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INTRODUCTION TO INNOVATION MANAGEMENT (INN001, 5 p.). Lecture 10 September 2007 Olof Ejermo From ”positions” to ”paths”. Two fundamental questions underlying innovation strategy: Where are you today…? … and where can you go tomorrow?

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Introduction to innovation management inn001 5 p l.jpg


Lecture 10 September 2007

Olof Ejermo

From positions to paths l.jpg
From ”positions” to ”paths”

  • Two fundamental questions underlying innovation strategy:

    • Where are you today…?

    • … and where can you go tomorrow?

  • The first question is about ”positions” => see chapter 4 and last week’s theme

  • The second question is about paths and path-dependence => chapter 5

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Where can you go tomorrow?

  • Cannot choose freely where to go = firms innovative activities are path-dependent!

  • Innovators are constrained by (at least) two factors:

    • Present and likely future state of technological knowledge (not everything is technologically possible!)

    • Limits of corporate competence (no firm has the competence to do everything!)

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Learning is path-dependent

  • Innovation involves a lot of trial, error and learning

  • Learning tends to be incremental, since major step changes in too many parameters both increase uncertainty and reduce the capacity to learn

  • As a consequence, firms’ learning processes are path-dependent

  • Moving from one path of learning to another can be costly, even impossible…

  • … although success stories do exist

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How to jump to a new path?

  • Hire new employees with the desired competencies?

  • => Difficult, because a FIRM’s competencies are rarely the same as those of an INDIVIDUAL!

  • => A firm’s competencies are deeply embedded into specialized, interdependent and coordinated groups, teams, divisions…

  • Acquire a firm that has the desired competencies?

  • => Difficult because of different practices, cognitive structures and corporate cultures

  • Interesting alternative: ”Corporate ventures” => see further chapter 10

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Technological constraints depending on sector

  • Firms in different sectors follow different ”technological trajectories”

  • Some firms build up huge R&D laboratories and operate large-scale manufacturing plants, while others have merely 5-10 employees…

  • Some firms focus first and foremost on product innovation, while others focus more on process innovation

  • Some firms perform most of their innovative activities within the firm (”in-house”), while others rely heavily on external partners

  • For some firms the R&D lab is the central place for innovation, in other firms it is rather the ”design office” or the ”systems department”

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Five Major Technological Trajectories- the Pavitt taxonomy

  • Scale-intensive (e.g. cars, steel)

  • Science-based (e.g. electronics, chemistry, pharmaceuticals)

  • Specialized suppliers (e.g. instruments, software)

  • Supplier-dominated firms (e.g. agriculture, traditional manufacture)

  • Information-intensive (e.g. finance, retailing, publishing, travelling)

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Characteristics of innovation in the Pavitt taxonomy

  • Size of innovating firms – big in chemicals vehicles material, aircraft…, small in machinery, instr., software

  • Type of products – price sensitive in bulk goods, performance sensitive ethical drugs

  • Sources of innovation: suppliers in agriculture and traditional manufacture (e.g. textiles), customers in instrument machinery & software, in-house in chemicals & electronics…., basic research in ethical drugs

  • Locus of own innovation: R&D-labs in chemicals & electr., prod. eng. depts in automob. & bulk, design in machine building, systems depts in service industries

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’Revolutionary technologies’ and their impact on technological trajectories

  • Firm-specific technological trajectories change over time as improvements in the knowledge base open up new technological opportunities

  • Since the early 1980s: three fields pointed at as a source of new opportunities:

    • Biotechnology

    • Materials

    • Microelectronics and IT

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The biotechnology revolution technological trajectories

  • 1970s: ’Recombinant DNA’ as a scientific breakthrough (inserting new DNA into organisms)

  • Vast technological opportunities created through gene therapy, antisense technology, automated gene sequencing, gene discovery, genome analysis

  • Greatest impact on firms have so far been on R&D programmes in pharmaceuticals, agriculture and food

  • Many specialist biotech companies formed in response to these trends

  • New applications expected in textiles, leather, paper & pulp, oil refining, metals and mining, printing, environmental services, speciality chemicals etc.

  • However, many disappointments (no radical short-cuts to profitability in pharmaceuticals)

  • Important interactions between scientists, biotech entrepreneurs and user industries

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The materials revolution technological trajectories

  • Traditionally a wide separation between materials engineering and materials science

  • First step towards uniting the two was through chemicals R&D in 19th century…

  • … but it is only during the last half-century that the collaboration between engineering and science in materials has really started to thrive

  • Driven by powerful new scientific theories and improved instrumentation (microscopy, spectroscopy)

  • As a result, innovation in materials has become much more science-based

  • Examples: ceramics, polymers, optical fibres, semiconductors

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The microelectronics and IT revolutions technological trajectories

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The microelectronics and IT revolutions technological trajectories

  • The technological trajectories of firms and countries in software and hardware are becoming decoupled

  • Three features of the IT revolution that are increasingly important for innovation strategy:

    • Increasing systemic nature of economic and technological activities

    • Decreasing cost of product development

    • Disappearance of low/medium/hi-tech distinction

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Pavitt taxonomy applied to service sectors (Miozzo & Soete) technological trajectories

  • Pavitt taxonomy – early 80s (yet still highly useful)

  • Services have developed enormously and today account for ~ 2/3 employment in modern economies

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  • Supplier-dominated: technological trajectories

    • personal services (restaurants, hotels, barber etc)

    • publ. & social services (health, education, publ. adm)

  • Scale-intensive:

    • Physical networks: transport & travel, wholetrade & distribution

    • Information networks: finance, insurance, communications

  • Science-based and specialized suppliers :

    • Business services linked to: R&D, software, development and appl. of information technologies

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The rise of services (esp. science-based and specialized suppliers)

  • Importance highly growing

    • e.g. development and use of data,communication, storage and transmission

    • Banking, insurance, cell phones, air reservations etc.

  • Why?

    • Digitalization of information

      -> data processing to information handling, e.g. information network services, logistics, route planning

    • Single distribution network for a growing number of services:

      -> telecommunications infrastructure (mobile phone networks, internet etc)

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Trends in service industries suppliers)


  • Transportability

    • Increased storability & transmission of services: collapse of time & space

      • Traditionally services produced & consumed simultaneously

    • Higher demands on consumers knowledge

  • Tradability

    • New divisions of labor -> e.g. Indian software support

    • Linkage structures change: Factor endowments not as important, increased emphasis on linking up -> competitive advantages

  • Outsourcing of innovative activities

    • Much specialized activities are ’moved out’ of firms

    • Overall knowledge requirements & intensity rise

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Developing Firm-specific Competencies suppliers)

  • ‘Core competencies’, according to Hamel and Prahalad (1990):

    • Sources of competitive advantage is in competencies, not in products

    • Found in more than one product and in more than one division

    • Stress the importance of associated organizational competencies

    • Five or six core competencies

    • Multidivisional firms as bundles of core competencies

    • Importance of a strategic architecture

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The weaknesses of the suppliers)core competencies approach

  • Overestimates the potential of technology-based diversification in all industries

  • Underestimates the importance of background competencies for coordination and benefit from outside linkages

  • Underestimates the importance of emerging competencies due to rapidly developing fields (ICT, new materials, biotechnology, etc.)

  • The problem of ‘core rigidities’

  • Better concept: ’Distributed competencies’

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Technological paths in small firms suppliers)

  • Supplier-dominated firms

  • Specialized suppliers

  • ’Superstars’

  • New Technology-Based Firms (NTBFs)

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’Superstars’ suppliers)

  • Their existence and success is typically based on the exploitation of a major invention (e.g. Instant photography) or a rich technological trajectory (e.g. semiconductors, software)

  • They are often spin-offs from large firms or have tried to offer their inventions to large firms but were refused!

  • In some sectors entry barriers seem to be too high for superstars to emerge (chemistry, pharmaceuticals)

  • Main challenge is to manage the difficult transition from small to large, scale up production etc. while aggressively update its own and competitors’ original innovations

  • Examples: Polaroid, Xerox, Intel, Microsoft, Sony, Benetton, Lenovo

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New Technology-Based Firms suppliers)

  • They usually emerge from large firms or (corporate or academic) laboratories

  • Specialized in the supply of a key component, subsystem, service or technique to larger firms, who may often be their former employers

  • Question for the future is whether to aim to become a ’superstar’ or a ’specialized supplier’

  • Many NTBF entrepreneurs are not interested in long-term growth of their small firms, but prefer to sell them within a few years

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SUMMARY CHAPTER 5 suppliers)

  • Firms’ innovative activities are path-dependent, they rarely jump to a completely new path

  • We may discern at least five types of ’technological trajectories’

  • The emergence of revolutionary technologies open up new opportunities for a firm to change its paths

  • Concept of ’core competencies’ – use it carefully, the concept has weaknesses, especially for our understanding of how firms can learn new competencies

  • Small firms are more difficult to classify in terms of their technological paths