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Profiting from Innovation

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Presentation on theme: "Profiting from Innovation"— Presentation transcript:

1 Profiting from Innovation
Uniqueness, Complementary Assets & the Structure of the Value Chain

2 The second of two key questions:
How will we Create value? How will we Deliver value? How will we Capture value?

3 Everyone is after your lunch...
Price Cold Cnew Quantity

4 What determines the Inventor’s Share?
Suppliers Customers Imitators, followers Inventor

5 great ideas = pots of money?
Is it the case that great ideas = pots of money? Coca cola Value captured Viagra Xerox (early) Walmart Prozac Dell Apple Xerox RC Cola Value created (through “raw” invention)

6 Two key ideas: Uniqueness (Appropriability)
– Controlling the knowledge generated by an innovation: being the only game in town Complementary Assets – Controlling the assets necessary to exploit the knowledge generated by innovation

7 Uniqueness is very important:
If a particular innovation, or the knowledge on which it rests, can be completely “appropriated” then the innovating firm may be able to maintain a unique position. This is a tremendous source of bargaining power.

8 Sources of Uniqueness Intellectual property protection – Patents
• Finite length • The right to prohibit “producing” – Copyrights • The right to prohibit “copying” Secrecy – Trade secrets & non compete clauses – “Tacit” knowledge Speed

9 Intellectual property protection
Strengths Weaknesses

10 Secrecy Strengths Weaknesses

11 Speed Strengths Weaknesses

12 Uniqueness is powerful but often difficult to maintain
Legal mechanisms can be costly to create, and then even more costly to enforce: and they require public disclosure Secrecy is hard to maintain Speed is hard work and may be self limiting

13 Complementary Assets: Definition
Those assets that allow a firm to make money, even if the innovation is not unique. The answer to the question: – If our innovations were instantly available to our competitors, would we still make money? Why?

14 In the best case, complementary assets should be tightly held
Complementary assets that are tightly held are not easily available to entrants or to most competitors

15 What kinds of Complementary Assets provide Advantage?
Things you can do – Manufacturing capabilities – Sales and service expertise • Competencies Things you own – Brand name – Distribution channels – Customer relationships • Resources

16 In successful firms, competencies create resources, and vice versa:

17 What is the relationship between Teece’s ideas and Porter’s 5 (really 7) forces?

18 Thinking about the balance of power
Porter’s “5 Forces”: Thinking about the balance of power Political, regulatory and institutional context “Complementors” Entrants Suppliers Rivals Buyers Substitutes

19 C.Assets/Uniqueness speak to Rivalry and the Threat of Entry.
Political, regulatory and institutional context “Complementors” Entrants Suppliers Rivals Buyers Substitutes

20 Porter reminds us to think about the structure of the value chain:
Political, regulatory and institutional context “Complementors” Entrants Suppliers Rivals Buyers Substitutes

21 Powerful suppliers and buyers may constrain profitability

22 Who makes money when: Complementary assets are: Freely available
Tightly held Uniqueness is: Easy to maintain Hard to maintain

23 Uniqueness & Complementary Assets over the Life Cycle:

24 Managing growth means managing complementary assets:
Maturity Performance Discontinuity Takeoff Which of my Complementary Assets are likely to be useful? Time

25 Uniqueness & Complementary Assets: Strategic Imperatives
Defend uniqueness if possible and appropriate Build complementary assets in advance of competition At moments of disruption ask: – Are my complementary assets useful? – If so, which ones?

26 Making money from Innovation: Summary
Creating value is not enough: It is important to capture value as well Value can be captured through a variety of mechanisms, including uniqueness and complementary assets Value capture strategies change over the life cycle Technology strategy and business strategy should thus be intimately linked

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