1. Navigating the Technology Landscape of Innovation Lee Fleming & Olav Sorenson MIT Sloan Management Review Winter 2003

2. Navigating the Technology Landscape 2 Design Strategies How should a company go about determining what their essential strategy should be for product innovation? Two basic design strategies: –Modular design: independent pieces are put together to make a product A change in one component of the product has little influence on the performance of other parts or on the performance of the whole product –Upgrade the heating element in an electric coffeemaker –NonModular or coupled design: components are highly interdependent A minor change in one part can cause an unexpectedly huge difference in the functioning of the overall system –A miniscule impurity in a semiconductor (10 parts in a billion) can dramatically alter silicon’s resistance by a factor of 10,000

3. Navigating the Technology Landscape 3 The Technology Landscape –Modular designs make R&D more predictable but they tend to result in incremental product improvements instead of important advances –Coupled design are riskier to work with but are more likely to lead to breakthroughs –The trade-off between predictability and innovation can be viewed as a “technology landscape” Gently sloping hills correspond to incremental product improvements based on modular components Soaring, craggy peaks represent breakthrough inventions that rely on tightly coupled parts –Developing new products requires a search across such technology terrain Dell, with its efficient manufacturing and superb supply-chain management, can compete by traversing the slopping hills Apple needs to scale the high peaks to maintain the competitive advantage –A “map” of the terrain would help such companies minimize risk i.e., gain an understanding of the underlying science of the technologies being used

4. Navigating the Technology Landscape 4 The Technology Landscape

5. Navigating the Technology Landscape 5 The Technology Landscape The concept of “technology terrain” and “maps” helps explain why some companies have profited from R&D efforts while others have stumbled –A company having difficulty moving products through R&D into manufacturing could be exploring an area of the technology landscape that is too rugged Such a company might try to work in a less precarious terrain by using more modular components, or Make a large investment in basic science to develop a map of the landscape that will help its researchers avoid technological pitfalls –Summits correspond to inventions that have successfully merged different components and the valleys represent failed combinations –Inventors seek out the peaks while trying to avoid the chasms in between

6. Navigating the Technology Landscape 6 The Technology Landscape Researchers who do not understand the components they are working with nor how they interact, are searching the terrain in a “fog” and thus prefer cautious forays i.e., small adjustments to proven concepts –Mt Fuji landscape One peak, researchers simply travel uphill to discover the next invention –Minor enhancements will likely work and be accepted by the market –First mover advantage is short-lived as other competitors can easily find the same peak

7. Navigating the Technology Landscape 7 The Technology Landscape –The Alps landscape With its multitude of peaks and chasms (working with tightly coupled systems), inventors searching in the fog will miss most of the great inventions because they are situated beyond an abyss of technological dead ends Proceeding slowly uphill will leave the inventor stranded on some local hill far below the soaring heights of Mt Blanc Once stranded on a local peak, any direction is downhill. They can not see where to proceed because of the fog and may even decide to quit further research in the incorrect belief that they have reached the apex A map is needed to gain a strong technological advantage over rivals Working with this technology is risky and unpredictable but the payoffs can be huge for those who make landmark discoveries that others have difficulty replicating But, not every organization is suited to attempt Mt Blanc and may be better off exploring less rugged terrain (modular systems)

8. Navigating the Technology Landscape 8 The Alps and Mt Blanc

9. Navigating the Technology Landscape 9 Summary of Strategies for Product Innovation

10. Navigating the Technology Landscape 10 Modular Strategy Sun Microsystems –Was able to develop working systems relatively easily by using modular microprocessors Computational power lagged behind that of Apollo Computer which relied on customized and more coupled designs Sun eventually eclipsed Apollo because the latter found it difficult to sustain the pace of innovation Dell –Benefits not from revolutionary product development but through exemplary SCM and strong execution of its business model –This in a market where consumers are able to build their own PCs using modular parts Sony Walkman –First built a library of standard, interchangeable components (Mt Fuji landscape) which made it easier to find useful combinations –They stayed ahead of the competition not because their product could not be reproduced but by flooding the market with changes and improvements through rapid innovation by modular recombination that the competition could not keep pace with

11. Navigating the Technology Landscape 11 Tightly Coupled Strategy Need an effective way to deal with the complexity og rugged technology landscapes –Shotgun sampling: generate an enormous number of random trials and then subject them to rigorous selection criteria. Requires two things: Methods to generate variation cheaply Accurate tests to assess the value of those variations –Used by Thomas Edison in his Menlo Park laboratory Gathered together hundreds of gadgets, chemicals, compounds and technologies under one roof staffed by a variety of technical professionals The layout of the lab further facilitated rapid shotgun sampling by juxtaposing seemingly unrelated technologies in the same work area and encouraging his staff to try strange combinations –In developing the light bulb, Edison tried 1,000 combinations of filament materials, vacuum pressures, voltages, bulb shapes, etc. running each against an obvious and rigorous test – how long does the bulb stay lit?

12. Navigating the Technology Landscape 12 Tightly Coupled Strategy –Computer simulation reduces the cost of running numerous trial-and-error tests BMW builds computer models of its cars and then “crashes” then in virtual simulations Sometimes engineers can not manually predict the complex behavior of a system that involves the interactions of thousands or millions of parts and simulations are the only way to test the system –In the 1980s, the RISC (reduced instruction set computing) microprocessors could only be tested via simulation due to the numerous configuration possibilities that were being investigated. As a result of this work, the annual rate of improvement in microprocessors increased from 35% to 55%

13. Navigating the Technology Landscape 13 Tightly Coupled Strategy –To increase the odds of success when using shotgun sampling, an organization should: Work with many diverse technologies Physically juxtapose researchers from seemingly unrelated fields Promote a relatively unstructured workplace Be on the lookout for unexpected breakthroughs even if they appear far from the original target

14. Navigating the Technology Landscape 14 Tightly Coupled Strategy –The pharmaceutical industry faces a daunting challenge in testing new drugs The possible interactions between other drugs and the unique makeup of each person makes it difficult to know if they have truly hit the intended target The do extensive testing but have limited understanding of the diseases they are attempting to deal with which limits the effectivesness of the tests –This is why failures of drugs occur much later in clinical trials after much time and expense

15. Navigating the Technology Landscape 15 Mapped Searching Instead of performing shotgun sampling, a company can obtain a fundamental understanding of the different coupled components and their interactions –This will allow researchers to narrow their field of exploration and arrive at useful inventions more quickly –This requires an expensive and long-term investment in basic or applied science but the potential payoffs are huge Even an inexact map of the rugged, technological landscape can pay off handsomely

16. Navigating the Technology Landscape 16 Mapped Searching The invention of the inkjet printer presented a great challenge as it involved so much coupling among the different components –Technicians and researchers at H-P labs finally succeeded in putting together the winning combination of intricate components that led to the company’s blockbuster product This achievement was made possible only through a basic understanding of the complex physics of superheated liquids, simulations and numerical techniques – they mapped the technology landscape

17. Navigating the Technology Landscape 17 Mapped Searching Research on patent citations demonstrates that those inventions that were accomplished through mapped searching generated have twice the import (on the average) of those developed through modular recombination –The commercial value of patents that are highly cited increases exponentially A patent with 14 citations has 100 times the value of a patent with 8 citations

18. Navigating the Technology Landscape 18 Mapped Searching A technology map is useful for companies that have hit a dead-end but don’t realize it yet –Research and analysis can show that the technology is impractical and should be abandoned A technology map is useful for companies who think they are at a dead-end but really aren’t –Prozac was discovered by a researcher at Eli Lily who continued studying a group of compounds that had not yet shown promise because of a theory he had developed on the mechanism by which brain cells release and absorb serotonin, a powerful neural transmitter

19. Navigating the Technology Landscape 19 Mapped Searching Scientists seek recognition through publication of their research; this runs counter to the protection required for new technology –In the 1980s, IBM developed copper-interconnect technology which enabled transistors on a chip to be connected at very low electrical resistance This was a major coup and the stock price rose over 10% IBM allowed its researchers to publish only general ideas about the technology and did not apply for patents During the downturn of the early 1990s, IBM suffered drastic cutbacks and several reserachers left the company –The rest of the industry now learned about the technology but IBM had already shipped more than a million chips before the competitors could respond