Profiting from technological innovation:
Implications for integration, collaboration,
licensing and public policy
- David J. Teece
Yali Chai
Siru Liesola
Ella Leppänen
Susanna Mikkola
Johanna Rauhala
Assignment
• Discuss the relevance of the article in 2016
• What has changed in the last 30 years that has had an effect on the
thoughts put forward in the article?
• What points in the article are still valid or may be even more relevant
now than when the article was published?
First-to-market won’t automatically win
Key issues
Appropriability
Regime
(environmental factors
excluding firm & market
structure)
Factors to consider
●
●
Nature of technology
Legal instruments
○
●
patents, trade secrets, copyrights
Degree of tacit/codified knowledge
Preparadigmatic
Dominant Design
Paradigm
●
●
●
Complementary
Assets
●
Many fluid
designs and
concepts
Loose manuf.
processes
●
●
Few standard
ways to act →
dominant design
Competition shifts
to price
Marketing, competitive manufacturing, aftersales support, distribution channels
Level of specialization
○
●
Paradigmatic
generic, specialized, cospecialized
Channel strategy
○
contractual and integration modes
Implications for profitability
Tight appropriability: Profits easier to realize
& more time to clarify the right design and to
access assets
Weak appropriability: Must utilize business
strategy to secure position and evade imitators
Until dominant design has emerged:
Economies of scale unavailable
Design is the main competitive factor
Little to be gained through compl. assets
After dominant design has emerged:
Access to complementary assets critical
Specialized assets increase protection and
secure long-term profit
WHAT HAS CHANGED DURING THE PAST 30 YEARS?
1986
2016
DIGITIZATION
GLOBALIZATION
Market
globalization
Production
globalization
Access to knowledge → speed of
technology improvement
Industrial Internet - Optimized Solutions
Machine-Machine communication
Access to bigger markets
Rise of the service economy and
monetization of user data
Increased competition
Cloud services
Global partnerships - outsourcing, open
innovation
Digital Marketing - Less resources
needed to access consumers
Company
perspective
Consumer
perspective
Social networking & Sharing economy
Consumers have increased access to the internet, while companies have access to more data from their customers changing the way
companies and consumers interact globally. Due to the reduced costs it is easier for smaller companies to build ecosystems and reach
large amounts of consumers. Digitization has changed the complementary assets companies posses eg. marketing channels,
distribution networks and manufacturing.
CONSIDER THIS:
the world’s largest taxi company, has no vehicles
the world’s most popular media company, creates no content
the world’s most valuable retailer, owns no inventory
the world’s largest accommodation provider, owns no real estate
Key Concepts
Appropriability regime
(environmental factors
excluding firm & market
structure)
Dominant Design
Tight
appropriability regimes with high tacit
knowledge and extensive intellectual property
protection.
Success is realized through business model innovation
→ more weak appropriability regimes and less tacit
knowledge.
Success is realized through an innovative product
and/or process and the complementary assets around
it.
Advantageous appropriability regimes are not always
characterized by strong intellectual property protections
→ legal instruments are not always applicable.
Clear dominant design
Preparadigmatic phase: Dynamic markets and
evolving consumer needs & wants change the dominant
design often.
Preparadigmatic stage: focus on the product
innovation, competition amongst design.
Complementary
Assets
Paradigmatic stage: focus on the process innovation,
competition amongst prices
Paradigmatic phase: success emerges not from prices
but from the user base and the ecosystem around the
service which increase the switching costs for users.
Specialized complementary assets were within the
firm/ and or gained from partnerships that helped to
profit from innovation.
Complementary assets with less resources →
sharing economy allows consumers to take part,
emphasizing the importance of building your network→
smaller companies can also profit.
Building the complementary asset network required
resources → bigger companies had an advantage over
smaller companies.
1986
Product & Process Innovations
The importance of intangible assets that are not
easily copied eg. brand name, value and user base has
increased.
2016
Service economy & Business Model innovations
WHAT IS STILL RELEVANT?
1986
2016
Appropriability
regime
Key Concepts
(environmental factors
excluding firm & market
structure)
The Coca-Cola formula has been a closely kept
trade secret for over a century. In general,
innovations around processes are easier to be
secured because the processes themselves take
place behind the closed doors of a firm’s
factories.
“The appropriability regime (Teece 1986) the
innovating service firms face is generally weaker
than what firms in manufacturing sectors face.”
Dominant Design
QWERTY keyboard: specifically designed to
overcome operative limitations (mechanical
typewriter). Universally preferred over other
keyboard designs.
Spotify found a gap in the market, and what
users really wanted (any artist, any song for
free), and an appropriate pricing model. Spotify
beat other competitors and became the market
leader. Now in 2016, instead of lowering unit
costs, it is more about finding right pricing model.
Complementary
Assets
Even though RC Cola was the first firm to
commercialize both diet cola and cola in a can,
rivals Coca Cola and Pepsi soon imitated the
concept and kicked RC Cola out of the market
based on their marketing capabilities and brand
name recognition, i.e. their complementary assets.
As an early entrant Netflix was able to build a vast
database of movies. Over time Netflix has
however lost some of its complementary assets
and become rather a substitute than a
complementary good to traditional content
providers.
Product & Process Innovations
Service economy & Business Model Innovations
WHAT IS MORE RELEVANT?
1986
2016
What is more relevant?
• Partnerships
•
•
Alliances between established companies and small innovators are even more likely to be formed resulting in
capturing more value from the complementary assets.
Furthermore, high-tech start-up companies that require access to complementary assets have more accessible
opportunities through forming alliances with larger enterprises. These alliances will take place both in the R&D
and marketing ends of the value chain, and have today become more common.
• Emerged ecosystems [1]
•
•
Companies have increased interest towards studying engagement experiences of their customers as the
foundation of value co-creation.
Google, Amazon, Microsoft.
• Industry Convergence [2]
•
•
Loss of incumbents’ leading positions
“Blurred” boundaries between industries
[1] http://jultika.oulu.fi/Record/nbnfioulu-201303041077 (18.01.2016 22:59)
[2] http://www.innovationmanagement.se/2013/11/25/the-limits-of-industry-centered-strategic-thinking-in-an-era-of-convergence/ (18.01.2016 23:15)
What is more relevant?
Appropriability regime
Legal environment
Intellectual Property rights
• Tesla patent release
Creates a common rapidlyevolving technology platform
which other companies in
electric car business and the
world would all benefit from
Nature of innovation
• Traditional manufacturing countries like
China and India are constantly moving up in
value chain
• Countries are investing in innovations and
striving to turn their complementary assets
into co-specialized assets
o Moving up the value chain is
allowed by technological knowledge
spillover
o Technologically more backward
regions (China) can profit from
spillovers from technologically more
advanced regions (US)
Concluding summary
The relevance of the article
• The key concepts are still relevant for traditional industries, however, new
forms of value creation have emerged
• Product/process innovation vs. business model innovation
A framework for designing a different business model for
existing products
-
Karan Girotra and Serguei Netessine
Thank you! Questions?
References
Risk-driven business model: http://www.defineyourcompany.com/#the-big-idea
Globalization: http://study.com/academy/lesson/what-is-globalization-of-businessdefinition-impact-effects.html
What is more relevant:
http://www.sciencedirect.com/science/article/pii/S0048733306001363
Tesla: https://www.teslamotors.com/fi_FI/blog/all-our-patent-are-belong-you