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INNOVATION and R&D MANAGEMENT
CHAPTER 1 - INTRODUCTION
INNOVATION - An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations Technological innovation - The act of introducing a new device, method, or material for application to commercial or practical objectives. WHY INNOVATION IS IMPORTANT? - primary driver of competitive advantage, economic growth, and societal improvement. Technological advancements contribute significantly to productivity increases, which in turn fuel economic expansion. Innovations improve quality of life through advancements in health care, communication, and various other domains. Strategic management of innovation ensures that firms can effectively develop and commercialize new technologies to sustain their growth and success. Firms: Innovation drives competitive advantage, enabling firms to differentiate themselves, enter new markets, and improve efficiency and profitability Societies : It fuels economic growth, creates new job opportunities, and contributes to solving societal challenges, such as health care, environmental sustainability, and energy consumption. Employees : Innovation can lead to more fulfilling and engaging work, offering opportunities for learning and career advancement. Customers: They benefit from improved products and services, greater variety, enhanced quality, and often, lower prices resulting from innovative processes and solutions. INNOVATION VS INVENTION INVENTION is the conception of new ideas. It is the starting point for innovation. Innovation is the subsequent process of converting intellectual thoughts (new ideas - invention) into tangible new artifact translation ready for the market. Innovation depends on inventions. Innovation has both creative and commercial dimensions INNOVATION MANAGEMENT refers to the management of all activities involved in the process of idea generation, technology development, manufacturing and marketing of a new or improved product or manufacturing process or equipment. Innovation management includes the management of risks and uncertainty UNCERTAINTY - occurs when we don’t even know the possible outcomes in advance, let alone their probabilities. e.g. complex systems, where lots of actors interact over time – the economy, for example. Uncertainty occurs throughout the entire innovation process, from theoretical conception to technical invention and commercial exploitation. It is a measure of the complexity of the entire innovation process RISK - is when we know the potential outcomes in advance, and we may even know the odds of these outcomes in advance. e.g. rolling a pair of dice. Risk can be referred to as a single activity of the innovation process if we can know the odds of the outcomes in advance. INNOVATION FUNNEL - The innovation funnel is a conceptual model used to represent the process of developing new products, services, or technologies from initial ideas to successful market launch. It starts with a wide range of ideas at the top (the broad part of the funnel), which are then progressively refined, evaluated, and developed through various stages of the innovation process. As the ideas move through the funnel, many are eliminated due to feasibility, market potential, or resource constraints, narrowing down to a few viable options that reach the market. This model helps organizations manage and streamline their innovation processes by focusing resources on the most promising opportunities. STAGE 1 - ideation STAGE 2 - evaluation STAGE 3 - prototyping STAGE 4 - testing STAGE 5 - implementation
- Why is innovation so important for firms to compete in many industries?
- What are some advantages of technological innovation? Disadvantages?
- Why do you think so many innovation projects fail to generate an economic return?
- What is the innovation funnel?
- Why do you think so many innovation projects fail?
CHAPTER 2 - SOURCES OF INNOVATION
Innovation can arise from many different sources.
- Individuals
- Universities
- Government laboratories and incubators
- Private nonprofit organizations
- Firms Innovation Innovation begins with the generation of new IDEAS. The ability to generate new and useful ideas is termed creativity. CREATIVITY is defined as the ability to produce work that is useful and novel. Innovation requires combining a creative idea with resources and expertise that make it possible to embody the creative idea in a useful form. 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 INVENTORS - most successful inventors possess the following traits:
- They have mastered the basic tools and operations of the field in which they invent, but they have not specialized solely in that field; instead they have pursued two or three fields simultaneously, permitting them to bring different perspectives to each.
- They are curious and more interested in problems than solutions.
- They question the assumptions made in previous work in the field.
- They often have the sense that all knowledge is unified. They seek global solutions rather than local solutions, and are generalists by nature Individuals as Innovators:
- (^) Adv: Can quickly adapt and pivot, often highly motivated by personal passion or curiosity
- (^) Disadvantages: May lack resources, broader skills, and networks to bring innovations to market effectively. Firms as Innovators:
- (^) Adv: Have resources, a skilled workforce, and channels to market. Can absorb failed projects more easily.
- (^) Dis: May face internal resistance to change, slower decision-making processes, and innovation may not be as disruptive due to existing market positions. Universities as Innovators:
- (^) Adv: Focus on cutting-edge research, freedom to explore without immediate commercial pressures.
- (^) Dis: May lack focus on practical applicability, and face challenges in commercializing technologies. Government Institutions as Innovators:
- (^) Adv: Can fund large-scale projects, focus on long-term societal benefits without immediate profit needs.
- (^) Dis: Innovation may be slowed by bureaucratic processes, political influences. Nonprofit Organizations as Innovators:
- (^) Adv: Can address social issues directly, motivated by mission rather than profit.
- (^) Dis: Limited resources, may struggle to scale solutions without commercial mechanisms. INNOVATION BY USERS - is when everyday people, while using things, come up with smart solutions or new ideas to make their lives better. Sometimes, these ideas become big inventions that not only help the person who thought of them but also many others around the world. RESEARCH AND DEVELOPMENT BY FIRMS - One of the most obvious sources of firm innovation is the firm’s own research and development efforts. Research is targeted at increasing scientific knowledge for its own sake. It may or may not have any long-term commercial application. Development involves applying knowledge to create useful devices, materials, or processes. R&D covers a wide range of activities, from early exploration to specific commercial implementations.
- What are some of the advantages and disadvantages of ( a ) individuals ( b ) firms ( c ) universities, ( d ) government institutions, ( e ) nonprofit organizations as innovators?
- What is the difference between risk and uncertainty?
- What traits appear to make individuals most creative?
- How could firms be more creative?
- How can the State encourage entrepreneurs and companies to foster innovation? What is the element behind the process of innovation that the State can contribute to remove?
- Innovation vs invention?
DISRUPTIVE INNOVATION - an innovation that changes the competition in an industry on the basis of a new value proposition. requires enabling technology, an innovative business model, and a coherent value network. SUSTAINING INNOVATION - tend to maintain a rate of performance improvement; that is, they give customers something more or better in the attributes they already value is the process of innovating to improve products and services for existing customers.
- What are some reasons that established firms might resist adopting a new technology?
- Are well-established firms or new entrants more likely to develop and/or adopt new technologies? Why?
- What are some reasons that both technology improvement and diffusion exhibit s-shape curves?
- 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?
- In what industries would you expect to see particularly short technology cycles? In what industries would you expect to see particularly long technology cycles? What factors might influence the length of technology cycles in an industry?
CHAPTER 4 - STANDARDS BATTLES AND DESIGN DOMINANCE
DOMINANT DESIGN - A single product or process architecture that dominates a product category—usually 50 %or more of the market. A dominant design is a “de facto standard,” meaning that while it may not be officially enforced or acknowledged, it has become a standard for the industry. A technology that is adopted usually generates revenue that can be used to further develop and refine the technology. Two of the primary sources of increasing returns are learning effects and network externalities (1) LEARNING EFFECTS - As a technology is adopted, it generates sales revenues that can be reinvested in further developing and refining the technology. as firms accumulate experience with the technology, they find ways to use the technology more productively, including developing an organizational context that improves the implementation of the technology. Thus, the more a technology is adopted, the better it should become. absorptive capacity - The ability of an organization to recognize, assimilate, and utilize new knowledge. (2) NETWORK EXTERNALITIES - positive consumption externalities , this is when the value of a good to a user increases with the number of other users of the same or similar good. installed base - The number of users of a particular good. For instance, the installed base of a particular video game console refers to the number of those consoles that are installed in homes worldwide. complementary goods - Additional goods and services that enable or enhance the value of another good. For example, the value of a video game console is directly related to the availability of complementary goods such as video games, peripheral devices, and services such as online gaming.
- (^) DIRECT EXTERNALITIES - exist when an increase in the size of a network increases the number of others with whom one can communicate directly - (^) INDIRECT EXTERNALITIES - exist when an increase in the size of a network expands the range of complementary products available to the members of the network GOVERNMENT REGULATION - Sometimes the consumer welfare benefits os having a single dominant design prompts gov organizations to intervene, imposing a standard. A firm that is able to lock in its technology as the dominant design of a market usually earns huge rewards and may dominate the product category through several product generations. 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 ARE WINNER-TAKE-ALL MARKETS GOOD FOR CONSUMERS? Network externalities suggest users get more value when one technology dominates. However, economics emphasizes the benefits of competition. Should the government intervene when network externalities create a natural monopoly? Potential for monopoly costs to customers (e.g., price gouging, restricted product variety, etc.) also rise with cumulative market share. MULTIPLE DIMENSIONS OF VALUE - In many increasing returns industries, the value of a technology is strongly influenced by both network externality value and technology’s standalone value (1) NETWORK EXTERNALITY VALUE - includes the value created by the size of the technology’s installed base and 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 (2) TECHNOLOGY’S STANDALONE VALUE - Includes such factors as the functions the technology enables customers to perform, Its aesthetic qualities and its ease of use, etc. MARKET SHARE - is the percentage of market accounted for by a specific entity
- What are some of the sources of increasing returns to adoption?
- What are some examples of industries that demonstrate increasing returns to adoption?
- 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?
- What determines whether an industry is likely to have one or a few dominant designs?
- Are dominant designs good for consumers? Competitors? Complementors? Suppliers?
CHAPTER 6 - DEFINING THE ORGANIZATIONS STRATEGIC DIRECTION
A coherent technological innovation strategy leverages the firm’s existing competitive position and provides direction for future development of the firm. ASSESSING THE FIRMS CURRENT POSITION - To assess the firm’s current position in the marketplace, it is useful to begin with some standard tools of strategic analysis for analyzing the external and internal environment of the firm. EXTERNAL ANALYSIS (1) PORTERS FIVE FORCE MODEL
- (^) DEGREE OF EXISTING RIVARY - Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers. - (^) THREAT OF ENTRANTS - Determined by attractiveness of industry, height of entry barriers - (^) 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. - (^) 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. - (^) THREAT OF SUBSTITUTES - Determined by number of potential substitutes, their closeness in function and relative price. Role of complements - products or services that enhance the use- fulness or desirability of another product. (2) STAKE HOLDER ANALYSIS - A strategic stakeholder analysis emphasizes the stakeholder management issues that are likely to impact the firm’s financial performance, while a normative stakeholder analysis emphasizes the stakeholder management issues the firm ought to attend to due to their ethical or moral implications. stakeholder - Any entity that has an interest (“stake”) in the organization. INTERNAL ANALYSIS (1) PORTERS VALUE CHAIN Primary activities include inbound logistics (all activities required to receive, store, and disseminate inputs), operations (activities involved in the trans- formation of inputs into outputs), outbound logistics (activities required to collect, store, and distribute outputs), marketing and sales (activities to inform buyers about products and services and to induce their purchase), and service (after-sales activities required to keep the product or service working effectively). Support activities include procurement (the acquisition of inputs, but not their physical transfer, as that would be covered in inbound logistics), human resource management (activities such as recruiting, hiring, training, and compensating personnel), technology development (activities involved in developing and managing equipment, hardware, soft- ware, procedures, and knowledge necessary to transform inputs into outputs), and infrastructure (functions such as accounting, legal counsel, finance, planning, public affairs, government relations, quality assurance, and general management necessary to ensure smooth functioning of the firm). VALUE CREATION AND COMPETITIVE ADVANTAGE The competitive advantage occurs when a company’s profitability is greater than the industry’s average profitability. Company’s profitability depends on the amount of produced (i.e., value creation ). The greater the perceived value by customers in relation to a product, the more the company can charge. A product’s price is usually less than the value placed on it by the average customer. This causes customers to capture consumer surplus .Company’s profitability is higher when cost of production is decreased.
COMPETITIVE ADVANTAGE - Sustainable competitive advantage arises from the ownership and control of resources and distinctive capabilities, because:
- (^) They allow firms to obtain unique products and services;
- (^) Other firms cannot easily buy them in the market;
- (^) Other firms cannot easily replicate, reproduce, copy them;
- (^) Buyers are willing to pay a premium price for the exclusive price-value proposition of the firms’ products and services. CORE COMPETENCES A competence becomes a core competence when the well-performed activity is central to the company’s strategy, competitiveness and profitability. Often, a core competence results from collaboration among different parts of an organization. Typically, core competencies reside in a company’s people, not in its physical assets. A core competence gives a company a potentially valuable competitive and collaborative advantage. DYNAMIC CAPABILITIES - A set of abilities that make a firm more agile and responsive to change STRATEGIC INTENT BUSINESS MODEL - A business model outlines how a company creates, delivers, and captures value. It describes the fundamental logic of how a company operates and generates revenue.
- What is the difference between a strength, a competitive advantage, and a sustain- able competitive advantage?
- What makes an ability (or set of abilities) a core competency?
- Why is it necessary to perform an external and internal analysis before the firm can identify its true core competencies?
- How is the idea of “strategic intent” different from models of strategy that empha- size achieving a fit between the firm’s strategies and its current strengths, weak- nesses, opportunities, and threats (SWOT)?
- Can a strategic intent be too ambitious?
CHOOSING AND MONITORING PARTNERS
1. PARTNER SELECTION
- (^) Resource fit refers to the degree to which potential partners have resources that can be effectively integrated into a strategy that creates value
- (^) Strategic fit refers to the degree to which partners have compatible objectives and styles. Firms can also evaluate potential partners using many of the same tools used to evaluate the firm’s own position and strategic direction: assessing how collaboration with the partner is likely to impact the firm’s opportunities and threats in its external environment; its internal strengths, weaknesses, or potential for sustainable competitive advantage; and the firm’s ability to achieve its strategic intent. 2.PARTNER MONITORING AND GOVERNANCE governance - The act or process of exerting authority and/or control. Increased competition, rapidly evolving/complex technologies, shorter product lifecycles and so on all contribute to the need for collaboration A variety of strategic alliances are possible, with varying risks involved in each Selecting and managing the right partnerships is critical to success. ALLIANCE CONTRACTS Legally bind- ing contractual arrangements to ensure that partners (a) are fully aware of their rights and obligations in the collaboration and (b) have legal remedies avail- able if a partner should violate the agreement. EQUITY OWNERSHIP When each partner contributes capital and owns a specified right to a percentage of the proceeds from the alliance. RELATIONAL GOVERNANCE Self-enforcing norms based on goodwill, trust, and reputation of the partners. These typically emerge over time through repeated experiences of working together.
- What are some advantages and disadvantages of collaborating on a development project?
- How does the mode of collaborating (e.g., strategic alliance, joint venture, licensing, outsourcing, collective research organization) influence the success of a collaboration?
- Identify an example of collaboration between two or more organizations. What were the advantages and disadvantages of collaboration versus solo development? What collaboration mode did the partners choose? What were the advantages and disadvantages of the collaboration mode?
- If a firm decides it is in its best interest to collaborate on a development project, how would you recommend the firm choose a partner, a collaboration mode, and governance structure for the relationship?
CHAPTER 11 - MANAGING THE NEW PRODUCT DEVELOPMENT PROCESS
OBJECTIVES OF THE NEW PRODUCT DEVELOPMENT PROCESS
(1) Maximizing Fit with Customer Requirements (2) Minimizing Development Cycle Time
- development cycle time The time elapsed from project initiation to product launch, usually measured in months or years. (3) Controlling Development Costs SEQUENTIAL DEVELOPMENT PROCESS VS PARTLY PARALLEL DEVELOPMENT PROCESS - A development process in which some (or all) of the development activities at least partially overlap. That is, if activity A would precede activity B in a partly parallel development process, activity B might com- mence before activity A is completed. TOOLS FOR IMPROVING THE NEW PRODUCT DEVELOPMENT PROCESS (1) Stage-Gate Processes (2) Quality Function Deployment (QFD)—The House of Quality (3) Design for Manufacturing OPEN INNOVATION
- What are some of the advantages and disadvantages of a parallel development process? What obstacles might a firm face in attempting to adopt a parallel process?
- Name some industries in which a parallel process would not be possible or effective.
- What kinds of people make good project champions? How can a firm ensure that it gets the benefits of championing while minimizing the risks?
- Is the stage-gate process consistent with suggestions that firms adopt parallel processes? What impact do you think using stage-gate processes would have on development cycle time and development costs?
- What are the benefits and costs of involving customers and suppliers in the development process?
CHAPTER 13 - CRAFTING A DEVELOPMENT STRATEGY
A large part of the value of a technological innovation is determined by the degree to which people understand and use it (i.e., value-in-use or value-in-context ). An effective deployment strategy is thus a key element in a technological innovation strategy. Some of the key elements of an effective deployment strategy include timing, licensing and compatibility, pricing, distribution , and marketing. STRATEGIC LAUCH TIMING - Firms can use timing of entry to take advantage of business cycle or seasonal effectS. Timing also signals customers about the generation of technology the product representS. Timing must be coordinated with production capacity and complements availability, or launch could be weak. LICENSING AND COMPATIBILITY - Protecting a technology too little can result in low quality complements and clones; protecting too much may impede development of complements. BACKWARD COMPATIBLE - When products of a technological generation can work with products of a previous generation. For example, a computer is backward compatible if it can run the same software as a previous generation of the computer. PRICING - Price influences product positioning, rate of adoption, and cash flow PENETRATION PRICING - When the price of a good is set very low to maximize the good’s market share. FREEMIUM - A pricing model where a base product or service is offered for free, but a premium is charged for additional features or service. DISTRIBUTION DIRECT SELLING - Gives firm great control over selling process, price and service. Can be expensive and/or impractical. INTERMEDIARIES - Manufacturers’ representatives: independent agents that may promote and sell the product lines of one or a few manufacturers. Useful for direct selling when its impractical for manufacturer to have own direct sales force for all markets. Wholesalers: firms that buy manufacturer’s products in bulk then resell them (typically in smaller, more diverse bundles). Handles transactions with retailers and provides transporta(on. MARKETING VIRAL MARKETING Sending information directly to targeted individuals in effort to stimulate word-of-mouth advertising. Individuals are typically chosen on the basis of their position or role in particular social networks. Innovators and Early Adopters respond to marketing that offers significant technical content and emphasizes leading-edge nature of product .Need media with high content and selective reach. Early Majority responds to marketing emphasizing product’s completeness , ease of use , consistency with customer’s life, and legitimacy. Need media with high reach and high credibility. Late Majority and Laggards respond to marketing emphasizing r eliability, simplicity, and cost-effectiveness. Need media with high reach, high credibility, but low cost.
- Identify one or more circumstances when a company might wish to delay introducing its product.
- What factors will (or should) influence a firm’s pricing strategy
- What marketing strategies are used by the producers of the product you identified for Question 3? What are the advantages and disadvantages of these marketing strategies?
