CHAPTER 12 Strategic
Issues in Managing
Technology and
Innovation
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
Prentice Hall, Inc. © 2006
J. DAVID HUNGER
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Technology and Innovation
“Innovation is what customers
looking for, particularly in the small,
routine things of their life”
Steven Reinomund
PepsiCo CEO
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Technology and Innovation
MANAGING INNOVATION
Few dimensions to consider;
•
To develop a strong capability in
product development
• To be early to see trends and to be
aggressive enough in targeting them.
• Successfully using resources to
create new products for new and
existing markets.
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Technology and Innovation
But;
Many large firms find it difficult to be
continually innovative.
A recent survey of business executives
reveals that a significant majority are
concerned that their companies are
loosing growth opportunities because
they are not able to properly manage
new technology.
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Executive Fear over loss of Innovation
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Technology and Innovation
Due to increased competition and accelerated
product development cycles, innovation and
management of technology are becoming
crucial to corporate success.
Research confirmed that
- The most important driver of corporate value
for both durable and non-durable companies to
be innovation.
- New product development is positively
associated with corporate performance.
- Approximately half the profits of all U.S.
Companies come from products launched in the
previous 10 years.
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Technology and Innovation
What is less obvious is how a company can
generate a significant return from investment in
R&D as well as an overall sense of enthusiasm for
innovative behavior and risk-taking.
The Role of Management –
• One way is to include innovation in
the corporate’s mission statement
• Another way is by establishing
policies that support the innovative
process.
• Or, better, both…
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Technology and Innovation
The Role of Management
Management has an obligation to;
not only encourage new product
development but also develop a system
to ensure that technology is being used
most effectively, with the consumer in
mind
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Technology and Innovation
The Role of Management
SUCCESSFUL INNOVATIONS
UNSUCCESSFUL INNOVATIONS
•
•
•
•
•
•
Moderately new to market
Based on tried and tested
technology
Save money
Met customers’ needs
Support existing practices
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•
•
Based on cutting edge or
untested technology
Followed a “me-too” approach
Created with no clearly defined
solutions in mind
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Technology and Innovation
iPod wouldn’t succeed without iTunes
online download store…
“Invent a complete solution that
works” Steve Jobs
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Technology and Innovation
Environmental Scanning –
–External Scanning
–Internal Scanning
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Technology and Innovation
Environmental Scanning –
– External Scanning
Research reveals that;
firms that scan their external environment
are more innovative
than those that focus inward on their core
competencies as a way to generate new products or
processes.
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Technology and Innovation
Environmental Scanning –
– External Scanning
Corporations need to continually scan their external
societal and task environments for new
developments in technology that may have some
application to their current or potential products.
a)
Technological developments
- Scientific conferences
- Scientific journals
- Trade gossip
to build technology roadmaps
www.trendwatching.com
a)
Impact of stakeholders
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Technology and Innovation
Environmental Scanning – External Scanning
A company’s focusing its scanning efforts too closely on its
current product line is dangerous. Most new
developments that threaten existing business practices
and technologies do not come from existing
competitors or even from within traditional industries.
A new technology that can substitute for an existing
technology at a lower cost and provide higher quality
can change the very basis for competition in an
industry.
Managers therefore need to actively scan the
periphery for new product ideas because this is
where breakthrough innovations will be found.
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Technology and Innovation
Environmental Scanning –
External Scanning
Design centers of automobile companies;
why Italy ???
Software companies ;
why ‘silicon valley’ ???
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Technology and Innovation
Environmental Scanning – External Scanning
Impact of Stakeholders on Innovation
A company should look to its stakeholders,
especially its customers, suppliers, and
distributors, for sources of product and service
improvements.
These groups of people have the most to gain from
innovative new products or services.
http://trendwatching.com/trends/CUSTOMER-MADE.htm
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Technology and Innovation
Impact of Stakeholders on Innovation –
Lead Users: companies, organizations, or
individuals that are well ahead of market
trends and have needs that go far beyond
those of the average user.
They are the first to adopt a product because they
benefit significantly from its use – even it is not
fully developed.
–Lead Users Process
•Lay the foundation
•Determine the trends
•Identify lead users
•Develop the breakthrough
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Technology and Innovation
Impact of Stakeholders on Innovation –
Lead Users:
Lead Users Process
•Lay the foundation
Identify target markets and the type and level of
innovation desired.
•Determine the trends
Research the field and talk with experts.
•Identify lead users
Talk with users at the leading edge.
•Develop the breakthrough
Host workshops with lead users and marketing and
technical people to design the final concepts that fit the
company’s and the users’ needs.
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Technology and Innovation
Impact of Stakeholders on Innovation –
–Market Research
It is especially useful in directing incremental
improvements to existing products.
Market research may not necessarily provide the information needed
for truly innovative products or services (radical innovation)
“When you introduce products that have never been
invented before, what good is market research”
Kozo Oshone SONY
–New Product Acquisition
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Technology and Innovation
Impact of Stakeholders on Innovation –
–New Product Acquisition
Some companies are using speed and flexibility to gain
market information. These companies have developed
their products by probing potential markets with early
versions of the products, learning from the probes, and
probing again. (Remember J. Key)
Beware; finding that the new entrants had developed
insurmountable advantages in cost and design, were
forced out of the market.
(Embrace and extend strategy (Microsoft))
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Technology and Innovation
Another approach to new product
development is to simply acquire new
technology from others.
Cisco Systems, for example, kept itself on the cutting
edge of making and selling internet routers by buying
a number of high-tech startups.
In effect, Cisco outsourced its R&D to
California’s venture capitalists.
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Technology and Innovation
Environmental Scanning –
–Internal Scanning
•Resource development
•Experimentation
•Risk taking
•New ideas
•Autonomous project teams
In addition to answering these questions, strategists
should asses how well company resources are
internally allocated and evaluate the organization’s
ability to develop and transfer new technology in a
timely manner into the generation of innovative
products and services
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Technology and Innovation
Recent study;
Patents obtained by small firms are twice as
likely to succeed than patents obtained by
large firms. Why?
Large (especially older) firms tend to spend
development money on extensions of their current
products (incremental innovation) or to
increase the efficiency of existing performance.
In contrast, small firms tend to apply technology to
improving effectiveness through developing
completely new products (radical innovation).
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Technology and Innovation
Another recent study;
Maximum innovator is the middle-sized firm.
Why?
Small firms often do not have sufficient resources to
exploit new concepts.
Bureaucracy in large firms rewards consistency over
creativity.
(Inverted u shape)
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Technology and Innovation
Environmental Scanning –
–Resource Allocation Issues
•R&D intensity (spending on R&D as a
percentage of sales revenue)
A good rule of thumb for R&D spending is that a corporation
should spend at a “normal” rate that particular industry, unless
its competitive strategy dictates otherwise.
•Time to market issues (time from inception
to profitability of a specific R&D program)
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Technology and Innovation
STRATEGY FORMULATION
the question of ;
-product vs. process R&D
-source of technology; own or buy
PRODUCT vs PROCESS R&D
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Technology and Innovation
STRATEGY FORMULATION
the question of ;
-product vs. process R&D
Product R&D
US
German
Japan
%70
%50
%30
Process R&D
%30
%50
%70
Be careful;
Too much emphasis on efficiency-oriented process
R&D can drive out product R&D.
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Technology and Innovation
STRATEGY FORMULATION
the question of ;
-source of technology; own or buy
Technology Sourcing
May be appropriate when;
–Low significant to competitive advantage
–Supplier has proprietary technology
–Supplier’s technology is better or cheaper
–Strategy based on design, not development
–Requires special expertise
–Requires new people and resources
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Technology and Innovation
Technology Sourcing
A company should buy technologies
that are commonly available but
make (and protect) those that are
rare, valuable, and hard to imitate
and that have no close substitutes.
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Technology and Innovation
Strategic R&D alliance –
(1) Joint programs
(2) Joint ventures
(3) Minority investments
Intellectual property –
–Special knowledge used in new product or
process
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Technology and Innovation
Licensing
Licensing technology to other companies may be
an excellent R&D strategy – especially in a
turbulent high – tech environment where being the
first firm to establish the standard dominant
design may bring competitive advantage.
Licensing
Licensing enables a company to enter foreign
markets that might not otherwise be possible due
to high tariffs, import prohibitions, and
restrictions, or the high cost and risk of investing
in foreign country.
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Technology and Innovation
Firms that emphasize growth through acquisitions over internal
development tend to be less innovative than others in the long run
Technological Competence
Companies must have at least a minimal R&D
capability if they are to correctly asses the value
of technology developed by others. This is
called a company’s ;
–Absorptive capacity
A firm’s ability to recognize, assimilate, and utilize
new external knowledge.
–Technological competence
A corporation that purchases an innovative
technology must have the technological
competence to make good use of it.
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Categories of Innovation
Categories of innovation
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Technology and Innovation
Categories of innovation
•
•
•
•
Improving Core Businesses
Incremental innovations, line extensions, innovative
packaging (mostly horizontal)
Exploit Strategic Advantages
New customers and markets (concentric
diversification)
Develop New Capabilities
Deepen customer satisfaction and loyalty by adding
new capabilities without major changes (vertical
growth strategy, embrace and extend policy)
Create Revolutionary Change
Radical innovation (can be unrelated diversification)
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Product/Market Evolution Portfolio Matrix
PRODUCT PORTFOLIO MATRIX
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Technology & Innovation
STRATEGY IMPLEMENTATION
If a corporation decides to develop
innovations internally;
•
it must make sure that its structure
and culture are suitable for strategy,
• it must make sufficient resources
available for new products,
• provide collaborative structures and
processes,
• incorporate innovation into its overall
corporate strategy
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Stages of New Product Development
STRATEGY IMPLEMENTATION
Corporation must establish procedures to
support all six stages of new product
development (stage – gate process) :
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Technology & Innovation
Innovative Organizations –
–Positive attitude toward change
–Decentralized decision making
–Informal structure
–Interconnectedness
–Organizational slack
–Large size
–System openness
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Technology & Innovation
Innovative Organizations –
INDIVIDUALS WHO FULFIL THREE DIFFERENT TYPES OF
ENTREPRENEURIAL ROLES:
–Product Champion is a person who generates a new
idea and supports it through many organizational obstacles
–Sponsor is usually a department manager who
recognizes the value of the idea, helps obtain funding to
develop the innovation, and facilitates its implementation
–Orchestrator is someone in top management who
articulates the need for innovation, provides funding,
creates incentives for middle managers to become
sponsors and protect from jealous and suspicion
UNLESS ALL THE ROLES ARE PRESENT; MAJOR
INNOVATIONS ARE UNLIKELY TO OCCUR
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Designs for Corporate Entrepreneurship
Corporate entrepreneurship: “the birth of new
businesses within existing organizations, that
is, internal innovation or venturing”
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Designs for Corporate Entrepreneurship
1.
2.
3.
4.
5.
6.
7.
8.
9.
Direct integration
New Product Business Department
Special Business Units
Micro New Ventures Department
New Venture Division
Independent Business Units
Nurturing and Contracting
Contracting
Complete Spin-off
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Evaluation and Control
Techniques –
–Stage-gate process
–House of quality
–Index of R&D effectiveness
•Proportion of the sales attributable to new products
•How often the lab’s research is cited in other scientists’
work
•Counting how many patents they file annually
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House of Quality
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