Competitive Advantage in Technology-Intensive Industries “It is the quest for competitive...
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Transcript of Competitive Advantage in Technology-Intensive Industries “It is the quest for competitive...
Competitive Advantage in Technology-Intensive Industries
“It is the quest for competitive advantage that causes firms to invest in innovation”
(260).
Invention Innovation
The creation of new products/processes through the development of new knowledge or new combinations of existing knowledge.
The initial commercialization of invention by producing and marketing a new good by using a new method of production.
Invention vs. Innovation
The Innovation Process
Invention InnovationIntroduction Diffusion
Demand Side: Through customers Supply Side: Through imitation by competitors
*Note: Not all inventions progress to innovation, primarily because
patent owners can’t find a viable market.
The Innovation Process
Competitors
Customers
Adoption
The Profitability of Innovation
There is no evidence that either R&D intensity or frequency of new product introductions directly correlate with profitability.
Profitability = Value created by the innovation
Regime to Appropriability: The conditions that influence the distribution of returns to innovation
Strong Regime Weak Regime
Innovator is able to acquire a substantial share of the value created.
Other parties derive most of the value gained.
Regime to Appropriability
Four Factors in Determining Extent the Innovator is Able to Appropriate Value of Their Innovation
1. Property Rights
2. Tacitness and Complexity of the Technology
3. Lead-Time
4. Complementary Resources
Property Rights
The rights to Intellectual Property Patents: Rights to a new and useful product, process,
substance, or design. Copyrights: Exclusive production, publication, or sales
rights to literature, media, etc. Trademarks: Words, symbols, or other marks that
distinguish good/service. Trade Secrets: Legal protection for formulas, recipes,
processes, and other private knowledge.
Tacitness and Complexity
Extent to which an innovation can be imitated depends on how easy technology can be comprehended and replicated.
Two Factors: Codifiable Knowledge: Can the innovation be written
down on paper? Complexity: How difficult is it to replicate this
product/process?
Lead-Time
The time it will take followers to catch up to the innovation.
Purpose: For innovators to use this lead-time to build on their advantages. Microsoft
Complementary Resources
Diverse resources and capabilities needed to finance, produce and market the innovation.
Often times accessed through alliances with other firms.
The importance of property rights?
Patent
Copyright
Trademark
Trade Secret
How to Exploit Your Innovation
LicensingStrategic AllianceJoint VentureInternal
Commercialization
Resources and Capabilities
Outsourcing
Internal Commercialization
Lead or Follow?
Grab the prize!!
Eat the costs…
Weigh the advantages!!!
Managing Risks
Lead UsersLimit risk exposureFlexibility
Competing for Standards
The emergence of the digital, networked economy has made standards increasingly important and companies that own and influence industry standards are capable of earning returns that are unmatched by any other type of competitive advantage.
A standard is a format, an interface, or a system that allows interoperability
Types of Standards
Public or Open Standards Available to everyone
either for free or a nominal charge.
They don’t require privately owned IP
Set by public bodies and industry associations
Private or Proprietary Standards The technologies and
designs are owned by companies or individuals.
Classified by who sets them
Mandatory standards Set by the government
and have the force of law behind them
De facto Standards Emerge through
voluntary adoption by producers and users
Why Standards Appear: Network Externalities
Standards emerge in markets that are subject to network externalities.
Whenever the value of a product to an individual customer depends on the number of users of that product.
Negative Network externalitiesCompatibility
Network Externalities arise from:
Products where users are linked to a network Availability of complementary products or
servicesEconomizing on Switching Costs
Network Externalities create Positive Feedback
Once a technology or system gains market leadership, it attracts a growing proportion of new buyers.
Trying to avoid tipping (once a market leadership is lost , a downward spiral occurs) Once a certain threshold is reached, cumulative forces become unstoppable.
The markets subject to significant network externalities tend to be dominated by a single supplier.
Technological and Design Standards are Resilient
Learning Effects - cause the dominant technology and design to be continually improved and refined.
Collective Lock-Ins – Existing standard is inferior, switching to a superior technology may not occur
Winning Standard Wars
First key issue is to determine whether we are competing in a market that will converge around a single technical standard.
Second strategic issue is recognizing the role of positive feedback.
Controlling the positive feedback: Before you go to war, assemble allies Pre-empt the market Manage expectations
…continued
Create broad alliances to grow bandwagon and gain market leadership
Achieve compatibility with existing productsAdvantage goes to the competitor that adopts
an evolutionary strategy rather than one that adopts revolutionary strategy
Key Resources Needed to Win a Standards War:
Control over an installed base of customersOwning IP rights in the new technologyThe ability to innovate in order to extend and
adapt the initial technological advanceFirst mover advantageStrength in complements Reputation and Brand Name
Be aware of tipping points and launch strategic initiatives earlier to resolve standard wars quicker.
Creating the Conditions for Innovation
Strategic analysis can tell us a great deal about making money out of innovation, but if we cannot generate innovation there isn’t much use.
While invention depends on creativity, innovation requires collaboration and cross-functional integration
Managing Creativity
Invention is an act of creativity requiring knowledge and imagination.
Creativity is stimulated by human interaction.
Organizing For Creativity
Creativity requires management systems that are quite different from those appropriate for efficiency.
Creative abrasion is the term used for fostering innovation through the interaction of different personalities and perspectives.
Balancing Creativity and Commercial Direction
For creativity to create value-both for the company and for society-it must be directed and harnessed.
The critical linkage between creative flair and commercial success is market need.
Organizational Approaches to the Management of Innovation
Innovation upsets the established routines and threatens the status quo.
As innovation has become an increasing priority for established corporations, chief executives have sought to emulate the entrepreneurial spirit of technology-based start-ups.
Product Champions
These provide a means for incorporating individual creativity within organizational processes and for linking invention to subsequent commercialization.
The key to a product champion is to permit individuals who are sources of creative ideas to lead the teams.
Buying Innovation
Many large companies buy smaller start-ups.
Large companies buy these smaller start-ups because they have advantages in the early stages of the innovation process.
Open Innovation
Instead of companies developing their own technologies ‘in-house’.
Open innovation is more market-based system where companies buy in technology while also licensing out their own technologies.
Corporate Incubators
These are business developments established to fund and nurture new businesses.
This was more popular at the end of the 1990s during the IT boom.
Few companies have achieved sustained success from this.