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

2. 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

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

4. 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

5. Complementary Resources
©2015 Robert M. Grant & Judith Jordan

6. Alternative Strategies for Exploiting Innovation
©2015 Robert M. Grant & Judith Jordan

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

8. 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

9. 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

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

11. 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

12. 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

13. 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

14. 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