Transcript Strategic Management of Technological Innovation – Melissa

Strategic Management of
Technological Innovation –
Melissa Schilling
INTRODUCTION
Importance of Technological Innovation
• 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
– Globalization has increased competitive pressure
• Product innovations help firms protect margins by
offering new, differentiated features.
– Sony produces more than 75 models of its Walkman that differ
in size, color, music format and other features
• Process innovations help make manufacturing more
efficient.
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Importance of Technological Innovation
– 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
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Why Innovation Is Becoming
More Important
• Technology is changing fast, new products come from new
competitors
• Fast changing environment, product lifetimes shorter, need to
replace products sooner
• Products are increasingly difficult to differentiate
• Customers are more sophisticated, segmented and
demanding, and expect more in terms of customization,
newness, quality and price
• Customers have more choice
• Apparently separate technologies come together
• Markets forming and changing fast
• With markets and technology changing fast, and good ideas
quickly copied, there is continual pressure to devise new and
better products, processes and services faster
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Innovation Is A Positive Message
• Tell people you are going to cut headcount - and lose their
support
• Tell people you are going to downsize - and lose their support
• Tell people you are going to reengineer - and 80% won't
cooperate
• Tell people you are going to be innovative - and win their
enthusiastic support
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Impact on Society
• The aggregate impact of technological innovation
can be seen in GDP (gross domestic product – the
total annual output of an economy).
• The average GDP per capita for the world has risen
steadily since 1971, particularly in the developed
economies
• Economist Robert Solow showed that the growth in
GDP was not solely on growth in labor and capital
inputs but technological changes as well (Nobel
prize 1981)
• GDP relates to improved quality of life and thus
technological innovation has a positive impact on
society
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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,
• E.g., pollution, erosion, antibiotic-resistant bacteria
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Impact on Society
GDP per Capita, 1971-2003; National Science Board
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Impact on Society
• The majority of R&D funds spent in OECD countries come
from industry, and percentage has been increasing.
• The role of the government in supporting this research has
been declining
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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.
• Pharmaceutical industry – 1 out of 10,000 compounds succeeds
as a new drug, 12 years from discovery to market at a cost of
$350 million
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Research Brief
How long does new product development take?
– Study by Abbie Griffin of 116 firms developing B2B
innovations found:
• Length of development cycle varies with innovativeness of
project
• Incremental improvements took 8.6 months from concept
to market introduction
• Next generation improvements took 22 months.
• New-to-the-firm product lines took 36 months
• New-to-the-world products took 53 months.
• Half of the companies had reduced their cycle time by an
average of 33% over last five years.
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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?
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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.
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