this process creative destruction, and argued that it was the key driver of progress in a capitalist society.

• Utterback and Abernathy observed that a technology passed through distinct phases.

• Fluid phase: Considerable uncertainty about both the technology and its market.

• Specific phase: Producers/consumers begin to arrive at some consensus about the desired product attributes, and a dominant design emerges. Innovations in products, materials, and manufacturing processes are all specific to the dominant design.

• Anderson and Tushman:

1. Era of ferment;
2. Era of incremental change.

• While the new technology displaces the old, there is considerable design competition as firms experiment with different forms of the technology (= substitution).

BulletPoints 4: Standards Battles and Design Dominance

• Absorptive capacity refers to the phenomenon whereby as firms accumulate knowledge, they also increase their future ability to assimilate information.

• In a market characterized by network externalities, the benefit from using a good increases with the number of other users of the same good.

• The number of users of a particular technology is often referred to as its installed base.

• Network externalities also arise when complementary goods are important. Products that have a large installed base are likely to attract more developers of complementary goods.

• In some industries, the consumer welfare benefits of having compatibility among technologies have prompted government regulation, and thus a legally induced adherence to a dominant design.

• Increasing returns to adoption also imply that technology trajectories are characterized by path dependency, meaning that relatively small historical events may have a great impact on the final outcome.

• W. Chan Kim and Renee Mauborgne developed a Buyer Utility Map. They argue that it is important to consider six different utility levers, as well as six stages of the buyer experience cycle, to understand a new technology’s utility to a buyer.

• The stages they identify are:

1. Purchase

2. Delivery

3. Use

4. Supplements

5. Maintenance

6. Disposal

• The six utility levers are:

1. Customer productivity

2. Simplicity

3. Convenience

4. Risk

5. Fun and image

6. Environmental friendliness

• When users are comparing the value of a new technology to an existing technology, they are weighing a combination of objective information, subjective information and expectations for the future.

• Vaporware are products that are not actually on the market and may not even exist but are advertised.

• Network externalities returns refers to the value customers reap as a larger portion of the market adopts the same good. These often exhibit the s-shape.

• Monopoly costs refer to the costs users bear as a larger portion of the market adopts the same good. These are often considered to be exponentially increasing.

BulletPoints 5: Timing of Entry

Entrants are often divided into three categories:

• First movers (or pioneers): the first to sell in a new product or service category;

• Early followers (or early leaders): early to the market, but not first;

• Late entrants: entering the market when or after the product begins to penetrate the mass market.

First mover advantages

1. Brand loyalty and technological leadership

2. Preemption of scarce assets

3. Exploiting buyer switching costs

4. Reaping increasing returns advantages

First mover disadvantages

Incumbent inertia is the tendency for incumbents to be slow to respond to changes in the industry environment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers.

1. Research and development expenses

2. Undeveloped supply and distribution channels

3. Immature enabling technologies and complements

4. Uncertainty of customer requirements

Factors influencing optimal timing of entry

1. How certain are customer preferences?

2. How much improvement does the innovation provide over previous solutions?

3. Does the innovation require enabling technologies, and are these technologies sufficiently mature?

4. Do complementary goods influence the value of the innovation, and are they sufficiently available?

5. How high is the threat of competitive entry?

6. Is the industry likely to experience increasing returns to adoption?

7. Can the firm withstand early losses?

8. Does the firm have resources to accelerate market acceptance?

9. Is the firm’s reputation likely to reduce the uncertainty of customers, suppliers, and distributors?

Firms that have fast-cycle development processes have more options when it comes to timing. Not only does a fast-cycle developer have an advantage in introducing innovations earlier, but it also can be its own fast follower by quickly introducing refined versions of its own technology.

BulletPoints 9: Protecting Innovation

• The degree to which a firm can capture the rents from its innovation is termed appropriability. In general, the appropriability of an innovation is determined by how easily or quickly competitors can imitate the innovation.

• Tacit knowledge is knowledge that cannot be readily codified or transferred in written form.

• Socially complex knowledge arises from the interaction of multiple individual.

• A patent is a property right protecting a process, machine, manufactured item or variety of plant. It protects an invention.

• A trademark is an indicator used to distinguish the source of a good. It protects words or symbols.

• A copyright is a property right protecting works of authorship. It protects an original artistic or literary work.

• Patents are often categorized into different types

1. Utility patent;

2. Design patent;

3. Plant patent.

• A trademark is a word, phrase, symbol, design, or other indicator that is used to distinguish the source of goods from one party from the goods of others.

• A service mark is basically the same as a trademark, but distinguishes the provider of a service rather than a product.

• A copyright is a form of protection granted to works of authorship. Like trademarks, the rights of copyright protection are established by legitimate use of the work.

• A trade secret is information that belongs to a business that is generally unknown to others. Trade secrets need not meet many of the stringent requirements of patent law, enabling a broader class of assets and activities to be protectable.

• Open source software is software whose code is made freely available to others for use, augmentation and resale.

• Wholly proprietary systems are those based on technology that is company-owned and protected through patents, copyrights, secrecy or other mechanisms.

• In wholly open systems the technology used in a product or process is not protected. It may be based on available standards or it may be new technology that is openly diffused to other producers.

• Architectural control refers to the firm’s ability to determine the structure and operation of the technology, and its compatibility with other goods and services.

BulletPoints 10: Organizing for Innovation

• Advantages of large firms:

1. Better able to obtain financing;

2. Higher returns than firms with lower sales volumes;

3. better developed complementary activities and greater global reach;

4. Better position to take on large or risky innovation projects than smaller firms;

5. Another advantage of size may arise in scale and learning effects.

• Icarus paradox means that a firm’s prior success in the market can hinder its ability to respond to new technological generations.

• Firms are disaggregated (unbundled) when something is separated into its constituent parts, a method of reducing size.

• The structural dimensions of a firms that are most likely to influence both propensity to innovate and effectiveness at innovation include formalization, standardization and centralization.

• Mechanistic structures are characterized by a high degree of formalization and standardization, causing operations to be almost automatic or mechanical.

• Organic structures are characterized by a low degree of formalization and standardization.

• Ambidextrous organization refers to the ability of an organization to behave almost as two different kinds of companies at once.

• Skunk works are new product development teams that operate nearly autonomously form the parent organization, with considerable decentralization of authority and little bureaucracy.

• Modularity refers to the degree to which a system’s components may be separated and recombined.

• Within loosely coupled organizational structures, development and production activities are not tightly integrated but rather achieve coordination through their adherence to shared objectives and common standards.

• Disadvantages:

1. Many activities reap significant synergies to be integrated;

2. Activities that require more frequent exchange of complex or tacit knowledge are likely to need closer integration than can be offered;

3. An integrated firm also has mechanisms for resolving conflict that may be more effective or less expense than those available in the market.

• Strategies:

  • Center-for-global strategy

  • Local-for-local strategy

  • Local leveraged strategy

  • Globally linked strategy

BulletPoints 11: Managing the New Product Development Process

• For new product development to be successful, it must simultaneously achieve three sometimes conflicting goals:

1. Maximizing the product’s fit with customer requirements;

2. Minimizing the development cycle time;

3. Controlling development costs.

• Reasons to fail:

1. No clear sense of which features customers value the most;

2. Overestimating the customer’s willingness to pay for particular features;

3. Difficulty in resolving heterogeneity in customer demands (conflicting features).

• Development cycle time is the time elapsed from project initiation to product launch, usually measured in months or years.

• A sequential process has no early warning system to indicate that planned features are not manufacturable.

• Partly parallel development process is a development process in which some (or all) of the development activities at least partly overlap.

Involving customers

• The customer is often the one most able to identify the maximum performance capabilities and minimum service requirements of a new product.

• Beta version is an early prototype of a product released to users for testing and feedback.

• Lead users are customers who face the same general needs of the marketplace but are likely to experience them months or years earlier than the rest of the market and stand to benefit disproportionally from solutions to those needs.

Involving suppliers

• By tapping into the knowledge base of suppliers, a firm expands its information resources.

• Crowdsourcing is a distributed problem-solving model whereby a design problem or production task is presented to a group of people who voluntarily contribute their ideas and effort in exchange for compensation, intrinsic rewards, or a combination thereof.

Tools for improving the new product development process

• Stage-gate processes

• Quality Function Development (QFD) – The House of Quality

• Design for manufacturing (DFM)

• Failure Modes and Effects Analysis (FMEA)

• Computer Aided Design/Computer Aided Manufacturing

Tools for measuring new product development performance

• NPD process metrics

• Overall innovation performance

BulletPoints 12: Managing New Product Development Teams

• New product development teams may range from a few members to hundreds of members.

• Bigger, however, is not always better:

  • Large teams can create more administrative costs and communication problems;

  • The larger the team, the harder it can be to foster a shared sense of identity;

  • As the size of the team increases, the potential for social loafing also increases.

• Social loafing occurs when an individual in a team does not exert the expected amount of effort and relies instead on the work of other team members.

• Cross-functional teams include members drawn from more than one functional area, such as engineering, manufacturing, or marketing.

• Individuals tend to interact more frequently and intensively with other individuals whom they perceive as being similar to them on one or more dimensions (= homophily).

• In functional teams, members remain in their functional departments and report to their regular functional manager.

• In lightweight teams, members still reside in their functional departments, and functional supervisors retain authority over evaluation and rewards.

• In heavyweight teams, members are removed from their functional departments so that they may be collocated with the project manager.

• In autonomous teams, members are removed from their functional departments and dedicated full-time (and often permanently) to the development team.

• Heavyweight and autonomous teams require senior managers with significant experience and organizational influence.

• Project managers in heavyweight and autonomous teams must have high status within the organization, act as concept champion for the team within the organization, be good at conflict resolution, have multilingual skills and be able to exert influence upon the engineering, manufacturing, and marketing functions.

• The project charter encapsulates the project’s mission and articulates exact and measurable goals for the project.

• The contract book defines in detail the basic plan to achieve the goal laid out in the project charter.

• Virtual teams are teams in which members may be a great distance from each other, but are still able to collaborate intensively via advanced information technologies such as videoconferencing, groupware, and e-mail or Internet chat programs.
• By meeting virtually, individuals can collaborate without incurring travel costs or disruption to their lives.
• Team members must be able to work independently and have a strong work ethic. It is important to choose individuals who tend to seek interactions.

BulletPoints 13: Crafting a Deployment Strategy

Five elements of the deployment process:

1. Launch timing;

2. Licensing and compatibility;

3. Pricing;

4. Distribution;

5. Marketing.

Launch timing

• Cannibalization occurs when a firm’s sales of one product (or at one location) diminish its sales of another of its products (or at another of its locations).

Licensing and compatibility

• Backward compatibility occurs when products of a technological generation can work with products of a previous generation (software).

Pricing

• Pricing simultaneously influences the product’s positioning in the marketplace, its rate of adoption, and the firm’s cash flow.

• Freemium is a pricing model where a base product is offered for free, but a premium is charged for additional features or service.

Distribution

• Manufacturer’s representatives are independent agents that promote and sell the product lines of one or a few manufacturers.

• Wholesalers are companies that buy manufacturer’s products in bulk, and then resell them (often in smaller and more diverse bundles) to other supply chain members such as retailers. Retailers are companies that sell goods to the public.

• Strategies or accelerating distribution:

  • Alliances with distributors;

  • Bundling relationships;

  • Contracts and sponsorship;

  • Guarantees and consignment.

Marketing

• Major marketing methods

  • Advertising:

  • Promotions:

  • Publicity and public relations: