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College of Administrative and Financial Sciences
MGT325: Management of Technology
Assignment 2
Deadline: 03/04/2021 @ 23:59
Course Name: Management of Technology
Student’s Name:
Course Code: MGT-325
Student’s ID Number:
Semester: II
CRN: 23019
Academic Year: 2020-2021
For Instructor’s Use only
Instructor’s Name: Dr. Mohd Naved Khan
Students’ Grade: /5
Level of Marks: High/Middle/Low
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
• Submissions without this cover page will NOT be accepted.
Course Learning Outcomes-Covered
➢ Demonstrate a solid understanding of the concepts and models for making strategies
to face challenges and improve the performance of technology based enterprises. (Lo
Assignment 2
Marks: 5
‘Tesla and its flamboyant, and sometimes erratic, innovator Elon Musk have turned the more than
a century old industry upside down in a mere 16 years. Traditional automakers are ill prepared to
compete in today’s software-centered world. Unlike nimble Tesla, they are big, bureaucratic, slow
to respond to customers, dependent on providing customer financing for unit sales growth, and
culturally different from a software company. Tesla’s speed in innovation in the market for highend vehicles is more like a Google or an Amazon than an automaker. And its soaring market
valuation is a clear sign to all automakers that they’ll need to develop more innovative, Tesla-like
business models in order to survive.’
Harvard Business Review. February 28, 2020
As per your Textbook ‘Tesla’s cars had rapidly attracted a large and loyal fan base, and sales were growing at an impressive
rate. However, designing and launching multiple major car platforms while building a large-scale
battery company, a network of charging stations, and operating Solar City was a lot for a company to
take on in its first fifteen years. This left some analysts scratching their heads. Was Tesla trying to do too
much too quickly?’
Students are requested to read Chapter 6 Defining the Organization’s Strategic Direction of their
textbooks. With the conceptual knowledge from Chapter 6 and your own research, answer the following
Q1- How would you characterize competition in the Auto Industry?
(1Mark) (200 -300 words)
Q2- What do you think are Tesla’s core competencies? Does it have any sources of sustainable
competitive advantage?
(2Marks) (300 -500 words)
Q3- What do you think Tesla’s (or Elon Musk’s) strategic intent is?
(2Mark) (300 -500 words)
Support your answer with valid points from the Textbook and other references.
NOTE: It is mandatory for the students to mention their references, sources and support
each answer with at least 2 peer reviewed journal.
Management of
Management of
Sixth Edition
Melissa A. Schilling
New York University
First Pages
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sch65793_fm_ise.indd iv
12/04/18 11:25 AM
About the Author
Melissa A. Schilling, Ph.D.
Melissa Schilling is the John Herzog family professor of management and organizations at New York University’s Stern School of Business. Professor Schilling teaches
courses in strategic management, corporate strategy and technology, and innovation management. Before joining NYU, she was an Assistant Professor at ­Boston
­University (1997–2001), and has also served as a Visiting Professor at INSEAD
and the Bren School of Environmental Science & Management at the University of
California at Santa Barbara. She has also taught strategy and innovation courses at
Siemens ­Corporation, IBM, the Kauffman Foundation Entrepreneurship Fellows
­program, Sogang University in Korea, and the Alta Scuola Polytecnica, a joint institution of Politecnico di Milano and Politecnico di Torino.
Professor Schilling’s research focuses on technological innovation and knowledge creation. She has studied how technology shocks influence collaboration activity and innovation outcomes, how firms fight technology standards battles, and how
firms utilize collaboration, protection, and timing of entry strategies. She also studies how product designs and organizational structures migrate toward or away from
modularity. Her most recent work focuses on knowledge creation, including how
breadth of knowledge and search influences insight and learning, and how the structure of knowledge networks influences their overall capacity for knowledge creation.
Her research in innovation and strategy has appeared in the leading academic journals
such as ­Academy of Management Journal, Academy of Management Review, Management Science, Organization Science, Strategic Management Journal, and Journal
of ­Economics and Management Strategy and Research Policy. She also sits on the editorial review boards of Academy of Management Journal, Academy of Management
Discoveries, Organization Science, Strategy Science, and Strategic Organization.
She is the author of Quirky: The Remarkable Story of the Traits, Foibles, and Genius
of Breakthrough Innovators Who Changed the World, and she is coauthor of Strategic
Management: An Integrated Approach. Professor Schilling won an NSF CAREER
award in 2003, and Boston University’s Broderick Prize for research in 2000.
Innovation is a beautiful thing. It is a force with both aesthetic and pragmatic appeal:
It unleashes our creative spirit, opening our minds to hitherto undreamed of possibilities, while accelerating economic growth and providing advances in such crucial human
endeavors as medicine, agriculture, and education. For industrial organizations, the primary engines of innovation in the Western world, innovation provides both exceptional
opportunities and steep challenges. While innovation is a powerful means of competitive
differentiation, enabling firms to penetrate new markets and achieve higher margins, it is
also a competitive race that must be run with speed, skill, and precision. It is not enough
for a firm to be innovative—to be successful it must innovate better than its competitors.
As scholars and managers have raced to better understand innovation, a wide range
of work on the topic has emerged and flourished in disciplines such as strategic management, organization theory, economics, marketing, engineering, and sociology.
This work has generated many insights about how innovation affects the competitive
dynamics of markets, how firms can strategically manage innovation, and how firms
can implement their innovation strategies to maximize their likelihood of success. A
great benefit of the dispersion of this literature across such diverse domains of study
is that many innovation topics have been examined from different angles. However,
this diversity also can pose integration challenges to both instructors and students.
This book seeks to integrate this wide body of work into a single coherent strategic
framework, attempting to provide coverage that is rigorous, inclusive, and accessible.
Organization of the Book
The subject of innovation management is approached here as a strategic process. The
outline of the book is designed to mirror the strategic management process used in
most strategy textbooks, progressing from assessing the competitive dynamics of the
situation, to strategy formulation, and then to strategy implementation. The first part
of the book covers the foundations and implications of the dynamics of innovation,
helping managers and future managers better interpret their technological environments and identify meaningful trends. The second part of the book begins the process of crafting the firm’s strategic direction and formulating its innovation strategy,
including project selection, collaboration strategies, and strategies for protecting the
firm’s property rights. The third part of the book covers the process of implementing
innovation, including the implications of organization structure on innovation, the
management of new product development processes, the construction and management of new product development teams, and crafting the firm’s deployment strategy. While the book emphasizes practical applications and examples, it also provides
systematic coverage of the existing research and footnotes to guide further reading.
Complete Coverage for Both Business
and Engineering Students
This book is designed to be a primary text for courses in the strategic management of
innovation and new product development. Such courses are frequently taught in both
Preface vii
business and engineering programs; thus, this book has been written with the needs
of business and engineering students in mind. For example, Chapter Six (Defining the
Organization’s Strategic Direction) provides basic strategic analysis tools with which
business students may already be familiar, but which may be unfamiliar to engineering students. Similarly, some of the material in Chapter Eleven (Managing the New
Product Development Process) on computer-aided design or quality function deployment may be review material for information system students or engineering students,
while being new to management students. Though the chapters are designed to have
an intuitive order to them, they are also designed to be self-standing so instructors can
pick and choose from them “buffet style” if they prefer.
New for the Sixth Edition
This sixth edition of the text has been comprehensively revised to ensure that the
frameworks and tools are rigorous and comprehensive, the examples are fresh and
exciting, and the figures and cases represent the most current information available.
Some changes of particular note include:
Six New Short Cases
The Rise of “Clean Meat”. The new opening case for Chapter Two is about the
development of “clean meat”—meat grown from animal cells without the animal
itself. Traditional meat production methods are extremely resource intensive and
produce large amounts of greenhouse gases. Further, the growing demand for meat
indicated an impending “meat crisis” whereby not enough meat could be produced
to meet demand. “Clean meat” promised to enable meat production using a tiny
fraction of the energy, water, and land used for traditional meat production. Its
production would create negligible greenhouse gases, and the meat itself would
have no antibiotics or steroids, alleviating some of the health concerns of traditional meat consumption. Furthermore, it would dramatically reduce animal suffering. If successful, it would be one of the largest breakthroughs ever achieved in
food production.
Innovating in India: The Chotukool Project. Chapter Three opens with a case about
the Chotukool, a small, inexpensive, and portable refrigerator developed in India. In
rural India, as many as 90 percent of families could not afford household appliances,
did not have reliable access to electricity, and had no means of refrigeration. Godrej
and Boyce believed that finding a way to provide refrigeration to this segment of the
population offered the promise of both a huge market and making a meaningful difference in people’s quality of life.
UberAIR. Chapter Five now opens with a case about UberAIR, Uber’s new service
to provide air transport on demand. Uber had already become synonymous with
­on-demand car transport in most of the Western world; it now believed it could
develop the same service for air transport using electric vertical take-off and landing
aircraft (eVTOLs). There were a lot of pieces to this puzzle, however. In addition to
the technology of the aircraft, the service would require an extensive network of landing pads, specially trained pilots (at least until autonomous eVTOLs became practical), and dramatically new air traffic control regulations and infrastructure. Was the
time ripe for on-demand air transport, or was UberAIR ahead of its time?
viii Preface
Tesla Inc. in 2018. Chapter Six opens with a new case on Tesla, no longer just an
electric vehicle company. This case reviews the rise of Tesla, and then explores the
new businesses Tesla has entered, including solar panel leasing and installation (Solar
City), solar roof production, and energy storage systems (e.g., Powerwall). Why did
the company move into these businesses, and would synergies betweeen them help to
make the company more successful?
Where Should We Focus Our Innovation Efforts? An Exercise. Chapter Seven now
opens with an exercise that shows how firms can tease apart the dimensions of value
driving technological progress in an industry, map the marginal returns to further
investment on each dimension, and prioritize their innovation efforts. Using numerous
examples, the exercise helps managers realize where the breakthrough opportunities
of the future are likely to be, and where the firm may be currently overspending.
Scrums, Sprints, and Burnouts: Agile Development at Cisco Systems. Chapter Eleven
opens with a case about Cisco’s adoption of the agile development method now commonly used in software development. The case explains what agile development is,
how it differs from other development methods (such as stage-gated methods), and
when (and why) a firm would choose agile development versus gated development for
a particular innovation.
Cases, Data, and Examples from around the World
Careful attention has been paid to ensure that the text is global in its scope. The
opening cases and examples feature companies from China, India, Israel, Japan, The
­Netherlands, Kenya, the United States, and more. Wherever possible, statistics used in
the text are based on worldwide data.
More Comprehensive Coverage and Focus on Current Innovation Trends
In response to reviewer suggestions, the new edition now provides an extensive
discussion of modularity and platform competition, crowdsourcing and customer
­co-creation, agile development strategies, and more. The suggested readings for each
chapter have also been updated to identify some of the more recent publications that
have gained widespread attention in the topic area of each chapter. Despite these additions, great effort has also been put into ensuring the book remains concise—a feature
that has proven popular with both instructors and students.
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This book arose out of my research and teaching on technological innovation and
new product development over the last decade; however, it has been anything but a
lone endeavor. I owe much of the original inspiration of the book to Charles Hill, who
helped to ignite my initial interest in innovation, guided me in my research agenda,
and ultimately encouraged me to write this book. I am also very grateful to colleagues
and friends such as Rajshree Agarwal, Juan Alcacer, Rick Alden, William Baumol,
Bruno Braga, Gino Cattanni, Tom Davis, Sinziana Dorobantu, Gary Dushnitsky,
Douglas Fulop, Raghu Garud, Deepak Hegde, Hla Lifshitz, Tammy Madsen, Rodolfo
Martinez, Goncalo Pacheco D’Almeida, Joost Rietveld, Paul Shapiro, Jaspal Singh,
Deepak Somaya, Bill Starbuck, Christopher Tucci, and Andy Zynga for their suggestions, insights, and encouragement. I am grateful to director Mike Ablassmeir and
marketing manager Lisa Granger. I am also thankful to my editors, Laura Hurst Spell
and Diana Murphy, who have been so supportive and made this book possible, and to
the many reviewers whose suggestions have dramatically improved the book:
Joan Adams
Baruch Business School
(City University of New York)
Shahzad Ansari
Erasmus University
Deborah Dougherty
Rutgers University
Cathy A. Enz
Cornell University
Rajaram B. Baliga
Wake Forest University
Robert Finklestein
University of Maryland–University
Sandy Becker
Rutgers Business School
Sandra Finklestein
Clarkson University School of Business
David Berkowitz
University of Alabama in Huntsville
Jeffrey L. Furman
Boston University
John Bers
Vanderbilt University
Cheryl Gaimon
Georgia Institute of Technology
Paul Bierly
James Madison University
Elie Geisler
Illinois Institute of Technology
Paul Cheney
University of Central Florida
Sanjay Goel
University of Minnesota in Duluth
Pete Dailey
Marshall University
Andrew Hargadon
University of California, Davis
Robert DeFillippi
Suffolk University
Steven Harper
James Madison University
xii Acknowledgments
Donald E. Hatfield
Virginia Polytechnic Institute and State
Glenn Hoetker
University of Illinois
Sanjay Jain
University of Wisconsin–Madison
Theodore Khoury
Oregon State University
Rajiv Kohli
College of William and Mary
Aija Leiponen
Cornell University
Vince Lutheran
University of North
Steve Markham
North Carolina State University
Steven C. Michael
University of Illinois
Michael Mino
Clemson University
Robert Nash
Vanderbilt University
Anthony Paoni
Northwestern University
Johannes M. Pennings
University of Pennsylvania
Raja Roy
Tulane University
Mukesh Srivastava
University of Mary Washington
Linda F. Tegarden
Virginia Tech
Oya Tukel
Cleveland State University
Anthony Warren
The Pennsylvania State University
I am also very grateful to the many students of the Technological Innovation and
New Product Development courses I have taught at New York University, INSEAD,
Boston University, and University of California at Santa Barbara. Not only did these
students read, challenge, and help improve many earlier drafts of the work, but they
also contributed numerous examples that have made the text far richer than it would
have otherwise been. I thank them wholeheartedly for their patience and generosity.
Melissa A. Schilling
Brief Contents
Preface   vi
Introduction   1
Industry Dynamics of Technological Innovation   13
Sources of Innovation   15
Types and Patterns of Innovation   43
Standards Battles, Modularity, and Platform Competition   67
Timing of Entry   95
Formulating Technological Innovation Strategy   113
Defining the Organization’s Strategic Direction   115
Choosing Innovation Projects   141
Collaboration Strategies   167
Protecting Innovation   197
Implementing Technological Innovation Strategy   223
Organizing for Innovation   225
Managing the New Product Development Process   249
Managing New Product Development Teams   277
Crafting a Deployment Strategy   297
INDEX   327
Chapter 1
Introduction   1
The Importance of Technological
Innovation   1
The Impact of Technological Innovation
on Society   2
Innovation by Industry: The Importance of
Strategy   4
The Innovation Funnel   4
The Strategic Management of Technological
Innovation   6
Summary of Chapter   9
Discussion Questions   10
Suggested Further Reading   10
Endnotes   10
Chapter 2
Sources of Innovation   15
The Rise of “Clean Meat”   15
Overview   19
Creativity   20
Individual Creativity   20
Organizational Creativity   22
Translating Creativity Into Innovation   24
The Inventor   24
Innovation by Users   26
Research and Development by Firms   27
Firm Linkages with Customers, Suppliers,
Competitors, and Complementors   28
Universities and Government-Funded
Research   30
Private Nonprofit Organizations   32
Innovation in Collaborative Networks   32
Technology Clusters   33
Technological Spillovers   36
Summary of Chapter   37
Discussion Questions   38
Suggested Further Reading   38
Endnotes   39
Chapter 3
Types and Patterns of Innovation   43
Innovating in India: The Chotukool Project   43
Overview   46
Types of Innovation   46
Product Innovation versus Process
Innovation   46
Radical Innovation versus Incremental
Innovation   47
Competence-Enhancing Innovation versus
Competence-Destroying Innovation   48
Architectural Innovation versus Component
Innovation   49
Using the Dimensions   50
Technology S-Curves   50
S-Curves in Technological Improvement   50
S-Curves in Technology Diffusion   53
S-Curves as a Prescriptive Tool   54
Limitations of S-Curve Model as a Prescriptive
Tool   55
Technology Cycles   56
Summary of Chapter   62
Discussion Questions   63
Suggested Further Reading   63
Endnotes   64
Contents xv
Chapter 4
Standards Battles, Modularity,
and Platform Competition   67
A Battle for Dominance in Mobile
Payments   67
Overview   71
Why Dominant Designs Are Selected   71
Learning Effects   72
Network Externalities   73
Government Regulation   76
The Result: Winner-Take-All Markets   76
Multiple Dimensions of Value   77
A Technology’s Stand-Alone Value   78
Network Externality Value   78
Competing for Design Dominance
in Markets with Network Externalities   83
Modularity and Platform Competition   87
Modularity   87
Platform Ecosystems   89
Summary of Chapter   91
Discussion Questions   92
Suggested Further Reading   92
Endnotes   93
Chapter 5
Timing of Entry   95
UberAIR   95
Overview   98
First-Mover Advantages   98
Brand Loyalty and Technological
Leadership   98
Preemption of Scarce Assets   99
Exploiting Buyer Switching Costs   99
Reaping Increasing Returns Advantages   100
First-Mover Disadvantages   100
Research and Development Expenses   101
Undeveloped Supply and Distribution
Channels   101
Immature Enabling Technologies and
Complements   101
Uncertainty of Customer Requirements   102
Factors Influencing Optimal Timing of
Entry   104
Strategies to Improve Timing Options   108
Summary of Chapter   108
Discussion Questions   109
Suggested Further Reading   109
Endnotes   110
Chapter 6
Defining the Organization’s Strategic
Direction   115
Tesla, Inc. in 2018   115
Overview   123
Assessing the Firm’s Current
Position   123
External Analysis   123
Internal Analysis   127
Identifying Core Competencies and Dynamic
Capabilities   131
Core Competencies   131
The Risk of Core Rigidities   132
Dynamic Capabilities   133
Strategic Intent   133
Summary of Chapter   137
Discussion Questions   138
Suggested Further Reading   139
Endnotes   139
Chapter 7
Choosing Innovation Projects   141
Where Should We Focus Our Innovation
Efforts? An Exercise   141
Overview   146
The Development Budget   146
Quantitative Methods For Choosing
Projects   149
Discounted Cash Flow Methods   149
Real Options   152
Disadvantages of Quantitative
Methods   154
xvi Contents
Qualitative Methods for Choosing
Projects   154
Screening Questions   155
The Aggregate Project Planning Framework   157
Q-Sort   159
Combining Quantitative and Qualitative
Information   159
Conjoint Analysis   159
Data Envelopment Analysis   161
Summary of Chapter   163
Discussion Questions   163
Suggested Further Reading   164
Endnotes   164
Chapter 8
Collaboration Strategies   167
Ending HIV? Sangamo Therapeutics and Gene
Editing   167
Overview   175
Reasons for Going Solo   175
1. Availability of Capabilities   176
2. Protecting Proprietary Technologies   176
3.  Controlling Technology Development
and Use   176
4. Building and Renewing Capabilities   177
Advantages of Collaborating   177
1.  Acquiring Capabilities and Resources
Quickly   177
2. Increasing Flexibility   178
3. Learning from Partners   178
4. Resource and Risk Pooling   178
5.  Building a Coalition around a Shared
Standard   178
Types of Collaborative Arrangements   178
Strategic Alliances   179
Joint Ventures   181
Licensing   182
Outsourcing   183
Collective Research Organizations   184
Choosing a Mode of Collaboration   184
Choosing and Monitoring Partners   187
Partner Selection   187
Partner Monitoring and Governance   191
Summary of Chapter   192
Discussion Questions   193
Suggested Further Reading   193
Endnotes   194
Chapter 9
Protecting Innovation   197
The Digital Music Distribution
Revolution   197
Overview   201
Appropriability   202
Patents, Trademarks, and Copyrights   202
Patents   203
Trademarks and Service Marks   207
Copyright   208
Trade Secrets   210
The Effectiveness and Use of Protection
Mechanisms   211
Wholly Proprietary Systems versus Wholly Open
Systems   212
Advantages of Protection   213
Advantages of Diffusion   215
Summary of Chapter   218
Discussion Questions   219
Suggested Further Reading   219
Endnotes   220
Chapter 10
Organizing for Innovation   225
Organizing for Innovation at Google   225
Overview   227
Size and Structural Dimensions of the
Firm   228
Size: Is Bigger Better?   228
Structural Dimensions of the Firm   230
Centralization   230
Formalization and Standardization   231
Mechanistic versus Organic Structures   232
Size versus Structure   234
The Ambidextrous Organization: The Best of Both
Worlds?   234
Contents xvii
Modularity and “Loosely Coupled”
Organizations   236
Modular Products   236
Loosely Coupled Organizational
Structures   237
Managing Innovation Across Borders   240
Summary of Chapter   243
Discussion Questions   244
Suggested Further Reading   244
Endnotes   245
Chapter 11
Managing the New Product Development
Process   249
Scrums, Sprints, and Burnouts: Agile
Development at Cisco Systems   249
Overview   252
Objectives of the New Product Development
Process   252
Maximizing Fit with Customer
Requirements   252
Minimizing Development Cycle Time   253
Controlling Development Costs   254
Sequential versus Partly Parallel
Development Processes   254
Project Champions   257
Risks of Championing   257
Involving Customers and Suppliers in the
Development Process   259
Involving Customers   259
Involving Suppliers   260
Crowdsourcing   260
Tools for Improving the New Product
Development Process   262
Stage-Gate Processes   262
Quality Function Deployment (QFD)—The House
of Quality   265
Design for Manufacturing   267
Failure Modes and Effects Analysis   267
Computer-Aided Design/Computer-Aided
Engineering/Computer-Aided Manufacturing   268
Tools for Measuring New Product Development
Performance   269
New Product Development Process Metrics   271
Overall Innovation Performance   271
Summary of Chapter   271
Discussion Questions   272
Suggested Further Reading   272
Endnotes   273
Chapter 12
Managing New Product Development
Teams   277
Innovation Teams at the Walt Disney
Company   277
Overview   279
Constructing New Product Development
Teams   280
Team Size   280
Team Composition   280
The Structure of New Product Development
Teams   285
Functional Teams   285
Lightweight Teams   286
Heavyweight Teams   286
Autonomous Teams   286
The Management of New Product
Development Teams   288
Team Leadership   288
Team Administration   288
Managing Virtual Teams   289
Summary of Chapter   292
Discussion Questions   292
Suggested Further Reading   293
Endnotes   293
Chapter 13
Crafting a Deployment Strategy   297
Deployment Tactics in the Global Video Game
Industry   297
Overview   306
Launch Timing   306
Strategic Launch Timing   306
Optimizing Cash Flow versus Embracing
Cannibalization   307
Licensing and Compatibility   308
Pricing   310
xviii Contents
Distribution   312
Selling Direct versus Using Intermediaries   312
Strategies for Accelerating Distribution   314
Marketing   316
Major Marketing Methods   316
Tailoring the Marketing Plan to Intended
Adopters   318
Using Marketing to Shape Perceptions and
Expectations   320
Summary of Chapter   323
Discussion Questions   324
Suggested Further Reading   324
Endnotes   325
Index   327
Chapter One
The act of
­introducing a
new device,
method, or
material for
application to
or practical
In many industries, technological innovation is now the most important driver of
competitive success. Firms in a wide range of industries rely on products developed
within the past five years for almost one-third (or more) of their sales and profits.
For example, at Johnson & Johnson, products developed within the last five years
account for over 30 percent of sales, and sales from products developed within the past
five years at 3M have hit as high as 45 percent in recent years.
The increasing importance of innovation is due in part to the globalization of
markets. Foreign competition has put pressure on firms to continuously innovate
in order to produce differentiated products and services. Introducing new products
helps firms protect their margins, while investing in process innovation helps firms
lower their costs. Advances in information technology also have played a role in
speeding the pace of innovation. Computer-aided design and computer-aided manufacturing have made it easier and faster for firms to design and produce new products, while flexible manufacturing technologies have made shorter production runs
economical and have reduced the importance of production economies of scale.1
These technologies help firms develop and produce more product variants that
closely meet the needs of narrowly defined customer groups, thus achieving differentiation from competitors. For example, in 2018, Toyota offered 22 different
passenger vehicle lines under the Toyota brand (e.g., Camry, Prius, Highlander, and
Tundra). Within each of the vehicle lines, Toyota also offered several different models (e.g., Camry L, Camry LE, Camry SE, Camry Hybrid SE, etc.) with different
features and at different price points. In total, Toyota offered 193 car models ranging in price from $15,635 (for the Yaris ­three-door liftback) to $84,315 (for the
Land Cruiser), and seating anywhere from three passengers (e.g., Tacoma Regular
Cab truck) to eight passengers (Sienna Minivan). On top of this, Toyota also produced a range of luxury vehicles under its Lexus brand. Similarly, in 2018 Samsung
produced more than 30 unique smartphones. Companies can use broad portfolios
of product models to help ensure they can penetrate almost every conceivable market niche. While producing multiple product variations used to be expensive and
2 Chapter 1 Introduction
time-consuming, flexible manufacturing technologies now enable firms to seamlessly transition from producing one product model to the next, adjusting production
schedules with real-time information on demand. Firms further reduce production
costs by using common components in many of the models.
As firms such as Toyota, Samsung, and others adopt these new technologies
and increase their pace of innovation, they raise the bar for competitors, triggering
an industry-wide shift to shortened development cycles and more rapid new product introductions. The net results are greater market segmentation and rapid product
obsolescence.2 Product life cycles (the time between a product’s introduction and
its withdrawal from the market or replacement by a next-generation product) have
become as short as 4 to 12 months for software, 12 to 24 months for computer hardware and consumer electronics, and 18 to 36 months for large home appliances.3
This spurs firms to focus increasingly on innovation as a strategic imperative—a
firm that does not innovate quickly finds its margins diminishing as its products
become obsolete.
product (GDP)
The total annual
output of an
economy as
measured by its
final purchase
If the push for innovation has raised the competitive bar for industries, arguably making success just that much more complicated for organizations, its net effect on society
is more clearly positive. Innovation enables a wider range of goods and services to be
delivered to people worldwide. It has made the production of food and other necessities more efficient, yielded medical treatments that improve health conditions, and
enabled people to travel to and communicate with almost every part of the world. To
get a real sense of the magnitude of the effect of technological innovation on society,
look at Figure 1.1, which shows a timeline of some of the most important technological innovations developed over the last 200 years. Imagine how different life would be
without these innovations!
The aggregate impact of technological innovation can be observed by looking at
gross domestic product (GDP). The gross domestic product of an economy is its
total annual output, measured by final purchase price. Figure 1.2 shows the average
GDP per capita (i.e., GDP divided by the population) for the world from 1980 to
2016. The figures have been converted into U.S. dollars and adjusted for inflation.
As shown in the figure, the average world GDP per capita has risen steadily since
1980. In a series of studies of economic growth conducted at the National Bureau of
Economic Research, economists showed that the historic rate of economic growth
in GDP could not be accounted for entirely by growth in labor and capital inputs.
Economist Robert Merton Solow argued that this unaccounted-for residual growth
represented technological change: Technological innovation increased the amount of
output achievable from a given quantity of labor and capital. This explanation was
not immediately accepted; many researchers attempted to explain the residual away
in terms of measurement error, inaccurate price deflation, or labor improvement.
Chapter 1 Introduction 3
of Some of
the Most
in the Last
200 Years
Costs (or benefits)
that are borne
(or reaped) by
other than those
for creating
them. Thus, if a
business emits
pollutants in a
community, it
imposes a negative externality
on the community members;
if a business
builds a park in
a community, it
creates a positive externality
for community
1800 –
1800—Electric battery
1804—Steam locomotive
1807—Internal combustion engine
1820 –
1824—Braille writing system
1828—Hot blast furnace
1831—Electric generator
1836—Five-shot revolver
1840 –
1841—Bunsen battery (voltaic cell)
1842—Sulfuric ether-based anesthesia
1846—Hydraulic crane
1850—Petroleum refining
1856—Aniline dyes
1860 –
1862—Gatling gun
1878—Incandescent lightbulb
1880 –
1885—Light steel skyscrapers
1886—Internal combustion automobile
1887—Pneumatic tire
1892—Electric stove
1895—X-ray machine
1900 –
1902—Air conditioner (electric)
1903—Wright biplane
1906—Electric vacuum cleaner
1910—Electric washing machine
1920 –
1921—Insulin (extracted)
1936—First programmable computer
1939—Atom fission
1940 –
1942—Aqua lung
1943—Nuclear reactor
1958—Integrated circuit
1960 –
1967—Portable handheld calculator
1969—ARPANET (precursor to Internet)
1973—Mobile (portable cellular) phone
1980 –
1981—Space shuttle (reusable)
1987—Disposable contact lenses
1989—High-definition television
1990—World Wide Web protocol
1996—Wireless Internet
2000 –
2003—Map of human genome
But in each case the additional variables were unable to eliminate
this residual growth component.
A ­consensus gradually emerged
that the residual did in fact capture technological change. Solow
received a Nobel Prize for his work
in 1981, and the residual became
known as the Solow Residual.4
While GDP has its shortcomings
as a measure of standard of living,
it does relate very directly to the
amount of goods consumers can
purchase. Thus, to the extent that
goods improve quality of life, we
can ascribe some beneficial impact
of technological innovation.
Sometimes technological innovation results in negative ­externalities.
Production technologies may ­create
pollution that is harmful to the
surrounding communities; agricultural and fishing technologies
can result in erosion, elimination
of natural habitats, and depletion of
ocean stocks; medical technologies
can result in unanticipated consequences such as antibiotic-resistant
strains of bacteria or moral ­dilemmas
regarding the use of genetic modification. However, technology is, in
its purest essence,­ knowledge—­
knowledge to solve our problems
and pursue our goals.5 Technological innovation is thus the creation
of new knowledge that is applied
to practical problems. Sometimes
this knowledge is applied to problems hastily, without full consideration of the consequences and
alternatives, but overall it will
probably serve us better to have
more knowledge than less.
4 Chapter 1 Introduction
Product per
Capita, 1989–
2016 (in Real
2010 $US
Source: USDA Economic Research Service,
accessed April 16th,
As will be shown in Chapter Two, the majority of effort and money invested in technological innovation comes from industrial firms. However, in the frenetic race to
innovate, many firms charge headlong into new product development without clear
strategies or well-developed processes for choosing and managing projects. Such firms
often initiate more projects than they can effectively support, choose projects that are
a poor fit with the firm’s resources and objectives, and suffer long development cycles
and high project failure rates as a consequence (see the accompanying Research Brief
for a recent study of the length of new product development cycles). While innovation is popularly depicted as a freewheeling process that is unconstrained by rules and
plans, study after study has revealed that successful innovators have clearly defined
innovation strategies and management processes.6
The Innovation Funnel
Most innovative ideas do not become successful new products. Many studies suggest
that only one out of several thousand ideas results in a successful new product: Many
projects do not result in technically feasible products and, of those that do, many fail
to earn a commercial return. According to a 2012 study by the Product Development
and Management Association, only about one in nine projects that are initiated is successful, and of those that make it to the point of being launched to the market, only
about half earn a profit.7 Furthermore, many ideas are sifted through and abandoned
before a project is even formally initiated. According to one study that combined data
from prior studies of innovation success rates with data on patents, venture capital
Chapter 1 Introduction 5
Research Brief   How Long Does New Product
Development Take?a
In a large-scale survey administered by the Product Development and Management Association
(PDMA), researchers examined the length of time it
took firms to develop a new product from initial concept to market introduction. The study divided new
product development projects into categories representing their degree of innovativeness: “radical”
projects, “more innovative” projects, and “incremental” projects. On average, incremental projects took
only 33 weeks from concept to market introduction.
More innovative projects took significantly longer,
clocking in at 57 weeks. The development of radical
products or technologies took the longest, averaging
82 weeks. The study also found that on average, for
more innovative and radical projects, firms reported
significantly shorter cycle times than those reported
in the previous PDMA surveys conducted in 1995
and 2004.
  Adapted from Markham, S. K., and H. Lee, “Product Development and Management Association’s 2012 Comparative Performance Assessment Study,” Journal of Product
­Innovation Management 30, no. 3 (2013): 408–29.
funding, and surveys, it takes about 3000 raw ideas to produce one significantly new
and successful commercial product.8 The pharmaceutical industry demonstrates this
well—only one out of every 5000 compounds makes it to the pharmacist’s shelf, and
only one-third of those will be successful enough to recoup their R&D costs.9 Furthermore, most studies indicate that it costs at least $1.4 billion and a decade of research to
bring a new Food and Drug Administration (FDA)–approved pharmaceutical product
to market!10 The innovation process is thus often conceived of as a funnel, with many
potential new product ideas going in the wide end, but very few making it through the
development process (see Figure 1.3).
The New Product Development Funnel in
Discovery & Preclinical
3–6 years
2–3 drugs tested
Clinical Trials
6–7 years
1 drug
½–2 years
6 Chapter 1 Introduction
The Strategic Management of Technological Innovation
Improving a firm’s innovation success rate requires a well-crafted strategy. A firm’s
innovation projects should align with its resources and objectives, leveraging its core
competencies and helping it achieve its strategic intent. A firm’s organizational structure and control systems should encourage the generation of innovative ideas while
also ensuring efficient implementation. A firm’s new product development process
should maximize the likelihood of projects being both technically and commercially
successful. To achieve these things, a firm needs (a) an in-depth understanding of the
dynamics of innovation, (b) a well-crafted innovation strategy, and (c) well-designed
processes for implementing the innovation strategy. We will cover each of these in turn
(see Figure 1.4).
In Part One, we will cover the foundations of technological innovation, gaining an
in-depth understanding of how and why innovation occurs in an industry, and why
some innovations rise to dominate others. First, we will look at the sources of innovation in Chapter Two. We will address questions such as: Where do great ideas come
from? How can firms harness the power of individual creativity? What role do customers, government organizations, universities, and alliance networks play in creating
innovation? In this chapter, we will first explore the role of creativity in the generation
of novel and useful ideas. We then look at various sources of innovation, including
the role of individual inventors, firms, publicly sponsored research, and collaborative
In Chapter Three, we will review models of types of innovation (such as ­radical
­versus incremental and architectural versus modular) and patterns of innovation
(including s-curves of technology performance and diffusion, and technology cycles).
We will address questions such as: Why are some innovations much harder to create
and implement than others? Why do innovations often diffuse slowly even when they
appear to offer a great advantage? What factors influence the rate at which a technology tends to improve over time? Familiarity with these types and patterns of innovation
will help us distinguish how one project is different from another and the underlying
factors that shape the project’s likelihood of technical or commercial success.
In Chapter Four, we will turn to the particularly interesting dynamics that emerge
in industries characterized by network externalities and other sources of increasing returns that can lead to standards battles and winner-take-all markets. We will
address questions such as: Why do some industries choose a single dominant standard rather than enabling multiple standards to coexist? What makes one technological innovation rise to dominate all others, even when other seemingly superior
technologies are offered? How can a firm avoid being locked out? Is there anything
a firm can do to influence the likelihood of its technology becoming the dominant
design? When are platform ecosystems likely to displace other forms of competition
in an industry?
In Chapter Five, we will discuss the impact of entry timing, including first-mover
advantages, first-mover disadvantages, and the factors that will determine the firm’s
optimal entry strategy. This chapter will address such questions as: What are the advantages and disadvantages of being first to market, early but not first, and late? What
determines the optimal timing of entry for a new innovation? This chapter reveals a
number of consistent patterns in how timing of entry impacts innovation success, and
Chapter 1 Introduction 7
The Strategic Management of Technological Innovation
Part 1: Industry Dynamics of
Technological Innovation
Chapter 2
Sources of
Chapter 3
Types and Patterns
of Innovation
Chapter 4
Standards Battles,
Modularity, and
Platform Competition
Chapter 5
Timing of Entry
Part 2: Formulating Technological
Innovation Strategy
Chapter 6
Defining the Organization’s
Strategic Direction
Chapter 7
Choosing Innovation
Chapter 8
Chapter 9
Protecting Innovation
Part 3: Implementing Technological
Innovation Strategy
Chapter 10
Organizing for
Chapter 11
Managing the New
Product Development
Chapter 12
Managing New
Development Teams
Chapter 13
Crafting a
8 Chapter 1 Introduction
it outlines what factors will influence a firm’s optimal timing of entry, thus beginning
the transition from understanding the dynamics of technological innovation to formulating technology strategy.
In Part Two, we will turn to formulating technological innovation strategy.
­Chapter Six reviews the basic strategic analysis tools managers can use to assess the
firm’s current position and define its strategic direction for the future. This chapter
will address such questions as: What are the firm’s sources of sustainable competitive
advantage? Where in the firm’s value chain do its strengths and weaknesses lie? What
are the firm’s core competencies, and how should it leverage and build upon them?
What is the firm’s strategic intent—that is, where does the firm want to be 10 years
from now? Only after the firm has thoroughly appraised where it is currently can it
formulate a coherent technological innovation strategy for the future.
In Chapter Seven, we will examine a variety of methods of choosing innovation
projects. These include quantitative methods such as discounted cash flow and options
valuation techniques, qualitative methods such as screening questions and balancing
the research and development portfolio, as well as methods that combine qualitative
and quantitative approaches such as conjoint analysis and data envelopment analysis.
Each of these methods has its advantages and disadvantages, leading many firms to
use a multiple-method approach to choosing innovation projects.
In Chapter Eight, we will examine collaboration strategies for innovation. This
chapter addresses questions such as: Should the firm partner on a particular project or
go solo? How does the firm decide which activities to do in-house and which to access
through collaborative arrangements? If the firm chooses to work with a partner, how
should the partnership be structured? How does the firm choose and monitor partners? We will begin by looking at the reasons a firm might choose to go solo versus
­working with a partner. We then will look at the pros and cons of various partnering
­methods, including joint ventures, alliances, licensing, outsourcing, and participating in ­collaborative research organizations. The chapter also reviews the factors that
should influence partner selection and monitoring.
In Chapter Nine, we will address the options the firm has for appropriating the
returns to its innovation efforts. We will look at the mechanics of patents, copyright,
trademarks, and trade secrets. We will also address such questions as: Are there ever
times when it would benefit the firm to not protect its technological innovation so
vigorously? How does a firm decide between a wholly proprietary, wholly open, or
partially open strategy for protecting its innovation? When will open strategies have
advantages over wholly proprietary strategies? This chapter examines the range of
protection options available to the firm, and the complex series of trade-offs a firm
must consider in its protection strategy.
In Part Three, we will turn to implementing the technological innovation strategy.
This begins in Chapter Ten with an examination of how the organization’s size and
structure influence its overall rate of innovativeness. The chapter addresses such questions as: Do bigger firms outperform smaller firms at innovation? How do formalization, standardization, and centralization impact the likelihood of generating innovative
ideas and the organization’s ability to implement those ideas quickly and efficiently?
Is it possible to achieve creativity and flexibility at the same time as efficiency and
reliability? How do multinational firms decide where to perform their development
Chapter 1 Introduction 9
activities? How do multinational firms coordinate their development activities toward
a common goal when the activities occur in multiple countries? This chapter examines
how organizations can balance the benefits and trade-offs of flexibility, economies of
scale, standardization, centralization, and tapping local market knowledge.
In Chapter Eleven, we will review a series of “best practices” that have been identified in managing the new product development process. This includes such questions
as: Should new product development processes be performed sequentially or in parallel? What are the advantages and disadvantages of using project champions? What
are the benefits and risks of involving customers and/or suppliers in the development
process? What tools can the firm use to improve the effectiveness and efficiency of its
new product development processes? How does the firm assess whether its new product development process is successful? This chapter provides an extensive review of
methods that have been developed to improve the management of new product development projects and to measure their performance.
Chapter Twelve builds on the previous chapter by illuminating how team composition and structure will influence project outcomes. This chapter addresses questions
such as: How big should teams be? What are the advantages and disadvantages of
choosing highly diverse team members? Do teams need to be colocated? When should
teams be full time and/or permanent? What type of team leader and management practices should be used for the team? This chapter provides detailed guidelines for constructing new product development teams that are matched to the type of new product
development project under way.
Finally, in Chapter Thirteen, we will look at innovation deployment strategies. This
chapter will address such questions as: How do we accelerate the adoption of the technological innovation? How do we decide whether to use licensing or OEM agreements? Does it make more sense to use penetration pricing or a market-skimming
price? When should we sell direct versus using intermediaries? What strategies can
the firm use to encourage distributors and complementary goods providers to support the innovation? What are the advantages and disadvantages of major marketing
methods? This chapter complements traditional marketing, distribution, and pricing
courses by looking at how a deployment strategy can be crafted that especially targets
the needs of a new technological innovation.
1. Technological innovation is now often the single most important competitive
driver in many industries. Many firms receive more than one-third of their sales
and profits from products developed within the past five years.
2. The increasing importance of innovation has been driven largely by the globalization of markets and the advent of advanced technologies that enable more rapid
product design and allow shorter production runs to be economically feasible.
3. Technological innovation has a number of important effects on society, including fostering increased GDP, enabling greater communication and mobility, and
improving medical treatments.
10 Chapter 1 Introduction
4. Technological innovation may also pose some negative externalities, including
pollution, resource depletion, and other unintended consequences of technological
5. While government plays a significant role in innovation, industry provides the
majority of R&D funds that are ultimately applied to technological innovation.
6. Successful innovation requires an in-depth understanding of the dynamics of
innovation, a well-crafted innovation strategy, and well-developed processes for
implementing the innovation strategy.
1. Why is innovation so important for firms to compete in many industries?
2. What are some advantages and disadvantages of technological innovation?
3. Why do you think so many innovation projects fail to generate an economic return?
Arrow, K. J., “Economic welfare and the allocation of resources for inventions,” in The
Rate and Direction of Inventive Activity: Economic and Social Factors, ed. R. Nelson
(Princeton, NJ: Princeton University Press, 1962), pp. 609–25.
Baumol, W. J., The Free Market Innovation Machine: Analyzing the Growth Miracle
of Capitalism (Princeton, NJ: Princeton University Press, 2002).
Mansfield, E., “Contributions of R and D to economic growth in the United States,”
Science CLXXV (1972), pp. 477–86.
Schumpeter, J. A., The Theory of Economic Development (1911; English translation,
Cambridge, MA: Harvard University Press, 1936).
Recent Work
Ahlstrom, D., “Innovation and Growth: How Business Contributes to Society,”
­Academy of Management Perspectives (August 2010): 10–23.
Lichtenberg, F. R., “Pharmaceutical Innovation and Longevity Growth in 30 Developing and High-Income Countries, 2000–2009,” Health Policy and Technology
3 (2014):36–58.
“The 25 Best Inventions of 2017,” Time (December 1, 2017).
Schilling, M. A., “Towards Dynamic Efficiency: Innovation and Its Implications for
Antitrust,” Antitrust Bulletin 60, no. 3 (2015): 191–207.
1. J. P. Womack, D. T. Jones, and D. Roos, The Machine That Changed the World (New York:
Rawson Associates, 1990).
2. W. Qualls, R. W. Olshavsky, and R. E. Michaels, “Shortening of the PLC—An Empirical Test,”
Journal of Marketing 45 (1981), pp. 76–80.
3. M. A. Schilling and C. E. Vasco, “Product and Process Technological Change and the Adoption of
Modular Organizational Forms,” in Winning Strategies in a Deconstructing World, eds. R. Bresser,
M. Hitt, R. Nixon, and D. Heuskel (Sussex, England: John Wiley & Sons, 2000), pp. 25–50.
Chapter 1 Introduction 11
4. N. Crafts, “The First Industrial Revolution: A Guided Tour for Growth Economists,” The
­American Economic Review 86, no. 2 (1996), pp. 197–202; R. Solow, “Technical Change and
the Aggregate Production Function,” Review of Economics and Statistics 39 (1957), pp. ­312–20;
and N. E. Terleckyj, “What Do R&D Numbers Tell Us about Technological Change?” A
­ merican
Economic Association 70, no. 2 (1980), pp. 55–61.
5. H. A. Simon, “Technology and Environment,” Management Science 19 (1973), pp. 1110–21.
6. S. Brown and K. Eisenhardt, “The Art of Continuous Change: Linking Complexity Theory
and Time-Paced Evolution in Relentlessly Shifting Organizations,” Administrative Science
Quarterly 42 (1997), pp. 1–35; K. Clark and T. Fujimoto, Product Development Performance
(Boston: Harvard Business School Press, 1991); R. Cooper, “Third Generation New Product
Processes,” Journal of Product Innovation Management 11 (1994), pp. 3–14; D. Doughery,
“Reimagining the Differentiation and Integration of Work for Sustained Product Innovation,”
Organization Science 12 (2001), pp. 612–31; and M. A. Schilling and C. W. L. Hill, “­Managing
the New Product Development Process: Strategic Imperatives,” Academy of Management Executive 12, no. 3 (1998), pp. 67–81.
7. Markham, SK, and Lee, H. “Product Development and Management Association’s 2012 comparative performance assessment study,” Journal of Product Innovation Management 30 (2013),
issue 3:408–429.
8. G. Stevens and J. Burley, “3,000 Raw Ideas Equals 1 Commercial Success!” Research Technology Management 40, no. 3 (1997), pp. 16–27.
9. Standard & Poor’s Industry Surveys, Pharmaceutical Industry, 2008.
10. DiMasi, J. A., H. G. Grabowski, and R. W. Hansen, “Innovation in the Pharmaceutical Industry:
New Estimates of R&D Costs,” Journal of Health Economics 47 (May 2016):20–33.
Part One
Industry Dynamics of
Technological Innovation
In this section, we will explore the industry dynamics of technological innovation,
∙ The sources from which innovation arises, including the roles of individuals,
organizations, government institutions, and networks.
∙ The types of innovations and common industry patterns of technological evo-
lution and diffusion.
∙ The factors that determine whether industries experience pressure to select a
dominant design, and what drives which technologies to dominate others.
∙ The effects of timing of entry, and how firms can identify (and manage) their
entry options.
This section will lay the foundation that we will build upon in Part Two, Formulating Technological Innovation Strategy.
Industry Dynamics of Technological Innovation
Part 1: Industry Dynamics of
Technological Innovation
Chapter 2
Sources of
Chapter 3
Types and Patterns
of Innovation
Chapter 4
Standards Battles,
Modularity, and
Platform Competition
Chapter 5
Timing of Entry
Part 2: Formulating Technological
Innovation Strategy
Chapter 6
Defining the Organization’s
Strategic Direction
Chapter 7
Choosing Innovation
Chapter 8
Chapter 9
Protecting Innovation
Part 3: Implementing Technological
Innovation Strategy
Chapter 10
Organizing for
Chapter 11
Managing the New
Product Development
Chapter 12
Managing New
Development Teams
Chapter 13
Crafting a
Chapter Two
Sources of Innovation
The Rise of “Clean Meat”a
In late 2017, Microsoft founder Bill Gates and a group of other high-powered
investors—who comprise Breakthrough Energy Ventures, such as Amazon’s
Jeff Bezos, Alibaba’s Jack Ma, and Virgin’s Richard Branson—announced their
intention to fund a San Francisco–based start-up called Memphis Meats with
an unusual business plan: it grew “clean” meat using stem cells, eliminating the
need to breed or slaughter animals. The company had already produced beef,
chicken, and duck, all grown from cells.b
There were many potential advantages of growing meat without animals. First,
growth in the demand for meat was skyrocketing due to both population growth
and development. When developing countries become wealthier, they increase
their meat consumption. While humanity’s population had doubled since 1960,
consumption of animal products had risen fivefold and was still increasing. Many
scientists and economists had begun to warn of an impending “meat crisis.” Even
though plant protein substitutes like soy and pea protein had gained enthusiastic followings, the rate of animal protein consumption had continued to rise. This
suggested that meat shortages were inevitable unless radically more efficient
methods of production were developed.
Large-scale production of animals also had a massively negative effect on
the environment. The worldwide production of cattle, for example, resulted
in a larger emissions of greenhouse gases than the collective effect of the
world’s automobiles. Animal production is also extremely water intensive: To
produce each chicken sold in a supermarket, for example, requires more than
1000 gallons of water, and each egg requires 50 gallons. Each gallon of cow’s
milk required 900 gallons of water. A study by Oxford University indicated that
meat grown from cells would produce up to 96 percent lower greenhouse gas
emissions, use 45 percent less energy, 99 percent less land, and 96 percent
less water.c
Scientists also agreed that producing animals for consumption was simply
inefficient. Estimates suggested, for example, that it required roughly 23 calories worth of inputs to produce one calorie of beef. “Clean” meat promised to
bring that ratio down to three calories of inputs to produce a calorie of beef—
more than seven times greater efficiency. “Clean” meat also would not contain
16 Part One Industry Dynamics of Technological Innovation
antibiotics, steroids, or bacteria such as E. coli—it was literally “cleaner,” and that
translated into both greater human health and lower perishability.
The Development of Clean Meat
In 2004, Jason Matheny, a 29-year-old recent graduate from the John Hopkins
Public Health program decided to try to tackle the problems with production of
animals for food. Though Matheny was a vegetarian himself, he realized that
convincing enough people to adopt a plant-based diet to slow down the meat
crisis was unlikely. As he noted, “You can spend your time trying to get people
to turn their lights out more often, or you can invent a more efficient light bulb
that uses far less energy even if you leave it on. What we need is an enormously
more efficient way to get meat.”d
Matheny founded a nonprofit organization called New Harvest that would be
dedicated to promoting research into growing real meat without animals. He
soon discovered that a Dutch scientist, Willem van Eelen was exploring how to
culture meat from animal cells. Van Eelen had been awarded the first patent on
a cultured meat production method in 1999. However, the eccentric scientist
had not had much luck in attracting funding to his project, nor in scaling up his
production. Matheny decided that with a little prodding, the Dutch government
might be persuaded to make a serious investment in the development of meatculturing methods. He managed to get a meeting with the Netherland’s minister
of agriculture where he made his case. Matheny’s efforts paid off: The Dutch
government agreed to invest two million euros in exploring methods of creating
cultured meat at three different universities.
By 2005, clean meat was starting to gather attention. The journal Tissue Engineering published an article entitled “In Vitro-Cultured Meat Production,” and
in the same year, the New York Times profiled clean meat in its annual “Ideas
of the Year.” However, while governments and universities were willing to invest
in the basic science of creating methods of producing clean meat, they did not
have the capabilities and assets needed to bring it to commercial scale. Matheny
knew that to make clean meat a mainstream reality, he would need to attract the
interest of large agribusiness firms.
Matheny’s initial talks with agribusiness firms did not go well. Though meat
producers were open to the idea conceptually, they worried that consumers
would balk at clean meat and perceive it as unnatural. Matheny found this criticism frustrating; after all, flying in airplanes, using air conditioning, or eating meat
pumped full of steroids to accelerate its growth were also unnatural.
Progress was slow. Matheny took a job at the Intelligence Advanced Research
Projects Activity (IARPA) of the U.S. Federal Government while continuing to run
New Harvest on the side. Fortunately, others were also starting to realize the
urgency of developing alternative meat production methods.
Enter Sergey Brin of Google
In 2009, the foundation of Sergey Brin, cofounder of Google, contacted Matheny
to learn more about cultured meat technologies. Matheny referred Brin’s
Chapter 2 Sources of Innovation 17
foundation to Dr. Mark Post at Maastricht University, one of the leading scientists
funded by the Dutch government’s clean meat investment. Post had succeeded
in growing mouse muscles in vitro and was certain his process could be replicated with the muscles of cows, poultry, and more. As he stated, “It was so clear
to me that we could do this. The science was there. All we needed was funding to actually prove it, and now here was a chance to get what was needed.”e
It took more than a year to work out the details, but in 2011, Brin offered Post
roughly three quarters of a million dollars to prove his process by making two
cultured beef burgers, and Post’s team set about meeting the challenge.
In early 2013, the moment of truth arrived: Post and his team had enough cultured beef to do a taste test. They fried up a small burger and split it into thirds
to taste. It tasted like meat. Their burger was 100 percent skeletal muscle and
they knew that for commercial production they would need to add fat and connective tissue to more closely replicate the texture of beef, but those would
be easy problems to solve after passing this milestone. The press responded
enthusiastically, and the Washington Post ran an article headlined, “Could a TestTube Burger Save the Planet?”f
Going Commercial
In 2015, Uma Valeti, a cardiologist at the Mayo Clinic founded his own cultured-­
meat research lab at the University of Minnesota. “I’d read about the inefficiency of meat-eating compared to a vegetarian diet, but what bothered me
more than the wastefulness was the sheer scale of suffering of the animals.”g
As a heart doctor, Valeti also believed that getting people to eat less meat
could improve human health: “I knew that poor diets and the unhealthy fats
and refined carbs that my patients were eating were killing them, but so many
seemed totally unwilling to eat less or no meat. Some actually told me they’d
rather live a shorter life than stop eating the meats they loved.” Valeti began
fantasizing about a best-of-both-worlds alternative—a healthier and kinder
meat. As he noted, “The main difference I thought I’d want for this meat I was
envisioning was that it’d have to be leaner and more protein-packed than a
cut of supermarket meat, since there’s a large amount of saturated fat in that
meat. . . . Why not have fats that are proven to be better for health and longevity, like omega-3s? We want to be not just like conventional meat but healthier
than conventional meat.”h
Valeti was nervous about leaving his successful position as a cardiologist—
after all, he had a wife and two children to help support. However, when he sat
down to discuss it with his wife (a pediatric eye surgeon), she said, “Look, Uma.
We’ve been wanting to do this forever. I don’t ever want us to look back on why
we didn’t have the courage to work on an idea that could make this world kinder
and better for our children and their generation.”i And thus Valeti’s company,
which would later be named Memphis Meats, was born.
Building on Dr. Post’s achievement, Valeti’s team began experimenting with
ways to get just the right texture and taste. After much trial and error, and a growing number of patents, they hosted their first tasting event in December 2015.
On the menu: a meatball. This time the giant agribusiness firms took notice.
18 Part One Industry Dynamics of Technological Innovation
At the end of 2016, Tyson Foods, the world’s largest meat producer, announced
that it would invest $150 million in a venture capital fund that would develop
alternative proteins, including meat grown from self-reproducing cells. In
August of 2017, agribusiness giant Cargill announced it was investing in Memphis Meats, and a few months later in early 2018, Tyson Foods also pledged
That first meatball cost $1200; to make cultured meat a commercial reality
required bringing costs down substantially. But analysts were quick to point out
that the first iPhone had cost $2.6 billion in R&D—much more than the first cultured meats. Scale and learning curve efficiencies would drive that cost down.
Valeti had faith that the company would soon make cultured meat not only
­competitive with traditional meat, but more affordable. Growing meat rather than
whole animals had, after all, inherent efficiency advantages.
Some skeptics believed the bigger problem was not production economies,
but consumer acceptance: would people be willing to eat meat grown without animals? Sergey Brin, Bill Gates, Jeff Bezos, Jack Ma, and Richard Branson
were willing to bet that they would. As Branson stated in 2017, “I believe that in
30 years or so we will no longer need to kill any animals and that all meat will
either be clean or plant-based, taste the same and also be much healthier for
Discussion Questions
1. What were the potential advantages of developing clean meat? What were
the challenges of developing it and bringing it to market?
2. What kinds of organizations were involved in developing clean meat? What
were the different resources that each kind of organization brought to the
3. Do you think people will be willing to eat clean meat? Can you think of
other products or services that faced similar adoption challenges?
Adapted from a NYU teaching case by Paul Shapiro and Melissa Schilling.
Friedman, Z., “Why Bill Gates and Richard Branson Invested in ‘Clean’ Meat,” Forbes (August 2017).
Tuomisto, H. L., and M. J. de Mattos, “Environmental Impacts of Cultured Meat Production,” Environmental
Science and Technology 14(2011): 6117–2123.
Shapiro, P. Clean Meat: How Growing Meat without Animals Will Revolutionize Dinner and the World
(New York: Gallery Books, 2018), 35.
Shapiro, P. Clean Meat: How Growing Meat without Animals Will Revolutionize Dinner and the World
(New York: Gallery Books, 2018), 60.
“Could a Test-Tube Burger Save the Planet?” Washington Post, August 5, 2013.
Shapiro, P. Clean Meat: How Growing Meat without Animals Will Revolutionize Dinner and the World
(New York: Gallery Books, 2018), 113.
Shapiro, P. Clean Meat: How Growing Meat without Animals Will Revolutionize Dinner and the World
(New York: Gallery Books, 2018), 115.
Shapiro, P. Clean Meat: How Growing Meat without Animals Will Revolutionize Dinner and the World
(New York: Gallery Books, 2018), 118.
Friedman, Z., “Why Bill Gates and Richard Branson Invested in ‘Clean’ Meat,” Forbes (August 2017).
Chapter 2 Sources of Innovation 19
The practical
of an idea into
a new device or
Innovation can arise from many different sources. It can originate with individuals, as in the familiar image of the lone inventor or users who design solutions for
their own needs. Innovation can also come from the research efforts of universities, government laboratories and incubators, or private nonprofit organizations.
One primary engine of innovation is firms. Firms are well suited to innovation
activities because they typically have greater resources than individuals and a
management system to marshal those resources toward a collective purpose.
Firms also face strong incentives to develop differentiating new products and services, which may give them an advantage over nonprofit or government-funded
An even more important source of innovation, however, does not arise from any
one of these sources, but rather the linkages between them. Networks of innovators
that leverage knowledge and other resources from multiple sources are one of the most
powerful agents of technological advance.1 We can thus think of sources of innovation as composing a complex system wherein any particular innovation may emerge
primarily from one or more components of the system or the linkages between them
(see Figure 2.1).
In the sections that follow, we will first consider the role of creativity as the underlying process for the generation of novel and useful ideas. We will then consider how
creativity is transformed into innovative outcomes by the separate components of the
innovation system (individuals, firms, etc.), and through the linkages between different components (firms’ relationships with their customers, technology transfer from
universities to firms, etc.).
Sources of
Innovation as a
GovernmentFunded Research
20 Part One Industry Dynamics of Technological Innovation
Something imagined or pictured
in the mind.
The ability to
produce novel
and useful work.
Innovation begins with the generation of new ideas. The ability to generate new and
useful ideas is termed creativity. Creativity is defined as the ability to produce work
that is useful and novel. Novel work must be different from work that has been previously produced and surprising in that it is not simply the next logical step in a series
of known solutions.2 The degree to which a product is novel is a function both of how
different it is from prior work (e.g., a minor deviation versus a major leap) and of the
audience’s prior experiences.3 A product could be novel to the person who made it,
but known to most everyone else. In this case, we would call it reinvention. A product
could be novel to its immediate audience, yet be well known somewhere else in the
world. The most creative works are novel at the individual producer level, the local
audience level, and the broader societal level.4
Individual Creativity
An individual’s creative ability is a function of his or her intellectual abilities,
­knowledge, personality, motivation, and environment.
The most important intellectual abilities for creative thinking include intelligence, memory, the ability to look at problems in unconventional ways, the ability
to analyze which ideas are worth pursuing and which are not, and the ability to
articulate those ideas to others and convince others that the ideas are worthwhile.
One important intellectual ability for creativity is a person’s ability to let their mind
engage in a visual mental activity termed primary process thinking.5 Because of its
unstructured nature, primary process thinking can result in combining ideas that are
not typically related, leading to what has been termed remote associations or divergent thinking. Sigmund Freud noted that primary process thinking was most likely
to occur just before sleep or while dozing or daydreaming; others have observed
that it might also be common when distracted by physical exercise, music, or other
activities. Creative people may make their minds more open to remote associations
and then mentally sort through these associations, selecting the best for further
consideration. Having excellent working memory is useful here too—individuals
with excellent working memory may be more likely or more able to search longer
paths through the network of associations in their mind, enabling them to arrive at a
connection between two ideas or facts that seem unexpected or strange to others.6 A
connection that appears to be random may not be random at all—it is just difficult
for other people to see the association because they are not following as long of a
chain of associations.
Consistent with this, studies by professors Mathias Benedek and Aljoscha Neubauer found that highly creative people usually follow the same association paths as
less creative people—but they do so with such greater speed that they exhaust the
common associations sooner, permitting them to get to less common associations earlier than others would.7 Benedek and Neubauer’s research argues that highly creative
people’s speed of association is due to exceptional working memory and executive
control. In other words, the ability to hold many things in one’s mind simultaneously
Chapter 2 Sources of Innovation 21
and maneuver them with great facileness enables a person to rapidly explore many
possible associations.8
The impact of knowledge on creativity is somewhat double-edged. If an individual
has too little knowledge of a field, he or she is unlikely to understand it well enough
to contribute meaningfully to it. On the other hand, if an individual knows a field
too well, that person can become trapped in the existing logic and paradigms, preventing him or her from coming up with solutions that require an alternative perspective. Thus, an individual with only a moderate degree of knowledge of a field
might be able to produce more creative solutions than an individual with extensive
­knowledge of the field, and breakthrough innovations are often developed by outsiders to a field.9
Consider, for example, Elon Musk. Elon Musk developed a city search Web portal called Zip2 in college, then founded an Internet financial payments company that
merged with a rival and developed the PayPal financial payment system. Then after
selling PayPal, Musk decided to found SpaceX to develop reusable rockets, and also
became part of the founding team of Tesla Motors, an electric vehicle company.
Tesla subsequently acquired Solar City (a solar panel company that Elon Musk had
helped his cousins create) and diversified into energy storage and more. Musk crosses
boundaries because he enjoys tackling new, difficult problems. He has been able to be
successful in a wide range of industries in part because he challenges the traditional
models in those industries.10 For example, SpaceX was able to dramatically decrease
the price of rocket components by building them in-house, and Solar City was able to
dramatically increase solar panel adoption by offering a business model based on leasing that gave customers the option of putting no money down and paying for the panels
with part of their energy savings.
Another great example is provided by Gavriel Iddan, a guided missile designer
for the Israeli military who invented a revolutionary way to allow doctors to see
inside a patient’s gastrointestinal system. The traditional approach for obtaining
images inside the gut is a camera on the end of a long flexible rod. This method is
quite uncomfortable, and cannot reach large portions of the small intestine, but it
was the industry standard for many decades. Most gastroenterologists have invested
in significant training to use endoscopic tools, and many have also ­purchased
endoscopic equipment for their clinics. Not surprisingly then, most innovation in
this domain has focused on incremental improvements in the rod, cameras, and
imaging software. Iddan, however, approached the problem of viewing the inside
of the gut like a guided missile designer—not a gastroenterologist. He did not have
the same assumptions about the need to control the camera with a rod, nor to transmit images with a wire. Instead, he invented a capsule (called the PillCam) with
a power source, a light source, and two tiny cameras that the patient can swallow.
The patient then goes about her day while the camera pill broadcasts images to a
video pack worn by the patient. Roughly eight hours later, the patient returns to the
doctor’s office to have the images read by a software algorithm that can identify
any locations of bleeding (the camera pill exits naturally). The PillCam has proven
to be safer and less expensive than traditional endoscopy (the PillCam costs less
than $500), and it is dramatically more comfortable. For patients, the camera pill
22 Part One Industry Dynamics of Technological Innovation
was a no brainer; getting doctors to adopt it has been slower because of their existing investment and familiarity with endoscopy. The PillCam is now sold in more
than 60 countries, and several companies now offer competing products. The camera pill is a remarkable solution to a difficult problem, and it is easy to see why it
came from an outsider, rather than an endoscope producer.11
Outsiders often face resistance and skepticism. People tend to discount generalists
and are suspicious of people who engage in activities that seem inconsistent with their
identity. Outsiders like Musk, however, bring an advantage that insiders and industry
veterans often lack. They aren’t trapped by the paradigms and assumptions that have
long become calcified in industry veterans, nor do they have the existing investments
in tools, expertise, or supplier and customer relationships that make change difficult
and unappealing.
The personality trait most often associated with creativity is “openness to
­experience.”12 Openness to experience reflects an individual’s use of active imagination, aesthetic sensitivity (e.g., the appreciation for art and literature), attentiveness
to emotion, a preference for variety, and intellectual curiosity. It is assessed by asking
individuals to rate their degree of agreement or disagreement with statements such
as “I have a vivid imagination,” “I enjoy hearing new ideas,” “I have a rich vocabulary,” “I rarely look for deeper meaning in things” (reversed), “I enjoy going to art
museums,” “I avoid philosophical discussions” (reversed), “I enjoy wild flights of
fantasy,” and more. Individuals who score high on the openness to experience dimension tend to have great intellectual curiosity, are interested in unusual ideas, and are
willing to try new things.
Intrinsic motivation has also been shown to be very important for creativity.13
That is, individuals are more likely to be creative if they work on things they are
genuinely interested in and enjoy. In fact, several studies have shown that creativity
can be undermined by providing extrinsic motivation such as money or awards.14
This raises serious questions about the role played by idea collection systems in
organizations that offer monetary rewards for ideas. On the one hand, such extrinsic rewards could derail intrinsic motivation. On the other hand, if the monetary
rewards are small, such systems may be primarily serving to invite people to offer
ideas, which is a valuable signal about the culture of the firm. More research is
needed in this area to know exactly what kind of solicitation for ideas, if any, is
most effective.
Finally, to fully unleash an individual’s creative potential usually requires a supportive environment with time for the individual to explore their ideas independently,
tolerance for unorthodox ideas, a structure that is not overly rigid or hierarchical, and
decision norms that do not require consensus.15
Organizational Creativity
The creativity of the organization is a function of creativity of the individuals within the
organization and a variety of social processes and contextual factors that shape
the way those individuals interact and behave.16 An organization’s overall creativity
level is thus not a simple aggregate of the creativity of the individuals it employs. The
organization’s structure, routines, and incentives could thwart individual creativity or
amplify it.
Chapter 2 Sources of Innovation 23
A private
network, accessible only to
individuals. It is
like the Internet
but operates only
within (“intra”)
the organization.
The most familiar method of a company tapping the creativity of its individual
employees is the suggestion box. In 1895, John Patterson, founder of National Cash
Register (NCR), created the first sanctioned suggestion box program to tap the ideas of
the hourly worker.17 The program was considered revolutionary in its time. The originators of adopted ideas were awarded $1. In 1904, employees submitted 7000 ideas, of
which one-third were adopted. Other firms have created more elaborate systems that
not only capture employee ideas, but incorporate mechanisms for selecting and implementing those ideas. Google, for example, utilizes an idea management system whereby
employees e-mail their ideas for new products and processes to a company-wide database where every employee can view the idea, comment on it, and rate it (for more
on how Google encourages innovation, see the Theory in Action on Inspiring Innovation at Google). Honda of America utilizes an employee-driven idea system (EDIS)
whereby employees submit their ideas, and if approved, the employee who submits
the idea is responsible for following through on the suggestion, overseeing its progress
from concept to implementation. Honda of America reports that more than 75 percent of all ideas are implemented.18 Bank One, one of the largest holding banks in the
United States, has created an employee idea program called “One Great Idea.” Employees access the company’s idea repository through the company’s intranet. There they
can submit their ideas and actively interact and collaborate on the ideas of others.19
Through active exchange, the employees can evaluate and refine the ideas, improving
their fit with the diverse needs of the organization’s stakeholders.
At Bank of New York Mellon they go a step further—the company holds enterprise-­
wide innovation competitions where employees form their own teams and compete in
coming up with innovative ideas. These ideas are first screened by judges at both the
regional and business-line level. Then, the best ideas are pitched to senior management in a “Shark Tank” style competition that is webcast around the world. If a senior
executive sees an idea they like, they step forward and say they will fund it and run
with it. The competition both helps the company come up with great ideas and sends a
strong signal to employees about the importance of innovation.20
Idea collection systems (such as suggestion boxes) are relatively easy and inexpensive to implement, but are only a first step in unleashing employee creativity.
Today companies such as Intel, Motorola, 3M, and Hewlett-Packard go to much
greater lengths to tap the creative potential embedded in employees, including
investing in creativity training programs. Such programs encourage managers to
develop verbal and nonverbal cues that signal employees that their thinking and
autonomy are respected. These cues shape the culture of the firm and are often
more effective than monetary rewards—in fact, as noted previously, sometimes
monetary rewards undermine creativity by encouraging employees to focus on
extrinsic rather than intrinsic motivation.21 The programs also often incorporate
exercises that encourage employees to use creative mechanisms such as developing alternative scenarios, using analogies to compare the problem with another
problem that shares similar features or structure, and restating the problem in a
new way. One product design firm, IDEO, even encourages employees to develop
mock prototypes of potential new products out of inexpensive materials such as
cardboard or styrofoam and pretend to use the product, exploring potential design
features in a tangible and playful manner.
Theory in Action   Inspiring Innovation at Google
Google is always working on a surprising array of projects, ranging from the completely unexpected (such as
autonomous self-driving cars and solar energy) to the
more mundane (such as e-mail and cloud services).a
In pursuit of continuous innovation at every level of
the company, Google uses a range of formal and
informal mechanisms to encourage its employees to
20 Percent Time: All Google engineers are encouraged
to spend 20 percent of their time working on their own
projects. This was the source of some of Google’s most
famous products (e.g., Google Mail, Google News).
Recognition Awards: Managers were given discretion
to award employees with “recognition awards” to celebrate their innovative ideas.
Google Founders’ Awards: Teams doing outstanding work could be awarded substantial stock grants.
Some employees had become millionaires from these
awards alone.
Adsense Ideas Contest: Each quarter, the Adsense online
sales and operations teams reviewed 100 to 200 submissions from employees around the world, and selected
finalists to present their ideas at the quarterly contest.
Innovation Reviews: Formal meetings where managers present ideas originated in their divisions directly to
founders Larry Page and Sergey Brin, as well as to CEO
Eric Schmidt.c
  Bradbury, D. 2011. Google’s rise and rise. Backbone,
  Groysberg, B., Thomas, D.A. & Wagonfeld, A.B. 2011. Keeping Google “Googley.” Harvard Business School Case
  Kirby, J. 2009. How Google really does it. Canadian Business,
Innovation is more than the generation of creative ideas; it is the implementation of
those ideas into some new device or process. Innovation requires combining a creative
idea with resources and expertise that make it possible to embody the creative idea in
a useful form. We will first consider the role of individuals as innovators, including
innovation by inventors who specialize in creating new products and processes, and
innovation by end users. We then will look at innovation activity that is organized by
firms, universities, and government institutions.
The Inventor
The familiar image of the inventor as an eccentric and doggedly persistent ­scientist
may have some basis in cognitive psychology. Analysis of personality traits of
inventors suggests these individuals are likely to be interested in theoretical and
abstract thinking, and have an unusual enthusiasm for problem solving. One 10-year
study of inventors concludes that the most successful inventors possess the following characteristics:
1. They have mastered the basic tools and operations of the field in which they
invent, but they have not specialized solely in that field; instead they have pursued
two or three fields simultaneously, permitting them to bring different perspectives
to each.
2. They are curious and more interested in problems than solutions.
Theory in Action   Dean Kamen
In January 2001, an Internet news story leaked that
iconoclastic inventor Dean Kamen had devised a fantastic new invention—a device that could affect the way
cities were built, and even change the world. Shrouded
in secrecy, the mysterious device, code-named “Ginger”
and “IT,” became the talk of the technological world
and the general public, as speculation about the technology grew wilder and wilder. In December of that
year, Kamen finally unveiled his invention, the Segway
Human Transporter.a Based on an elaborate combination of motors, gyroscopes, and a motion control
algorithm, the Segway HT was a self-balancing, twowheeled scooter. Though to many it looked like a toy,
the Segway represented a significant advance in technology. John Doerr, the venture capitalist behind Amazon.com and Netscape, predicted it would be bigger
than the Internet. Though the Segway did not turn out
to be a mass market success, its technological achievements were significant. In 2009, General Motors and
Segway announced that they were developing a twowheeled, two-seat electric vehicle based on the Segway
that would be fast, safe, inexpensive, and clean. The car
would run on a lithium-ion battery and achieve speeds
of 35 miles per hour.
The Segway was the brainchild of Dean Kamen, an
inventor with more than 150 U.S. and foreign patents,
whose career began in his teenage days of devising
mechanical gadgets in his parents’ basement.b Kamen
never graduated from college, though he has since
received numerous honorary degrees. He is described
as tireless and eclectic, an entrepreneur with a seemingly boundless enthusiasm for science and technology.
Kamen has received numerous awards for his inventions, including the Kilby award, the Hoover Medal, and
the National Medal of Technology. Most of his inventions
have been directed at advancing health-care technology. In 1988, he invented the first self-service dialysis
machine for people with kidney failure. Kamen had
rejected the original proposal for the machine brought
to him by Baxter, one of the world’s largest medical
equipment manufacturers. To Kamen, the solution was
not to come up with a new answer to a known problem,
but to instead reformulate the problem: “What if you
can find the technology that not only fixes the valves
but also makes the whole thing as simple as plugging a
cassette into a VCR? Why do patients have to continue
to go to these centers? Can we make a machine that
can go in the home, give the patients back their dignity,
reduce the cost, reduce the trauma?”c The result was
the HomeChoice dialysis machine, which won Design
News’ 1993 Medical Product of the Year award.
In 1999, Kamen’s company, DEKA Research, introduced the IBOT Mobility System, an extremely advanced
wheelchair incorporating a sophisticated balancing system that enabled users to climb stairs and negotiate
sand, rocks, and curbs. According to Kamen, the IBOT
“allowed a disabled person, a person who cannot
walk, to basically do all the ordinary things that you
take for granted that they can’t do even in a wheelchair, like go up a curb.”d It was the IBOT’s combination of balance and mobility that ga…
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