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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:
Academic Year: 2020-2021
For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/Out of
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via allocated
folder.
• 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
1.2)
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
questions.
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.
STRATEGIC MANAGEMENT OF
Technological
Innovation
Sixth Edition
Melissa A. Schilling
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Chapter 1
Introduction
1-2
©2020 McGraw-Hill Education
Importance of Technological
Innovation
1
Technological innovation now the single most
important driver of competitive success in many
industries.
• Many firms earn over one-third of sales on products
developed within last five years.
• Product innovations help firms protect margins by
offering new, differentiated features.
• Process innovations help make manufacturing more
efficient.
1-3
©2020 McGraw-Hill Education
Importance of Technological
Innovation
2
Advances in information technology have
enabled faster innovation.
• CAD/CAM systems enable rapid design and shorter
production runs.
Importance of innovation and advances in
information technology have lead to:
• Shorter product lifecycles (more rapid product
obsolescence).
• More rapid new product introductions.
• Greater market segmentation.
1-4
©2020 McGraw-Hill Education
Impact on Society
Innovation enables a wider range of goods and
services to be delivered to people worldwide.
• More efficient food production, improved medical
technologies, better transportation, etc.
• Increases Gross Domestic Product by making labor
and capital more effective and efficient.
• However, may result in negative externalities.
• For example, pollution, erosion, antibiotic-resistant
bacteria.
1-5
©2020 McGraw-Hill Education
Innovation by Industry:
The Importance of Strategy
Successful innovation requires carefully crafted strategies and
implementation processes.
Innovation funnel.
•
Most innovative ideas do not become successful new products.
• For example, The New Product Development Funnel in Pharmaceuticals.
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1-6
The Strategic Management of
Technological Innovation
1
Part One: The foundations of technological Innovation.
• Sources of innovation.
• Types and patterns of innovation.
• Standards battles and design dominance.
• Timing of Entry.
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1-7
The Strategic Management of
Technological Innovation
2
Part Two: Formulating Technological Innovation Strategy.
•
•
•
•
Defining the organization’s strategic direction.
Choosing innovation projects.
Collaboration strategies.
Protecting innovation.
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1-8
The Strategic Management of
Technological Innovation
3
Part Three: Implementing Technological Innovation Strategy.
•
Organizing for innovation.
•
Managing the new product development process.
•
Managing new product development teams.
•
Crafting a deployment strategy.
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1-9
Discussion Questions
1. Why is innovation so important for firms to
compete in many industries?
2. What are some of the advantages of
technological innovation? Disadvantages?
3. Why do you think so many innovation
projects fail to generate an economic return?
1-10
©2020 McGraw-Hill Education
Part One: Industry Dynamics of
Technological Innovation
The sources from which innovation arises, including the role of
individuals, organizations, government institutions, and
networks.
Types of innovations, and common industry patterns of
technological evolution and diffusion.
The factors that determine whether industries experience
pressure to select a dominant design, and what drives which
technologies dominate others.
Effects of timing of entry, and how firms can identify (and
manage) their entry options.
1-11
©2020 McGraw-Hill Education
STRATEGIC MANAGEMENT OF
Technological
Innovation
Sixth Edition
Melissa A. Schilling
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Chapter 2
Sources of Innovation
2-2
©2020 McGraw-Hill Education
The Rise of “Clean Meat”
1
In late 2017, Bill Gates, Jeff Bezos, Jack Ma and others began
funding efforts to grow “clean meat”.
•
Growth in demand for meat expected to outpace supply.
•
Animal production has large negative impacts environment: greenhouse
gasses, heavy water and energy use.
•
Animal production is inefficient: 1 calorie of beef requires 23 calories of
inputs versus 3 required for one calorie of “clean meat”.
Developing clean meat.
•
Jason Matheny founded New Harvest to promote research; collaborated
with Dutch scientist and government.
•
Early efforts were very expensive ($1200 for first meatball).
•
By 2016 there were several startups and Tyson and Cargill were investing
in it.
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©2020 McGraw-Hill Education
The Rise of “Clean Meat”
2
Discussion Questions:
1. What were the potential advantages of developing clean
meat?
2. What were the challenges of developing it and bringing it to
market?
3. What kinds of organizations were involved in developing
clean meat?
4. What were the different resources that each kind of
organization brought to the innovation?
5. Do you think people will be willing to eat clean meat? Can
you think of other products or services that faced similar
adoption challenges?
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©2020 McGraw-Hill Education
Overview
Innovation can arise from many different
sources and the linkages between them.
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2-5
Creativity
1
Creativity: The ability to produce work that is
useful and novel.
• Individual creativity is a function of:
• Intellectual abilities (for example, ability to articulate ideas).
• Knowledge (for example, understand field, but not wed to
paradigms).
• Personality (for example, confidence in own capabilities).
• Motivation (for example, rely on intrinsic motivation).
• Environment (for example, support and rewards for creative
ideas).
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Creativity
2
• Organizational Creativity is a function of:
• Creativity of individuals within the organization.
• Social processes and contextual factors that shape how
those individuals interact and behave.
• Methods of encouraging/tapping organizational
creativity:
• Idea collection systems (for example, suggestion box;
Google’s idea management system).
• Creativity training programs.
• Culture that encourages (but doesn’t directly pay for)
creativity.
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©2020 McGraw-Hill Education
Theory in Action
1
Inspiring Innovation at Google.
• Google uses a range of formal and informal
mechanisms to encourage its employees to innovate,
including:
• 20% Time (all engineers are encouraged to spend 20% of
their time working on their own projects).
• Recognition awards.
• Google Founders’ Awards.
• Ad sense Ideas Contest.
• Innovation reviews.
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©2020 McGraw-Hill Education
Translating Creativity into Innovation
Innovation is the implementation of creative ideas into some
new device or process.
Requires combining creativity with resources and expertise.
Inventors.
•
One ten-year study found that inventors typically:
1. Have mastered the basic tools and operations of the field in which they
invent, but they will have not specialized solely on that field.
2. Are curious, and more interested in problems than solutions.
3. Question the assumptions made in previous work in the field.
4. Often have the sense that all knowledge is unified. They will seek global
solutions rather than local solutions, and will be generalists by nature.
•
Such individuals may develop many new devices or processes but
commercialize few.
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Theory in Action
2
Dean Kamen.
• The Segway HT: A self-balancing, two-wheeled
scooter.
• Invented by Dean Kamen.
• Described as tireless and eclectic.
• Kamen held more than 150 U.S. and foreign patents.
• Has received numerous awards and honorary degrees.
• Never graduated from college.
• To Kamen, the solution was not to come up with a new
answer to a known problem, but to instead reformulate the
problem.
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Transforming Creativity into
Innovation
1
Innovation by Users.
• Users have a deep understanding of their own
needs, and motivation to fulfill them.
• While manufacturers typically create innovations to
profit from their sale, user innovators often initially
create innovations purely for their own use.
• For example, Laser sailboat developed by Olympic
sailors; Indermil tissue adhesive based on
Superglue; early snowboards.
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Transforming Creativity into
Innovation
2
Research and Development by Firms.
• Research refers to both basic and applied research.
• Basic research aims at increasing understanding of a topic
or field without an immediate commercial application in
mind.
• Applied research aims at increasing understanding of a
topic or field to meet a specific need.
• Development refers to activities that apply
knowledge to produce useful devices, materials, or
processes.
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Transforming Creativity into
Innovation
3
Research and Development by Firms.
• Science Push approaches suggest that innovation proceeds
linearly:
• Scientific discovery  inventionmanufacturing  marketing.
• Demand Pull approaches argued that innovation originates
with unmet customer need:
• Customer suggestions  invention  manufacturing.
• Most current research argues that innovation is not so
simple, and may originate from a variety of sources and
follow a variety of paths.
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Transforming Creativity into
Innovation
4
Firm Linkages with Customers, Suppliers, Competitors,
and Complementors.
• Most frequent collaborations are between firm and their
customers, suppliers, and local universities.
NA
North America (%)
Europe (%)
Japan (%)
Collaborates with:
NA
NA
NA
Customers
44
38
52
Suppliers
45
45
41
Universities
34
32
34
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Transforming Creativity into
Innovation
5
Firm Linkages with Customers, Suppliers,
Competitors, and Complementors.
• External versus Internal Sourcing of Innovation.
• External and internal sources are complements.
• Firms with in-house R&D also heaviest users of external
collaboration networks.
• In-house R&D may help firm build absorptive capacity that
enables it to better use information obtained externally.
2-15
©2020 McGraw-Hill Education
Transforming Creativity into
Innovation
6
Universities and Government-Funded Research.
• Universities.
• Many universities encourage research that leads to useful
innovations.
• Bayh-Dole Act of 1980 allows universities to collect
royalties on inventions funded with taxpayer dollars.
• Led to rapid increase in establishment of technology-transfer
offices.
• Revenues from university inventions are still very small,
but universities also contribute to innovation through
publication of research results.
2-16
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Transforming Creativity into
Innovation
7
Universities and Government-Funded Research.
• Governments invest in research through:
• Their own laboratories.
• Science parks and incubators.
• Grants for other public or private research organizations.
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Transforming Creativity into
Innovation
8
Private Nonprofit Organizations.
• Many nonprofit organizations do in-house R&D,
fund R&D by others, or both.
• The top nonprofit organizations that conduct a
significant amount of R&D include organizations
such as the Howard Hughes Medical Institute, the
Mayo Foundation, the Memorial Sloan Kettering
Cancer Center, and SEMATECH.
2-18
©2020 McGraw-Hill Education
Total R&D Expenditures and Percent of R&D
Funds by Performing Sector, by Country 2015
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2-19
Innovation in Collaborative Networks
1
Collaborations include (but are not limited to):
• Joint ventures.
• Licensing and second-sourcing agreements.
• Research associations.
• Government-sponsored joint research programs.
• Value-added networks for technical and scientific exchange
• Informal networks.
Collaborative research is especially important in hightechnology sectors where individual firms rarely
possess all necessary resources and capabilities.
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Innovation in Collaborative Networks
2
As firms forge collaborative relationships, they weave a larger
network that influences the diffusion of information and other
resources.
The size and structure of this network changes over time due to
changes in alliance activity.
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2-21
Innovation in Collaborative Networks
3
Technology Clusters are regional clusters of firms that have a
connection to a common technology.
•
May work with the same suppliers, customers, or complements.
•
Agglomeration Economies:
• Proximity facilitates knowledge exchange.
• Cluster of firms can attract other firms to area.
• Supplier and distributor markets grow to service the cluster.
• Cluster of firms may make local labor pool more valuable by giving them
experience.
• Cluster can lead to infrastructure improvements (for example, better roads,
utilities, schools, etc.).
•
Agglomeration downsides:
• Increased competition, knowledge leakage, congestion and pollution.
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Innovation in Collaborative Networks
4
Likelihood of innovation activities being geographically
clustered depends on:
• The nature of the technology.
• For example, its underlying knowledge base or the degree to which it
can be protected by patents or copyright, the degree to which its
communication requires close and frequent interaction;
• Industry characteristics.
• For example, degree of market concentration or stage of the industry
lifecycle, transportation costs, availability of supplier and distributor
markets; and.
• The cultural context of the technology.
• For example, population density of labor or customers, infrastructure
development, national differences in how technology development is
funded or protected.
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Innovation in Collaborative Networks
5
Technological spillovers occur when the
benefits from the research activities of one
entity spill over to other entities.
• Likelihood of spillovers is a function of:
• Strength of protection mechanisms (for example, patents,
copyright, trade secrets).
• Nature of underlying knowledge base (for example, tacit,
complex).
• Mobility of the labor pool.
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Research Brief
Knowledge Brokers.
• Hargadon and Sutton point out that some firms (or
individuals) play a pivotal role in the innovation network –
that of knowledge brokers.
• Knowledge brokers are individuals or firms that transfer
information from one domain to another in which it can be
usefully applied. Thomas Edison is a good example.
• By serving as a bridge between two separate groups of firms,
brokers can find unique combinations of knowledge
possessed by the two groups.
2-25
©2020 McGraw-Hill Education
Discussion Questions
1.
What are some of the advantages and disadvantages of a) individuals as
innovators, b) firms as innovators, c) universities as innovators, d)
government institutions as innovators, e) nonprofit organizations as
innovators?
2.
What traits appear to make individuals most creative? Are these the
same traits that lead to successful inventions?
3.
Could firms identify people with greater capacity for creativity or
inventiveness in their hiring procedures?
4.
To what degree do you think the creativity of the firm is a function of the
creativity of individuals, versus the structure, routines, incentives, and
culture of the firm? Can you give an example of a firm that does a
particularly good job at nurturing and leveraging the creativity of its
individuals?
2-26
©2020 McGraw-Hill Education
STRATEGIC MANAGEMENT OF
Technological
Innovation
Sixth Edition
Melissa A. Schilling
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Chapter 3
Types and Patterns of Innovation
3-2
©2020 McGraw-Hill Education
Innovating in India: The Chotukool
Project
1
In rural India up to 90% of families cannot afford appliances, have no electricity,
and have no refrigeration.
Appliance manufacturer Godrej & Boyce decided to make a smaller, cheaper
refrigerator to tap this market.
Many of their assumptions turned out to be wrong; they ended up making a
lightweight portable battery operated refrigerator with customizable skins to
make them cool and aspirational, and sold to multiple market segments,
including the urban affluent.
Godrej & Boyce also pioneered a novel distribution system: the Chotukool would
be sold at the post office.
The Chotukool won several design awards and FastCompany gave Godrej its
“Most Innovative Company” award.
3-3
©2020 McGraw-Hill Education
Innovating in India: The Chotukool
Project
2
Discussion Questions:
1.
What were the pros and cons of attempting to develop a refrigerator for
India’s rural poor?
2.
What product and process innovations did the Chotukool entail? Would
you consider these incremental or radical? Architectural or component?
Competence enhancing or competence destroying?
3.
Did the Chotukool pose a threat of disrupting the traditional refrigerator
market? Why or why not?
4.
Is there anything you think Godrej should have done differently to
penetrate the market of rural poor families in India?
5.
What other products might the lessons Godrej learned with Chotukool
apply to?
3-4
©2020 McGraw-Hill Education
Overview
Several dimensions are used to categorize innovations.
• These dimensions help clarify how different innovations offer
different opportunities (and pose different demands) on
producers, users, and regulators.
The path a technology follows through time is termed
its technology trajectory.
• Many consistent patterns have been observed in technology
trajectories, helping us understand how technologies
improve and are diffused.
3-5
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Types of Innovation
1
Product versus Process Innovation.
• Product innovations are embodied in the outputs of an
organization – its goods or services.
• Process innovations are innovations in the way an
organization conducts its business, such as in techniques of
producing or marketing goods or services.
• Product innovations can enable process innovations and vice
versa.
• What is a product innovation for one organization might be a
process innovation for another.
• For example, UPS creates a new distribution service (product
innovation) that enables its customers to distribute their goods more
widely or more easily (process innovation).
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Types of Innovation
2
Radical versus Incremental Innovation.
• The radicalness of an innovation is the degree to
which it is new and different from previously existing
products and processes.
• Incremental innovations may involve only a minor
change from (or adjustment to) existing practices.
• The radicalness of an innovation is relative; it may
change over time or with respect to different
observers.
• For example, digital photography a more radical
innovation for Kodak than for Sony.
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Types of Innovation
3
Competence-Enhancing versus CompetenceDestroying Innovation.
• Competence-enhancing innovations build on the firm’s
existing knowledge base.
• For example, Intel’s Pentium 4 built on the technology for Pentium III.
• Competence-destroying innovations renders a firm’s existing
competencies obsolete.
• For example, electronic calculators rendered Keuffel & Esser’s slide
rule expertise obsolete.
• Whether an innovation is competence enhancing or
competence destroying depends on the perspective of a
particular firm.
©2020 McGraw-Hill Education
3-8
Types of Innovation
4
Architectural versus Component Innovation.
• A component innovation (or modular innovation) entails
changes to one or more components of a product system
without significantly affecting the overall design.
• For example, adding gel-filled material to a bicycle seat.
• An architectural innovation entails changing the overall design
of the system or the way components interact.
• For example, transition from high-wheel bicycle to safety bicycle.
• Most architectural innovations require changes in the
underlying components also.
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©2020 McGraw-Hill Education
Technology S-Curves
1
Both the rate of a technology’s improvement, and its rate of
diffusion to the market typically follow an s-shaped curve.
S-curves in Technological Improvement.
Technology improves slowly
at first because it is poorly
understood.
Then accelerates as
understanding increases.
Then tapers off as
approaches limits.
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3-10
Technology S-Curves
2
Technologies do not always get to reach their limits.
• May be displaced by new, discontinuous technology.
• A discontinuous technology fulfills a similar market need by means of
an entirely new knowledge base.
• For example, switch from carbon copying to photocopying, or vinyl
records to compact discs.
• Technological discontinuity may initially have lower performance than
incumbent technology.
• For example, first automobiles were much slower than horse-drawn
carriages.
• Firms may be reluctant to adopt new technology because
performance improvement is initially slow and costly, and
they may have significant investment in incumbent
technology.
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Technology S-Curves
3
S-Curves in Technology Diffusion.
• Adoption is initially slow because the technology is
unfamiliar.
• It accelerates as technology becomes better understood.
• Eventually market is saturated and rate of new adoptions
declines.
• Technology diffusion tends to take far longer than
information diffusion.
• Technology may require acquiring complex knowledge or experience.
• Technology may require complementary resources to make it
valuable (for example, cameras not valuable without film).
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Technology S-Curves
4
S-Curves as a Prescriptive Tool.
• Managers can use data on investment and performance of
their own technologies or data on overall industry
investment and technology performance to map s-curve.
• While mapping the technology’s s-curve is useful for gaining
a deeper understanding of its rate of improvement or limits,
its use as a prescriptive tool is limited.
• True limits of technology may be unknown.
• Shape of s-curve can be influenced by changes in the market,
component technologies, or complementary technologies.
• Firms that follow s-curve model too closely could end up switching
technologies too soon or too late.
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Technology S-Curves
5
S-curves of diffusion are in part a function of s-curves in
technology improvement.
• Learning curve leads to price drops, which accelerate
diffusion.
Source: Consumer Electronics Association.
Source: Consumer Electronics Association.
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3-14
Research Brief
1
Diffusion of Innovation and Adopter Categories.
• Everett M. Rogers created a typology of adopters:
•
Innovators are the first 2.5% of individuals to adopt an innovation. They are adventurous,
comfortable with a high degree of complexity and uncertainty, and typically have access
to substantial financial resources.
•
Early Adopters are the next 13.5% to adopt the innovation. They are well integrated into
their social system, and have great potential for opinion leadership. Other potential
adopters look to early adopters for information and advice, thus early adopters make
excellent “missionaries” for new products or processes.
•
Early Majority are the next 34%. They adopt innovations slightly before the average
member of a social system. They are typically not opinion leaders, but they interact
frequently with their peers.
•
Late Majority are the next 34%. They approach innovation with a skeptical air, and may
not adopt the innovation until they feel pressure from their peers. They may have scarce
resources.
•
Laggards are the last 16%. They base their decisions primarily on past experience and
possess almost no opinion leadership. They are highly skeptical of innovations and
innovators, and must feel certain that a new innovation will not fail prior to adopting it.
3-15
©2020 McGraw-Hill Education
Research Brief
2
Diffusion of Innovation
and Adopter Categories
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3-16
Theory In Action
1
“Segment Zero” – A serious threat to Microsoft?
• Technologies often improve faster than customer
requirements demand.
• This enables low-end technologies to eventually meet the
needs of the mass market.
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3-17
Theory in Action
2
From 1980 to 2011, Microsoft was the dominant personal
computer operating system. However, operating systems for
smartphones and tablets were improving to the point where
they could replace many personal computer functions.
In 2015, Apple’s iPhone operating system and Google’s Android
collectively controlled over 90% of the market for smartphone
purchases. Microsoft’s Windows Phone held a share of only 3%.
As tablets based on these systems became fully functional
computers, would Microsoft’s dominance evaporate?
3-18
©2020 McGraw-Hill Education
Technology Cycles
1
Technological change tends to be cyclical:
• Each new s-curve ushers in an initial period of turbulence,
followed by rapid improvement, then diminishing returns, and
ultimately is displaced by a new technological discontinuity.
• Utterback and Abernathy characterized the technology cycle
into two phases:
• The fluid phase (when there is considerable uncertainty about the
technology and its market; firms experiment with different product
designs in this phase).
• After a dominant design emerges, the specific phase begins (when firms
focus on incremental improvements to the design and manufacturing
efficiency).
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©2020 McGraw-Hill Education
Technology Cycles
2
Anderson and Tushman also found that technological
change proceeded cyclically.
• Each discontinuity inaugurates a period of turbulence and
uncertainty (era of ferment) until a dominant design is
selected, ushering in an era of incremental change.
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3-20
Technology Cycles
3
Anderson and Tushman found that:
•
A dominant design always rose to command the majority of market share
unless the next discontinuity arrived too early.
•
The dominant design was never in the same form as the original
discontinuity, but was also not on the leading edge of technology. It
bundled the features that would meet the needs of the majority of the
market.
During the era of incremental change, firms often cease to invest
in learning about alternative designs and instead focus on
developing competencies related to the dominant design.
This explains in part why incumbent firms may have difficulty
recognizing and reacting to a discontinuous technology.
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©2020 McGraw-Hill Education
Discussion Questions
1.
What are some of the reasons that established firms might resist the adoption of
a new technology?
2.
Are well-established firms or new entrants more likely to a) develop and/or b)
adopt new technologies? What are some reasons for your choice?
3.
Think of an example of an innovation you have studied at work or school. How
would you characterize it on the dimensions described at the beginning of the
chapter?
4.
What are some of the reasons that both technology improvement and
technology diffusion exhibit s-shaped curves?
5.
Why do technologies often improve faster than customer requirements? What
are the advantages and disadvantages to a firm of developing a technology
beyond the current state of market needs.
6.
In what industries would you expect to see particularly short or long technology
cycles? What factors might influence the length of technology cycles in an
industry?
3-22
©2020 McGraw-Hill Education
STRATEGIC MANAGEMENT OF
Technological
Innovation
Sixth Edition
Melissa A. Schilling
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Chapter 4
Standards Battles, Modularity, and
Platform competition
4-2
©2020 McGraw-Hill Education
A Battle Emerging in Mobile
Payments
1
By 2018, roughly 5 billion people had broadband subscriptions.
Mobile payment systems developed by Apple, Samsung, and Google used
NFC chips, merchant banks and Visa or MasterCard to complete
transactions wirelessly.
In Asia and Latin America mobile payment systems such as Alipay used QR
codes. Still other competitors such as PayPal used a downloadable
application and the Web to transmit a customer’s information.
In India and Africa, systems like Inter-Bank Mobile Payment Service and MPesa were enabling “unbanked” and “underbanked” people access to fast
and inexpensive funds transfer.
A mobile payment system that cuts out the credit card companies could
potentially save (or capture) billions of dollars in transaction fees. Credit
card companies and merchants thus both had high incentives to influence
the outcome of this battle.
4-3
©2020 McGraw-Hill Education
A Battle Emerging in Mobile
Payments
2
Discussion Questions:
1.
What are some of the advantages and disadvantages of mobile payment
systems in a) developed countries and b) developing countries?
2.
What are the key factors that differentiate the different mobile payment
systems? Which factors do consumers care most about? Which factors do
merchants care most about?
3.
Are there forces that are likely to encourage one of the mobile payment
systems to emerge as dominant? If so, what do you think will determine
which becomes dominant?
4.
Is there anything the mobile payment systems could do to increase the
likelihood of them becoming dominant?
5.
How do these different mobile systems increase or decrease the power
of a) banks, b) credit cards?
4-4
©2020 McGraw-Hill Education
Overview
Many industries experience strong pressure
to select a single (or few) dominant design(s).
There are multiple dimensions shaping which
technology rises to the position of the
dominant design.
Firm strategies can influence several of these
dimensions, enhancing the likelihood of their
technologies rising to dominance.
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©2020 McGraw-Hill Education
Why Dominant Designs Are Selected
1
Increasing returns to adoption
•
When a technology becomes more valuable the more it is adopted. Two
primary sources are learning effects and network externalities.
•
The Learning Curve: As a technology is used, producers learn to make it
more efficient and effective.
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4-6
Why Dominant Designs Are Selected
2
Prior Learning and Absorptive Capacity
• A firm’s prior experience influences its ability to
recognize and utilize new information.
• Use of a particular technology builds knowledge base
about that technology.
• The knowledge base helps firms use and improve the
technology
Suggests that technologies adopted earlier than others
are likely to become better developed, making it
difficult for other technologies to catch up.
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©2020 McGraw-Hill Education
Why Dominant Designs Are Selected
3
Network Externalities
• In markets with network externalities, the benefit from
using a good increases with the number of other users of
the same good.
• Network externalities are common in industries that are
physically networked
• For example, railroads, telecommunications
• Network externalities also arise when compatibility or
complementary goods are important
• For example, Many people choose to use Windows in order to
maximize the number of people their files are compatible with, and
the range of software applications they can use.
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©2020 McGraw-Hill Education
Why Dominant Designs Are Selected
4
A technology with a large installed base attracts
developers of complementary goods; a technology
with a wide range of complementary goods attracts
users, increasing the installed base. A self-reinforcing
cycle ensues:
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4-9
Theory In Action
The Rise of Microsoft
• In 1980, Microsoft didn’t even have a personal computer (PC)
operating system – the dominant operating system was CP/M.
• However, in IBM’s rush to bring a PC to market, they turned to
Microsoft for an operating system and Microsoft produced a clone
of CP/M called “MS DOS.”
• The success of the IBM PCs (and clones of IBM PCs) resulted in the
rapid spread of MS DOS, and an even more rapid proliferation of
software applications designed to run on MS DOS. Microsoft’s
Windows was later bundled with (and eventually replaced) MS DOS.
• Had Gary Kildall signed with IBM, or had other companies not been
able to clone the IBM PC, the software industry might look very
different today!
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©2020 McGraw-Hill Education
Why Dominant Designs Are Selected
5
Government Regulation
• Sometimes the consumer welfare benefits of having
a single dominant design prompts government
organizations to intervene, imposing a standard.
• For example, the NTSC color standard in television
broadcasting in the U.S.; the general standard for mobile
communications (GSM) in the European Union.
The Result: Winner-Take-All Markets
• Natural monopolies
• Firms supporting winning technologies earn huge
rewards; others may be locked out.
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©2020 McGraw-Hill Education
Why Dominant Designs Are Selected
6
Increasing returns indicate that technology trajectories
are characterized by path dependency:
• End results depend greatly on the events that took place
leading up to the outcome.
A dominant design can have far-reaching influence; it
shapes future technological inquiry in the area.
Winner-take-all markets can have very different
competitive dynamics than other markets.
• Technologically superior products do not always win.
• Such markets require different firm strategies for success
than markets with less pressure for a single dominant design.
4-12
©2020 McGraw-Hill Education
Multiple Dimensions of Value
1
In many increasing returns industries, the value
of a technology is strongly influenced by both:
• Technology’s Standalone Value
• Network Externality Value
• A Technology’s Stand-alone Value
• Includes such factors as:
• The functions the technology enables customers to perform
• Its aesthetic qualities
• Its ease of use, etc.
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©2020 McGraw-Hill Education
Multiple Dimensions of Value
2
Kim and Mauborgne developed a “Buyer Utility Map” that is useful for identifying
elements of a technology’s stand-alone value:
Purchase
Delivery
Use
Supplements
Maintenance
Disposal
Customer
Price of Prius
productivity slightly higher
than
comparable
nonhybrid
models
Offers
speed and
power
comparable
to
nonhybrid
models
Can stop less
often for gas,
saving money
and time
N A
NA
Simplicity
Operates
like a
regular
combustion
engine
vehicle
Refuels like a
regular
combustion
engine vehicle
NA
Hybrids have
larger batteries
that would
have to be
recycled and
disposed of at
end of life
Buyer may feel N A
less able to
assess value of
vehicle
Source: Adapted from Harvard Business Review. Exhibit from “Knowing a Winning Business Idea When You See
One,” by W. C. Kim and R. Mauborgne, September– October 2000.
©2020 McGraw-Hill Education
4-14
Multiple Dimensions of Value
Supplements
3
Purchase
Delivery
Use
Convenience
NA
Will be sold
through
traditional
dealer
channels
Does not
Can purchase
have to be
fuel at regular
plugged into gas stations
electrical
outlet
Maintenance is N A
similar to
regular
combustion
engine vehicle
Risk
NA
NA
Buyer might
face a
higher risk
of product
failure
because it
embodies a
new
technology
Buyer might
have difficulty
finding
replacement
parts because
of new
technology
NA
Maintenance
Disposal
Prius might
be more
difficult to
resell or have
lower resell
value
Source: Adapted from Harvard Business Review. Exhibit from “Knowing a Winning Business Idea When You See
One,” by W. C. Kim and R. Mauborgne, September– October 2000.
4-15
©2020 McGraw-Hill Education
Multiple Dimensions of Value
4
Purchase
Delivery
Use
Supplements
Maintenance
Disposal
Fun and image
NA
Connotes
image of
environmental
responsibility
NA
NA
NA
NA
Environmental
friendliness
Buyers feel
they are
helping
support the
development
of more
environment
ally friendly
cars
NA
Emits
lower
levels of
pollutants
Requires less
use of fossil
fuels
NA
NA
Source: Adapted from Harvard Business Review. Exhibit from “Knowing a Winning Business Idea When You See
One,” by W. C. Kim and R. Mauborgne, September– October 2000.
4-16
©2020 McGraw-Hill Education
Multiple Dimensions of Value
5
Network Externality Value
• Includes the value created by:
• The size of the technology’s installed base
• The availability of complementary goods
• A new technology that has significantly more standalone
functionality than the incumbent technology may offer less
overall value because it has a smaller installed base or poor
availability of complementary goods.
• For example, NeXT Computers were extremely advanced
technologically, but could not compete with the installed base value
and complementary good value of Windows-based personal
computers.
4-17
©2020 McGraw-Hill Education
Multiple Dimensions of Value
6
To successfully overthrow an existing dominant technology, new
technology often must either offer:
•
Dramatic technological improvement (for example, in videogame
consoles, it has taken 3X performance of incumbent)
•
Compatibility with existing installed base and complements
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4-18
Multiple Dimensions of Value
7
Subjective information (perceptions and expectations) can
matter as much as objective information (actual numbers)
Value attributed to each dimension may be disproportional
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4-19
Multiple Dimensions of Value
8
Competing for Design Dominance in Markets with Network
Externalities
•
We can graph the value a technology offers in both standalone value and
network externality value:
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4-20
Multiple Dimensions of Value
9
We can compare the graphs of two competing technologies, and
identify cumulative market share levels (installed base) that
determine which technology yields more value.
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4-21
Multiple Dimensions of Value
10
When customer requirements for network externality value are
satiated at lower levels of market share, more than one
dominant design may thrive.
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4-22
Are Winner-Take-All Markets Good
for Consumers?
1
Economics emphasizes the benefits of
competition.
However, network externalities suggest users
sometimes get more value when one technology
dominates.
Should the government intervene when network
externalities create a natural monopoly?
4-23
©2020 McGraw-Hill Education
Are Winner-Take-All Markets Good
for Consumers?
2
Network externality benefits to customers rise with cumulative
market share
Potential for monopoly costs to customers (for example, price
gouging, restricted product variety, etc.) also rise with cumulative
market share.
Curve shapes are different; Network
externality benefits likely to grow
logistically, while potential monopoly
costs likely to grow exponentially.
Where monopoly costs exceed
network externality benefits,
intervention may be warranted.
Optimal market share is at point
where lines cross.
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4-24
Modularity and Platform Competition
In some markets, industry players use modularity to create a
platform ecosystem where many different firms contribute to
the product system.
Modular systems are those that can be separated and
recombined to change their configuration, scale, or functions.
• Standardized interfaces ensure that components are compatible
• In some product systems modularity enables components from different
producers to be recombined (for example, smartphones with different
apps); in others only components from a single firm are recombined (for
example, Ikea shelving systems)
Modularity is more valuable when there are a) diverse
technological options that can be recombined, and b) customers
have heterogeneous preferences.
4-25
©2020 McGraw-Hill Education
Platform Ecosystems
In a platform ecosystem, some core part of a product
(such as a video game console) mediates the
relationship between a wide range of other components
or complements (for example, video games, peripherals)
and prospective end-users.
• A platform’s boundaries can be well-defined with a stable set
of members or amorphous and changing.
• The success of all members of the ecosystem depends in part
upon the success of other members.
• Members often invest in co-specialization or exclusivity
agreements.
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©2020 McGraw-Hill Education
Platform ecosystems strike a balance between
pure modularity and pure integration
Pure Modularity
Combinations take
place in the market –
no co-specialization
Choice &
reconfigurability
Competition
incentivizes firms to
increase quality and
decrease price
Quality and
compatibility is
uncertain (can be
hard for customer)
Platforms
Components not owned,
but curated.
Choice and
reconfigurability, but
shepherded by platform
sponsor
Competition still
incentivizes
Producer exerts some
control over quality and
compatibility
Pure Integration
Combination predetermined by firm
(no reconfiguration)
Captive supply (no
competition)
High co-specialization
ensures components
optimized to work
together
Producer controls
quality and
compatibility
4-27
©2020 McGraw-Hill Education
Discussion Questions
1. What are some of the sources of increasing returns to
adoption?
2. What are some examples of industries not mentioned in the
chapter that demonstrate increasing returns to adoption?
3. What are some of the ways a firm can try to increase the
overall value of its technology, and its likelihood of becoming
the dominant design?
4. What determines whether an industry is likely to have one or
a few dominant designs?
5. Are dominant designs good for consumers? Competitors?
Complementors? Suppliers?
6. In what kinds of industries will platform ecosystems be more
valuable than pure modularity or integrated hierarchies?
4-28
©2020 McGraw-Hill Education
STRATEGIC MANAGEMENT OF
Technological
Innovation
Sixth Edition
Melissa A. Schilling
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Chapter 5
Timing of Entry
5-2
©2020 McGraw-Hill Education
UberAir
1
In April 2017, Uber announced UberAir, an on-demand air transportation
service.
Uber’s on-demand ride-sharing service had disrupted traditional taxi and livery.
However, ride sharing was based on an innovative business model and a
software application.
UberAir would leverage Uber’s existing business model and software programs,
but required major technological development in air transportation,
infrastructure for air traffic control, and a network of landing pads.
Uber estimated initial operating costs would be $5.73 per passenger mile but
with efficient pooling could be as low as $1.84 per passenger mile. With fully
autonomous operation, could be as low as 44 cents per passenger mile.
As of June, 2018, the company had plans for testing the service in Dallas and
Los Angeles by 2020, and was seeking an international launch city. It planned to
have commercial deployment of the service by 2023.
5-3
©2020 McGraw-Hill Education
UberAir
2
Discussion Questions:
1. Will there be increasing returns to adoption for an early
mover in air taxi service? If so, what will they be?
2. What are the disadvantages of entering the air taxi market
early?
3. What are the important complementary goods and enabling
technologies for the air taxi market? Are they available in
sufficient quality and economy?
4. Is Uber well positioned to be a dominant player in this
market? What resources will it need to be successful?
5. Overall, would you say Uber’s entry into the air taxi market is
too early, too late, or about right?
5-4
©2020 McGraw-Hill Education
Overview
Increasing returns suggests that timing of entry can be
very important.
There are a number of advantages and disadvantages to
being a first mover, early follower or late entrant. These
categories are defined as follows:
• First movers are the first entrants to sell in a new product or
service category (“pioneers”).
• Early followers are early to market but not first.
• Late entrants do not enter the market until the product begins
to penetrate the mass market or later.
5-5
©2020 McGraw-Hill Education
First-Mover Advantages and
Disadvantages
1
Being a first mover can confer the advantages of:
• Brand loyalty and technological leadership.
• Preemption of scarce assets.
• Exploiting buyer switching costs.
• Reaping increasing returns advantages.
However, first movers often bear disadvantages also:
• High research and development expenses.
• Undeveloped supply and distribution channels.
• Immature enabling technologies and complements.
• Uncertainty of customer requirements.
5-6
©2020 McGraw-Hill Education
First-Mover Advantages and
Disadvantages
2
The market often perceives first movers as having advantages
because it has misperceived who was first.
Product
First Mover
Notable Follower(s) The Winner
8 mm video
camera
Disposable
diaper
Float Glass
Groupware
Instant camera
Microprocessors
Kodak
Sony
Follower
Chux
Followers
Personal
computer
Spreadsheet
software
MITS (Altair)
Pampers
Kimberly Clark
Corning
AT&T
Kodak
AMD
Cyrix
Apple
IBM
Microsoft (Excel)
Lotus
©2020 McGraw-Hill Education
Pilkington
Lotus
Polaroid
Intel
VisiCalc
First mover
First Mover
First mover
First Mover
Followers
Followers
5-7
First-Mover Advantages and
Disadvantages
3
Product
First Mover
Notable Follower(s)
The Winner
Video game
console
Magnavox
Atari
Nintendo
Followers
Web browser
NCSA Mosaic
Netscape
Microsoft (Internet
Explorer)
Followers
Word processing
software
MicroPro
(Wordstar)
Microsoft (MS Word)
Wordperfect
Followers
Workstation
Xerox Alto
Sun Microsystems
Hewlett Packard
Followers
Source: R. M. Grant, Contemporary Strategy Analysis (Malden, MA: Blackwell Publishers, 1998); D. Teece, The
Competitive Challenge: Strategies for Industrial Innovation and Renewal (Cambridge, MA: Ballinger, 1987); and
M. A. Schilling, “Technology Success and Failure in Winner- Take-All Markets: Testing a Model of Technological
Lock Out,” Academy of Management Journal 45 (2002), pp. 387–98.
5-8
©2020 McGraw-Hill Education
Theory In Action
Obstacles to the Hydrogen Economy.
• Hydrogen offers an inexhaustible and environmentally fuel
source that could be used to power automobiles and the
electrical grid that serves homes and businesses.
• However, several serious obstacles stood in the way of
utilizing hydrogen for energy:
• Hydrogen vehicles would require a new fueling infrastructure.
• Isolating hydrogen for energy in an environmentally-friendly way
required a major shift to windmills or solar energy which were not
considered mature technologies.
• Implementing hydrogen as a primary energy source required the
cooperation of numerous stakeholders, including government,
automakers, oil (or other energy) companies, etc.
©2020 McGraw-Hill Education
5-9
Factors Influencing Optimal Timing of
Entry
1
1. How certain are customer preferences?
• If customer needs are well understood, it is more feasible to enter the
market earlier.
2. How much improvement does the innovation provide over
previous solutions?
• An innovation that offers a dramatic improvement over previous
generations will accrue more rapid customer acceptance.
3. Does the innovation require enabling technologies, and are
these technologies sufficiently mature?
• If the innovation requires enabling technologies (such as long-lasting
batteries for cell phones), the maturity of these technologies will
influence optimal timing of entry.
5-10
©2020 McGraw-Hill Education
Factors Influencing Optimal Timing of
Entry
2
4. Do complementary goods influence the value of the
innovation, and are they sufficiently available?
• Not all innovations require complementary goods, but for those that
do (for example, games for video consoles), availability of
complements will influence customer acceptance.
5. How high is the threat of competitive entry?
• If there are significant entry barriers, the may be less need to rush to
market to build increasing returns ahead of others.
6. Are there increasing returns to adoption?
• If so, allowing competitors to get a head start can be very risky.
5-11
©2020 McGraw-Hill Education
Factors Influencing Optimal Timing of
Entry
3
7.
Can the firm withstand early losses?
• The first mover bears the bulk of R&D expenses and may endure a
significant period without revenues; the earlier a firm enters, the
more capital resources it may need.
8. Does the firm have resources to accelerate market
acceptance?
• Firms with significant capital resources can invest in aggressive
marketing and supplier and distributor development, increasing the
rate of early adoption.
9. Is the firm’s reputation likely to reduce the uncertainty of
customers, suppliers, and distributors?
• Innovations from well-respected firms may be adopted more rapidly,
enabling earlier successful entry.
©2020 McGraw-Hill Education
5-12
Research Brief
Whether and When to Enter?
• Will Mitchell studied 30 years of data on whether and when an
incumbent in one subfield of the medical diagnostic imaging
industry would enter another subfield. He found:
• If only one firm can produce an inimitable good, it can enter if and when
it wants. If several firms could produce a good that will subsequently be
inimitable, they race to capture the market.
• If good is highly imitable, firms prefer to wait while others invest in
developing the market.
• Firms were more likely to enter if they had specialized assets that would
be useful in the new subfield or if their current products were
threatened by the new subfield.
• Firms entered earlier when their core products were threatened and
there were several potential rivals.
©2020 McGraw-Hill Education
5-13
Strategies to Improve Timing Options
To have more choices in its timing of entry, a firm
needs to be able to develop the innovation early or
quickly.
A firm with fast-cycle development processes can be
both an early entrant, and can quickly refine its
innovation in response to customer feedback.
In essence, a firm with very fast-cycle development
processes can reap both first- and second-mover
advantages.
5-14
©2020 McGraw-Hill Education
Discussion Questions
1. What are some of the advantages of entering a
market early? Are there any advantages to entering
a market late?
2. Can you think of an example of a successful a) first
mover, b) early follower, and c) late entrant? Can
you think of unsuccessful examples of each?
3. What factors might make some industries harder to
pioneer than others? Are there industries in which
there is no penalty for late entry?
5-15
©2020 McGraw-Hill Education
Part Two: Formulating Technological
Innovation Strategy
Assessing the firm’s position and defining its strategic
direction.
Choosing innovation projects in which to invest,
including both quantitative and qualitative valuation
techniques.
Deciding whether and how the firm will collaborate on
development activities, choosing a collaboration mode,
and choosing and monitoring partners.
Crafting a strategy for protecting – or diffusing – a
technological innovation through such methods as
patents, trademarks, copyrights, and trade secrets.
5-16
©2020 McGraw-Hill Education
STRATEGIC MANAGEMENT OF
Technological
Innovation
Sixth Edition
Melissa A. Schilling
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Chapter 6
Defining the Organization’s Strategic
Direction
6-2
©2020 McGraw-Hill Education
Tesla, Inc. in 2018
Tesla was founded in 2003 by Martin Eberhard, an entrepreneur who wanted to
create a faster, sexier electric car. In 2004, Elon Musk agreed to fund the
company and became Chairman of the Board. A few years later Eberhard left
and Musk became CEO.
In 2018, Tesla had grown into a company with almost $12 billion in annual
revenues that produced multiple car models, owned Solar City, produced energy
storage systems (for example, Powerwall) and solar roofs.
The company’s expansion into multiple product lines and rapid production
capacity expansion created large capital requirements for the firm.
Tesla missed several of its production goals in early 2018 causing investors to be
concerned, but at the end of 2018 posted its first annual profit.
Tesla’s cars had rapidly attracted a large and loyal fan base and sales were
growing at an impressive rate. But was Tesla trying to do too much too quickly?
6-3
©2020 McGraw-Hill Education
Reinventing Hotels: citizenM
Discussion Questions
1.
What were Musk’s and Eberhard’s goals in founding Tesla?
2.
How would you characterize competition in the auto industry?
3.
What do you think are Tesla’s core competencies? Does it have any
sources of sustainable competitive advantage?
4.
What is your assessment of Tesla’s moves into (a) mass-market cars, (b)
batteries (car batteries and Powerwall), (c) solar panels? Please consider
both the motivation for the moves, and the opportunities and challenges
for Tesla to compete in these businesses.
5.
Do you think Tesla will be profitable in all of these businesses? Why or
why not?
6.
What do you think Tesla’s (or Elon Musk’s) strategic intent is?
6-4
©2020 McGraw-Hill Education
Overview
A coherent technological innovation strategy leverages
the firm’s existing competitive position and provides
direction for future development of the firm.
Formulating this strategy requires:
• Appraising the firm’s environment.
• Appraising the firm’s strengths, weaknesses, competitive
advantages, and core competencies.
• Articulating an ambitious strategic intent.
6-5
©2020 McGraw-Hill Education
Assessing the Firm’s Current Position
1
External Analysis.
• Two common methods are Porter’s Five-Force Model and
Stakeholder Analysis.
• Porter’s Five-Force Model.
1. Degree of existing rivalry. Determined by number of firms, relative
size, degree of differentiation between firms, demand conditions, exit
barriers.
2. Threat of potential entrants. Determined by attractiveness of
industry, height of entry barriers (for example, start-up costs, brand
loyalty, regulation, etc.).
3. Bargaining power of suppliers. Determined by number of suppliers
and their degree of differentiation, the portion of a firm’s inputs
obtained from a particular supplier, the portion of a supplier ’s sales
sold to a particular firm, switching costs, and potential for vertical
integration.
©2020 McGraw-Hill Education
6-6
Assessing the Firm’s Current Position
2
4.
Bargaining power of buyers. Determined by number of buyers, the firm’s
degree of differentiation, the portion of a firm’s inputs sold to a
particular buyer, the portion of a buyer’s purchases bought from a
particular firm, switching costs, and potential for vertical integration.
5.
Threat of substitutes. Determined by number of potential substitutes,
their closeness in function and relative price.
6.
Recently Porter has acknowledged the role of complements. Must
consider:
a) how important complements are in the industry.
b) whether complements are differentially available for the products of
various rivals (impacting the attractiveness of their goods), and.
c) who captures the value offered by the complements.
6-7
©2020 McGraw-Hill Education
Assessing the Firm’s Current Position
3
Five-Force Model
Source: Michael Porter,
Competitive Strategy:
Techniques for Analyzing
Industries and Competitors.
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6-8
Assessing the Firm’s Current Position
4
Stakeholder Analysis.
1. Who are the
stakeholders?
2. What does each
stakeholder want?
3. What resources do
they contribute to
the organization?
4. What claims are they
likely to make on the
organization?
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6-9
Assessing the Firm’s Current Position
5
Internal Analysis.
1. Identify the firm’s strengths and weaknesses. Helpful to
consider each element of value chain.
Source: Michael Porter,
Competitive Advantage:
Creating and Sustaining
Superior Performance.
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6-10
Assessing the Firm’s Current Position
6
2. Assess which strengths have potential to be
sustainable competitive advantage.
•
•
•
•
Rare
Valuable
Durable
Inimitable
Competitive
Advantage
Sustainable
Competitive
Advantage
Resources are difficult (or impossible) to imitate when
they are:
•
•
•
•
Tacit
Path dependent
Socially complex
Causally ambiguous
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Identifying Core Competencies and
Capabilities
1
Core Competencies: A set of integrated and
harmonized abilities that distinguish the firm in the
marketplace.
• Competencies typically combine multiple kinds of abilities.
• Several core competencies may underlie a business unit.
• Several business units may draw from same competency.
• Core competencies should:
• Be a significant source of competitive differentiation.
• Cover a range of businesses.
• Be hard for competitors to imitate.
6-12
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Identifying Core Competencies and
Capabilities
2
Source: C. K. Prahalad
and G. Hamel, “The
Core Competence of
the Corporation,”
Harvard Business
Review, May–June
1990.
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6-13
Risk of Core Rigidities
When firms excel at an activity, they can become over
committed to it and rigid.
• Incentives and culture may reward current competencies
while thwarting development of new competencies.
• Dynamic capabilities are competencies that enable the firm
to quickly respond to change.
• For example, firm may develop a set of abilities that enable it to
rapidly deploy new product development teams for a new
opportunity; firm may develop competency in working with alliance
partners to gain needed resources quickly.
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Strategic Intent
Strategic Intent.
•
A long-term goal that is ambitious, builds upon and stretches firm’s core
competencies, and draws from all levels of the organization.
• Typically looks 10 to 20 years ahead, establishes clear milestones.
• Firm should identify resources and capabilities needed to close gap between
strategic intent and current position.
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6-15
Research Brief: Blue Ocean Strategy
1
Red Ocean Strategy
Blue Ocean Strategy
Compete in existing market space
Create uncontested market space
Beat the competition
Make the competition irrelevant
Exploit existing demand
Create and capture new demand
Make the value-cost trade-off
Break the value-cost trade-off
Align the whole system of a firm’s
activities with its strategic choice
of differentiation or low cost.
Align the whole system of a firm’s
activities in pursuit of
differentiation and low cost.
Adapted from Kim, W.C. & Mauborgne, R. 2005. Blue ocean strategy.
Boston: Harvard Business School Press.
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Research Brief: Blue Ocean Strategy
2
Managers can challenge the industry industry’s strategic logic by
asking the following four questions:
1.
Which of the factors that
the industry takes for
granted should be
eliminated?
2.
Which factors should be
reduced well below the
industry’s standard?
Which factors should be
raised well above the
industry’s standard?
3.
4.
Which factors should be
created that the industry
has never offered.
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6-17
Theory In Action
The Balanced Scorecard.
•
Kaplan and Norton argue
that effective
performance
measurement should
incorporate:
• Financial perspective.
• Customer perspective.
• Internal perspective.
• Innovation and learning.
Source: R. Kaplan and D. Norto,
“Putting the Balanced Scorecard to
Work,” Harvard Business Review,
September–October 1993.
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6-18
Discussion Questions
1.
What is the difference between a strength, a competitive advantage, and
a sustainable competitive advantage?
2.
What makes an ability (or set of abilities) a core competency?
3.
Why is it necessary to perform an external and internal analysis before
the firm can identify its true core competencies?
4.
Pick a company you are familiar with. Can you identify some of its core
competencies?
5.
How is the idea of “strategic intent” different from models of strategy
that emphasize achieving a fit between the firm’s strategies and its
current strengths, weaknesses, opportunities and threats (SWOT)?
6.
Can a strategic intent be too ambitious?
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