Chapter 1

Introduction
Technological Innovation
The act of introducing a new device, method, or material for application to commercial or
practical objectives.

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.
• Product innovations help firms protect margins by offering new, differentiated features.
• Process innovations help make manufacturing more efficient.

For example, at Johnson & Johnson, products developed within the last five years account for
over 30 percent of sales, and sales from products developed within the past five years at 3M
have hit as high as 45 percent in recent years.

Advances in information technology have enabled faster innovation.

 Computer Aided Design /Computer Aided Manufacturing 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.

Toyota offered over 200 car models.

Samsung produced more than 43 unique smartphones.
As firms such as Toyota, Samsung, and others adopt these new technologies and increase their
pace of innovation.
The net results are greater market segmentation and rapid product obsolescence.2 Product life
cycles

• 4 to 12 months for Software.

• 12 to 24 months for Computer Hardware and Consumer Electronics.
• 18 to 36 months for Large Home Appliances.

Impact of technological innovation 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. For example, pollution, erosion, antibiotic-
resistant bacteria.

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. For example, The New Product
Development Funnel in Pharmaceuticals.

According to a 2012 study by the Product Development and Management Association, only
about one in nine projects that are initiated is successful, and of those that make it to the point
of being launched to the market, only about half earn a profit.

The innovation process is thus often conceived of as a funnel, with many potential new product
ideas going in the wide end, but very few making it through the development process.

The Strategic Management of Technological Innovation

Improving a firm’s innovation success rate requires a well-crafted strategy.

• A firm’s innovation projects should align with its resources and objectives.

• leveraging its core competencies and helping it achieve its strategic intent

• Organizational structure and control systems should encourage the generation of

innovative ideas.
• Ensuring efficient implementation.

New product development process should maximize the likelihood of projects being both
technically and commercially successful. To achieve these things, A firm needs
• An in-depth understanding of the dynamics of innovation.
• A well-crafted innovation strategy.
• Well-designed processes for implementing the innovation strategy.

Discussion Questions

1. 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?

Chapter 2
Sources of Innovation

Innovation can arise from many different sources. It can originate with individuals, the research.
efforts of universities, government laboratories, organizations. One primary engine of
innovation is firms. An even more important source of innovation arise from the linkages
between sources.

Innovation networks, utilizing knowledge and resources from multiple sources, are powerful
agents of technological advancement, forming a complex system where specific innovations
may emerge from components or linkages.

Creativity
Is the ability to produce work that is useful and novel.

Individual creativity is a function of:

• Intellectual abilities (for example, ability to articulate ideas).

• Knowledge (for example, understand field, but not wed to paradigms. Elon Musk Zip2,
PayPal, Space X, Tesla Motors and Solar City. Gavriel Iddan Pill Cam).
• Personality (for example, Openness to Experience, confidence in own capabilities).
• Motivation (for example, rely on intrinsic motivation).
• Environment (for example, support and rewards for creative ideas).

Organizational Creativity is a function of:

• Creativity of individuals within the organization.

• Social processes and contextual factors that shape how those individuals interact and
behave.
• Methods of encouraging/tapping organizational creativity:
 Idea collection systems (for example, NCR’s suggestion box; Google’s idea
management system; Honda’s Employee-driven Idea System EDIS; Bank One’s One
Great Idea).
 Creativity training programs. Intel, Motorola, 3M, and HP. IDEO Mock Ups.
 Culture that encourages (but doesn’t directly pay for) creativity.

Translating Creativity into Innovation

1- Inventors
Innovation is more than the generation of creative ideas; it is the implementation of those ideas
into some new device or process. Innovation requires combining a creative idea with resources
and expertise that make it possible to embody the creative idea in a useful form.

One 10-year study of inventors concludes that the most successful inventors possess the
following characteristics:
• Have mastered the basic tools and operations of the field in which they invent, but they
will have not specialized solely on that field.
• Are curious, and more interested in problems than solutions.
• Question the assumptions made in previous work in the field.
• Often have the sense that all knowledge is unified. They will seek global solutions rather
than local solutions and will be generalists by nature.

Such individuals may develop many new devices or processes but commercialize few.
What Breakthrough Innovators Have in Common.
A study of identified some key commonalities:

1. They felt a sense of “separateness and tended to challenge rules.

2. They had intense faith in their ability to achieve their objectives.
3. They were keenly idealistic.
4. They began with modest means and worked very hard for their success.
5. They were often self-taught.
Albert Einstein, Overthrew Physics; Marie Curie, Lord Kelvin Age of Earth; Elon Musk, Reusable
Rockets

2- Innovation by Users.

Users have a deep understanding of their own needs, and motivation to fulfill them.

While manufacturers typically create innovations to profit from their sale, user innovators often
initially create innovations purely for their own use.

For example, Laser sailboat developed by Olympic sailors; Indermil tissue adhesive based on
Superglue. 1970 Failed, 1980 Loctite approached by Pharma Company, 3 years, Failed. 1988
Bernie Bolger was approached by Prof. Alan Roberts, After Bradford Fire. 2002 Approved by
FDA. 2003 Selling in 40 Countries.

3- Research and Development by Firms.

Research refers to both basic and applied research.

• Basic research aims at increasing understanding of a topic or field without an immediate

commercial application in mind.
 • Applied research aims at increasing understanding of a topic or field to meet a specific
need.
Development refers to activities that apply knowledge to produce useful devices, materials, or
processes.

1950 – 1960 Science Push approaches suggest that innovation proceeds linearly:
• Scientific discovery → invention → manufacturing → Marketing.
1965 onward Demand-Pull approaches argued that innovation originates with unmet customer
need:
• Customer suggestions → invention → Manufacturing.
Most current research argues that innovation is not so simple and may originate from a variety
of sources and follow a variety of paths.

4- Firm Linkages with Customers, Suppliers, Competitors, and Complementors.

In some circumstances, firms might be bitter rivals in a particular product category and yet
engage in collaborative development in that product category or complementary product
categories. For instance, Microsoft competes against Rockstar.

Most frequent collaborations are between firm and their customers, suppliers, and local
universities.
• Collaborates with: North America (%) Europe (%) Japan (%)
• Customers 44 38 52 Suppliers 45 45 41 Universities 34 32 34
External versus Internal Sourcing of Innovation.
• External and internal sources are complements.
• Firms with in-house R&D also heaviest users of external collaboration
• networks.
• In-house R&D may help firm build absorptive capacity that enables it to better use
information obtained externally.

5- Universities and Government-Funded Research.

Universities.

• Many universities encourage research that leads to useful innovations.

• Bayh-Dole Act of 1980 allows universities to collect royalties on inventions funded with
taxpayer dollars. Except for Sweden and Italy.
Led to rapid increase in establishment of technology-transfer offices.
• Revenues from university inventions are still very small, but universities also contribute to
innovation through publication of research results.

Governments invest in research through:

• Their own laboratories.
• Science parks and incubators.
• Grants for other public or private research organizations.

Private Nonprofit Organizations.

• Many nonprofit organizations do in-house R&D, fund R&D by others, or both.
• The top nonprofit organizations that conduct a significant amount of R&D include
organizations such as the Howard Hughes Medical Institute, the Mayo Foundation, the
Memorial Sloan Kettering Cancer Center, and SEMATECH.

6- Innovation in Collaborative Networks

Collaborations include (but are not limited to):

• Joint ventures.
• Licensing and second-sourcing agreements.
• Research associations.
• Government-sponsored joint research programs.
• Value-added networks for technical and scientific exchange.
• Informal networks.

Collaborative research is especially important in high-technology sectors where individual firms

rarely possess all necessary resources and capabilities.
As firms forge collaborative relationships, they weave a larger network that influences the
diffusion of information and other resources. interfirm networks can enable firms to achieve
much more than they could achieve individually. Furthermore, the structure of the network is
likely to influence the flow of information and other resources through the network

The size and structure of this network changes over time due to changes in alliance activity.

Technology Clusters
are regional clusters of firms that have a connection to a common technology.May work with
the same suppliers, customers, or complements.

Agglomeration Economies (The benefits firms reap by locating in close geographical proximity
to each other):
• Proximity facilitates knowledge exchange.
• Cluster of firms can attract other firms to area.
• Supplier and distributor markets grow to service the cluster.
• Cluster of firms may make local labor pool more valuable by giving them experience.
• Cluster can lead to infrastructure improvements (for example, better roads, utilities, schools,
etc.).

Agglomeration downsides: Increased competition, knowledge leakage, congestion and

pollution.

Likelihood of innovation activities being geographically clustered depends on:

 • The nature of the technology.
• For example, its underlying knowledge base or the degree to which it can be protected by
patents or copyright, the degree to which its communication requires close and frequent
interaction;
• Industry characteristics.
• For example, degree of market concentration or stage of the industry lifecycle, transportation
costs, availability of supplier and distributor markets.
• The cultural context of the technology.
• For example, population density of labor or customers, infrastructure development, national
differences in how technology development is funded or protected.

Technological spillovers
occur when the benefits from the research activities of one entity spill over to other entities.
Likelihood of spillovers is a function of:
• Strength of protection mechanisms (for example, patents, copyright, trade secrets).
• Nature of underlying knowledge base (for example, tacit, complex).
• Mobility of the labor pool.

Discussion questions:

1. What are some of the advantages and disadvantages of (a) individuals as innovators, (b) firms
as innovators, (c) universities as innovators, (d) government institutions as innovators, (e)
nonprofit organizations as innovators?
2. What traits appear to make individuals most creative? Are these the same traits that lead to
successful inventions?
3. Could firms identify people with greater capacity for creativity or inventiveness in their hiring
procedures?
4. To what degree do you think the creativity of the firm is a function of the creativity of
individuals, versus the structure, routines,

5. Several studies indicate that the use of collaborative research agreements is increasing
around the world. What are some reasons collaborative research is becoming more prevalent?
 Chapter 3
Types and patterns of Innovation

Several dimensions are used to categorize innovations. These dimensions help clarify how
different innovations offer different opportunities (and pose different demands) on producers,
users, and regulators.

The path a technology follows through time is termed its technology trajectory. This path may
refer to its rate of performance improvement, its rate of diffusion, or other change of interest.
Many consistent patterns have been observed in technology trajectories, helping us understand
how technologies improve and are diffused.

Types of Innovation
Product versus Process Innovation.

Product innovations are embodied in the outputs of an organization – its goods or services.
Snapchat’s Filters
• Process innovations are innovations in the way an organization conducts its business, such as
in techniques of producing or marketing goods or services. Robots in Model3, Genetic
Algorithm
• Product innovations can enable process innovations and vice versa. Process to Product:
Metallurgical technique, Bicycle Chain, Multiple Gear Bicycle. Product to Process: Advanced
Workstations, CAM.
What is a product innovation for one organization might be a process innovation for another.
• For example, UPS creates a new distribution service (product innovation) that enables its
customers to distribute their goods more widely or more easily (process innovation).