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

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Presentation on theme: "Profiting from Innovation Uniqueness, Complementary Assets & the Structure of the Value Chain."— 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 C old C new Quantity

4 Or: What determines the Inventors Share? Suppliers Imitators, followers Customers Inventor

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

6 Two key ideas: Uniqueness (Appropriability) Uniqueness (Appropriability) –Controlling the knowledge generated by an innovation: –Controlling the knowledge generated by an innovation: being the only game in town being the only game in town Complementary Assets Complementary Assets –Controlling the assets necessary to exploit theknowledge generated by innovation –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 itrests, can be completely appropriated then the innovating firm may be able to maintain a uniqueposition. This is a tremendous source of bargainingpower. 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 Intellectual property protection –Patents –Patents Finite length Finite length The right to prohibit producing The right to prohibit producing –Copyrights –Copyrights The right to prohibit copying The right to prohibit copying Secrecy Secrecy –Trade secrets & non compete clauses –Trade secrets & non compete clauses –Tacit knowledge –Tacit knowledge Speed Speed

9 Intellectual property protection Strengths Strengths Weaknesses Weaknesses

10 Secrecy Strengths Strengths Weaknesses Weaknesses

11 Speed Strengths Strengths Weaknesses Weaknesses

12 Uniqueness is powerful but often difficult to maintain Legal mechanisms can be costly to create, and theneven more costly to enforce: and they require public disclosure Legal mechanisms can be costly to create, and then even more costly to enforce: and they require public disclosure Secrecy is hard to maintain Secrecy is hard to maintain Speed is hard work and may be self limiting 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. Those assets that allow a firm to make money, even if the innovation is not unique. The answer to the question: The answer to the question: –If our innovations were instantly available to ourcompetitors, would we still make money? Why? –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 noteasily available to entrants or to most competitors 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 Things you can do –Manufacturing capabilities –Manufacturing capabilities –Sales and service expertise –Sales and service expertise Competencies Competencies Things you own Things you own –Brand name –Brand name –Distribution channels –Distribution channels –Customer relationships –Customer relationships Resources Resources

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

17 What is the relationship between Teeces ideas and Porters 5 (really 7) forces?

18 Porters 5 Forces: Thinking about the balance of power Complementors Political, regulatory and institutional context Entrants Rivals Substitutes Suppliers Buyers

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

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

21 Powerful suppliers and buyers may constrain profitability SuppliersBuyers

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

23 Uniqueness & Complementary Assetsover the Life Cycle: Uniqueness & Complementary Assets over the Life Cycle:

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

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

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


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