Innovation in High-Tech Industries - 1 Prasada Reddy Lund University, Sweden
Literature Used • McGahan, A. (2004) ‘How Industries Change’, Harvard Business Review, pp. 86-94. • Bower, J.L. And Christensen, C.M. (1995) ‘Disruptive Technologies: Catching the wave’, Harvard Business Review, January. • Tushman, M. And Smith, W. (2002) ‘Organizational Technology: Technological Change, Ambidextrous Organizations and Organizational Evolution’, in J. Baum (ed) Companion to Organizations, Cambridge, MA: Blackwell Publishers.
Changes in High-Tech Industries 1 • In order to make intelligent investments in a company, one needs to understand how the whole industry is changing. • High-tech industries have some common features (e.g. Science-base). • All firms/industries in high-tech sectors will not have the same strategic options.
Changes in High-Tech Industries 3 • Mc Ghahan’s typology: • 1) Core Activities - recurring actions that attract and retain suppliers and buyers. • 2) Core Assets - durable resources, including intangibles that contribute to efficiency in core activities.
Changes in High-Tech Industries 4 • Firms facing ‘radical change’ have two options with risks: • 1) abandon established positions and move into emerging lines of business; • Or 2) reinvest in the established industry. • Firms facing ‘intermediating change must find unconventional ways to extract value from their ‘core resources’ by reconfiguring them by: • a) entering new business or even a new industry; or • b) selling of assets to former competitors.
Disruptive Technologies 1 • Bower and Christensen. • Companies tend to closely link up with their customers. • The processes and incentives that companies use to focus on main customers work well and companies become blind to new technologies that are creating emerging markets.
Disruptive Technologies 2 • Technologies that damage established companies are not radically new or complex, but: • 1) they present a different package of performance attributes that are nor valued by existing customers. • 2) the performance attributes that are not valued, improve at such a rapid rate the the new technology can later invade the established markets.
Disruptive Technologies 3 • Performance Trajectories - the rate at which the performance of a product has improved and is expected to improve in the future. • Every industry has a critical performance trajectory (e.g. Photocopiers - no. of copies per minute). • S - Curves (product performance - vertical axis & time/effort - horizontal axis).
Disruptive Technologies 4 • Draw a line showing the level of performance and the trajectory of performance improvement that the customers have historically enjoyed and are likely to expect in the future. • Then locate the estimated initial performance level of the new technology. • If the technology is disruptive, the point will lie far below the performance demanded by current customers.
Disruptive Technologies 5 • Determine whether the technology is disruptive or sustaining: • * Who supports it and who does not? (conflict among marketing and finance vs. Technical staff indicates a disruptive technology). • Identify its strategic significance: • * Ask the right questions (about functionality & demand) to the right people (not current main customers). • Locate initial markets for new technology - not through market research, but through low-cost experimentation with products and markets.
Disruptive Technologies 6 • Responsibility for building a disruptive technology business should be in an independent organization: • a) low-cost structure (low profit margins viable) • b) serves unique needs of a new category of customers. • When success is achieved, the merger of the independent organization with the parent organizations can be problematic.
Organizational Evolution 1 • Tushman and Smith • Survival depends on how firms develop their ‘dynamic capabilities’ (that derive stream of innovations) over time. • An ‘ambidextrous’ firm can resolve the innovators’ dilemma between ‘exploration’ and ‘exploitation’.
Organizational Evolution 2 • Technology cycles are composed of technological discontinuities that trigger periods of technological and commercial ferment (variation). • These cycles are punctuated by the emergence of (selection & retention) ‘dominant designs’, followed by periods of incremental and architectural innovations.
Organizational Evolution 3 • Eventually, a new substitute product representing another technological discontinuity appears, bringing about the next wave of variation, selection and retention. • For established firms these new discontinuities may be either ‘competence-enhancing’, or ‘competence-destroying’.
Organizational Evolution 4 • Eras of Ferment - discontinuous product variants. • Dominant Designs - basic process innovations. • Eras of Incremental Change - product modularization, architectural, continuous and market innovations.
Organizational Evolution 5 • Ambidextrous organizations have the ability to drive innovation stream by: • Combining contrasting and inconsistent organizational architectures in a single business unit. • Balancing contrasting and inconsistent ‘learning modes’ through simultaneous ‘exploration’ and ‘exploitation’. • Bridging cultural, structural and demographic contradictions - and regulating the resulting conflicts.