1. PROFIT CHAIN

2. Profit chain KNOWLEDGE ENVIROMENT Competitive Macro INTERNALS Strategy
Structure
Systems
People
NATURE OF INNOVATION
Incremental, radical, architectural
Complexity, tacitness
Life cycle phase
KNOWLEDGE
COMPETENCES
Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture
ASSETS
Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses
PROFIT
From innovation that leads to low – cost or differentiad products

3. What is the innovation?

4. INNOVATION = INVENTATION + COMMERCIALIZATION
Definition of innovation
INNOVATION = INVENTATION + COMMERCIALIZATION
Innovation is the use of new knowledge to offered a new product or service that customers want (Afuah).
IDEA
MARKET

5. How can a firm make profit from innovation?

6. Profit KNOWLEDGE ENVIROMENT Competitive Macro INTERNALS Strategy
Structure
Systems
People
NATURE OF INNOVATION
Incremental, radical, architectural
Complexity, tacitness
Life cycle phase
KNOWLEDGE
COMPETENCES
Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture
ASSETS
Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses
PROFIT
From innovation that leads to low – cost or differentiad products

7. Profits = Revenues – Cost = P(z,q) . q(z) – C(q,z)
A firm makes profit from selling a product or service when the revenues are greater than the cost of offering it.
P(z,q) = Price
z = attributes of the product
Q= quantity
q(z)= quantity that are sold
C(q,z)= cost
Profits = Revenues – Cost = P(z,q) . q(z) – C(q,z)

8. Innovation and profit MORE PROFITS
Innovation is use of technological and market knowledge to offer a new product or service that customer will want (low cost, improved attributes, new attributes) and increase the profit through selling of it.
Process innovation
NEW TECHNOLOGICAL KNOWLEDGE
NEW PRODUCT
Low cost
Improved attributes
New attributes
COMPETENCES AND
ASSETS
NEW MARKET KNOWLEDGE
Low cost for a given price
New or better attributes (price premium) for a given cost
MORE PROFITS
Product innovation

9. Assets and competences
ENVIROMENT
Competitive
Macro
INTERNALS
Strategy
Structure
Systems
People
NATURE OF INNOVATION
Incremental, radical, architectural
Complexity, tacitness
Life cycle phase
KNOWLEDGE
COMPETENCES
Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture
ASSETS
Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses
PROFIT
From innovation that leads to low – cost or differentiad products

10. ASSETS CAN BE GROUPED INTO
They are the resources that a firm needs to exploit the innovation.
TANGIBLE, physical and financial resources (plants, equipment and cash reserves).
INTANGIBLE, nonphysical and nonfinancial assets (patents, copyrights, reputation, brands, trade secrets, relations with customers, employees and knowledge embedded in different forms).
ASSETS CAN BE GROUPED INTO
HUMAN, skills and knowledge of the employees.

11. Attributes of the assets
For example, in investment banking, client relationship are core.
Role that assets can play in ability of a firm to make profit.
How central assets are to a firm’s business.
CORENESS
Negligible profits
Long – term profits
No profits
Short – term profits
Coreness
Noncore
Core
Imitability
High
Low
Dipend of the type of assets:
legally protection;
uncertainty and complexity.
IMITABILITY

12. Relationship between competences and assets
- NO PROFIT  competences and assets non core
- MAKE PROFITS  competences and assets core
Competences
Design engines
Negotiate contracts
Products or services
Low cost
Differentiated
Assets
Intellectual property
Skilled personnel
Brand names
Reputation
Client relations
Source of assets is competence
Assets help to build competences
Assets have on the effectiveness of
competences a leveraging effect in delivering
low - cost or differentiated products

13. Knowledge KNOWLEDGE ENVIROMENT Competitive Macro INTERNALS Strategy
Structure
Systems
People
NATURE OF INNOVATION
Incremental, radical, architectural
Complexity, tacitness
Life cycle phase
KNOWLEDGE
COMPETENCES
Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture
ASSETS
Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses
PROFIT
From innovation that leads to low – cost or differentiad products

14. Technological knowledge
Innovation is the use of new technological and market knowledge to offer a new product or service that customers will want.
It is knowledge of components, linkages between components, methods, processes and techniques that go into a product or service.
Technological knowledge
It is knowledge of distribution channels, product applications and customer expectations, preferences, needs and wants.
Market knowledge

15. How well does a firm perform the activities that rest on the knowledge?

16. Properties of the knowledge
How new the knowledge is to the function or organization performing the activity, so:
if it is very different from existing knowledge, it is
said RADICAL (competences destroying);
if it is builds on existing knowledge, it is said
INCREMENTAL (competences enhancing).
Newness
Quantity
It is a function of the complexity of the activities that go into the product, which may or may not result in a complex product.
Knowledge can be:
EXPLICIT if it is spelled out in writing, verbalized or
coded in drawings, computer programs, or other
products;
TACIT if it is uncoded and nonverbalized.
Tacitness

17. Nature of innovation KNOWLEDGE ENVIROMENT Competitive Macro INTERNALS
Strategy
Structure
Systems
People
NATURE OF INNOVATION
Incremental, radical, architectural
Complexity, tacitness
Life cycle phase
KNOWLEDGE
COMPETENCES
Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture
ASSETS
Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses
PROFIT
From innovation that leads to low – cost or differentiad products

18. Degree of Technical Innovation’s Newness
Type of innovation
Degree of Technical Innovation’s Newness
Exploits potential of existing design
Incrementally New
Relatively Minor Changes
Often reinforces the dominance of existing firms
Numerous incremental changes over time very valuable
Architecturally New
change relationship between components
Radically New
New set of engineering principles
Often opens new markets/potential
Often causes difficulties for established firms
Different competitive consequences
because they require different
organizational capabilities which
are difficult to create/adjust.

19. Environment and internals
ENVIROMENT
Competitive
Macro
INTERNALS
Strategy
Structure
Systems
People
NATURE OF INNOVATION
Incremental, radical, architectural
Complexity, tacitness
Life cycle phase
KNOWLEDGE
COMPETENCES
Ability to design engines, integrate different function, build logistic, market, new ideas, manufacture
ASSETS
Size, patents, copyrights, location, skilled scientists, reputation, sponsor, licenses
PROFIT
From innovation that leads to low – cost or differentiad products