Strategic Management of Technological Innovation – Melissa Schilling

INTRODUCTION

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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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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.

Research Brief

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Discussion Questions1. 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.