4E1: Technological Innovation Research and Practice Session 5' Course Review

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4E1 Technological Innovation Research and
PracticeSession 5.Course Review

• Elizabeth Garnsey, Tim Minshall
• http//www-mmd.eng.cam.ac.uk/ctm/teaching/4e1.html
  
• ewg_at_eng.cam.ac.uk

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OBJECTIVES OF COURSE

• Find out about key developments in knowledge
  based industries
• Understand drivers of technology industry
  evolution
• Learn frameworks and models to analyse
  innovation
• Skills communicating, research, report writing
  

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Session 1 Industries
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Product Class and Industry structure EXAMPLE
who are players in car industry?
Potential Entrants

COMPETING PRODUCERS
SUPPLIERS
BUYERS
Firms producing substitute products
Michael Porter 1980

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2. Industry as Production or Value-adding Chain
e.g. Car industry
Car Hire

Car Producer

Dealer
Private consumer
Producer

Corporate Fleets
Car Producer
Sometimes firms providing a stage in production
chain for many sectors viewed as an industry -
e.g. packaging
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3. Business Eco-system approach
Social and economic environment
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Approaches to Industry Analysis (reading list)

• 1. Industry structure approach
• BARNEY, J. 199, GAINING AND SUSTAINING
  COMPETITIVE ADVANTAGE
• OR the original
• PORTER .M 1980, COMPETITIVE .STRATEGY
  especially chapters
• 10 - 12 and Appendix B
• 2. Industry dynamics approach
• UTTERBACK, J. 1994 MASTERING THE DYNAMICS OF
  INNOVATION
• AFUAH, A.I 1998 INNOVATION MANAGEMENT,
  STRATEGIES, IMPLEMENTATION AND PROFIT
• 3. Eco-system approach
• JAMES MOORE, THE DEATH OF COMPETITION
  summarised in Predators and Prey A New Ecology
  of Competition
• Harvard Business Review 1993

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Key trends product and process innovations
entries/exits of producer firms
Number of firms
Rate of major innovation
Early stage
Maturation
Decline
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Industry life cycle - does it apply to PC
industry?
?
Experiments Disruption
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Standards, network effects

• Design standards make possible inter-changeability
  
• Dominant design meets critical user needs
• Leading standard - incentives to provide
  ancillary products and services.
• In IT industries technical standards allow both
• Inter-operability between equipment
• Interaction between users
• Where a product helps users to interact
• Forms a network connected by the product.
• May be of greater value as more people use a
  product
• Metcalfes law

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Session 2 Technologies
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Technology cycle diffusion of knowledge

• Emergent - knowledge newly applied outside the
  lab
• Diffusing - applications are increasingly taken
  up in industry
• Assimilated - widely diffused technique
• Ageing - approaching the end of their industrial
  life
• Obsolete - discontinued, replaced by new products
  and processes
• High tech industry is based on technologies
  emerging or newly diffusing from research base
• Relative concept

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Change and uncertainty
Technology discontinuity
Performance
Turbulence
Time / Investment / Effort
Adapted from Bower Christensen (1995)
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Session 3 Products and markets
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What is a Market? The high tech marketing
view a set of actual or potential customers
for a given set of products or services who
have a common set of needs or wants whose
interact ions affect their purchases Not just
aggregate sales (metric used to measure demand by
some) Geoff Moore Crossing the Chasm,
Harper Business 1995 p. 28
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Greater the problems solved, the greater the
potential value of the innovation.
But who knows about the innovation ? Who can
it reach? Do potential users have purchasing
power?
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Mind the Gap
Early Adopters
Early Majority
Late Majority
Innovator- Enthusiasts
Laggards
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If network effects operate, markets may tip
towards the new technical standard
adapted from R. Henderson, MIT
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Probability the next consumer chooses to buy A
0
0
1
As share of installed base
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Innovation with a critical mass of adopters
Interactive Innovation (e.g. fax)
Source Rogers 1995 p. 314
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Nasdaq went up then down
6000
5000
4000
3000
2000
1000
0
1/12/99
4/12/99
7/12/99
1/12/00
4/12/00
7/12/00
1/12/01
1/12/98
4/12/98
7/12/98
4/12/01
7/12/01
1/12/02
10/12/99
10/12/00
10/12/98
10/12/01
Source Paul Abrahams, Financial Times
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Recurrence of cycles repeating patterns

• Previous booms have included (Nairn, 2002)
• Canals
• Railways
• Gas
• Electricity
• Telegraph
• Telephone
• But have any been as extreme as Internet?

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Hype cycle
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Session 4 Science base investment
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Established Firms as Innovators

• Established firms introduce many minor
  innovations
• - cumulatively very important
• Compare Model T with todays Ford
• Their innovations are mainly
• incremental,
• continuous,
• non-disruptive,
• competence-enhancing
• Competence-enhancing refers to impact of
• skills and knowledge on ability incentives to
  innovate

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Who has competitive advantage in face of an
innovation that alters skill requirements?
3. Well resourced entrants with relevant
marketing capabilities
2. New start ups
Extent to which innovation requires new
technological capabilities
high
4. Entrants with some relevant technological capab
ilities - if their known market enlarges
1. Incumbent Firms
low
low
high
Extent to which innovation requires new
marketing capabilities
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Concern over contribution of knowledge to wealth
creation - Interest in tech transfer

• Linear model of tech transfer
• Discovery through to application
• Triple Helix
• University Industry Government
• Third mission
• Teaching Research Application
• New social contract
• From linear process to active addressing of needs

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What we mean by alliances and partnerships?
Equity agreement
Informal agreement
Mergers Acquisitions
Contractual agreement
Joint Ownership
(Adapted from Lorange Roos, 1992)
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Alliances between small and large firms

• .. entrepreneurial firms are most at risk of
  being taken advantage of when the only resource
  they bring to these alliances is a new
  technology
• .. these alliances often create economic value
  but most of this value is appropriated by the
  large firm

Alvarez, S. A. and J. B. Barney (2001). "How
entrepreneurial forms can benefit from alliances
with large partners." Academy of Management
Executive 15(1) 139-148.
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Biotech-pharma alliances centre on discovery
Alliance Stage by year
Source Recombinant Capital and AstraZeneca
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Company growth
Employees, revenues, profits, value
Time
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Risk, value and funding
3 - 7 years
RD
Risk
IPO / Trade Sale
Market expansion
First product
Prototype
Idea
Time
Pre-seed grants
Zero stage
B round
Seed
A round
Mezzanine
Adapted from Siemens Venture Capital