Managing Technological Innovation

Transcription

1 Articles

2 Managing Technological Innovation

3 Technological Innovation Definition: The process of developing new, marketed products and/or new production and delivery systems. Burgelman et al. 1A. Tinkering/ Experimenting 1B. Basic Research Activities Comprised of Four Different, Interrelated, but Necessary Activities 2. Prototype Design Development Activities 3. Product/ Process Development Activities 4. Market Development Activities

4 The overwhelming majority of innovative ideas do not become successful new products For one industry studied, of 3,000 unwritten ideas, 300 (10%) were written and submitted, 125 (4.2%) became small projects, 4 (0.1%) became major projects, 2 (0.06%) were launched and 1 (0.03%) was successful

5 1. S Curves in Technology Diffusion / Market Adoption Adoption is initially slow because the technology is unfamiliar and complements are as yet rare. New technology may require acquiring complex knowledge or experience New technology may require complementary resources to make it valuable (e.g., cameras not valuable without film). It accelerates as technology becomes better understood and complements increase. Eventually market is saturated/mature and rate of new adoptions declines. Technology diffusion tends to take far longer than information diffusion.

6 1. S curves in Technological Performance Similarly to adoption/diffusion, performance improves as knowledge base increases in both: the producer the user/consumer Enabling technologies, materials and complements improve as well.

7 Technology (Product) S Curves in Two Dimensions: Performance and Adoption Market Maturation Adoption/ Diffusion Time

8 Market Tipping Points and Rogers Adopter Categories Tipping Point Tipping Point

9 Everett M. Rogers Adopter Categories Innovators are adventurous, comfortable with a high degree of complexity and uncertainty, and typically have access to substantial financial resources. (~2.5% of eventual market) Early Adopters are well integrated into their social system & 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. (13.5%) Tipping Point is somewhere here where market growth accelerates! Early Majority adopt innovations slightly before the average member of a social system. They are typically not opinion leaders, but they interact frequently with their peers. (34%)

10 Everett M. Rogers Adopter Categories Late Majority approach innovation with a skeptical air, and may not adopt the innovation until they feel pressure from their peers. They may have scarce resources. (34%) Laggards 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. (16%) Market matures here (low margins, decelerating growth) unless new innovation occurs

11 Technologies do not always reach their market or performance limits Firms/users may be reluctant to adopt new technology because performance improvement is initially slow and costly, and they may have significant investment in incumbent technology (i.e. switching costs) Market never reaches initial tipping point May be displaced by new, discontinuous (substitute) technology. A discontinuous technology delivers similar market value by means of an entirely new knowledge base. Technological discontinuity may initially have lower performance than incumbent technology.

12 Technology Trajectories and Segment Zero Technologies often improve faster than customer requirements demand This enables low end technologies to eventually disrupt or meet the needs of the mass market. Thus, if the low end market is neglected, it can become a breeding ground for powerful competitors.

13 Standards/Platform Battles and Technology/Product Dominance Many industries experience strong pressure to select a single (or few) DOMINANT technology(s)/product(s). There are multiple dimensions shaping which technology rises to the dominant position. Firm strategies can influence several of these dimensions, enhancing the likelihood of their technologies rising to dominance. Big recent example: BluRay versus HDDVD

14 Reasons Dominant Designs Are Selected A. Increasing returns to adoption occurs when a technology becomes more valuable the more it is adopted. Two primary sources are: 1. Network Effects Value Users. Remember Exchange benefits, Complements, and Perceived Staying Power 2. Learning Effects B. Government Regulation C. Use of Market Power?

15 A2. Learning Effects The Producer s Learning Curve: As a technology is produced, producers learn to produce it more effectively and efficiently. Users Prior Learning and Absorptive Capacity: A user firm s prior experience influences its ability to recognize and utilize new information. Users of a particular technology build knowledge about that technology. The growing knowledge base helps firms use the technology more efficiently and effectively Learning effects suggest that technologies adopted earlier than others are likely to become better developed, making it difficult for other technologies to catch up.

16 Why Dominant Designs Are Selected B. Government Regulation Sometimes the consumer welfare benefits of having a single dominant design prompts government organizations to intervene, imposing a standard. E.g., the NTSC color standard in television broadcasting in the U.S.; the general standard for mobile communications (GSM) in the European Union. C. Use of Market Power? The Result of Dominance: Winner Take All Markets Natural monopolies, oligopolies Firms supporting winning technologies earn huge rewards; others may be locked out.

17 In Class Activity: Are Winner Take All Markets Good for Consumers? Consider Microsoft s domination (>90%) of the PC operating system market (Microsoft Windows) for the last 3 decades. In what ways has it benefited personal computing? Explain. In what ways has it hurt personal computing? Explain.

18 One theory suggests curve shapes are different; Network benefits grow logistically, while Monopoly costs grow exponentially. Where monopoly costs exceed network externality benefits, intervention may be warranted. Optimal market share is at point where lines cross.

19 Path Dependency Winner take all markets can have very different competitive dynamics than other markets. Increasing returns suggest Path Dependency: Market dominance depends greatly on the events that take place as the market evolves. Technologically superior products do not always win. A dominant technology can have far reaching influence; shaping future innovation in the area.

20 Timing of Innovation Increasing returns to adoption and path dependency suggest that timing of innovation (or entry into a product market) 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.

21 First Mover Advantages and Disadvantages 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

22 The market may often perceive first movers as having advantages because it has misperceived who the first mover really was.

23 Whether and When to Enter a Market? 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.

24 9 Factors Influencing Optimal Timing of Entry 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.

25 Factors Influencing Optimal Timing of Entry 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 (e.g., 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? Network and learning effects? If so, allowing competitors to get a head start can be very risky.

26 Factors Influencing Optimal Timing of Entry 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 (BRAND) likely to reduce the uncertainty of customers, suppliers, and distributors? Innovations from well respected firms may be adopted more rapidly, enabling earlier successful entry.

27 Agility Can 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 (agility) 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.