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■ Multiple choice questions have only one correct answer. ■ The points for each question are explicitly reported. ■ Nobody, including the instructor, can respond to any question during the exam session. ○ Exam structure: ■ Four open discussion questions (4 points per question; 16 points max) ■ Four multiple choice questions (0.5 points per question; 2 points max).
Organizing Innovation
Week 1
THE IMPORTANCE OF TECHNOLOGICAL INNOVATION
Innovation and Growth: How Business Contributes to Society by David Ahlstrom Building an Innovation Factory - Hargadon & Sutton (2000)
What is technology? " technology " is a fairly new word — coined by Jacob Bigelow in 1820s:
- technology — techne (Greek) art, craft, or skill.
- teks (Indo-euro) weave or fabricate. Technologies are developed to help us do something we otherwise couldn’t do. Technology is our ability to continually create technologies sets us apart from other animals.
DEFINITION OF TECHNOLOGY The application of knowledge, often for the attainment of specific goals ● Technology is associated with “progress” and continual improvement. ● Sometimes new technologies come about by accident. ● New technologies often create their own needs. ● New technologies are not always useful, consider fashion, prestige and other ways consumers are controlled.
WHAT IS INNOVATION? Do not use the internet for any of the following:
- Individually think of one word that defines innovation. Write that word down.
- Individually write down a definition of innovation → progress.
- Now define innovation in the context of a business function.
- R&D, marketing, manufacturing, supply chain management accounting, finance, human resources, sales.
Marketing innovation : new and improved ways of reaching our current and
potential customers. Famous examples of marketing innovation: social media, loyalty programs.
COMPONENTS OF INNOVATION It is to renew or change something, which is then applied and has some benefits. The word ‘innovation’ comes from the Latin, ‘innovare’, and is all about change. Innovation components : ● Newness → A change, a difference and some uncertainty and anxiety. ● Ideation → The idea, the spark, the knowledge and the origins of the innovation. Often linked to a “gap”. ● Application → innovation used, applied, put into action. ● Benefit → The innovation has some value, it makes a difference, it has consequences.
WHAT IS INNOVATION? (OECD DEFINITIONS) There are different kinds of innovation: ● Product innovation → A good or service that is new or significantly improved. This includes significant improvements in technical specifications, components and materials, software in the product, user friendliness or other functional characteristics.
● Process innovation → A new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software. IE. Float glass technology, Artificial intelligence.
● Marketing innovation → A new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. IE. Door to door selling, Franchising, Celebrity Endorsements.
● Social Innovation → A new approach to addressing social issues (e.g., working conditions and education to community development and health) that extend and strengthen civil society.
● Organizational innovation → A new organizational method in business practices, workplace organization or external relations.
Innovation has: ● An event, process and outcome? ● a rate (how often and how fast). ● a direction ○ Continuous (more of the same) ○ Discontinuous (in different directions) ● a velocity = rate+direction ● magnitude (how big is the difference) → incremental vs radical
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, it may result in negative externalities. ○ For example, pollution, erosion, antibiotic-resistant bacteria.
“BUILDING AN INNOVATION FACTORY” - (HARGADON AND SUTTON)
What is this reading about?
- Knowledge brokering – old (existing) knowledge applied in new contexts. Some firms (or individuals) play a pivotal role in the innovation network.
- Brokers = intermediaries
What is the knowledge brokering cycle?
- Capture good ideas.
- Keeping ideas.
- Imagining new uses for old ideas.
- Putting promising concepts to the test.
SERENDIPITY What is serendipity? “Serendipity is the ability of making accidental but fortuitous discoveries, especially while looking for something entirely unrelated.” Three types of serendipity:
- Discovery that was not sought (e.g. Velcro)
- Discovery that was being sought, but found in an unexpected way (e.g. vulcanization)
- Discovery, whose use is different than originally planned (e.g. Post-It).
THE S-CURVE
INDUSTRY DYNAMICS
The opportunity for and rate of innovation varies. At the birth of an industry innovation is often fertile and risky:
- Detroit saw over 700 auto companies founded between 1900 – 1920!
- The 80 years for the next global player to emerge. Which company was this? Effective management of technological innovation helps you mitigate & manage those risks.
WEEK 2: CREATIVITY AND INNOVATION
Paper:
- Amabile, T.M. & Khaire, M. 2008. Creativity and the role of the leader. Harvard Business Review, 86(10): 100-109.
- Catmull, E. 2008. How Pixar fosters collective creativity. Harvard Business Review, 86(9): 65–72.
Questions:
- What is the relationship between creativity, invention and innovation?
- How are ideas generated?
- What makes an individual or organization creative?
SOURCES OF INNOVATION
- Individuals
- Firms
- Universities
- Government-Funded Research
- Private Nonprofits
CREATIVITY AND THE ROLE OF THE LEADER What is the role of the leader? “One doesn’t manage creativity. One manages for creativity”. A leader has to enhance creativity. Creativity is the ability to produce something new and different. It produces ideas.
FOSTERING CREATIVITY
- Be persistent
- Be collective and share ideas
- Be willing to let go of ideas that seem perfect in your eyes.
Ciao-How-now-wow matrix Highly ‘original ideas’ should be novel and impactful (i.e., they greatly improve the dining experience). TRANSFORMING CREATIVITY INTO INNOVATION 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. IE. Tim Omer is a diabetic and he built his own continuous glucose monitor. Earle Dickson invented the Band- Aid in 1920 for his wife.
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.
● 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.
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.
Universities and Government-Funded Research ➔ Universities ◆ Many universities encourage research that leads to useful innovations.
◆ U.S. 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.
➔ Governments invest in research through: ◆ Their own laboratories. ◆ Science parks and incubators. ◆ Grants for other public or private research organizations.
➔ 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.
INNOVATION IN COLLABORATIVE NETWORKS 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 high-technology sectors where individual firms rarely possess all necessary resources and capabilities.
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.
❖ The cultural context of the technology.
People and skills Traps: ● Undervaluing the significance of the right people. ● Time to build trust and knowledge within a team. ● Avoid closed environments.
Lessons: ● Importance of the right leaders ● Communicators and connectors are key – collaboration can foster this. ● Team dynamics are important
23/09/2025 - Week 3
Readings:
- Chapter 3 of course text
- Bower, J., Christensen, C., 1995. Disruptive technologies: catching the wave. Harvard Business Review, (Jan-Feb), 43}53.
- O’Reilly, C. and Binns, A.J., 2019. The Three Stages of Disruptive Innovation: Idea Generation, Incubation, and Scaling. California Management Review
Questions:
- Think of examples of competence enhancing innovation versus competence destroying innovation, and architectural innovation versus component innovation.
- How do you recognize a disruptive innovation?
- What are some of the reasons that both technology improvement and technology diffusion exhibit s-shaped curves?
Innovations can start from something and proceed to other. IE. Lamborghini started producing trucks.
RECAP: INNOVATION
- An event, a process, and outcome?
- Innovation has a rate (i.e., how often or how fast)
- Innovation has a direction
- Continuous i.e., more of the same
- Discontinuous i.e., in different direction
- Innovation has a velocity = rate + direction
- Innovation has a magnitude i.e., how big is the difference
DIRECTION OF NEWNESS
Continuous → improve the xbox to xbox 360 Discontinuous → xbox to wii
TYPES OF INNOVATION Radical versus Incremental Innovation: ● The radicalness of an innovation is the magnitude of newness or difference 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.
Competence-Enhancing versus Competence-Destroying 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. Whether an innovation is competence enhancing or competence destroying depends on the perspective of a particular firm.
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. you change a part of the bike that triggers change in everything.
Most architectural innovations require changes in the underlying components also.
Why are incumbent firms more likely to focus on incremental and continuous innovation?
- Economic incentives :
- established companies are focused on defending their position
- exploitation vs exploration - organizational inertia:
- established companies rely on formalized business processes and structures
- competency trap
TECHNOLOGY S-CURVES
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. All technologies have an S curve. Technology improves slowly at first because it is poorly understood. Then accelerates as understanding increases. Then tapers off as approaches limits. 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.
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).
What do you do to get millions of users for whatsapp? you make it free.
CONTAGION IN ACTION: ORTEIG PRIZE & THE SPIRIT OF ST. LOUIS
- 1919 Raymond Orteig puts up a $25,000 challenge to fly New York Paris.
- 9 Teams register to compete and spent $400,000 to win the prize.
- The underdog, 25 year old Charles Lindberg wins the prize!
- Within 18 months of his flight:
- Passenger traffic increased 30x
of aircraft increased 4x
- Aviation stocks soar
ADOPTER CATEGORIES 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.
WEEK 4: STANDARDS, MODULARITY AND PLATFORMS
Readings:
- Chapter 4 of course text
- Case: Teixeira, T.S. and Brown, M., 2016. Airbnb, Etsy, Uber: Acquiring the First Thousand Customers.
- Paper: Shapiro, C. and Varian, H.R., 1999. The art of standards wars. California management review, 41(2), pp.8-32..
Questions:
- Why does a dominant design emerge, and why it is not always the most technological superior design that becomes dominant?
- Are dominant designs good for consumers? Competitors? Complementors? Suppliers?
HOW DOES A DOMINANT DESIGN EMERGE? Increasing returns to adoption
- A technology often 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.
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.
MULTIPLE DIMENSIONS OF VALUE
In many 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.
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.
MULTIPLE DIMENSIONS OF VALUE 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:
NETWORK EXTERNALITIES
Standards, particularly in the communication field, have network externalities: i.e. every new user in the network increases the value of being connected to the network.
- direct network externalities: e.g. every new fax machine increases the reach of the network.
- indirect network externalities: e.g. if everyone buys the same car brand, the number of dealers and the availability of spare parts will be higher. Network externalities require compatibility. Competing networks that are incompatible reduce the externalities of the networks involved.
BANDWAGON EFFECT
- Bandwagon effect occurs when an important organizations makes a unilateral public commitment to one standard; if others follow the lead they will be compatible at least with the first adopter, and potentially with the followers.
- The first adopters of a standard take the highest risk, but they also have the benefit of developing competence early.
- If the old technology does not retain its critical mass, those left behind are referred to as angry orphans.
TIMING OF STANDARDIZATION Standardization at an inappropriate time can lead to economic inefficiency. Too early standardization may prematurely lock an industry into a technology, precluding experience with the diversity. Standardization occurs too late if technological options have already become entrenched. Companies with installed bases will then ignore the standards. PRODUCT ARCHITECTURE: DEFINITION The arrangement of functional elements into physical chunks which become the building blocks for the product or family of products.
MODULAR Modules implement one or a few functions entirely. Interactions between modules are well defined. Modular architecture has advantages in simplicity and reusability for a product family or platform.
IE. Ikea furniture is modulare
In an integrated system if something breaks down you need expertise to change it, while modularity you don’t need expertise to change it. IE. car radios.
The connections in the second trailer are tightly coupled so they are harder to change.
DELL AND COMPAQ
Dell did to Compaq what Compaq did to IBM… Dell created an equally good machine, but….
- used product and process modularity to reduce its production, logistics and distribution costs and increase ROIC.
- Negative Net Working Capital.
- Direct sales, no dealers. By 1990 Compaq was seeking to exit the unprofitable PC marketplace!
IE. Swatch is very intra company modular because you can change the dial, the strap etc but the only inter company modularity is probably the battery because it’s a standard from the government.
THE VALUE OF MODULARITY Modularity accommodates change → especially incremental change. It encourages innovation by decentralizing decision making on hidden modules. Technically, it creates the option for third parties to innovate on a module:
- Parties compete to create a better module.
- A few “experiments” likely to create a superior module whose value to users exceeds cost of experiments; downside minimal because can keep old Cluster of innovators emerge around architecture, resulting in new industry.
THE MIRRORING HYPOTHESIS
