UNDERSTANDING BUSINESS FUNCTIONS B202 PART B

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UNDERSTANDING BUSINESS FUNCTIONSB202PART B
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Block 4 The nature of innovation

• The Resources Associated With This Section Are
• Marketing text book, Chapters 6 and 8
• Technology cycles, innovation streams and
  ambidextrous organizations Reading.
  (p.106-p.125)

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Block 4 The nature of innovationFour types of
innovation

• Organizations require at least two broad types
  of capability to succeed as product manufactures
  (Henderson and Clark, 1990)
• Market Capabilities which use market knowledge to
  meet customer demand.
• Technological Capabilities which use
  technological knowledge to develop and
  manufacture the product.

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Block 4 The nature of innovationFour types of
innovation

• Types of technological knowledge
• Component knowledge knowledge of the components
  required to assemble a product or deliver a
  service.
• Architectural knowledge knowledge of how the
  components are connected.

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Cont. Block 4 The nature of innovation Four
types of innovation

• There are four types of innovation
• Incremental innovation
• Radical/ discontinuous innovation
• Architectural innovation, and
• Modular innovation

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Cont. Block 4 The nature of innovation Four
types of innovation

• Incremental innovation builds on existing
  products.(e.g. thinner mechanical watches).
• Radical/ discontinuous innovation destroys
  existing products sets product development onto
  a new trajectory (line, path). (e.g. Seikos
  quartz movement substituting for mechanical
  movements)
• Architectural innovation links existing
  technology in novel (new) ways. (e.g. Starkey
  was able to move beyond behind-the-ear (BTE)
  hearing aids to in-the-ear (ITE) hearing aids by
  simply reconfiguring existing hearing aid
  components.i.e. It took extant hearing aid
  technology, repackaged this technology into
  smaller space, and created the (ITE) hearing aid)
• Modular innovation destroys some part of an
  organizations component knowledge but leads to
  architectural innovation. (e.g. batteries
  replacing springs as the energy source in watches)

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Cont. Block 4 The nature of innovation four
types of innovation

• Henderson and Clark see four types of innovation
  emerging from the use of at least two types of
  technological knowledge (table 2.1, page 18)

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Cont. Block 4 The nature of innovation Four
types of innovation

• Note that table 2.1 is designed to suggest that a
  given innovation may be less radical or more
  architectural, not to suggest that the world can
  be neatly divided into four quadrants.
• The concept of Dominant Design
• What are dominant designs?
• Dominant designs Are the new industry
  standards that emerge from the breakthrough
  of a new product or service.
• Previous studies show that product
  technologies do not emerge fully developed
  at the outset of their commercial lives.
• Technical evolution (development) is usually
  characterized by periods of great
  experimentation followed by the acceptance of
  a dominant design.

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Cont. Block 4 The nature of innovation Four
types of innovation

• Cont. the concept of Dominant Design
• The emergence of a new technology is usually a
  period of considerable confusion. There is little
  agreement about what the major subsystems of the
  product should be or how they should be put
  together. There is a great deal of
  experimentation.
• For example, in the early days of the automobile
  industry, cars were built with gasoline,
  electric, or steam engines, with steering wheels
  or tillers, and with wooden or metal
  bodies.These periods of experimentation are
  brought to an end by the emergence of a dominant
  design. A dominant design is characterized both
  by a set of core design concepts that correspond
  to the major functions performed by the product
  and that are embodied in components and by a
  product architecture that defines the ways in
  which these components are integrated.Once the
  dominant automobile design had been accepted,
  engineers did not reevaluate the decision to use
  a gasoline engine each time they developed a new
  design.

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Cont. Block 4 The nature of innovation Four
types of innovation
Activities 2.2 2.3 (p.19-20) Using Henderson
and Clarks matrix, Which type of innovation does
the approach of Chapters bookstore
represent? Why do you think architectural
innovation may be more difficult to achieve than
incremental innovation?
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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Organizations are able to offer differentiated
  and/ or low costproducts and services when they
  carry out particular activities especially well.
• In competitive environments, this means
  performing key activities better than
  competitors.
• In a co-operative environment, it means serving
  beneficiaries better.
• Over time, organizations develop capabilities
  for performing particular activities and
  competencies in performing groups of related
  activities which enable them to make especially
  good use of their resources.

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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Resources, capabilities and competencies
• Resources are inputs into organizational
  processes.
• Grant (1995) identifies 3 types of resources
• Tangible - e.g. buildings, equipment, process
  machinery, raw materials.
• Intangible - e.g. knowledge, organizational
  routines.
• Human - e.g. individual in the labor force,
  external individuals in network relationships.

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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Capabilities are strengths in managing and
  performing particular types of activity.
• (e.g. an organization may be especially good at
  knowledge creation)
• Competencies are strengths in managing and
  performing groups of activities and the
  interdependencies between them.
• (e.g. an organization good at knowledge creation,
  the application of new knowledge to the
  development of new products and the marketing of
  the new products it develops)
• Activity 2.4 page 21
• From your reading so far including the section in
  the article by Tushman et al., why do you think
  innovation is important to the organization?

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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Competence-enhancing and Competence-destroying
  innovations
• Competence-enhancing innovations innovations
  with the potential to deep and strength existing
  competencies.
• Competence-enhancing innovations are ones that
  either develop new products or make improvements
  to existing products that build on existing
  competences and strengthen the position of the
  current leaders.
• Note that these are often made by established
  organizations which have the resources,
  capabilities and competencies to be successful in
  this activity.

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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Cont. Competence-enhancing and Competence-destroyi
  ng innovations
• Features of competence-enhancing innovations
• Introduce path-dependence into the system (enable
  a firm that is leading the industry to increase
  its lead even further)
• Cause the market structure to become more
  concentrated and stable, and less friendly to new
  firms.

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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Cont. Competence-enhancing and Competence-destroyi
  ng innovations
• Competence-destroying innovations innovations
  with the potential to render obsolete the
  competencies on which success in the
  organization, industry or sector has hitherto
  (till now) been built (e.g. from mechanical to
  quartz watches).
• Competence-destroying innovations are ones that
  develop new products or make changes to existing
  products that require completely new skills and
  knowledge to be developed.
• Note that these are often made by new entrants.

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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Cont. Competence-enhancing and Competence-destroyi
  ng innovations
• Features of competence-destroying innovations
• Do not enhance the position of the existing
  leaders because they render their current
  capabilities obsolete.
• Allow entry into the market by flexible firms,
  thus, making the market structure more
  competitive.

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Cont. Block 4 The nature of innovation
Innovation and organizational performance

• Why are competence-destroying innovations often
  made by
• new entrants, while competence-enhancing
  innovations are
• often made by established organizations?
• Existing capabilities and competencies can be an
  obstacle to the development of new ones. How?
• There is inertia in many organizations when it
  comes to making the kinds of major changes which
  are required to radically change what they do
  and/ or how they do it.
• Therefore competence-destroying innovations are
  often made by new entrants, while competence
  enhancing innovations are often made by
  established organizations which have the
  resources, capabilities and competencies to be
  successful in this activity.
• Activity 2.5 (p.22)

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Cont. Block 4 The nature of innovation The
innovation process

• The challenge that organizations face is how to
  create the
• conditions that encourage and facilitate
  innovation. Some of
• these conditions are
• Money invested in research
• appropriate political and economic climate at the
  national level, and
• a company culture that does not discourage
  unconventional thinking among its staff.
• However, there is a conflict between maintaining
  a steady
• Revenue stream and creating the conditions that
  promote
• more radical Innovations. Why?

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Cont. Block 4 The nature of innovation The
innovation processLinear development

• Activity 2.7 (page23)
• Describe the conventional approach to new
  product development
• It consists of a logical sequence of actions,
  starting with the identification of a gap in the
  marketplace or the companys portfolio.
• It ensures that the new product is well matched
  to the needs of both the customer and the
  company.
• It is designed to reduce risk to minimize
  wasted resources.

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Cont. Block 4 The nature of innovation The
innovation process Cont. linear development

• Activity 2.8 (page 24)
• The main advantages of a linear approach to new
  product
• development are low risk and efficient resource
  usage.
• Suggest what disadvantages of this approach might
  be.
• It is likely to be slow
• It may fail to anticipate future trends and
  needs.
• It assumes that your customers know what they
  want, and that you know what they know.
• It is With its emphasis on analysis and
  rationalization, it is unlikely to identify
  radical innovation.

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Cont. Block 4 The nature of innovation The
innovation processCont. linear development

• What are the types of innovation Strategy?
  (marketing text
• book, page 140)
• Note that it is the organizations ability to
  assess the benefits of introducing new
  technologies against the costs that determines
  the decision. Much of this, however, also depends
  on other systems and processes within the
  organization e.g. if the introduction of a new
  piece of equipment or process requires changes
  along the value chain (particularly within each
  of the business functions thus incurring
  additional costs) the overall cost to the
  organization may outweigh the benefits.
• Thus, it is not only the nature of the innovation
  that is important in assessing its costs and
  benefits, but the culture, design and
  organization of work specific to individual
  organizations, and the way information is
  disseminated through an industry.
• Note for organizations with an offensive or
  defensive strategy and those operating in a
  fast-changing environment where innovation is the
  norm, the conventional approach (linear) to
  innovation will pose problems. They need to look
  at things differently.

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Cont. Block 4 The nature of innovation The
innovation process Non- linearity

• In addition to financial risks associated with
  innovation, and
• the effects on the organization associated with
  it, the process
• of developing discontinuous innovations
• is hard to manage as it requires a willingness to
  experiment and to learn.
• requires acceptance that new ideas should not be
  suffocated by continuous or premature analysis.
• Most importantly, it requires recognition that it
  cannot be customer-driven.
• Note that
• conventional market research is of little value
  when the
• customers do not know what their future needs
  may be, or the
• organization does not know who its future
  customers may be.

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Cont. Block 4 The nature of innovation The
innovation processCont. Non- linearity

• Box 2.1. Where is innovation leading? (page 26)
• Activity 2.9 (pages 26-27)
• In response to the need for discontinuous
  innovation, the concept of non-linearity may be
  more appropriate.
• Note that linearity assumes a direct and
  proportionate relationship between inputs and
  outputs within a system.
• Linear thinking may be successful in the area of
  incremental improvements. However, it is not
  sufficient to ensure the companys survival.
• Why should we be concerned about an innovation
  policy that is based entirely on linear
  thinking?

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Cont. Block 4 The nature of innovation The
innovation process Cont. Non- linearity

• We should be concerned about an innovation policy
  that is based entirely on linear thinking for the
  following reasons
• Social systems there are diseconomies of scale
  in research, that is, productivity declines as
  scale increases.
• The concept of directed research is hard to
  reconcile with the reality of radical innovation.
• A rational structure is unlikely to attract or
  retain the highly inventive individual.
• Note that Hamel (1998) argue that in a non-liner
  world, only non-linear strategies will be
  successful. According to Hamels argument, how
  should organizations think about innovation? See
  page 29.

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Cont. Block 4 The nature of innovation The
innovation processImplications for the
evolution of the organization

• The punctuated equilibrium model of organization
  evolution.
• (See figure 2.2 page 29)
• What do you understand by the term ambidextrous
  organization?
• (Activity 2.10 pages 29-30)
• Why do organizations sometimes lose their
  entrepreneurial and innovative attributes as they
  evolve and grow?
• (Activity 2.11 page 30)

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Cont. Block 4 The nature of innovation The
innovation processCont. implications for the
evolution of the organization

• Figure 2.3 Greiners model of five phases of
  organizational
• growth
• Growth through creativityresult in crisis of
  leadership.
• Growth through directionresult in crisis of
  autonomy.
• Growth through delegationcrisis of control.
• Growth through co-ordination.crisis of red
  tape.
• Growth through collaborationcrises of ???
• (Pages 31-32)

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Cont. Block 4 The nature of innovation The
innovation processCont. implications for the
evolution of the organization

• Innovation Streams
• Are patterns of innovations that simultaneously
  build on and extend prior products and destroy
  those very products that account for a firms
  historical success. These innovation streams
  shape and reshape markets. Innovation stream
  call attention to maintaining control over core
  product subsystems, and to dominant designs,
  architectural innovation, and product
  substitution as windows of opportunity where
  proactive managerial action can shape
  technological evolution and, in turn, bases of
  competition.

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Cont. Block 4 The nature of innovationMarketing
text book

• Core ideas in chapter 6
• Sequence of new product development (p, 139)
• Six types of innovation strategy (p. 140)
• Product positioning and new product clusters
• New product development objective
• Types of consumers
• Diffusion of innovation

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Cont. Block 4 The nature of innovationMarketing
text book

• Core ideas in chapter 8
• Logistic vs. distribution
• Channels of distribution
• Factors that affect how to choose a
  transportation method
• Functions of channel members
• Categories of channel members
• Sources of channel power.
• Channel management techniques
• Efficient consumer response
• Case study (page 204)

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Questions?
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Thank you