Business Question

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 1
Management of Technology (MGT 325)
Due Date: 5th October 2025@ 23:59
Course Name: Management of Technology
Student’s Name:
Course Code: MGT325
Student’s ID Number:
Semester: 1st
CRN:
Academic Year:2024-25
For Instructor’s Use only
Instructor’s Name: Njoud AlJohani
Students’ Grade: 00 /10
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
• Submissions without this cover page will NOT be accepted.
Restricted – ‫مقيد‬
Course Learning Outcomes-Covered
➢ Recognize the dynamics and the importance of managing technological innovation
strategically. (LO 1)
Reference Source:
Textbook:Schilling M.A (2020),Strategic Management of Technology Innovation (6th Edition). McGraw Hill Education. Electronic Version: ISBN-13: 978-1260087956 ISBN-10:
1260087956, Printed Version: ISBN-13: 978-1260087956 ISBN-10: 1260087956
Weight: 10 Marks
Students are required to refer to chapter 1, 2&3 of their textbook.
Clear understanding of the chapters along with continuous critical analyzation of each
topic and subtopic is highly recommended.
Based on the knowledge and information gathered by referring to the textbook,students
own thorough research and considering the current technological landscape and
innovation strategy in the Kingdom of Saudi Arabia (KSA), answer the following
questions. Each answer should include references to theories and concepts discussed in
the textbook, as well as examples and insights related to KSA.
Total Marks: 10
1. The Importance of Technological Innovation in KSA (3 marks) (400-500 words)
✓ Define technological innovation and explain its significance in the modern
competitive environment. Discuss how technological innovation is a key driver
of Saudi Vision 2030. Use examples from sectors like renewable energy,
healthcare, or education to illustrate how innovation is transforming industries
in KSA.
Restricted – ‫مقيد‬
2. Sources of Innovation in KSA (3 marks) (400-500 words)
✓ Chapter 2 outlines the sources of innovation. Discuss how individual creativity,
corporate R&D, and government-funded research contribute to innovation
within KSA. Provide examples of government initiatives, such as the King
Abdulaziz City for Science and Technology (KACST), and the role of
universities in driving innovation.
3. Types and Patterns of Innovation in KSA (3 marks) (400-500 words)
✓ Explain the different types of innovation (e.g., radical vs. incremental) and how
they impact competitive advantage. How are Saudi companies adopting these
innovations, particularly in the sectors of energy and technology? Discuss with
reference to companies like Saudi Aramco or NEOM.
References (1 Mark)
✓ Support your submission with course material concepts, principles, and theories from
the textbook and at least two scholarly, peer-reviewed journal articles unless the
assignment calls for more.
✓ Use proper citation formatting.
Guidelines for Students:
•
Use appropriate references from the textbook and external sources, with a focus on
examples from KSA.
•
Each answer should highlight KSA’s technological advancement, the role of
government initiatives, and how innovation is being shaped in the context of Vision
2030.
•
Each question is worth 3 marks, with marks awarded for clarity, relevance, and use
of examples specific to KSA.
Directions:
✓ All students are encouraged to use their own words.
✓ The assignment should be approximately 1200-1500 words in length.
✓ Use Saudi Electronic University academic writing standards and APA style
guidelines.
✓ Use proper referencing (APA style) to reference, other styles will not be accepted.
✓ Support your submission with course material concepts, principles, and theories from
the textbook and at least two scholarly, peer-reviewed journal articles unless the
assignment calls for more.
Restricted – ‫مقيد‬
✓ It is strongly encouraged that you submit all assignments into the safe assignment
Originality Check prior to submitting it to your instructor for grading and review the
grading rubric to understand how you will be graded for this assignment.
Restricted – ‫مقيد‬
Final PDF to printer
Chapter Three
Types and Patterns
of Innovation
Innovating in India: The chotuKool Project
Godrej & Boyce, founded in India in 1897, sold a range of products to the Indian
market including household appliances, office furniture, and industrial process
equipment. In recent years, international competitors such as Haier and Samsung
were cutting deep into Godrej’s market share for household appliances such as
refrigerators, washing machines, and air conditioners, and management knew
that to preserve the company would require innovative solutions.
One such solution was the chotuKool, a small, portable refrigerator. Though
around the world refrigeration was considered a mature technology, in rural India
as many as 90 percent of families could not afford household appliances, did not
have reliable access to electricity, and had no means of refrigeration. This significantly limited the kinds of foods they could eat and how they could be prepared.
Finding a way to provide refrigeration to this segment of the population offered
the promise of both a huge market and making a meaningful difference in people’s quality of life. As noted by Navroze Godrej, Directed of Special Projects at
Godrej, “We imagined we would be making a shrunken down version of a refrigerator. Make it smaller, make it cheaper. And we had preconceived notions of
how to build a brand that resonated with these users through big promotions
and fancy ad campaigns.”
These assumptions would turn out to be wrong. First, as Godrej’s team
looked at the options of how to reduce the cost of a conventional compressorbased refrigerator, they quickly realized that they could not reduce its cost by
enough to make a meaningful difference.a Second, they discovered that having
the refrigerator be lightweight was more important than they had previously
thought because many rural Indians lived migratory lives, moving to follow the
availability of work. Third, because of the lack of refrigeration, most people
were in the habit of cooking just enough for the day, and thus had relatively
low refrigeration capacity needs. Fourth, of those few rural Indians that did
have refrigerators, many did not plug them in for most of the day for fear of
43
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44 Part One Industry Dynamics of Technological Innovation
them being damaged by power surges. As Godrej notes, “We were surprised
by many things, we were shocked by many things . . . we realized our original
hypothesis was quite wrong.”b
Based on these insights, the company designed a small and portable refrigerator based on thermoelectric cooling (rather than compressor technology).
Thermoelectric cooling was the cooling method used in laptops; it involved
running a current between two semiconductors. It was far more expensive
on a per-unit-of-cooling basis, but it had much lower power requirements and
could be used on a much smaller scale than compressor cooling. This enabled
Godrej to make a very small, lightweight refrigerator with a relatively low price
(35–40 percent cheaper than traditional refrigerators). It also lowered the power
costs of operating a refrigerator, and made the refrigerator able to operate for
several hours on a 12-volt battery, making it much more adaptable to situations
where power was unreliable.
In Godrej’s initial plan for the chotuKool, the refrigerators would be cherry
red and look like coolers. Soon, however, managers at chotuKool realized that
if the refrigerators were just perceived as inexpensive alternatives to refrigerators, they had the potential to be stigmatizing for consumers who, in turn, would
not talk about them to their friends. This was a serious problem because the
company had counted on word of mouth to spread information about the refrigerators deep into rural communities. To get people to talk about the coolers they
needed to be aspirational—they needed to be cool.
Godrej decided to revamp the design of the coolers, giving them a more
sophisticated shape and making them customizable (buyers could choose
from over 100 decorative skin colors for the chotuKool).c They also decided
to market the refrigerators to the urban affluent market in addition to the
rural market, as adoption by the urban affluent market would remove any
stigma associated with buying them. To attract this market they positioned the
refrigerators as perfect for picnics, parties, offices, dorm rooms, use in cars,
and so on.
To get the chotuKool to rural customers would require a dramatically different distribution system than Godrej had traditionally used. However, building
out a distribution system into rural communities would prohibitively raise the
cost of chotuKool, potentially rendering the product nonviable. The development team was initially stumped. Then one day G. Sunderraman, vice president of Godrej and leader of the chotuKool project, happened to inquire with
a university official about obtaining college application forms for his youngest
son and the official pointed out that Sunderraman could get the forms at any
post office. At that moment, Sunderraman realized that the post office, which
had offices in every rural area of India, could be an ideal distribution channel
for the chotuKool.d It was a very novel proposition, but India Post agreed to
the collaboration and soon chotuKools were available in all post offices in the
central region of India.e As Sunderraman noted, “The India Post network is
very well spread in India and is about three or four times larger than the best
logistic suppliers.”f
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Chapter 3 Types and Patterns of Innovation 45
The chotuKool won several design awards in its first years, and after selling
100,000 units in its second year Fast Company gave Godrej its “Most Innovative
Company” award. Godrej and Sunderraman were disappointed to discover that
it was not as rapidly adopted by rural poor households as they had hoped; the
roughly $50 price was still too expensive for most poor rural families in India.
However, the chotuKool turned out to be much more popular than anticipated
among hotels, food stalls, flower shops, and other small stores because it
enabled these small stores to offer higher valued products (such as cold drinks)
or to keep products fresh longer, thereby increasing their profits. The chotuKool
also became a popular lifestyle product among the urban affluent population
who began to widely use them in their cars.
Godrej’s experience developing and launching the chotuKool had provided
many lessons. They had learned that to radically reduce the cost of a product might require completely rethinking the technology—sometimes even in
ways that initially seemed more expensive. They learned that customers who
had adapted their way of life to the lack of a technology (like refrigeration)
might not adopt that technology even if it was made markedly less expensive. Finally, they learned not to underestimate the value of making a product
work for multiple market segments, including those that might not be initially
obvious as customers. Though some people considered chotuKool a failure
because it had not achieved its original objective of wide adoption by the rural
poor, Godrej (and many others) considered it a success: the product expanded
Godrej’s market share, penetrated new market segments in which Godrej had
not formerly competed, and demonstrated Godrej’s innovative capabilities to
the world.
Discussion Questions
1. What were the pros and cons of attempting to develop a refrigerator for
India’s rural poor?
2. What product and process innovations did the chotuKool entail? Would
you consider these incremental or radical? Architectural or component?
Competence enhancing or competence destroying?
3. Did the chotuKool pose a threat of disrupting the traditional refrigerator
market? Why or why not?
4. Is there anything you think Godrej should have done differently to penetrate the market of rural poor families in India?
5. What other products might the lessons Godrej learned with chotuKool
apply to?
a
McDonald, R., D. van Bever, and E. Ojomo, “chotuKool: ‘Little Cool,’ Big Opportunity,” Harvard Business
School Case 616–020 (June 2016), revised September 2016.
b
Furr, N., and J. Dyer, “How Godrej Became an Innovation Star,” Forbes (May 13, 2015).
c
www.chotukool.com, accessed June 26, 2018.
d
Furr, N., and J. Dyer, “How Godrej Became an Innovation Star,” Forbes (May 13, 2015).
e
Nadu, T., “chotuKool Offer in Post Offices,” The Hindu (June 9, 2013).
f
“chotuKool: Keeping Things Cool with Frugal Innovation,” WIPO Magazine, (December 2013).
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46 Part One Industry Dynamics of Technological Innovation
OVERVIEW
technology
trajectory
The path a
technology
takes through
its lifetime.
This path may
refer to its rate
of performance
improvement, its
rate of diffusion,
or other change
of interest.
The previous chapters pointed out that technological innovation can come from many
sources and take many forms. Different types of technological innovations offer different opportunities for organizations and society, and they pose different demands
upon producers, users, and regulators. While there is no single agreed-upon taxonomy
to describe different kinds of technological innovations, in this chapter we will review
several dimensions that are often used to categorize technologies. These dimensions
are useful for understanding some key ways that one innovation may differ from
another.
The path a technology follows through time is termed its technology trajectory.
Technology trajectories are most often used to represent the technology’s rate of performance improvement or its rate of adoption in the marketplace. Though many factors
can influence these technology trajectories (as discussed in both this chapter and the
following chapters), some patterns have been consistently identified in technology trajectories across many industry contexts and over many periods. Understanding these
patterns of technological innovation provides a useful foundation that we will build
upon in the later chapters on formulating technology strategy.
The chapter begins by reviewing the dimensions used to distinguish types of innovations. It then describes the s-curve patterns so often observed in both the rate of
technology improvement and the rate of technology diffusion to the market. In the last
section, the chapter describes research suggesting that technological innovation follows a cyclical pattern composed of distinct and reliably occurring phases.
TYPES OF INNOVATION
Technological innovations are often described using dimensions such as radical versus
incremental. Different types of innovation require different kinds of underlying knowledge and have different impacts on the industry’s competitors and customers. Four of
the dimensions most commonly used to categorize innovations are described here:
product versus process innovation, radical versus incremental, competence enhancing
versus competence destroying, and architectural versus component.
Product Innovation versus Process Innovation
Product innovations are embodied in the outputs of an organization—its goods or services, even if those products are services. For example, Snapchat’s filters and special
effects that enable users to augment their photos are product innovations. Process innovations are innovations in the way an organization conducts its business, such as in the
techniques of producing or marketing goods or services. For example, Elon Musk’s
use of automation for most of the production process for the Model 3 with giant robots
is a process innovation. Process innovations are often oriented toward improving the
effectiveness or efficiency of production by, for example, reducing defect rates or
increasing the quantity that may be produced in a given time. For example, a process
innovation at a biotechnology firm might entail developing a genetic algorithm that
can quickly search a set of disease-related genes to identify a target for therapeutic
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Chapter 3 Types and Patterns of Innovation 47
intervention. In this instance, the process innovation (the genetic algorithm) can speed
up the firm’s ability to develop a product innovation (a new therapeutic drug).
New product innovations and process innovations often occur in tandem. First, new
processes may enable the production of new products. For example, as discussed later
in the chapter, the development of new metallurgical techniques enabled the development of the bicycle chain, which in turn enabled the development of multiple-gear
bicycles. Second, new products may enable the development of new processes. For
example, the development of advanced workstations has enabled firms to implement
computer-aided manufacturing processes that increase the speed and efficiency of
production. Finally, a product innovation for one firm may simultaneously be a process innovation for another. For example, when United Parcel Service (UPS) helps a
customer develop a more efficient distribution system, the new distribution system is
simultaneously a product innovation for UPS and a process innovation for its customer.
Though product innovations are often more visible than process innovations, both
are extremely important to an organization’s ability to compete. Throughout the
remainder of the book, the term innovation will be used to refer to both product and
process innovations.
Radical Innovation versus Incremental Innovation
radical
innovation
An innovation
that is very new
and different
from prior
solutions.
incremental
innovation
An innovation
that makes a
relatively minor
change from
(or adjustment
to) existing
practices.
One of the primary dimensions used to distinguish types of innovation is the continuum between radical versus incremental innovation. A number of definitions have
been posed for radical innovation and incremental innovation, but most hinge
on the degree to which an innovation represents a departure from existing practices.1
Thus, radicalness might be conceived as the combination of newness and the degree
of differentness. A technology could be new to the world, new to an industry, new to
a firm, or new merely to an adopting business unit. A technology could be significantly different from existing products and processes or only marginally different.
The most radical innovations would be new to the world and exceptionally different
from existing products and processes. The introduction of wireless telecommunication products aptly illustrates this—it embodied significantly new technologies that
required new manufacturing and service processes. Incremental innovation is at the
other end of the spectrum. An incremental innovation might not be particularly new
or exceptional; it might have been previously known to the firm or industry, and
involve only a minor change from (or adjustment to) existing practices. For example,
changing the screen of a cell phone to make it more crack resistant or offering a
new service plan with better international texting rates would represent incremental
innovation.
The radicalness of innovation is also sometimes defined in terms of risk. Since radical innovations often embody new knowledge, producers and customers will vary in
their experience and familiarity with the innovation, and in their judgment of its usefulness or reliability.2 The development of third generation (3G) telephony is illustrative.
3G wireless communication technology utilizes broadband channels. This increased
bandwidth gave mobile phones far greater data transmission capabilities that enabled
activities such as videoconferencing and accessing the most advanced Internet sites.
For companies to develop and offer 3G wireless telecommunications service required
a significant investment in new networking equipment and an infrastructure capable
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48 Part One Industry Dynamics of Technological Innovation
competenceenhancing and
competence
destroying
innovation
A competenceenhancing
innovation builds
on existing
knowledge and
skills whereas a
competencedestroying
innovation
renders existing
knowledge and
skills obsolete.
Whether an innovation is competence enhancing
or competence
destroying
depends on
whose perspective is being
taken. An
innovation can
be competence
enhancing to
one firm, while
competence
destroying for
another.
of carrying a much larger bandwidth of signals. It also required developing phones
with greater display and memory capabilities, and either increasing the phone’s battery power or increasing the efficiency of the phone’s power utilization. Any of these
technologies could potentially pose serious obstacles. It was also unknown to what
degree customers would ultimately value broadband capability in a wireless device.
Thus, the move to 3G required managers to assess several different risks simultaneously, including technical feasibility, reliability, costs, and demand.
Finally, the radicalness of an innovation is relative, and may change over time or
with respect to different observers. An innovation that was once considered radical may eventually be considered incremental as the knowledge base underlying the
innovation becomes more common. For example, while the first steam engine was
a monumental innovation, today its construction seems relatively simple. Furthermore, an innovation that is radical to one firm may seem incremental to another.
Although both Kodak and Sony introduced digital cameras for the consumer market within a year of each other (Kodak’s DC40 was introduced in 1995, and Sony’s
Cyber-Shot Digital Still Camera was introduced in 1996), the two companies’ paths
to the introduction were quite different. Kodak’s historical competencies and reputation were based on its expertise in chemical photography, and thus the transition to
digital photography and video required a significant redirection for the firm. Sony,
on the other hand, had been an electronics company since its inception, and had a
substantial level of expertise in digital recording and graphics before producing a
digital camera. Thus, for Sony, a digital camera was a straightforward extension of its
existing competencies.
Competence-Enhancing Innovation versus
Competence-Destroying Innovation
Innovations can also be classified as competence enhancing versus competence
destroying. An innovation is considered to be competence enhancing from the perspective of a particular firm if it builds on the firm’s existing knowledge base. For
example, each generation of Intel’s microprocessors (e.g., 286, 386, 486, Pentium,
Pentium II, Pentium III, Pentium 4) builds on the technology underlying the previous
generation. Thus, while each generation embodies innovation, these innovations leverage Intel’s existing competencies, making them more valuable.
An innovation is considered to be competence destroying from the perspective of
a particular firm if the technology does not build on the firm’s existing competencies or renders them obsolete. For example, from the 1600s to the early 1970s, no
self-respecting mathematician or engineer would have been caught without a slide
rule. Slide rules are lightweight devices, often constructed of wood, that use logarithm
scales to solve complex mathematical functions. They were used to calculate everything from the structural properties of a bridge to the range and fuel use of an aircraft.
Specially designed slide rules for businesses had, for example, scales for doing loan
calculations or determining optimal purchase quantities. During the 1950s and 1960s,
Keuffel & Esser was the preeminent slide-rule maker in the United States, producing
5000 slide rules a month. However, in the early 1970s, a new innovation relegated
the slide rule to collectors and museum displays within just a few years: the inexpensive handheld calculator. Keuffel & Esser had no background in the electronic
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Chapter 3 Types and Patterns of Innovation 49
components that made electronic calculators possible and was unable to transition to
the new technology. By 1976, Keuffel & Esser withdrew from the market.3 Whereas
the inexpensive handheld calculator built on the existing competencies of companies
such as Hewlett-Packard and Texas Instruments (and thus for them would be competence enhancing), for Keuffel & Esser, the calculator was a competence-destroying
innovation.
Architectural Innovation versus Component Innovation
component
(or modular)
innovation
An innovation
to one or more
components
that does not
significantly
affect the overall
configuration of
the system.
architectural
innovation
An innovation
that changes the
overall design
of a system or
the way its components interact
with each other.
Most products and processes are hierarchically nested systems, meaning that at any
unit of analysis, the entity is a system of components, and each of those components is,
in turn, a system of finer components, until we reach some point at which the components are elementary particles.4 For example, a bicycle is a system of components such
as a frame, wheels, tires, seat, brakes, and so on. Each of those components is also
a system of components: The seat might be a system of components that includes a
metal and plastic frame, padding, a nylon cover, and so on.
An innovation may entail a change to individual components, to the overall architecture within which those components operate, or both. An innovation is considered
a component innovation (or modular innovation) if it entails changes to one or
more components, but does not significantly affect the overall configuration of the
system.5 In the example above, an innovation in bicycle seat technology (such as
the incorporation of gel-filled material for additional cushioning) does not require any
changes in the rest of the bicycle architecture.
In contrast, an architectural innovation entails changing the overall design of
the system or the way that components interact with each other. An innovation that
is strictly architectural may reconfigure the way that components link together in the
system, without changing the components themselves.6 Most architectural innovations, however, create changes in the system that reverberate throughout its design,
requiring changes in the underlying components in addition to changes in the ways
those components interact. Architectural innovations often have far-reaching and complex influences on industry competitors and technology users.
For example, the transition from the high-wheel bicycle to the safety bicycle was
an architectural innovation that required (and enabled) the change of many components of the bicycle and the way in which riders propelled themselves. In the 1800s,
bicycles had extremely large front wheels. Because there were no gears, the size of
the front wheel directly determined the speed of the bicycle since the circumference
of the wheel was the distance that could be traveled in a single rotation of the pedals. However, by the start of the twentieth century, improvements in metallurgy had
enabled the production of a fine chain and a sprocket that was small enough and light
enough for a human to power. This enabled bicycles to be built with two equally sized
wheels, while using gears to accomplish the speeds that the large front wheel had
enabled. Because smaller wheels meant shorter shock-absorbing spokes, the move to
smaller wheels also prompted the development of suspension systems and pneumatic
(air-filled) tires. The new bicycles were lighter, cheaper, and more flexible. This architectural innovation led to the rise of companies such as Dunlop (which invented the
pneumatic tire) and Raleigh (which pioneered the three-speed, all-steel bicycle), and
transformed the bicycle from a curiosity into a practical transportation device.
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50 Part One Industry Dynamics of Technological Innovation
For a firm to initiate or adopt a component innovation may require that the
firm have knowledge only about that component. However, for a firm to initiate or
adopt an architectural innovation typically requires that the firm have architectural
knowledge about the way components link and integrate to form the whole system.
Firms must be able to understand how the attributes of components interact, and
how changes in some system features might trigger the need for changes in many
other design features of the overall system or the individual components. Modularity, and its role in the creation of platform ecosystems, is discussed in greater detail
in Chapter Four.
Using the Dimensions
Though the dimensions described above are useful for exploring key ways that one
innovation may differ from another, these dimensions are not independent, nor do
they offer a straightforward system for categorizing innovations in a precise and consistent manner. Each of the above dimensions shares relationships with others—for
example, architectural innovations are often considered more radical and more competence destroying than component innovations. Furthermore, how an innovation is
described on a dimension often depends on who is doing the describing and with
what it is being compared. An all-electric vehicle, for example, might seem like a
radical and competence destroying innovation to a manufacturer of internal combustion engines, but to a customer who only has to change how they fuel/charge the
vehicle, it might seem like an incremental and competence-enhancing innovation.
Thus, while the dimensions above are valuable for understanding innovation, they
should be considered relative dimensions whose meaning is dependent on the context
in which they are used.
We now will turn to exploring patterns in technological innovation. Numerous studies of innovation have revealed recurring patterns in how new technologies emerge,
evolve, are adopted, and are displaced by other technologies. We begin by examining
technology s-curves.
TECHNOLOGY S-CURVES
Both the rate of a technology’s performance improvement and the rate at which the
technology is adopted in the marketplace repeatedly have been shown to conform to an
s-shape curve. Though s-curves in technology performance and s-curves in technology
diffusion are related (improvements in performance may foster faster adoption, and
greater adoption may motivate further investment in improving performance), they are
fundamentally different processes. S-curves in technology improvement are described
first, followed by s-curves in technology diffusion. This section also explains that
despite the allure of using s-curves to predict when new phases of a technology’s life
cycle will begin, doing so can be misleading.
S-Curves in Technological Improvement
Many technologies exhibit an s-curve in their performance improvement over their lifetimes.7 When a technology’s performance is plotted against the amount of effort and
money invested in the technology, it typically shows slow initial improvement, then
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Chapter 3 Types and Patterns of Innovation 51
FIGURE 3.1
Limit of Technology
S-Curve of
Technology
Performance
Performance
Effort
accelerated improvement, then diminishing improvement (see Figure 3.1). Performance
improvement in the early stages of a technology is slow because the fundamentals
of the technology are poorly understood. Great effort may be spent exploring different paths of improvement or different drivers of the technology’s improvement. If the
technology is very different from previous technologies, there may be no evaluation
routines that enable researchers to assess its progress or its potential. Furthermore,
until the technology has established a degree of legitimacy, it may be difficult to attract
other researchers to participate in its development.8 However, as scientists or firms
gain a deeper understanding of the technology, improvement begins to accelerate. The
technology begins to gain legitimacy as a worthwhile endeavor, attracting other developers. Furthermore, measures for assessing the technology are developed, permitting
researchers to target their attention toward those activities that reap the greatest
improvement per unit of effort, enabling performance to increase rapidly. However,
at some point, diminishing returns to effort begin to set in. As the technology begins
to reach its inherent limits, the cost of each marginal improvement increases, and the
s-curve flattens.
Often a technology’s s-curve is plotted with performance (e.g., speed, capacity, or
power) against time, but this must be approached with care. If the effort invested is not
constant over time, the resulting s-curve can obscure the true relationship. If effort is
relatively constant over time, plotting performance against time will result in the same
characteristic curve as plotting performance against effort. However, if the amount of
effort invested in a technology decreases or increases over time, the resulting curve
could appear to flatten much more quickly, or not flatten at all. For instance, one of the
more well-known technology trajectories is described by an axiom that became known
as Moore’s law. In 1965, Gordon Moore, cofounder of Intel, noted that the density of
transistors on integrated circuits had doubled every year since the integrated circuit
was invented. Figure 3.2 shows Intel’s microprocessor transistor density from 1971 to
2007 and reveals a sharply increasing performance curve.
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52 Part One Industry Dynamics of Technological Innovation
FIGURE 3.2
Improvements in Intel’s Microprocessor Transistor Density over Time
Transistors
Intel CPU
800,000,000
1971
1972
1974
1978
1982
1985
1989
1993
1997
1999
2000
2002
2003
2005
2006
2007
2250
2500
5000
29,000
120,000
275,000
1,180,000
3,100,000
7,500,000
24,000,000
42,000,000
55,000,000
220,000,000
291,000,000
582,000,000
731,000,000
4004
8008
8080
8086
286
386™
486™ DX
Pentium®
Pentium II
Pentium III
Pentium 4
Pentium M
Itanium 2
Pentium D
Core 2 Quad
Core i7 (Quad)
700,000,000
FIGURE 3.3
Transistor Density
Year
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
–
1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
800,000,000
Graph of
Transistor
Density versus
Cumulative
R&D Expense,
1972–2007
700,000,000
Transistor Density
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
0
0
10,000
20,000
30,000
40,000
50,000
60,000
Cumulative R&D Expense ($millions)
However, Intel’s rate of investment (research and development dollars per year) also
increased rapidly over that time frame, as shown in Figure 3.3. Not all of Intel’s R&D
expense goes directly to improving microprocessor power, but it is reasonable to
assume that Intel’s investment specifically in microprocessors would exhibit a similar pattern of increase. Figure 3.3 shows that the big gains in transistor density have
come at a big cost in terms of effort invested. Though the curve does not yet resemble
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Chapter 3 Types and Patterns of Innovation 53
discontinuous
technology
A technology
that fulfills a
similar market
need by building
on an entirely
new knowledge
base.
FIGURE 3.4
Technology
S-Curves—
Introduction of
Discontinuous
Technology
the traditional s-curve, its rate of increase is not as sharp as when the curve is plotted
against years.
Technologies do not always get the opportunity to reach their limits; they may be
rendered obsolete by new, discontinuous technologies. A new innovation is discontinuous when it fulfills a similar market need, but does so by building on an entirely
new knowledge base.9 For example, the switches from propeller-based planes to jets,
from silver halide (chemical) photography to digital photography, from carbon copying to photocopying, and from audio on compact discs to MP3 were all technological
discontinuities.
Initially, the technological discontinuity may have lower performance than the
incumbent technology. For instance, one of the earliest automobiles, introduced in 1771
by Nicolas Joseph Cugnot, was never put into commercial production because it was
much slower and harder to operate than a horse-drawn carriage. It was three-wheeled,
steam-powered, and could travel at 2.3 miles per hour. A number of steam- and gaspowered vehicles were introduced in the 1800s, but it was not until the early 1900s that
automobiles began to be produced in quantity.
In early stages, effort invested in a new technology may reap lower returns than
effort invested in the current technology, and firms are often reluctant to switch. However, if the disruptive technology has a steeper s-curve (see Figure 3.4a) or an s-curve
that increases to a higher performance limit (see Figure 3.4b), there may come a time
when the returns to effort invested in the new technology are much higher than effort
invested in the incumbent technology. New firms entering the industry are likely to
choose the disruptive technology, and incumbent firms face the difficult choice of trying to extend the life of their current technology or investing in switching to the
new technology. If the disruptive technology has much greater performance
Second
technology
potential for a given amount of effort, in
the long run it is likely to displace the
Performance
incumbent technology, but the rate at
First
technology
which it does so can vary significantly.
S-Curves in Technology Diffusion
Effort
(a)
technology
diffusion
The spread of
a technology
through a
population.
First
Performance technology
Second
technology
Effort
(b)
sch87956_ch03_043-066.indd
53
S-curves are also often used to describe the
diffusion of a technology. Unlike s-curves
in technology performance, s-curves in
technology diffusion are obtained by
plotting the cumulative number of adopters of the technology against time. This
yields an s-shape curve because adoption is initially slow when an unfamiliar technology is introduced to the
market; it accelerates as the technology
becomes better understood and utilized
by the mass market, and eventually the
market is saturated so the rate of new
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54 Part One Industry Dynamics of Technological Innovation
adoptions declines. For instance, when electronic calculators were introduced to the
market, they were first adopted by the relatively small pool of scientists and engineers.
This group had previously used slide rules. Then the calculator began to penetrate the
larger markets of accountants and commercial users, followed by the still larger market
that included students and the general public. After these markets had become saturated, fewer opportunities remained for new adoptions.10
One rather curious feature of technology diffusion is that it typically takes far more
time than information diffusion.11 For example, Mansfield found that it took 12 years
for half the population of potential users to adopt industrial robots, even though these
potential users were aware of the significant efficiency advantages the robots offered.12
If a new technology is a significant improvement over existing solutions, why do some
firms shift to it more slowly than others? The answer may lie in the complexity of
the knowledge underlying new technologies, and in the development of complementary resources that make those technologies useful. Although some of the knowledge
necessary to utilize a new technology might be transmitted through manuals or other
documentation, other aspects of knowledge necessary to fully realize the potential of a
technology might be built up only through experience. Some of the knowledge about
the technology might be tacit and require transmission from person to person through
extensive contact. Many potential adopters of a new technology will not adopt it until
such knowledge is available to them, despite their awareness of the technology and its
potential advantages.13
Furthermore, many technologies become valuable to a wide range of potential users
only after a set of complementary resources are developed for them. For example,
while the first electric light was invented in 1809 by Humphry Davy, an English chemist, it did not become practical until the development of bulbs within which the arc of
light would be encased (first demonstrated by James Bowman Lindsay in 1835) and
vacuum pumps to create a vacuum inside the bulb (the mercury vacuum pump was
invented by Herman Sprengel in 1875). These early lightbulbs burned for only a few
hours. Thomas Alva Edison built on the work of these earlier inventors when, in 1880,
he invented filaments that would enable the light to burn for 1200 hours. The role of
complementary resources and other factors influencing the diffusion of technological
innovations are discussed further in Chapters four, five, and thirteen.
Finally, it should be clear that the s-curves of diffusion are in part a function
of the s-curves in technology improvement: As technologies are better developed,
they become more certain and useful to users, facilitating their adoption. Furthermore, as learning-curve and scale advantages accrue to the technology, the price
of finished goods often drops, further accelerating adoption by users. For example,
as shown in Figures 3.5 and 3.6, drops in average sales prices for video recorders, compact disc players, and cell phones roughly correspond to their increases in
household penetration.
S-Curves as a Prescriptive Tool
Several authors have argued that managers can use the s-curve model as a tool for predicting when a technology will reach its limits and as a prescriptive guide for whether
and when the firm should move to a new, more radical technology.14 Firms can use
data on the investment and performance of their own technologies, or data on the
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Chapter 3 Types and Patterns of Innovation 55
FIGURE 3.5
$1000
Average
Sales Prices
of Consumer
Electronics
$800
$600
Source: Consumer
Electronics
Association.
$400
$200
VCR
FIGURE 3.6
CD Player
04
02
20
00
20
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
19
80
$0
Cell Phone
100%
Percent of U.S. Households
Penetration
of Consumer
Electronics
Source: Consumer
Electronics
Association.
90%
80%
70%
60%
50%
40%
30%
20%
10%
92
94
96
98
19
19
19
19
4
90
19
20
0
88
19
2
86
19
20
0
84
19
CD Player
0
82
19
VCR
20
0
80
19
0%
Cell Phone
overall industry investment in a technology and the average performance achieved by
multiple producers. Managers could then use these curves to assess whether a technology appears to be approaching its limits or to identify new technologies that might
be emerging on s-curves that will intersect the firm’s technology s-curve. Managers
could then switch s-curves by acquiring or developing the new technology. However,
as a prescriptive tool, the s-curve model has several serious limitations.
Limitations of S-Curve Model as a Prescriptive Tool
First, it is rare that the true limits of a technology are known in advance, and there is
often considerable disagreement among firms about what a technology’s limits will
be. Second, the shape of a technology’s s-curve is not set in stone. Unexpected changes
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56 Part One Industry Dynamics of Technological Innovation
in the market, component technologies, or complementary technologies can shorten or
extend the life cycle of a technology. Furthermore, firms can influence the shape of
the s-curve through their development activities. For example, firms can sometimes
stretch the s-curve through implementing new development approaches or revamping
the architecture design of the technology.15
Christensen provides an example of this from the disk-drive industry. A disk
drive’s capacity is determined by its size multiplied by its areal recording density;
thus, density has become the most pervasive measure of disk-drive performance.
In 1979, IBM had reached what it perceived as a density limit of ferrite-oxide–
based disk drives. It abandoned its ferrite-oxide–based disk drives and moved to
developing thin-film technology, which had greater potential for increasing density. Hitachi and Fujitsu continued to ride the ferrite-oxide s-curve, ultimately
achieving densities that were eight times greater than the density that IBM had
perceived to be a limit.
Finally, whether switching to a new technology will benefit a firm depends on a
number of factors, including (a) the advantages offered by the new technology, (b) the
new technology’s fit with the firm’s current abilities (and thus the amount of effort
that would be required to switch, and the time it would take to develop new competencies), (c) the new technology’s fit with the firm’s position in complementary resources
(e.g., a firm may lack key complementary resources, or may earn a significant portion
of its revenues from selling products compatible with the incumbent technology), and
(d) the expected rate of diffusion of the new technology. Thus, a firm that follows an
s-curve model too closely could end up switching technologies earlier or later than
it should.
TECHNOLOGY CYCLES
The s-curve model above suggests that technological change is cyclical: Each new
s-curve ushers in an initial period of turbulence, followed by rapid improvement, then
diminishing returns, and ultimately is displaced by a new technological discontinuity.16 The emergence of a new technological discontinuity can overturn the existing
competitive structure of an industry, creating new leaders and new losers. Schumpeter
called this process creative destruction, and argued that it was the key driver of progress in a capitalist society.17
Several studies have tried to identify and characterize the stages of the technology cycle in order to better understand why some technologies succeed and others
fail, and whether established firms or new firms are more likely to be successful in
introducing or adopting a new technology.18 One technology evolution model that rose
to prominence was proposed by Utterback and Abernathy. They observed that a technology passed through distinct phases. In the first phase (what they termed the fluid
phase), there was considerable uncertainty about both the technology and its market.
Products or services based on the technology might be crude, unreliable, or expensive,
but might suit the needs of some market niches. In this phase, firms experiment with
different form factors or product features to assess the market response. Eventually,
however, producers and customers begin to arrive at some consensus about the desired
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Chapter 3 Types and Patterns of Innovation 57
Research Brief
The Diffusion of Innovation and Adopter
Categories
S-curves in technology diffusion are often explained
as a process of different categories of people adopting the technology at different times. One typology
of adopter categories that gained prominence was
proposed by Everett M. Rogers.a Figure 3.7 shows
each of Rogers’s adopter categories on a technology diffusion s-curve. The figure also shows that if
the non cumulative share of each of these adopter
groups is plotted on the vertical axis with time on the
horizontal axis, the resulting curve is typically bell
shaped (though in practice it may be skewed right
or left).
make excellent missionaries for new products or processes. Rogers estimated that the next 13.5 percent
of individuals to adopt an innovation (after innovators) are in this category.
EARLY MAJORITY
Rogers identifies the next 34 percent of individuals
in a social system to adopt a new innovation as the
early majority. The early majority adopts innovations
slightly before the average member of a social system. They are typically not opinion leaders, but they
interact frequently with their peers.
LATE MAJORITY
INNOVATORS
Innovators are the first individuals to adopt an innovation. Extremely adventurous in their purchasing
behavior, they are comfortable with a high degree
of complexity and uncertainty. Innovators typically
have access to substantial financial resources (and
thus can afford the losses incurred in unsuccessful
adoption decisions). Though they are not always well
integrated into a particular social system, innovators play an extremely important role in the diffusion
of an innovation because they are the individuals
who bring new ideas into the social system. Rogers
estimated that the first 2.5 percent of individuals to
adopt a new technology are in this category.
EARLY ADOPTERS
The second category of adopters is the early adopters. Early adopters are well integrated into their
social system and have the greatest potential for
opinion leadership. Early adopters are respected
by their peers and know that to retain that respect
they must make sound innovation adoption decisions. Other potential adopters look to early adopters for information and advice; thus early adopters
The next 34 percent of the individuals in a social
system to adopt an innovation are the late majority,
according to Rogers. Like the early majority, the late
majority constitutes one-third of the individuals in a
social system. Those in the late majority approach
innovation with a skeptical air and may not adopt the
innovation until they feel pressure from their peers.
The late majority may have scarce resources, thus
making them reluctant to invest in adoption until
most of the uncertainty about the innovation has
been resolved.
LAGGARDS
The last 16 percent of the individuals in a social system to adopt an innovation are termed laggards.
They may base their decisions primarily upon past
experience rather than influence from the social
network, and they possess almost no opinion leadership. They are highly skeptical of innovations and
innovators, and they must feel certain that a new
innovation will not fail before adopting it.
a
E. M. Rogers, Diffusion of Innovations, 5th ed. (New York:
Free Press, 2003).
continued
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58 Part One Industry Dynamics of Technological Innovation
concluded
FIGURE 3.7
Technology Diffusion S-Curve with Adopter Categories
S-Curve of Cumulative Adopters
Cumulative
Adopters
100%
Laggards
84%
Late Majority
50%
Early Majority
16%
Early Adopters
2.5%
Innovators
Time
(a)
Normal (Bell-Shaped) Curve of Market Share
Innovators
Early
Adopters
Early
Majority
Late
Majority
Laggards
34%
Share
13.5%
2.5%
Time
(b)
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Theory in Action
“Segment Zero”—A Serious Threat to Microsoft?
From 1980 to 2012, Microsoft was entrenched as the
dominant personal computer operating system, giving it
enormous influence over many aspects of the computer
hardware and software industries. Though competing
operating systems had been introduced during that time
(e.g., Unix, Geoworks, NeXTSTEP, Linux, and the Mac OS),
Microsoft’s share of the personal computer operating system market held stable at roughly 85 percent throughout
most of that period. In 2013, however, Microsoft’s dominance in computer operating systems was under greater
threat than it had ever been. A high-stakes race for dominance over the next generation of computing was well
underway, and Microsoft was not even in the front pack.
As Andy Grove, former CEO of Intel, noted in 1998,
in many industries—including microprocessors, software, motorcycles, and electric vehicles—technologies
improve faster than customer demands of those technologies increase. Firms often add features (speed,
power, etc.) to products faster than customers’ capacity to absorb them. Why would firms provide higher
performance than that required by the bulk of their
customers? The answer appears to lie in the market
segmentation and pricing objectives of a technology’s providers. As competition in an industry drives
prices and margins lower, firms often try to shift sales
into progressively higher tiers of the market. In these
tiers, high performance and feature-rich products can
command higher margins. Though customers may also
expect to have better-performing products over time,
their ability to fully utilize such performance improvements is slowed by the need to learn how to use new
features and adapt their work and lifestyles. Thus,
while both the trajectory of technology improvement
and the trajectory of customer demands are upward
sloping, the trajectory for technology improvement
is steeper (for simplicity, the technology trajectories
are drawn in Figure 3.8 as straight lines and plotted
against time in order to compare them against customer requirements).
In Figure 3.8, the technology trajectory begins at
a point where it provides performance close to that
demanded by the mass market, but over time it
increases faster than the expectations of the mass market as the firm targets the high-end market. As the price
of the technology rises, the mass market may feel it is
overpaying for technological features it does not value.
In Figure 3.9, the low-end market is not being served; it
either pays far more for technology that it does not need
or goes without. It is this market that Andy Grove, former
CEO of Intel, refers to as segment zero.
For Intel, segment zero was the market for low-end
personal computers (those less than $1000). While segment zero may seem unattractive in terms of margins, if
it is neglected, it can become the breeding ground for
companies that provide lower-end versions of the technology. As Grove notes, “The overlooked, underserved,
and seemingly unprofitable end of the market can
provide fertile ground for massive competitive change.”a
FIGURE 3.8
FIGURE 3.9
“SEGMENT ZERO”
Trajectories of Technology Improvement and
Customer Requirements
Low-End Technology’s Trajectory Intersects Mass
Market Trajectory
Technology
trajectory
High-end
technology
High-end market
Mass market
Performance
Low-end market
High-end market
Mass market
Performance
Low-end market
Low-end
technology
Time
Time
continued
59
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concluded
As the firms serving low-end markets with simpler
technologies ride up their own trajectories (which are
also steeper than the slope of the trajectories of customer expectations), they can eventually reach a performance level that meets the demands of the mass market,
while offering a much lower price than the premium technology (see Figure 3.9). At this point, the firms offering
the premium technology may suddenly find they are losing the bulk of their sales revenue to industry contenders
that do not look so low end anymore. For example, by
1998, the combination of rising microprocessor power
and decreasing prices enabled personal computers
priced under $1000 to capture 20 percent of the market.
THE THREAT TO MICROSOFT
So where was the “segment zero” that could threaten
Microsoft? Look in your pocket. In 2018, Apple’s iPhone
operating system (iOS) and Google’s Android collectively
controlled almost 100 percent of the worldwide market for smartphones (with Android at 86.1 percent and
iOS at 13.7 percent), followed by Research in Motion’s
Blackberry.b Gartner estimates put Microsoft’s share at
3 percent. The iOS and Android interfaces offered a
dominant
design
A product design
that is adopted
by the majority
of producers,
typically creating
a stable architecture on which
the industry can
focus its efforts.
double whammy of beautiful aesthetics and remarkable
ease of use. The applications business model used for
the phones was also extremely attractive to both developers and customers, and quickly resulted in enormous
libraries of applications that ranged from the ridiculous
to the indispensible.
From a traditional economics perspective, the phone
operating system market should not be that attractive
to Microsoft—people do not spend as much on the
applications, and the carriers have too much bargaining
power, among other reasons. However, those smartphone operating systems soon became tablet operating systems, and tablets were rapidly becoming fully
functional computers. Suddenly, all of that mindshare
that Apple and Google had achieved in smartphone
operating systems was transforming into mindshare in
personal computer operating systems. Despite years of
masterminding the computing industry, Microsoft’s dominant position was at risk of evaporating.
a
A. S. Grove, “Managing Segment Zero,” Leader to Leader,
1999, p. 11.
b
www.Gartner.com, 2018.
product attributes, and a dominant design emerges.19 The dominant design establishes a stable architecture for the technology and enables firms to focus their efforts
on process innovations that make production of the design more effective and efficient or on incremental innovations to improve components within the architecture.
Utterback and Abernathy termed this phase the specific phase because innovations
in products, materials, and manufacturing processes are all specific to the dominant
design. For example, in the United States, the vast majority of energy production is
based on the use of fossil fuels (e.g., oil, coal), and the methods of producing energy
based on these fuels are well established. On the other hand, technologies that produce
energy based on renewable resources (e.g., solar, wind, hydrogen) are still in the fluid
phase. Organizations such as Royal Dutch/Shell, General Electric, and Ballard Power
are experimenting with various forms of solar photocell technologies, wind-turbine
technologies, and hydrogen fuel cells in efforts to find methods of using renewable
resources that meet the capacity and cost requirements of serving large populations.
Building on the Utterback and Abernathy model, Anderson and Tushman studied the history of the U.S. minicomputer, cement, and glass industries through several cycles of technological change. Like Utterback and Abernathy, Anderson and
Tushman found that each technological discontinuity inaugurated a period of turbulence and uncertainty (which they termed the era of ferment) (see Figure 3.10). The
new technology might offer breakthrough capabilities, but there is little agreement
about what the major subsystems of the technology should be or how they should be
60
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Chapter 3 Types and Patterns of Innovation 61
FIGURE 3.10
The Technology Cycle
Era of Ferment
Design Competition
Substitution
Technological
Discontinuity
Dominant Design
Selected
Era of Incremental Change
Elaboration of Dominant Design
configured together. Furthermore, as later researchers noted, during the era of ferment
different stakeholders might have different concepts of what purpose the technology
should serve, or how a business model might be built around it.20 Thus, while the new
technology displaces the old (Anderson and Tushman refer to this as substitution),
there is considerable design competition as firms experiment with different forms of
the technology. Just as in the Utterback and Abernathy model, Anderson and Tushman
found that a dominant design always arose to command the majority of the market
share unless the next discontinuity arrived too soon and disrupted the cycle, or several producers patented their own proprietary technologies and refused to license to
each other. Anderson and Tushman also found that the dominant design was never
in the same form as the original discontinuity, but it was also never on the leading
edge of the technology. Instead of maximizing performance on any individual dimension of the technology, the dominant design tended to bundle together a combination
of features that best fulfilled the demands of the majority of the market.
In the words of Anderson and Tushman, the rise of a dominant design signals the
transition from the era of ferment to the era of incremental change.21 In this era, firms
focus on efficiency and market penetration. Firms may attempt to achieve greater market segmentation by offering different models and price points. They may also attempt
to lower production costs by simplifying the design or improving the production process. This period of accumulating small improvements may account for the bulk of
the technological progress in an industry, and it continues until the next technological
discontinuity.
Understanding the knowledge that firms develop during different eras lends insight
into why successful firms often resist the transition to a new technology, even if it
provides significant advantages. During the era of incremental change, many firms
cease to invest in learning about alternative design architectures and instead invest in
refining their competencies related to the dominant architecture. Most competition
revolves around improving components rather than altering the architecture; thus,
companies focus their efforts on developing component knowledge and knowledge
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62 Part One Industry Dynamics of Technological Innovation
related to the dominant architecture. As firms’ routines and capabilities become more
and more wedded to the dominant architecture, the firms become less able to identify
and respond to a major architectural innovation. For example, the firm might establish
divisions based on the primary components of the architecture and structure the communication channels between divisions on the basis of how those components interact.
In the firm’s effort to absorb and process the vast amount of information available to
it, it is likely to establish filters that enable it to identify the information most crucial
to its understanding of the existing technology design.22 As the firm’s expertise, structure, communication channels, and filters all become oriented around maximizing its
ability to compete in the existing dominant design, they become barriers to the firm’s
recognizing and reacting to a new technology architecture.
While many industries appear to conform to this model in which a dominant design
emerges, there are exceptions. In some industries, heterogeneity of products and production processes are a primary determinant of value, and thus a dominant design is
undesirable.23 For example, art and cuisine may be examples of industries in which
there is more pressure to do things differently than to settle upon a standard.
Summary
of
Chapter
1. Different dimensions have been used to distinguish types of innovation. Some of
the most widely used dimensions include product versus process innovation, radical versus incremental innovation, competence-enhancing versus competencedestroying innovation, and architectural versus component innovation.
2. A graph of technology performance over cumulative effort invested often exhibits
an s-shape curve. This suggests that performance improvement in a new technology
is initially difficult and costly, but, as the fundamental principles of the technology are worked out, it then begins to accelerate as the technology becomes better
understood, and finally diminishing returns set in as the technology approaches its
inherent limits.
3. A graph of a technology’s market adoption over time also typically exhibits an
s-shape curve. Initially the technology may seem uncertain and there may be great
costs or risks for potential adopters. Gradually, the technology becomes more certain (and its costs may be driven down), enabling the technology to be adopted by
larger market segments. Eventually the technology’s diffusion slows as it reaches
market saturation or is displaced by a newer technology.
4. The rate at which a technology improves over time is often faster than the rate at
which customer requirements increase over time. This means technologies that
initially met the demands of the mass market may eventually exceed the needs of
the market. Furthermore, technologies that initially served only low-end customers (segment zero) may eventually meet the needs of the mass market and capture
the market share that originally went to the higher-performing technology.
5. Technological change often follows a cyclical pattern. First, a technological
discontinuity causes a period of turbulence and uncertainty, and producers and
consumers explore the different possibilities enabled by the new technology. As
producers and customers begin to converge on a consensus of the desired technological configuration, a dominant design emerges. The dominant design provides
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Chapter 3 Types and Patterns of Innovation 63
a stable benchmark for the industry, enabling producers to turn their attention
to increasing production efficiency and incremental product improvements. This
cycle begins again with the next technological discontinuity.
6. The first design based on the initial technological discontinuity rarely becomes
the dominant design. There is usually a period in which firms produce a variety of
competing designs of the technology before one design emerges as dominant.
7. The dominant design rarely embodies the most advanced technological features
available at the time of its emergence. It is instead the bundle of features that best
meets the requirements of the majority of producers and customers.
Discussion
Questions
1. What are some reasons that established firms might resist adopting a new
technology?
2. Are well-established firms or new entrants more likely to (a) develop and/or
(b) adopt new technologies? Why?
3. Think of an example of an innovation you have studied at work or school. How
would you characterize it on the dimensions described at the beginning of the
chapter?
4. What are some reasons that both technology improvement and technology diffusion exhibit s-shape curves?
5. Why do technologies often improve faster than customer requirements? What are
the advantages and disadvantages to a firm of developing a technology beyond the
current state of market needs?
6. In what industries would you expect to see particularly short technology cycles? In
what industries would you expect to see particularly long technology cycles? What
factors might influence the length of technology cycles in an industry?
Suggested
Further
Reading
Classics
Anderson, P., and M. L. Tushman, “Technological discontinuities and dominant
designs,” Administrative Science Quarterly 35 (1990), pp. 604–33.
Bijker, W. E., T. P. Hughes, and T. J. Pinch, The Social Construction of Technological
Systems (Cambridge, MA: MIT Press, 1987).
Christensen, C. M., The Innovator’s Dilemma: When New Technologies Cause Great
Firms to Fail (Boston: Harvard Business School Publishing, 1997).
Dosi, G., “Technological paradigms and technological trajectories,” Research Policy
11 (1982), pp. 147–60.
Rogers, E., Diffusion of Innovations, 5th ed. (New York: Simon & Schuster Publishing, 2003).
Schilling, M. A., and M. Esmundo, “Technology S-Curves in Renewable Energy
Alternatives: Analysis and Implications for Industry and Government,” Energy Policy,
37 (2009), pp. 1767–81.
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64 Part One Industry Dynamics of Technological Innovation
Recent Work
Ander, R., and R. Kapoor, “Innovation Ecosystems and the Pace of Substitution:
Re-examining Technology S-curves,” Strategic Management Journal (2015), 37:625–648.
Ethiraj, S., D. Levinthal, and R. R. Roy, “The dual role of modularity: Innovation and
imitation,” Management Science, 54 (2008), pp. 93–955.
Park, W., Y. K. Ro, and N. Kim, 2018. “Architectural Innovation and the Emergence
of a Dominant Design: The Effects of Strategic Sourcing on Performance,” 47 (2018),
pp. 326–341.
Schilling, M. A., “Technology Shocks, Technological Collaboration, and Innovation
Outcomes,” Organization Science, 26 (2015), pp. 668–686.
Slater, S. F., J. J. Mohr, and S. Sengupta, “Radical Product Innovation Capability: Literature Review, Synthesis, and Illustrative Research Propositions,” Journal of Product
Innovation Management, 31 (2014), pp. 552–566.
Young, H. P., “Innovation diffusion in heterogeneous populations: Contagion, social
influence, and social learning,” American Economic Review 99 (2009), pp. 1899–1924.
Endnotes
1. R. L. Daft and S. W. Becker, Innovation in Organizations (New York: Elsevier, 1978);
T. D. Duchesneau, S. Cohn, and J. Dutton, A Study of Innovation in Manufacturing: Determination, Processes and Methodological Issues, vol. 1 (Social Science Research Institute, University
of Maine, 1979); and J. Hage, Theories of Organization (New York: Wiley Interscience, 1980).
2. R. D. Dewar and J. E. Dutton, “The Adoption of Radical and Incremental Innovations: An
Empirical Analysis,” Management Science 32 (1986), pp. 1422–33; and J. Dutton and
A. Thomas, “Relating Technological Change and Learning by Doing,” in Research on Technological Innovation, Management and Policy, ed. R. Rosenbloom (Greenwich, CT: JAI Press,
1985), pp. 187–224.
3. C. Scuria-Fontana, “The Slide Rule Today: Respect for the Past; History of the Slide Rule,”
Mechanical Engineering-CIME, July 1990, pp. 122–24.
4. H. Simon, “The Architecture of Complexity,” Proceedings of the American Philosophical Society 106 (1962), pp. 467–82.
5. L. Fleming and O. Sorenson, “Navigating the Technology Landscape of Innovation,” Sloan
Management Review 44, no. 2 (2003), p. 15; and M. A. Schilling, “Towards a General Modular
Systems Theory and Its Application to Interfirm Product Modularity,” Academy of Management Review 25 (2000), pp. 312–34.
6. R. Henderson and K. Clark, “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,” Administrative Science Quarterly
35 (1990), pp. 9–30.
7. R. Foster, Innovation: The Attacker’s Advantage (New York: Summit Books, 1986).
8. R. Garud and M. A. Rappa, “A Socio-Cognitive Model of Technology Evolution: The Case
of Cochlear Implants,” Organization Science 5 (1994), pp. 344–62; and W. E. Bijker,
T. P. Hughes, and T. J. Pinch, The Social Construction of Technological Systems (Cambridge,
MA: MIT Press, 1987).
9. Foster, Innovation.
10. R. Brown, “Managing the ‘s’ Curves of Innovation,” Journal of Consumer Marketing 9 (1992),
pp. 61–72.
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Chapter 3 Types and Patterns of Innovation 65
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
sch87956_ch03_043-066.indd
65
E. Rogers, Diffusion of Innovations, 4th ed. (New York: Free Press, 1995).
E. Mansfield, “Industrial Robots in Japan and the USA,” Research Policy 18 (1989), pp. 183–92.
P. A. Geroski, “Models of Technology Diffusion,” Research Policy 29 (2000), pp. 603–25.
Foster, Innovation; and E. H. Becker and L. M. Speltz, “Putting the S-curve Concept to Work,”
Research Management 26 (1983), pp. 31–33.
C. Christensen, Innovation and the General Manager (New York: Irwin/McGraw-Hill, 1999).
P. Anderson and M. Tushman, “Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change,” Administrative Science Quarterly 35 (1990), pp. 604–34.
J. Schumpeter, Capitalism, Socialism and Democracy (New York: Harper Brothers, 1942).
See, for example, J. M. Utterback and W. J. Abernathy, “A Dynamic Model of Process and
Product Innovation,” Omega, the International Journal of Management Science 3 (1975),
pp. 639–56; and D. Sahal, Patterns of Technological Innovation (Reading, MA: AddisonWesley Publishing Co., 1981).
Utterback and Abernathy, “A Dynamic Model of Process and Product Innovation”; F. F. Suarez
and J. M. Utterback, “Dominant Designs and the Survival of Firms,” Strategic Management
Journal 16 (1995), pp. 415–30; and J. M. Utterback and F. F. Suarez, “Innovation, Competition
and Industry Structure,” Research Policy 22 (1993), pp. 1–21.
Kaplan, S. and Tripsas, M. “Thinking about Technology: Applying a Cognitive Lens to Technical Change,” Research Policy, 37 (2008):790–805.
P. Anderson and M. Tushman, “Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change,” Administrative Science Quarterly 35 (1990), pp. 604–34.
R. Henderson and K. Clark, “Architectural Innovation: The Reconfiguration of Existing
Product Technologies and the Failure of Established Firms,” Administrative Science Quarterly
35 (1990), pp. 9–30.
M. E. Porter, “The Technological Dimension of Competitive Strategy,” in Research on Technological Innovation, Management and Policy, ed. R. S. Rosenbloom (Greenwich, CT: JAI Press,
1983); and S. Klepper, “Entry, Exit, Growth, and Innovation over the Product Life Cycle,”
American Economic Review 86 (1996), pp. 562–83.
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Chapter One
Introduction
THE IMPORTANCE OF TECHNOLOGICAL INNOVATION
technological
innovation
The act of
introducing a
new device,
method, or
material for
application to
commercial
or practical
objectives.
In many industries, technological innovation is now the most important driver of
competitive success. Firms in a wide range of industries rely on products developed
within the past five years for almost one-third (or more) of their sales and profits.
For example, at Johnson & Johnson, products developed within the last five years
account for over 30 percent of sales, and sales from products developed within the past
five years at 3M have hit as high as 45 percent in recent years.
The increasing importance of innovation is due in part to the globalization of
markets. Foreign competition has put pressure on firms to continuously innovate
in order to produce differentiated products and services. Introducing new products
helps firms protect their margins, while investing in process innovation helps firms
lower their costs. Advances in information technology also have played a role in
speeding the pace of innovation. Computer-aided design and computer-aided manufacturing have made it easier and faster for firms to design and produce new products, while flexible manufacturing technologies have made shorter production runs
economical and have reduced the importance of production economies of scale.1
These technologies help firms develop and produce more product variants that
closely meet the needs of narrowly defined customer groups, thus achieving differentiation from competitors. For example, in 2018, Toyota offered 22 different
passenger vehicle lines under the Toyota brand (e.g., Camry, Prius, Highlander, and
Tundra). Within each of the vehicle lines, Toyota also offered several different models (e.g., Camry L, Camry LE, Camry SE, Camry Hybrid SE, etc.) with different
features and at different price points. In total, Toyota offered 193 car models ranging in price from $15,635 (for the Yaris three-door liftback) to $84,315 (for the
Land Cruiser), and seating anywhere from three passengers (e.g., Tacoma Regular
Cab truck) to eight passengers (Sienna Minivan). On top of this, Toyota also produced a range of luxury vehicles under its Lexus brand. Similarly, in 2018 Samsung
produced more than 30 unique smartphones. Companies can use broad portfolios
of product models to help ensure they can penetrate almost every conceivable market niche. While producing multiple product variations used to be expensive and
1
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2 Chapter 1 Introduction
time-consuming, flexible manufacturing technologies now enable firms to seamlessly transition from producing one product model to the next, adjusting production
schedules with real-time information on demand. Firms further reduce production
costs by using common components in many of the models.
As firms such as Toyota, Samsung, and others adopt these new technologies
and increase their pace of innovation, they raise the bar for competitors, triggering
an industry-wide shift to shortened development cycles and more rapid new product introductions. The net results are greater market segmentation and rapid product
obsolescence.2 Product life cycles (the time between a product’s introduction and
its withdrawal from the market or replacement by a next-generation product) have
become as short as 4 to 12 months for software, 12 to 24 months for computer hardware and consumer electronics, and 18 to 36 months for large home appliances.3
This spurs firms to focus increasingly on innovation as a strategic imperative—a
firm that does not innovate quickly finds its margins diminishing as its products
become obsolete.
THE IMPACT OF TECHNOLOGICAL INNOVATION ON SOCIETY
gross
domestic
product (GDP)
The total annual
output of an
economy as
measured by its
final purchase
price.
If the push for innovation has raised the competitive bar for industries, arguably making success just that much more complicated for organizations, its net effect on society
is more clearly positive. Innovation enables a wider range of goods and services to be
delivered to people worldwide. It has made the production of food and other necessities more efficient, yielded medical treatments that improve health conditions, and
enabled people to travel to and communicate with almost every part of the world. To
get a real sense of the magnitude of the effect of technological innovation on society,
look at Figure 1.1, which shows a timeline of some of the most important technological innovations developed over the last 200 years. Imagine how different life would be
without these innovations!
The aggregate impact of technological innovation can be observed by looking at
gross domestic product (GDP). The gross domestic product of an economy is its
total annual output, measured by final purchase price. Figure 1.2 shows the average
GDP per capita (i.e., GDP divided by the population) for the world from 1980 to
2016. The figures have been converted into U.S. dollars and adjusted for inflation.
As shown in the figure, the average world GDP per capita has risen steadily since
1980. In a series of studies of economic growth conducted at the National Bureau of
Economic Research, economists showed that the historic rate of economic growth
in GDP could not be accounted for entirely by growth in labor and capital inputs.
Economist Robert Merton Solow argued that this unaccounted-for residual growth
represented technological change: Technological innovation increased the amount of
output achievable from a given quantity of labor and capital. This explanation was
not immediately accepted; many researchers attempted to explain the residual away
in terms of measurement error, inaccurate price deflation, or labor improvement.
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Chapter 1 Introduction 3
FIGURE 1.1
Timeline
of Some of
the Most
Important
Technological
Innovations
in the Last
200 Years
externalities
Costs (or benefits)
that are borne
(or reaped) by
individuals
other than those
responsible
for creating
them. Thus, if a
business emits
pollutants in a
community, it
imposes a negative externality
on the community members;
if a business
builds a park in
a community, it
creates a positive externality
for community
members.
sch87956_ch01_001-012.indd
3
1800 –
1800—Electric battery
1804—Steam locomotive
1807—Internal combustion engine
1809—Telegraph
1817—Bicycle
1820 –
1821—Dynamo
1824—Braille writing system
1828—Hot blast furnace
1831—Electric generator
1836—Five-shot revolver
1840 –
1841—Bunsen battery (voltaic cell)
1842—Sulfuric ether-based anesthesia
1846—Hydraulic crane
1850—Petroleum refining
1856—Aniline dyes
1860 –
1862—Gatling gun
1867—Typewriter
1876—Telephone
1877—Phonograph
1878—Incandescent lightbulb
1880 –
1885—Light steel skyscrapers
1886—Internal combustion automobile
1887—Pneumatic tire
1892—Electric stove
1895—X-ray machine
1900 –
1902—Air conditioner (electric)
1903—Wright biplane
1906—Electric vacuum cleaner
1910—Electric washing machine
1914—Rocket
1920 –
1921—Insulin (extracted)
1927—Television
1928—Penicillin
1936—First programmable computer
1939—Atom fission
1940 –
1942—Aqua lung
1943—Nuclear reactor
1947—Transistor
1957—Satellite
1958—Integrated circuit
1960 –
1967—Portable handheld calculator
1969—ARPANET (precursor to Internet)
1971—Microprocessor
1973—Mobile (portable cellular) phone
1976—Supercomputer
1980 –
1981—Space shuttle (reusable)
1987—Disposable contact lenses
1989—High-definition television
1990—World Wide Web protocol
1996—Wireless Internet
2000 –
2003—Map of human genome
But in each case the additional variables were unable to eliminate
this residual growth component.
A consensus gradually emerged
that the residual did in fact capture technological change. Solow
received a Nobel Prize for his work
in 1981, and the residual became
known as the Solow Residual.4
While GDP has its shortcomings
as a measure of standard of living,
it does relate very directly to the
amount of goods consumers can
purchase. Thus, to the extent that
goods improve quality of life, we
can ascribe some beneficial impact
of technological innovation.
Sometimes technological innovation results in negative externalities.
Production technologies may create
pollution that is harmful to the
surrounding communities; agricultural and fishing technologies
can result in erosion, elimination
of natural habitats, and depletion of
ocean stocks; medical technologies
can result in unanticipated consequences such as antibiotic-resistant
strains of bacteria or moral dilemmas
regarding the use of genetic modification. However, technology is, in
its purest essence, knowledge—
knowledge to solve our problems
and pursue our goals.5 Technological innovation is thus the creation
of new knowledge that is applied
to practical problems. Sometimes
this knowledge is applied to problems hastily, without full consideration of the consequences and
alternatives, but overall it will
probably serve us better to have
more knowledge than less.
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4 Chapter 1 Introduction
FIGURE 1.2
Gross
Domestic
Product per
Capita, 1989–
2016 (in Real
2010 $US
Billions)
90,000
Source: USDA Economic Research Service,
www.ers.usda.gov,
accessed April 16th,
2018.
50,000
80,000
70,000
60,000
40,000
30,000
20,000
10,000
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
98
20
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
19
19
80
–
INNOVATION BY INDUSTRY: THE IMPORTANCE OF STRATEGY
As will be shown in Chapter Two, the majority of effort and money invested in technological innovation comes from industrial firms. However, in the frenetic race to
innovate, many firms charge headlong into new product development without clear
strategies or well-developed processes for choosing and managing projects. Such firms
often initiate more projects than they can effectively support, choose projects that are
a poor fit with the firm’s resources and objectives, and suffer long development cycles
and high project failure rates as a consequence (see the accompanying Research Brief
for a recent study of the length of new product development cycles). While innovation is popularly depicted as a freewheeling process that is unconstrained by rules and
plans, study after study has revealed that successful innovators have clearly defined
innovation strategies and management processes.6
The Innovation Funnel
Most innovative ideas do not become successful new products. Many studies suggest
that only one out of several thousand ideas results in a successful new product: Many
projects do not result in technically feasible products and, of those that do, many fail
to earn a commercial return. According to a 2012 study by the Product Development
and Management Association, only about one in nine projects that are initiated is successful, and of those that make it to the point of being launched to the market, only
about half earn a profit.7 Furthermore, many ideas are sifted through and abandoned
before a project is even formally initiated. According to one study that combined data
from prior studies of innovation success rates with data on patents, venture capital
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Chapter 1 Introduction 5
Research Brief
How Long Does New Product
Development Take?a
In a large-scale survey administered by the Product Development and Management Association
(PDMA), researchers examined the length of time it
took firms to develop a new product from initial concept to market introduction. The study divided new
product development projects into categories representing their degree of innovativeness: “radical”
projects, “more innovative” projects, and “incremental” projects. On average, incremental projects took
only 33 weeks from concept to market introduction.
More innovative projects took significantly longer,
clocking in at 57 weeks. The development of radical
products or technologies took the longest, averaging
82 weeks. The study also found that on average, for
more innovative and radical projects, firms reported
significantly shorter cycle times than those reported
in the previous PDMA surveys conducted in 1995
and 2004.
a
Adapted from Markham, S. K., and H. Lee, “Product Development and Management Association’s 2012 Comparative Performance Assessment Study,” Journal of Product
Innovation Management 30, no. 3 (2013): 408–29.
funding, and surveys, it takes about 3000 raw ideas to produce one significantly new
and successful commercial product.8 The pharmaceutical industry demonstrates this
well—only one out of every 5000 compounds makes it to the pharmacist’s shelf, and
only one-third of those will be successful enough to recoup their R&D costs.9 Furthermore, most studies indicate that it costs at least $1.4 billion and a decade of research to
bring a new Food and Drug Administration (FDA)–approved pharmaceutical product
to market!10 The innovation process is thus often conceived of as a funnel, with many
potential new product ideas going in the wide end, but very few making it through the
development process (see Figure 1.3).
FIGURE 1.3
The New Product Development Funnel in
Pharmaceuticals
5000
Compounds
125
Leads
Discovery & Preclinical
3–6 years
sch87956_ch01_001-012.indd
5
2–3 drugs tested
Clinical Trials
6–7 years
1 drug
Rx
Approval
½–2 years
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6 Chapter 1 Introduction
The Strategic Management of Technological Innovation
Improving a firm’s innovation success rate requires a well-crafted strategy. A firm’s
innovation projects should align with its resources and objectives, leveraging its core
competencies and helping it achieve its strategic intent. A firm’s organizational structure and control systems should encourage the generation of innovative ideas while
also ensuring efficient implementation. A firm’s new product development process
should maximize the likelihood of projects being both technically and commercially
successful. To achieve these things, a firm needs (a) an in-depth understanding of the
dynamics of innovation, (b) a well-crafted innovation strategy, and (c) well-designed
processes for implementing the innovation strategy. We will cover each of these in turn
(see Figure 1.4).
In Part One, we will cover the foundations of technological innovation, gaining an
in-depth understanding of how and why innovation occurs in an industry, and why
some innovations rise to dominate others. First, we will look at the sources of innovation in Chapter Two. We will address questions such as: Where do great ideas come
from? How can firms harness the power of individual creativity? What role do customers, government organizations, universities, and alliance networks play in creating
innovation? In this chapter, we will first explore the role of creativity in the generation
of novel and useful ideas. We then look at various sources of innovation, including
the role of individual inventors, firms, publicly sponsored research, and collaborative
networks.
In Chapter Three, we will review models of types of innovation (such as radical
versus incremental and architectural versus modular) and patterns of innovation
(including s-curves of technology performance and diffusion, and technology cycles).
We will address questions such as: Why are some innovations much harder to create
and implement than others? Why do innovations often diffuse slowly even when they
appear to offer a great advantage? What factors influence the rate at which a technology tends to improve over time? Familiarity with these types and patterns of innovation
will help us distinguish how one project is different from another and the underlying
factors that shape the project’s likelihood of technical or commercial success.
In Chapter Four, we will turn to the particularly interesting dynamics that emerge
in industries characterized by network externalities and other sources of increasing returns that can lead to standards battles and winner-take-all markets. We will
address questions such as: Why do some industries choose a single dominant standard rather than enabling multiple standards to coexist? What makes one technological innovation rise to dominate all others, even when other seemingly superior
technologies are offered? How can a firm avoid being locked out? Is there anything
a firm can do to influence the likelihood of its technology becoming the dominant
design? When are platform ecosystems likely to displace other forms of competition
in an industry?
In Chapter Five, we will discuss the impact of entry timing, including first-mover
advantages, first-mover disadvantages, and the factors that will determine the firm’s
optimal entry strategy. This chapter will address such questions as: What are the advantages and disadvantages of being first to market, early but not first, and late? What
determines the optimal timing of entry for a new innovation? This chapter reveals a
number of consistent patterns in how timing of entry impacts innovation success, and
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Chapter 1 Introduction 7
FIGURE 1.4
The Strategic Management of Technological Innovation
Part 1: Industry Dynamics of
Technological Innovation
Chapter 2
Sources of
Innovation
Chapter 3
Types and Patterns
of Innovation
Chapter 4
Standards Battles,
Modularity, and
Platform Competition
Chapter 5
Timing of Entry
Part 2: Formulating Technological
Innovation Strategy
Chapter 6
Defining the Organization’s
Strategic Direction
Chapter 7
Choosing Innovation
Projects
Chapter 8
Collaboration
Strategies
Chapter 9
Protecting Innovation
Part 3: Implementing Technological
Innovation Strategy
Chapter 10
Organizing for
Innovation
Chapter 11
Managing the New
Product Development
Process
Chapter 12
Managing New
Product
Development Teams
Chapter 13
Crafting a
Deployment
Strategy
Feedback
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8 Chapter 1 Introduction
it outlines what factors will influence a firm’s optimal timing of entry, thus beginning
the transition from understanding the dynamics of technological innovation to formulating technology strategy.
In Part Two, we will turn to formulating technological innovation strategy.
Chapter Six reviews the basic strategic analysis tools managers can use to assess the
firm’s current position and define its strategic direction for the future. This chapter
will address such questions as: What are the firm’s sources of sustainable competitive
advantage? Where in the firm’s value chain do its strengths and weaknesses lie? What
are the firm’s core competencies, and how should it leverage and build upon them?
What is the firm’s strategic intent—that is, where does the firm want to be 10 years
from now? Only after the firm has thoroughly appraised where it is currently can it
formulate a coherent technological innovation strategy for the future.
In Chapter Seven, we will examine a variety of methods of choosing innovation
projects. These include quantitative methods such as discounted cash flow and options
valuation techniques, qualitative methods such as screening questions and balancing
the research and development portfolio, as well as methods that combine qualitative
and quantitative approaches such as conjoint analysis and data envelopment analysis.
Each of these methods has its advantages and disadvantages, leading many firms to
use a multiple-method approach to choosing innovation projects.
In Chapter Eight, we will examine collaboration strategies for innovation. This
chapter addresses questions such as: Should the firm partner on a particular project or
go solo? How does the firm decide which activities to do in-house and which to access
through collaborative arrangements? If the firm chooses to work with a partner, how
should the partnership be structured? How does the firm choose and monitor partners? We will begin by looking at the reasons a firm might choose to go solo versus
working with a partner. We then will look at the pros and cons of various partnering
methods, including joint ventures, alliances, licensing, outsourcing, and participating in collaborative research organizations. The chapter also reviews the factors that
should influence partner selection and monitoring.
In Chapter Nine, we will address the options the firm has for appropriating the
returns to its innovation efforts. We will look at the mechanics of patents, copyright,
trademarks, and trade secrets. We will also address such questions as: Are there ever
times when it would benefit the firm to not protect its technological innovation so
vigorously? How does a firm decide between a wholly proprietary, wholly open, or
partially open strategy for protecting its innovation? When will open strategies have
advantages over wholly proprietary strategies? This chapter examines the range of
protection options available to the firm, and the complex series of trade-offs a firm
must consider in its protection strategy.
In Part Three, we will turn to implementing the technological innovation strategy.
This begins in Chapter Ten with an examination of how the organization’s size and
structure influence its overall rate of innovativeness. The chapter addresses such questions as: Do bigger firms outperform smaller firms at innovation? How do formalization, standardization, and centralization impact the likelihood of generating innovative
ideas and the organization’s ability to implement those ideas quickly and efficiently?
Is it possible to achieve creativity and flexibility at the same time as efficiency and
reliability? How do multinational firms decide where to perform their development
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Chapter 1 Introduction 9
activities? How do multinational firms coordinate their development activities toward
a common goal when the activities occur in multiple countries? This chapter examines
how organizations can balance the benefits and trade-offs of flexibility, economies of
scale, standardization, centralization, and tapping local market knowledge.
In Chapter Eleven, we will review a series of “best practices” that have been identified in managing the new product development process. This includes such questions
as: Should new product development processes be performed sequentially or in parallel? What are the advantages and disadvantages of using project champions? What
are the benefits and risks of involving customers and/or suppliers in the development
process? What tools can the firm use to improve the effectiveness and efficiency of its
new product development processes? How does the firm assess whether its new product development process is successful? This chapter provides an extensive review of
methods that have been developed to improve the management of new product development projects and to measure their performance.
Chapter Twelve builds on the previous chapter by illuminating how team composition and structure will influence project outcomes. This chapter addresses questions
such as: How big should teams be? What are the advantages and disadvantages of
choosing highly diverse team members? Do teams need to be colocated? When should
teams be full time and/or permanent? What type of team leader and management practices should be used for the team? This chapter provides detailed guidelines for constructing new product development teams that are matched to the type of new product
development project under way.
Finally, in Chapter Thirteen, we will look at innovation deployment strategies. This
chapter will address such questions as: How do we accelerate the adoption of the technological innovation? How do we decide whether to use licensing or OEM agreements? Does it make more sense to use penetration pricing or a market-skimming
price? When should we sell direct versus using intermediaries? What strategies can
the firm use to encourage distributors and complementary goods providers to support the innovation? What are the advantages and disadvantages of major marketing
methods? This chapter complements traditional marketing, distribution, and pricing
courses by looking at how a deployment strategy can be crafted that especially targets
the needs of a new technological innovation.
Summary
of
Chapter
1. Technological innovation is now often the single most important competitive
driver in many industries. Many firms receive more than one-third of t…