Technology-Based Industries and the Management of Innovation ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Learning Objectives By the time you have completed this topic you will be able to: analyse how technology affects industry structure and competition identify the factors that determine the returns to innovation and evaluate the potential for an innovation to establish competitive advantage formulate strategies for exploiting innovation and managing technology, focusing in particular on: identifying and evaluating options for exploiting innovation the relative advantages of being a leader or follower in innovation how to win standards battles how to manage risk design the organisational conditions needed to implement such strategies successfully ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

The Development of Technology: From Knowledge Creation to Diffusion ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Appropriation of Value: Who Gets the Benefits from Innovation? The extent to which innovators appropriate the value of their innovation depends upon: the strength of their property rights in the innovation the tacitness and complexity of the technology embodied in the innovation the lead-time they have over followers the extent to which they possess the complementary resources needed to commercialise the innovation. ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Complementary Resources ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Alternative Strategies for Exploiting Innovation ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Timing Innovation: To Lead or to Follow? Some Examples ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Factors that Determine the Relative Success of Leaders and Followers? Can the innovation be protected by intellectual property rights or lead-time advantages? If so, advantages in leadership Followers cab avoid investing in complementary resources due to better-established industry infrastructure Firms possessing complementary resources have the luxury of waiting How important are complementary resources? Is there potential to establish an industry standard? If so, advantage in being a leader ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Competing for Standards Types of standard: Public (open), e.g. 3G standards for mobile telecommunication Private (propriety), e.g. Adobe Acrobat's pdf format Mandatory, e.g. Animal Welfare standards De facto, e.g. Microsoft Windows ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Companies That Own de facto Industry Standards ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Fighting Standards Wars Determine the potential for a standard to emerge – analyze network externalities Assemble allies – enlist partners (customers, complementors, competitors) to build a bandwagon Pre-empt the market – use launch and pre- launch publicity and promotion to convince the market that you will be the winner Manage expectations ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Fighting Standards Wars Key resources needed to win a standards war: Control over an installed base of customers Owning intellectual property rights in the new technology The ability to innovate to extend the initial technological advance First-mover advantage Strength in complements Reputation and brand name ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Managing Risk in Technology-Based Industries Technological Uncertainty: emergence of new technologies and outcomes of technological rivalries are difficult to predict Sources of uncertainty Market Uncertainty: customer acceptance and adoption of innovations notoriously difficult to predict Cooperating with Lead Users Limiting Risk Exposure: Avoid major capital commitments (e.g. lease don’t buy) Outsource Alliances to access other firms’ resources and capabilities Keep debt low Strategies for managing risk Flexibility: Keep options open Use speed of response to adapt quickly to new information Learn from mistakes ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com

Conditions for Creativity: “Operating” and “Innovating” Organizations Operating Organization Innovating Organization Structure Bureaucratic. Specialization and division of labor. Hierarchical control. Defined organizational boundaries. Flat organization without hierarchical control. Task-oriented project teams. Fuzzy organizational boundaries. Processes Emphasis on eliminating variation (e.g. six-sigma). Top-down control. Tight financial controls. Emphasis on enhancing variation. Loose controls to foster idea generation. Flexible strategic planning and financial control. Reward Systems Financial compensation, promotion up the hierarchy, power, and status symbols. Autonomy, recognition, equity participation in new ventures. People Recruitment and selection based on the needs of the organization structure for specific skills: functional and staff specialists, general managers, and operatives. Key need is for idea generators that combine required technical knowledge with creative personality traits. Managers must act as sponsors and orchestrators. ©2015 Robert M. Grant & Judith Jordan www.foundationsofstrategy.com