Technology-based industries and the management of innovation Kyle Kunkel Teddy Lathrop Thor Fink John Barron Parker

 Analyze 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  Design the organizational conditions needed to implement such strategies successfully.

 Link between technology and competition  Potential for innovation  Key issues in designing technology strategies  Organizational conditions

 Launched in 1997 by Softbook press  Gemstar buys Softbook and Nuvomedia  Gemstar is unsuccessful marketing new eBook  Sony creates its new eBook, but also fail  Amazon creates the Kindle  Apple launches iPad and had huge success  Top 5 US publishers sign with Apple

 Buying innovation  Recognition that small, technology- intensive start- ups have advantages in the early stages of the innovation process has encouraged large companies to enhance their technological performance by acquiring innovation from other firms.  Open innovation  requires creating a network of collaborative relationships that comprises licensing deals, component outsourcing, joint research, collaborative product development and informal problem solving and exchanges of ideas

 Corporate Incubators  business developments established to fund and nurture new businesses, based upon technologies that have been developed internally, but have limited applications within a company’s established businesses.

“The principal link between technology and competitive advantage is innovation”

 Invention : the creation of new products and processes through the development of new knowledge of existing knowledge  Innovation : the intentional commercialisation of invention by producing and marketing a new good or service, or by using a new method of production

 Basic knowledge  Invention  Innovation  Diffusion  Supply side leads to imitation  Demand side leads you to adoption

 Profitability of an innovation to the innovator, depends on the value created by the value created by the innovation and share of that value that the innovator is able to appropriate.

 This is used to describe the conditions that influence the distribution of returns to innovation  Strong Regimes: Innovator is able to capture a substantial share of the value created  Weak Regimes: other people get a large share of the value rather than the innovator

 Intellectual Property : subset of laws that protect most non- tangible property  Patents : exclusive rights to a new and useful product, process, substance or design  (usually last 17 years, 14 years for design)  Copyrights : exclusive to production, publications, or sales rights of the creator of an artistic, literary, dramatic, and musical works  Trademarks : Words, symbols, or other marks used to distinguish the goods or services supplied by a firm  Trade secrets : offer a modest level of legal protection for recipes, formulae, industrial processes, customer lists, and other knowledge acquired by the business

 In the absence of laws to protect an innovator these things will help from imitation.  Imitation by a competitor depends on the ease the technology can be comprehended and replicated  1 st depends on the extent to which the technical knowledge can be codifiable  Codifiable information: that which can be written down 2nd depends on the complexity of the product

 1 st two factors may not always stop imitation but with significant lead-time the odds of greater success are much better  Lead-time: the time it takes followers to catch up

 Bringing new products and processes to a market requires not just invention, it also requires the diverse resources and capabilities needed to finance, produce and market the innovation  These are referred to as COMPLEMENTARY RESOURCES  These are also resources that can be acquired through other firms

 Number of alternative strategies for firms to use to maximize returns on their innovations  Choice of strategy depends on:  characteristics of the innovation  resources and capabilities of a firm

 Better to be the Leader or Follower in innovation to gain a competitive advantage?  Evidence is mixed  The leader has gained a competitive advantage with some products, but failed to do so with other products.  Optimal timing depends on the resources and capabilities that a firm has at its disposal

 Emerging industries are risky because of:  Technological uncertainty  Market uncertainty  Strategies for limiting risks  Cooperating with lead users  Limiting risk exposure  Flexibility

 The establishment of standards is a key event in industry evolution.  Definition of standard: a format, an interface, or a system that allows interoperability  Standards are either public or private

 Standards emerge in markets that are subject to network externalities.  Network externalities exist whenever the value of a product to a customer depends on the number of users of that product  Example: telephone

 Doesn’t require everyone to use the same product, but that different products are compatible with one another through a common interface  Network externalities arise from:  Products where users are linked to a network  Availability of complementary products & services  Economizing on switching costs  Markets subject to significant network externalities tend to be dominated by a single supplier.

 Assemble allies  Pre-empt the market  Manage expectations

 While invention depends on creativity, innovation requires collaboration and cross- functional integration  Managing creativity  Organizing for creativity  From invention to innovation  The challenge of integration “Invention is an act of creativity requiring knowledge and imagination.”

 The creativity that drives invention is typically an individual act that establishes a meaningful relationship between concepts or objects that had not previously been related  Creativity is associated with particular personality traits  Depends on the organizational environment in which people work  Stimulated by human interaction

 Balancing creativity and commercial direction  Organizational approaches to the management of innovation  Cross functional product development teams  Product champions  Buying innovation  Open innovation  Corporate incubators

 The critical link between creative flair and commercial success is market need  Customers are most acutely involved with matching existing products and services to their needs.

 Organizational initiatives aimed at stimulating new product development and the exploitation of new technologies include the following:  Cross functional product development teams  highly effective mechanisms for integrating creativity with functional effectiveness.  Product champions  provide a means for incorporating individual creativity within organizational processes and for linking invention to subsequent commercialization

 Buying innovation  Recognition that small, technology- intensive start- ups have advantages in the early stages of the innovation process has encouraged large companies to enhance their technological performance by acquiring innovation from other firms.  Open innovation  requires creating a network of collaborative relationships that comprises licensing deals, component outsourcing, joint research, collaborative product development and informal problem solving and exchanges of ideas

 Corporate Incubators  business developments established to fund and nurture new businesses, based upon technologies that have been developed internally, but have limited applications within a company’s established businesses.

 Tech industries, exploiting innovation is fundamental source of competitive advantage.  Different between success and failure in tech industry may be the result of small errors of timing or technology choices.  Successful strategies must be responsive to changing market conditions, but also require long term commitment.  property rights, the tacitness and complexity of the technology, lead- time and complementary resources are the four critical factors that tech industries use.