MGMT 110 CH6

Creative Abrasion

Fostering innovation through the interaction of different personalities and perspectives.

Codifiable knowledge

Knowledge that can be written down

Alternative Strategies for Exploiting Innovation

Licensing Outsourcing Certain Functions Strategic Alliance Joint Venture Internal Commercialization

Mandatory standards

Set by government and have the force of law behind them.

Regime of appropriability

used to describe the conditions that influence the distribution of returns to innovation.

Network Externalities

exists whenever the value of a product to an individual customer depends on the number of other users of that product. Network externalities do not require everyone to use the same product or even the same technology, but rather that the different products are compatible with one another through some form of common interface.

Competitive advantage in technology-intensive industries

forms the key link between technology and competitive advantage. It is the quest for competitive advantage that causes firms to invest in innovation

Intellectual Property

property rights in the innovation. Patents, copyrights, trademarks, trade secrets, etc.

Development of Technology

Basic Knowledge Invention Innovation Diffusion Imitation (supply side) or Adoption (demand side)

Complementary Resources

Bringing new products and processes to market requires not just invention but also the diverse resources and capabilities needed to finance, produce and market the innovation. Complementary resources may be accessed through alliances with other firms, for example biotech firms ally with large pharmaceutical companies for clinical testing, manufacture and marketing. Where complementary resources are generic, the innovator is in a much stronger position to capture value.

If reliable forecasting is impossible, the keys to managing risk are:

Cooperating with lead users Limiting risk exposure. Flexibility.

Managing Creativity

Create conditions for creativity (Creativity is stimulated by human interaction) Organize for Creativity (Organizational environments conducive to creativity tend to be both nurturing and competitive)

Positive feedback

Created by network externalities. Once a technology or system gains market leadership, it attracts a growing proportion of new buyers.

De Facto Standardd

Emerge through voluntary adoption by producers and users.

Managing Risks

Emerging industries are risky. There are two main sources of uncertainty: Technological Uncertainty Market Uncertainty

Tacitnes and the Complexity of the Technology

In the absence of effective legal protection, the extent to which an innovation can be imitated by a competitor depends on the ease with which the technology can be comprehended and replicated.

Why Standards Appear?

Network Externalities

Revolutionary Strategy

New standard

Tipping

Once market leadership is lost, a downward spiral is likely

Open Innovation

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.

Organizational Approaches to the Management of Innovation

Organizational initiatives aimed at stimulating new product development and the exploitation of new technologies include: Cross-functional product development teams Product champions provide a means Buying innovation Open innovation Corporate incubators

Network externalities arise from several sources:

Products where users are linked to a network. Availability of complementary products and services. Economizing on switching costs.

Balancing Creativity and Commercial Direction

The critical linkage between creative flair and commercial success is market need. Few important inventions have been the result of spontaneous creation by technologists; almost all have resulted from grappling with practical problems.

Characteristics of the Innovation

The extent to which a firm can establish clear property rights in an innovation critically determines the choice of strategy options. Licensing is only viable where ownership in an innovation is clearly defined by patent or copyrights.

Factors Determining Advantage of Leading Market

The extent to which innovation can be protected by property rights or lead-time advantages. The importance of complementary resources. The potential to establish a standard.

Winning Standards Wars

The first key issue is to determine whether we are competing in a market that will converge on a single technical standard. The second strategic issue in standards setting is recognizing the role of positive feedback: Before you go to war, assemble allies. Pre-empt the market. Manage expectations. The lesson that has emerged from the classic standards battles of the past is that in order to create initial leadership and maximize positive feedback effects, a company must share the value created by the technology with other parties (customers, competitors, complementors and suppliers)

Lead Time

The innovator's lead time is the time it will take followers to catch up.

The profitability of innovation

The profitability of an innovation to the innovator depends on the value created by the innovation and the share of that value that the innovator is able to appropriate.

Standard

a format, an interface or a system that allows interoperability.

Key Resources to win a Standards War

control over an installed base of customers; owning intellectual property rights in the new technology; the ability to innovate in order to extend and adapt the initial technological advance; first-mover advantage; strength in complements (e.g. Intel has preserved its standard in microprocessors by promoting standards in buses, chipsets, graphics controllers and interfaces between motherboards and CPUs); reputation and brand name.

Innovation

initial commercialization of invention by producing and marketing a new good or service or by using a new method of production.

Corporate Incubators

new businesses, based upon technologies that have been developed internally but have limited applications within a company's established businesses.

Evolutionary Strategy

offers backward compatibility

Invention

the creation of new products and processes through the development of new knowledge or from new combinations of existing knowledge.

Effective Follower Strategies

those that initiate a new product's transition from niche market to mass market.