Profiting from InnovationProfiting from Innovation

Uniqueness, Complementary Assets Uniqueness, Complementary Assets &&

the Structure of the Value Chainthe Structure of the Value Chain

The second of two key questions:The second of two key questions:

How will weCreate value?

How will weDeliver value?

How will weCapture value?

Everyone is after your lunch...Everyone is after your lunch...

Price

Cold

Cnew

Quantity

Or:Or:What determines the Inventor’s Share?What determines the Inventor’s Share?

Suppliers

Imitators, followers

Customers

Inventor

Is it the case thatIs it the case thatgreat ideas = pots of money?great ideas = pots of money?

Value captured

Value created(through “raw” invention)

Dell

Walmart

Coca cola

RC Cola

Apple

Xerox

Xerox (early)

Prozac

Viagra

Two key ideas:Two key ideas:

• Uniqueness (Appropriability)Uniqueness (Appropriability)

– – Controlling the knowledge generated by Controlling the knowledge generated by an innovation:an innovation:

being the only game in townbeing the only game in town• Complementary AssetsComplementary Assets

– – Controlling the assets necessary to expControlling the assets necessary to exploit theloit the knowledge generated by innovationknowledge generated by innovation

Uniqueness is very important:Uniqueness is very important:

• If a particular innovation, or the knowleIf a particular innovation, or the knowledge on which itdge on which it rests, can be completelrests, can be completely “appropriated” then they “appropriated” then the innovating firinnovating firm may be able to maintain a uniquem may be able to maintain a unique posposition. This is a tremendous source of baition. This is a tremendous source of bargainingrgaining power.power.

Sources of UniquenessSources of Uniqueness

• Intellectual property protectionIntellectual property protection – – PatentsPatents • • Finite lengthFinite length • • The right to prohibit “producing”The right to prohibit “producing” – – CopyrightsCopyrights •• The right to prohibit “copying”The right to prohibit “copying”• SecrecySecrecy – – Trade secrets & non compete clausesTrade secrets & non compete clauses – – ““Tacit” knowledgeTacit” knowledge• SpeedSpeed

Intellectual property protectionIntellectual property protection

• StrengthsStrengths • WeaknessesWeaknesses

SecrecySecrecy

• StrengthsStrengths • WeaknessesWeaknesses

SpeedSpeed

• StrengthsStrengths • WeaknessesWeaknesses

Uniqueness is powerful but oftenUniqueness is powerful but oftendifficult to maintaindifficult to maintain• Legal mechanisms can be costly to creLegal mechanisms can be costly to cre

ate, and thenate, and then even more costly to enforeven more costly to enforce: and they require publicce: and they require public disclosuredisclosure

• Secrecy is hard to maintainSecrecy is hard to maintain

• Speed is hard work and may be self limSpeed is hard work and may be self limitingiting

Complementary Assets: DefinitionComplementary Assets: Definition

• Those assets that allow a firm to make Those assets that allow a firm to make money, even if the innovation is not unimoney, even if the innovation is not unique.que.

• The answer to the question:The answer to the question: – – If our innovations were instantly aIf our innovations were instantly a

vailable to ourvailable to our competitors, would we scompetitors, would we still make money? Why?till make money? Why?

In the best case, complementary In the best case, complementary assets should be assets should be tightly heldtightly held• Complementary assets that are tightly Complementary assets that are tightly

held are notheld are not easily available to entrants easily available to entrants or to most competitorsor to most competitors

What kinds of Complementary AWhat kinds of Complementary Assets provide Advantage?ssets provide Advantage?• Things you can doThings you can do – – Manufacturing capabilitiesManufacturing capabilities – – Sales and service expertiseSales and service expertise • • CompetenciesCompetencies• Things you ownThings you own – – Brand nameBrand name – – Distribution channelsDistribution channels – – Customer relationshipsCustomer relationships • • ResourcesResources

In successful firms, competenciesIn successful firms, competenciescreate resources, and vice versa:create resources, and vice versa:

Competencies Resources

What is the relationship between Teece’s What is the relationship between Teece’s ideas and Porter’s 5 (really 7) forces?ideas and Porter’s 5 (really 7) forces?

Porter’s “5 Forces”:Porter’s “5 Forces”:Thinking about the balance of powerThinking about the balance of power

“Complementors”

Political,regulatory and institutional context

Entrants

Rivals

Substitutes

Suppliers Buyers

C.Assets/Uniqueness speak to RivalryC.Assets/Uniqueness speak to Rivalryand the Threat of Entry.and the Threat of Entry.

“Complementors”

Political,regulatory and institutional context

Entrants

Rivals

Substitutes

Suppliers Buyers

Porter reminds us to think about thePorter reminds us to think about thestructure of the value chain:structure of the value chain:

“Complementors”

Political,regulatory and institutional context

Entrants

Rivals

Substitutes

Suppliers Buyers

Powerful suppliers and buyers maPowerful suppliers and buyers may constrain profitabilityy constrain profitability

Suppliers Buyers

Who makes money when:Who makes money when:

Uniqueness is:

Easy to maintain

Hard to maintain

Freelyavailable

Tightlyheld

Complementary assets are:

Uniqueness & Complementary AUniqueness & Complementary Assetsssets over the Life Cycle:over the Life Cycle:

Managing growth means managingManaging growth means managingcomplementary assets:complementary assets:

Performance

Time

Which of my ComplementaryAssets are likely to be useful?

Discontinuity

Takeoff

Maturity

Uniqueness & Complementary AUniqueness & Complementary Assets: Strategic Imperativesssets: Strategic Imperatives• Defend uniqueness if possible and appDefend uniqueness if possible and app

ropriateropriate

• Build complementary assets in advancBuild complementary assets in advance of competitione of competition

• At moments of disruption ask:At moments of disruption ask:

– – Are my complementary assets useAre my complementary assets useful?ful?

– – If so, which ones?If so, which ones?

Making money from Innovation:Making money from Innovation:SummarySummary• Creating value is not enough:Creating value is not enough:• It is important to capture value as wellIt is important to capture value as well• Value can be captured through a variety ofValue can be captured through a variety of mm

echanisms, including uniqueness andechanisms, including uniqueness and complcomplementary assetsementary assets

• Value capture strategies change over the life Value capture strategies change over the life cyclecycle

• Technology strategy and business strategy Technology strategy and business strategy shouldshould thus be intimately linkedthus be intimately linked