INTRODUCTION TO INNOVATION MANAGEMENT (INN001, 5 p.)

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INTRODUCTION TO
INNOVATION MANAGEMENT

(INN001, 5 p.)

Lecture 10 September 2007

Olof Ejermo

olof.ejermo@circle.lu.se


From ”positions” to ”paths”


Two fundamental questions underlying
innovation strategy:


Where are you today…?


… and where can you go tomorrow?


The first question is about ”positions” =>
see chapter 4 and last week’s theme


The second question is about paths and
path
-
dependence => chapter 5

Where can you go tomorrow?


Cannot choose freely where to go = firms
innovative activities are path
-
dependent!


Innovators are constrained by (at least)
two factors:


Present and likely future state of technological
knowledge (not everything is technologically
possible!)


Limits of corporate competence (no firm has
the competence to do everything!)

Learning is path
-
dependent


Innovation involves a lot of trial, error and
learning


Learning tends to be incremental, since major
step changes in too many parameters both
increase uncertainty and reduce the capacity to
learn


As a consequence, firms’ learning processes are
path
-
dependent


Moving from one path of learning to another can
be costly, even impossible…


… although success stories do exist

How to jump to a new path?


Hire new employees with the desired
competencies?


=> Difficult, because a FIRM’s

competencies are
rarely the same as those of an INDIVIDUAL!


=> A firm’s competencies are deeply embedded into
specialized, interdependent and coordinated groups,
teams, divisions…


Acquire a firm that has the desired competencies?


=> Difficult because of different practices, cognitive
structures and corporate cultures


Interesting alternative: ”Corporate ventures” => see
further chapter 10

Technological constraints
depending on sector


Firms in different sectors follow different ”technological
trajectories”


Some firms build up huge R&D laboratories and operate
large
-
scale manufacturing plants, while others have
merely 5
-
10 employees…


Some firms focus first and foremost on product
innovation, while others focus more on process
innovation


Some firms perform most of their innovative activities
within the firm (”in
-
house”), while others rely heavily on
external partners


For some firms the R&D lab is the central place for
innovation, in other firms it is rather the ”design office” or
the ”systems department”

Five Major Technological Trajectories

-

the Pavitt taxonomy


Scale
-
intensive (e.g. cars, steel)


Science
-
based (e.g. electronics,
chemistry, pharmaceuticals)


Specialized suppliers (e.g. instruments,
software)


Supplier
-
dominated firms (e.g. agriculture,
traditional manufacture)


Information
-
intensive (e.g. finance,
retailing, publishing, travelling)

Characteristics of innovation in the
Pavitt taxonomy


Size of innovating firms



big in chemicals
vehicles material, aircraft…, small in machinery, instr.,
software


Type of products



price sensitive in bulk goods,
performance sensitive ethical drugs


Sources of innovation
: suppliers in agriculture
and traditional manufacture (e.g. textiles), customers in
instrument machinery & software, in
-
house in chemicals
& electronics…., basic research in ethical drugs


Locus of own innovation
: R&D
-
labs in chemicals
& electr., prod. eng. depts in automob. & bulk, design in
machine building, systems depts in service industries

’Revolutionary technologies’ and their
impact on technological trajectories


Firm
-
specific technological trajectories
change over time as improvements in the
knowledge base open up new
technological opportunities


Since the early 1980s: three fields pointed
at as a source of new opportunities:


Biotechnology


Materials


Microelectronics and IT

The biotechnology revolution


1970s: ’Recombinant DNA’ as a scientific breakthrough
(inserting new DNA into organisms)


Vast technological opportunities created through gene
therapy, antisense technology, automated gene
sequencing, gene discovery, genome analysis


Greatest impact on firms have so far been on R&D
programmes in pharmaceuticals, agriculture and food


Many specialist biotech companies formed in response
to these trends


New applications expected in textiles, leather, paper &
pulp, oil refining, metals and mining, printing,
environmental services, speciality chemicals etc.


However, many disappointments (no radical short
-
cuts to
profitability in pharmaceuticals)


Important interactions between scientists, biotech
entrepreneurs and user industries

The materials revolution


Traditionally a wide separation between materials
engineering and materials science


First step towards uniting the two was through chemicals
R&D in 19th century…


… but it is only during the last half
-
century that the
collaboration between engineering and science in
materials has really started to thrive


Driven by powerful new scientific theories and improved
instrumentation (microscopy, spectroscopy)


As a result, innovation in materials has become much
more science
-
based


Examples: ceramics, polymers, optical fibres,
semiconductors

The microelectronics and IT revolutions

The microelectronics and IT revolutions


The technological trajectories of firms and
countries in software and hardware are
becoming decoupled


Three features of the IT revolution that are
increasingly important for innovation strategy:


Increasing systemic nature of economic and
technological activities


Decreasing cost of product development


Disappearance of low/medium/hi
-
tech distinction

Pavitt taxonomy applied to service
sectors (Miozzo & Soete)


Pavitt taxonomy


early 80s (yet still highly
useful)


Services have developed enormously and
today account for ~ 2/3 employment in
modern economies


Supplier
-
dominated:


personal services (restaurants, hotels, barber etc)


publ. & social services (health, education, publ. adm)


Scale
-
intensive:


Physical networks: transport & travel, wholetrade &
distribution


Information networks: finance, insurance,
communications


Science
-
based and specialized suppliers :


Business services linked to: R&D, software,
development and appl. of information
technologies

The rise of services (esp. science
-
based and specialized suppliers)


Importance highly growing


e.g. development and use of data,communication,
storage and transmission


Banking, insurance, cell phones, air reservations etc.


Why?


Digitalization of information

-
> data processing to information handling, e.g. information
network services, logistics, route planning


Single distribution network for a growing number of
services:

-
> telecommunications infrastructure (mobile phone networks,
internet etc)

Trends in service industries

Implications


Transportability


Increased storability & transmission of services: collapse of time
& space


Traditionally services produced & consumed simultaneously


Higher demands on consumers knowledge


Tradability



New divisions of labor
-
> e.g. Indian software support


Linkage structures change: Factor endowments not as important,
increased emphasis on linking up
-
> competitive advantages


Outsourcing of innovative activities


Much specialized activities are ’moved out’ of firms


Overall knowledge requirements & intensity rise



Developing Firm
-
specific Competencies


‘Core competencies’, according to Hamel and
Prahalad (1990):


Sources of competitive advantage is in competencies,
not in products


Found in more than one product and in more than
one division


Stress the importance of associated organizational
competencies


Five or six core competencies


Multidivisional firms as bundles of core competencies


Importance of a strategic architecture

The weaknesses of the

core competencies approach


Overestimates the potential of technology
-
based
diversification in all industries


Underestimates the importance of
background
competencies

for coordination and benefit from
outside linkages


Underestimates the importance of
emerging
competencies

due to rapidly developing fields
(ICT, new materials, biotechnology, etc.)


The problem of ‘core rigidities’


Better concept: ’
Distributed competencies’

Proposed alternative by Tidd et al. (2005)

Technological paths in small firms


Supplier
-
dominated firms


Specialized suppliers


’Superstars’


New Technology
-
Based Firms (NTBFs)

’Superstars’


Their existence and success is typically based on the
exploitation of a major invention (e.g. Instant
photography) or a rich technological trajectory (e.g.
semiconductors, software)


They are often spin
-
offs from large firms or have tried to
offer their inventions to large firms but were refused!


In some sectors entry barriers seem to be too high for
superstars to emerge (chemistry, pharmaceuticals)


Main challenge is to manage the difficult transition from
small to large, scale up production etc. while
aggressively update its own and competitors’ original
innovations


Examples: Polaroid, Xerox, Intel, Microsoft, Sony,
Benetton, Lenovo

New Technology
-
Based Firms


They usually emerge from large firms or
(corporate or academic) laboratories


Specialized in the supply of a key component,
subsystem, service or technique to larger firms,
who may often be their former employers


Question for the future is whether to aim to
become a ’superstar’ or a ’specialized supplier’


Many NTBF entrepreneurs are not interested in
long
-
term growth of their small firms, but prefer
to sell them within a few years

SUMMARY CHAPTER 5


Firms’ innovative activities are path
-
dependent,
they rarely jump to a completely new path


We may discern at least five types of
’technological trajectories’


The emergence of revolutionary technologies
open up new opportunities for a firm to change
its paths


Concept of ’core competencies’


use it
carefully, the concept has weaknesses,
especially for our understanding of how firms
can learn new competencies


Small firms are more difficult to classify in terms
of their technological paths