Chapter 9: Technology-based Industries and the Management of Innovation

Which are the two kinds of uncertainties in emerging industries?

*Technological uncertainty* Technical standards and dominant design is hard to predict. How the overall technological evolvement will behave. *Market uncertainty* Size and growth rate of the market is hard to predict

What two factors determine the strategy (license <-> in-house) of innovation exploitation?

- *Characteristics of the innovation*: Is the ownership of the innovation protected with IPR? Otherwise can't license and have to make business self. - *Resources and capabilities of the firm*: Start-ups usually don't have resources and will choose licensing, outsourcing, or joint ventures. Larger companies can commercialise themselves.

Which parties is the value of an innovation distributed between?

- Innovators - Followers - Suppliers - Customers - Complementors

What is a standard?

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

How can lack of standard kill a technology?

A lack of standard (or a very delayed one) means that the technologies are incompatible. This incompatibleness makes people not wanting to invest in it and eventually, it dies.

What is a strategic window?

A period in time when a firm's resources and capabilities are aligned with the opportunities available in the market. Usually, this is short for smaller start-ups and longer for larger firms.

What is evolutionary strategy (vs revolutionary strategy) in standard-war context?

Evolutionary strategy is building on the existing standard. E.g. Playstation 2 was compatible with Playstation 1.

What is one key factor for creativity?

Human interaction/communication

What is regime of appropriability? Which are the four key components?

The conditions that influence the distribution of value created by an innovation. If strong, the innovator is able to capture a lot of the value. - Property rights - Complexity of the technology - Lead time - Complementary resources

What does the value of an innovation for an innovator depend on?

The value created by the innovation and The value that the innovator is able to capture

How does complementary resources contribute to the strength of a regime of appropriability?

They affect the ability to bring the product to market. Complementary resources can be accessed through collaborations with other firms, but then the distribution of the value of the innovation depend on the relative power between the involved firms. Co-specialized (developed together) resources provide barriers to imitation.

What is a platform-based market?

Two-sided or multi-sided market. Forming an interface between users and complementary product suppliers. E.g. social media, malls. Direct and indirect externalities exists.

What is meant by "tipping" in the context of network externalities?

When crossing a threshold where the cumulative forces of the network externalities become unstoppable.

When does standards emerge?

When there is network externalities present. Value of product depends on the diffusion of it. This requires the products to be compatible, calling for a standard.

Which two types of standard exist?

- *Public/open standard*: Available to all, either for free or nominal charge. Can be mandatory (backed by laws) or voluntary. - *Private/proprietary*: Owned by individuals/firms. Apple's iOS is a proprietary standard. Android is an open source standard (can be used by anyone). Most private standards are de facto standards.

Which are three ways to access external sources of innovation?

- *Using customers as sources of innovation*: Identifying leading-edge customers and supplying them with easy-to-use tools for changes/innovation. Make sure that the ideas can be used - *Open innovation* Seeking, exploiting, and applying knowledge both from the insida but also outside. Sharing know-how and sourcing technology. - *Buying innovation* Start-ups, which have innovation advantages in the beginning, can be used through licensing, purchase of patents, acquisition.

Which are four ways of limiting the risks from uncertainties in emerging markets?

- Cooperation with lead-users: Monitoring fist customers and getting their opinions - Limiting riks exposure: Financial risks. Avoid debt and keeping fixed costs low. Outsourcing and strategic alliances can help - Flexibility: Rapid responsiveness. Keeping options open and delaying commitment until potential is clear - Multiple strategies: Well-resources firms can invest in a variety of technological options.

Which are three core organizational initiatives for stimulating new product development?

- Cross-functional product development teams - Product champions (overcoming resistance to related change) - Corporate incubators (business development units dedicated to this, have to be closely linked to the rest)

Which are the three sources of network externalities?

- Products where users are linked to a network (wither via a connection (e.g. roads, phones), or via social identification (TV series to have something to talk about)) - Availability of complementary products and services (if not having many apps, the phone is not attractive) - Economizing on switching costs (buying the most widely used system since less risk of having to change system later)

Which three factors does early-mover advantages depend on?

- The extent to which innovation can be protected by IPRs or lead time advantages (high extent, better to be early) - The importance of complementary resources (greater importance, better to be a follower) - The potential to establish a standard (more advantage of being first)

What is a de facto standard? How can this delay the overall development of the market?

A standard emerged through voluntary adoption by producers and consumers. These take a long time to emerge, which makes several players invest and engage in the standard war, which delays the development of the market.

How does property rights contribute to the strength of a regime of appropriability?

Ability to establish property rights in the innovation. The effectiveness of the IPR depends on the type of innovation. Is it possible for competitors to imitate around a patent?

What is required of a successful follower strategy?

Active waiting. Continuously monitoring the market developments and assembling resources while preparing for large-scale market entry

Which is the primary basis for competitive advantage in markets with network externalities? How do you ensure it?

Getting control over standards. - Assemble allies before launch (consumers, suppliers, complementors) - Preempt the market (make early deals with key customers, penetration pricing) - Manage expectations (make people believe that you'll win)

How does tacitness and complexity contribute to the strength of a regime of appropriability?

How easy it is for competitors to imitate the innovation. Doesn't provide sustainable competitive advantage but can give lead time If it's complex, it is generally hard to imitate it. If the innovation is based on tacit knowledge, it is hard for competitors to access that and hence, to imitate it.

What is the benefits of choosing a licensing strategy for the exploitation of the innovation? What is the problem?

It relieves the company of the need to acquire complementary resources and capabilities for commercialisation, and it allows it happening fast. Can do multiple licenses. The problem is that you get dependent on the commitment and effectiveness of the licensees.

How does lead time contribute to the strength of a regime of appropriability?

Tacitness and complexity provide lead time, the time it will take for the followers to follow up. The innovator wants to use this time to build capabilities and market position to get industry leadership. Moving down the learning curve.