INTRODUCTION TO INNOVATION MANAGEMENT INN001, 5 p'

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INTRODUCTION TO INNOVATION MANAGEMENT(INN001, 5
p.)

• 9 September 2008
• Olof Ejermo
• olof.ejermo_at_circle.lu.se

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From positions to paths

• Two fundamental questions underlying innovation
  strategy
• Where are you today?
• and where can you go tomorrow?
• The first question is about positions gt see
  chapter 4 and last weeks theme
• The second question is about paths and
  path-dependence gt chapter 5

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Where can you go tomorrow?

• Cannot choose freely where to go firms
  innovative activities are path-dependent!
• Innovators are constrained by (at least) two
  factors
• Present and likely future state of technological
  knowledge (not everything is technologically
  possible!)
• Limits of corporate competence (no firm has the
  competence to do everything!)

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Learning is path-dependent

• Innovation involves a lot of trial, error and
  learning
• Learning tends to be incremental, since major
  step changes in too many parameters both increase
  uncertainty and reduce the capacity to learn
• As a consequence, firms learning processes are
  path-dependent
• Moving from one path of learning to another can
  be costly, even impossible
• although success stories do exist

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How to jump to a new path?

• Hire new employees with the desired competencies?
• gt Difficult, because a FIRMs competencies are
  rarely the same as those of an INDIVIDUAL!
• gt A firms competencies are deeply embedded into
  specialized, interdependent and coordinated
  groups, teams, divisions
• Acquire a firm that has the desired competencies?
  
• gt Difficult because of different practices,
  cognitive structures and corporate cultures
• Interesting alternative Corporate ventures gt
  see further chapter 10

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Technological constraints depending on sector

• Firms in different sectors follow different
  technological trajectories
• Some firms build up huge RD laboratories and
  operate large-scale manufacturing plants, while
  others have merely 5-10 employees
• Some firms focus first and foremost on product
  innovation, while others focus more on process
  innovation
• Some firms perform most of their innovative
  activities within the firm (in-house), while
  others rely heavily on external partners
• For some firms the RD lab is the central place
  for innovation, in other firms it is rather the
  design office or the systems department

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Five Major Technological Trajectories- the
Pavitt taxonomy

• Scale-intensive (e.g. cars, steel)
• Science-based (e.g. electronics, chemistry,
  pharmaceuticals)
• Specialized suppliers (e.g. instruments,
  software)
• Supplier-dominated firms (e.g. agriculture,
  traditional manufacture)
• Information-intensive (e.g. finance, retailing,
  publishing, travelling)

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Characteristics of innovation in the Pavitt
taxonomy

• Size of innovating firms big in chemicals
  vehicles material, aircraft, small in machinery,
  instr., software
• Type of products price sensitive in bulk goods,
  performance sensitive ethical drugs
• Sources of innovation suppliers in agriculture
  and traditional manufacture (e.g. textiles),
  customers in instrument machinery software,
  in-house in chemicals electronics., basic
  research in ethical drugs
• Locus of own innovation RD-labs in chemicals
  electr., prod. eng. depts in automob. bulk,
  design in machine building, systems depts in
  service industries

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Revolutionary technologies and their impact on
technological trajectories

• Firm-specific technological trajectories change
  over time as improvements in the knowledge base
  open up new technological opportunities
• Since the early 1980s three fields pointed at as
  a source of new opportunities
• Biotechnology
• Materials
• Microelectronics and IT

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The biotechnology revolution

• 1970s Recombinant DNA as a scientific
  breakthrough (inserting new DNA into organisms)
• Vast technological opportunities created through
  gene therapy, antisense technology, automated
  gene sequencing, gene discovery, genome analysis
• Greatest impact on firms have so far been on RD
  programmes in pharmaceuticals, agriculture and
  food
• Many specialist biotech companies formed in
  response to these trends
• New applications expected in textiles, leather,
  paper pulp, oil refining, metals and mining,
  printing, environmental services, speciality
  chemicals etc.
• However, many disappointments (no radical
  short-cuts to profitability in pharmaceuticals)
• Important interactions between scientists,
  biotech entrepreneurs and user industries

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The materials revolution

• Traditionally a wide separation between materials
  engineering and materials science
• First step towards uniting the two was through
  chemicals RD in 19th century
• but it is only during the last half-century
  that the collaboration between engineering and
  science in materials has really started to thrive
• Driven by powerful new scientific theories and
  improved instrumentation (microscopy,
  spectroscopy)
• As a result, innovation in materials has become
  much more science-based
• Examples ceramics, polymers, optical fibres,
  semiconductors

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The microelectronics and IT revolutions
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The microelectronics and IT revolutions

• The technological trajectories of firms and
  countries in software and hardware are becoming
  decoupled
• Three features of the IT revolution that are
  increasingly important for innovation strategy
• Increasing systemic nature of economic and
  technological activities
• Decreasing cost of product development
• Disappearance of low/medium/hi-tech distinction

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Pavitt taxonomy applied to service sectors
(Miozzo Soete)

• Pavitt taxonomy early 80s (yet still highly
  useful)
• Services have developed enormously and today
  account for 2/3 employment in modern economies

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• Supplier-dominated
• personal services (restaurants, hotels, barber
  etc)
• publ. social services (health, education, publ.
  adm)
• Scale-intensive
• Physical networks transport travel, wholetrade
  distribution
• Information networks finance, insurance,
  communications
• Science-based and specialized suppliers
• Business services linked to RD, software,
  development and appl. of information technologies

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

• Importance highly growing
• e.g. development and use of data,communication,
  storage and transmission
• Banking, insurance, cell phones, air reservations
  etc.
• Why?
• Digitalization of information
• -gt data processing to information handling, e.g.
  information network services, logistics, route
  planning
• Single distribution network for a growing number
  of services
• -gt telecommunications infrastructure (mobile
  phone networks, internet etc)

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Trends in service industries

• Implications
• Transportability
• Increased storability transmission of services
  collapse of time space
• Traditionally services produced consumed
  simultaneously
• Higher demands on consumers knowledge
• Tradability
• New divisions of labor -gt e.g. Indian software
  support
• Linkage structures change Factor endowments not
  as important, increased emphasis on linking up -gt
  competitive advantages
• Outsourcing of innovative activities
• Much specialized activities are moved out of
  firms
• Overall knowledge requirements intensity rise

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Developing Firm-specific Competencies

• Core competencies, according to Hamel and
  Prahalad (1990)
• Sources of competitive advantage is in
  competencies, not in products
• Found in more than one product and in more than
  one division
• Stress the importance of associated
  organizational competencies
• Five or six core competencies
• Multidivisional firms as bundles of core
  competencies
• Importance of a strategic architecture

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The weaknesses of thecore competencies approach

• Overestimates the potential of technology-based
  diversification in all industries
• Underestimates the importance of background
  competencies for coordination and benefit from
  outside linkages
• Underestimates the importance of emerging
  competencies due to rapidly developing fields
  (ICT, new materials, biotechnology, etc.)
• The problem of core rigidities
• Better concept Distributed competencies

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Proposed alternative by Tidd et al. (2005)
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Technological paths in small firms

• Supplier-dominated firms
• Specialized suppliers
• Superstars
• New Technology-Based Firms (NTBFs)

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Superstars

• Their existence and success is typically based on
  the exploitation of a major invention (e.g.
  Instant photography) or a rich technological
  trajectory (e.g. semiconductors, software)
• They are often spin-offs from large firms or have
  tried to offer their inventions to large firms
  but were refused!
• In some sectors entry barriers seem to be too
  high for superstars to emerge (chemistry,
  pharmaceuticals)
• Main challenge is to manage the difficult
  transition from small to large, scale up
  production etc. while aggressively update its own
  and competitors original innovations
• Examples Polaroid, Xerox, Intel, Microsoft,
  Sony, Benetton, Lenovo

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New Technology-Based Firms

• They usually emerge from large firms or
  (corporate or academic) laboratories
• Specialized in the supply of a key component,
  subsystem, service or technique to larger firms,
  who may often be their former employers
• Question for the future is whether to aim to
  become a superstar or a specialized supplier
• Many NTBF entrepreneurs are not interested in
  long-term growth of their small firms, but prefer
  to sell them within a few years

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SUMMARY CHAPTER 5

• Firms innovative activities are path-dependent,
  they rarely jump to a completely new path
• We may discern at least five types of
  technological trajectories
• The emergence of revolutionary technologies open
  up new opportunities for a firm to change its
  paths
• Concept of core competencies use it
  carefully, the concept has weaknesses, especially
  for our understanding of how firms can learn new
  competencies
• Small firms are more difficult to classify in
  terms of their technological paths