Patterns of Industrial Innovation

1. Patterns of Industrial Innovation Abernathy and Utterback Professor Aron S. Spencer

2. Two extremes of innovation • Small, entrepreneurial organizations • Creating new products • Rapid, major changes • Larger, high-volume organizations • Refining process, minimizing cost • Change is incremental in nature Professor Aron S. Spencer

3. Patterns of innovation • First, new product or system is introduced • Major system innovation is followed by • Many minor product improvements • Repeated system improvements • Significant economic gain (~50%) comes from small, incremental improvements • Mostly due to larger number of these • Improvements in economies of scale, quality Professor Aron S. Spencer

4. Major product introductions • Very fluid process; entrepreneurial act • Performance criteria may be vague • Cost is less of an issue for initial adopters • Closely tied to specific user needs • Often occurs in new companies rather than established companies Professor Aron S. Spencer

5. Transitional phase • As product volume increases, more emphasis is placed on process • Product becomes more standardized • Process innovation becomes more important • Semiconductors: • 3 new entrants were responsible for half of major product innovations, but only 1 of nine process improvements • 3 established units made one-fourth of product innovations, but 3 of nine process innovations Professor Aron S. Spencer

6. High tech markets • In markets where change is rapid (i.e., semiconductors, computers), process innovation is often not as great a source of competitive advantage as product innovation. • Caveat: Sometimes process innovation can lead to product innovation • Modern semiconductor product innovations are driven by process, i.e., die size and fabrication process size, Professor Aron S. Spencer

7. Transitional phase, cont. • When product hits “early mainstream”, with corresponding volume, focus shifts to minor enhancements • DC-3 • Basic design dominated aircraft design from 1936 through early 1950s • Increases in capacity, efficiency, and comfort, but no fundamental design changes • Cost dropped 50% per passenger mile during this time Professor Aron S. Spencer

8. Specific phase • Product is in mainstream/late mainstream; becomes more commodity-like • Focus becomes minimizing cost through process improvements • Very minor improvements in product performance, quality Professor Aron S. Spencer

9. Management issues • Managerial targets shift from vague concepts to specific goals as product moves through phases. • Different phases require different managerial skills Professor Aron S. Spencer

10. Fluid phase • Management must be flexible and adaptable • Goals are often changing; set by users • High ambiguity • Often many projects; fewer successes • Often general purpose equipment Professor Aron S. Spencer

11. Transitional phase • Managerial focus changes from product innovation to competitive environment • Management goals and targets become more formalized • Decreased ambiguity • Product success is established, organizational success less so. • Increase in specialized equipment Professor Aron S. Spencer

12. Specialized phase • Management focus become bureaucratic, focused on efficiency and productivity • Low ambiguity • Organizational success; often oligopoly • Highly specialized equipment Professor Aron S. Spencer

13. Changing Character of Innovation Professor Aron S. Spencer

14. Changing Character of Innovation Professor Aron S. Spencer

15. Summary • Know what phase you’re in! • Recognize different skill sets required for each phase • Recognize what phase industry is in • How can your company adjust focus to maximize advantage for the phase the industry is in? Professor Aron S. Spencer