MT451-01 Managing Technological Innovation Unit 3 - Types, Patterns and Standards of Innovation John D. Cherry, PhD Housekeeping • Remember to post your discussion threads on three different days. • Be sure to engage in your assigned reading prior to your posting. Most of the discussion is directly from our e-text. • Be careful about paraphrasing. Be sure to use direct quotes when quoting your company website. 2 Overview • This unit will explore types of technological innovations and the different opportunities they pose for organizations and society. The technology cycle will also be explored with a focus on developing a dominant design 3 Unit Assignments • Reading – Chapters 3 & 4 • Participate in the discussion board (20 Points) • Complete and submit the unit assignment (55 Points) • Participate in the seminar or complete the alternative assignment (15 Points) • Complete the web fieldtrip discussion (10 Points) 4 Key Concepts • Different types of technological innovations offer different opportunities for organizations and society. • One of the primary dimensions used to distinguish types of innovation is the continuum between radical and incremental innovation. Innovations can also be classified as competence enhancing versus competence destroying. • A dominant design is a single product or process architecture that dominates a category and is a "de facto standard," meaning that while it may not be officially enforced or acknowledged, it has become a standard for the industry. 5 Technology Trajectory Defined • 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. 6 Types of Innovation Four of the dimensions most commonly used to categorize innovations: • • • • product versus process innovation radical versus incremental competence enhancing versus competence destroying architectural versus component. 7 Product Innovation versus Process Innovation • First, new processes may enable the production of new products • Second, new products may enable the development of new processes. • Product innovation for one firm may simultaneously be a process innovation for another. 8 Radical Innovation versus Incrémental 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. 9 Competence-Enhancing Innovation versus Competence-Destroying Innovation • Competence-enhancing (-destroying) • Innovation: An innovation that builds on existing knowledge and skills. 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. 10 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 11 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. • Many technologies exhibit an s-curve in their performance improvement over their lifetimes. 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 accelerated improvement, then diminishing improvement 12 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. The emergence of a new technological discontinuity can overturn the existing competitive structure of an industry, creating new leaders and new losers 13 Dominant Design The technology cycle almost invariably exhibits a stage in which the industry selects a dominant design. Once this design is selected, producers and customers focus their efforts on improving their efficiency in manufacturing, delivering, marketing, or deploying this dominant design, rather than continue to develop and consider alternative designs. 14 Dominant Design • Dominant design: A single product or process architecture that dominates a product category—usually 50 percent or more of the market. A dominant design is a “defacto standard,” meaning that while it may not be officially enforced or acknowledged, it has become a standard for the industry. 15 • • • • Absorptive capacity: The ability of an organization to recognize, assimilate, and utilize new knowledge. Network externalities: Also termed positive consumption externalities, this is when the value of a good to a user increases with the number of other users of the same or similar good. 16 A Technology’s Stand-Alone Value • “Buyer Utility Map.” It is important to consider six different utility levers, as well as six stages of the buyer experience cycle, to understand a new technology’s utility to a buyer. • The stages: are purchase, delivery, use, supplements, maintenance, and disposal. • The six utility levers: are customer productivity, simplicity, convenience, risk, fun and image, and environmental friendliness. • Creating a grid with stages and levers yields a 36cell utility map. Each cell provides an opportunity to offer a new value proposition to a customer. 17 Summary 18 Unit 4 Overview: Timing of Entry • The timing of innovation can be crucial - a technology that is adopted earlier than others may reap tremendous benefits to the developer. Conversely, the same factors that cause increasing returns to adoption may make very early technologies unattractive. A number of first-mover advantages and disadvantages can shape how timing of entry is related to the likelihood of success. It is crucial, therefore, for a company to recognize and understand the value of timing in offering a new technology. First movers can reap both great advantages and great disadvantages. 19 Unit 4 • The timing of technological innovations is crucial to their success. Entrants are divided into three categories: first movers, early followers, and late entrants. The research on the timing of innovations yields conflicting conclusions. Some studies indicate that first movers have higher returns and survival rates. Other research, however, suggests the first to market is often the first to fail. This unit looks closely at what factors determine the optimal timing of entry and its implications for a firm's entry strategy. 20 Unit 4 Assignments • Read Chapter 5 - Strategic Management of Technological Innovation • Participate in the discussion board (20 points) • Submit the unit assignment (55points) • Participate in the seminar or complete the alternative seminar assignment (15 points) • Complete the web fieldtrip discussion (10 points) 21 Key Concepts • Being a first mover may confer the advantages of brand loyalty and technological leadership, preemption of scarce assets, and exploitation of buyer switching costs. • Early entrants may accrue learning and network externality advantages that are self-reinforcing over time 22 TIMING • First movers: The first entrants to sell in a new product or service category. Early followers: Entrants that are early to market, but not first. • Late entrants: Entrants that do not enter the • market until the time the product begins to penetrate the mass market or later. 23 First Mover Advantages • Brand Loyalty and Technological Leadership: The company that introduces a new technology may earn a long-lasting reputation as a leader in that technology domain. Such a reputation can help sustain the company’s image, brand loyalty, and market share even after competitors have introduced comparable products. monopoly rents: The additional returns (either • higher revenues or lower costs) a firm can make • from being a monopolist, such as the ability to • set high prices, or the ability to lower costs • through greater bargaining power over suppliers. 24 First Mover Advantages Continued • Preemption of Scarce Assets: Firms that enter the market early can preemptively capture scarce resources such as key locations, government permits, access to distribution channels, and relationships with suppliers. • Exploiting Buyer Switching Costs: If buyers face switching costs, the firm that captures customers early may be able to keep those customers even if technologies with a superior value proposition are introduced later. 25 First Mover Advantages Continued • Reaping Increasing Returns Advantages: a technology that is adopted early may rise in market power through self-reinforcing positive feedback mechanisms, culminating in its entrenchment as a dominant design. 26 FIRST-MOVER DISADVANTAGES • Incumbent inertia: The tendency for incumbents to be slow to respond to changes in the industry environment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers. Research and Development Expenses: Undeveloped Supply and Distribution Channels 27 FIRST-MOVER DISADVANTAGESCont. • Immature Enabling Technologies and Complements Enabling technologies: Component technologies that are necessary for the • performance or desirability of a given innovation. • Uncertainty of Customer Requirements: 28 To Be Continued: • This will get you started with next week’s discussion questions. • For your assignment keep in mind the following when addressing the company you selected: • 1. Describe your selected organization's business strategy including mission, values, and goals. • 2. Based on the organization's strategy, describe the role that technology and innovation play. • 3. Has your organization adopted a first-mover or a late-entrant approach to adopting technology? • 4. What have been the advantages and disadvantages of this strategy? 29 Questions? Thank you for attending!