Title: Managing Innovation in Complex Products and Systems: Introduction
1SPRU Masters - Spring 2003 managing innovation in
complex products and systems
Life cycles, firm strategies industrial
evolution
Andy Davies
2Overview
- Explanations of innovation and industrial
evolution - Product life cycle - industries evolve from birth
to maturity (typical of mass production
industries) - Different pattern in CoPS
- Case study of mobile communications system
- Ericsson's strategies
3Product life cycle (PLC)
Product innovation
Process innovation
Rate of Major Innovation
Dominant design
Fluid Phase Transitional Specific Phase
Phase
(page xvii, James Utterback, 1994)
4PLC example
- 'The fundamental architecture of the automobile
was achieved by roughly 1925 - an enclosed steel
body mounted on a chassis, powered by an internal
combustion engine. And by the end of the 1930s,
improvement in product characteristics had
virtually ceased' - Mowery and Rosenberg, p57, Paths of Innovation,
1998) - 'The auto industry can be described as
technologically stagnant in terms of its product.
Cars are not fundamentally different from what
they were in 1946' (White, p258, 1971)
5Technological discontinuities
- Periodic waves of radical innovation
- New firms invade the traditional industry
- Technical change is 'competence destroying'
- Industry shakeout
- Established firms develop the capabilities and
learning to bridge discontinuities - Discontinuities explain consumer goods
- decline of US and EU
- rise of East Asian suppliers
6Example of a discontinuity
- 'This situation of limited product variety and
innovation began to change during the 1970sBy
the late 1970s, leading Japanese automobile firms
such as Toyota and Honda had perfected new
techniques for production organisation and
product development that made possible the
creation and manufacture of a broader variety of
higher-quality products than were available from
US producers' - Mowery and Rosenberg, p57-8, Paths of Innovation,
1998)
7PLC - strengths weaknesses
- Explains mass production industries
- Influenced how the West should respond to East
Asian challenge (e.g. cars, PC) - Critics of life-cycle models
- Problems with biological analogies 'development
of firms does not proceed according to the same
'grim' laws as living organisms' (Penrose, 1952) - Inter-industry sectoral differences in
innovation (Pavitt, 1984)
8PLC in CoPS?
- PLC doesn't apply to CoPS
- 'In other industries (e.g., military and
commercial aircraft, large turbine generators),
automated mass production is never achieved and
most innovation is product-oriented' (Michael
Porter, p194, Competitive Advantage 1985) - 'high volume, process intensive stages of the
product life cycle may never occurThus
competitive strategies are likely to centre upon
the design and development 'stages' of the
conventional product life cycle' (Miller and
Hobday et al, 1995)
9Innovation in CoPS
- No dominant design in the conventional sense
- Long-term stability at the systems integrator
level - despite technological discontinuities - Technical change is not necessarily competence
destroying
10Case of mobile communications
- Mobile handsets (consumer goods)
- An assembly designed, mass produced marketed in
high-volume to the final consumer - Mobile networks (CoPS)
- A system designed, implemented and configured for
mobile operators - Subsystems radio base stations, base station
controllers, switches, operationg systems, data
bases
11Mobile communications system
Mobile switching centre (MSC)
Mobile switching centre (MSC)
Subscriber data base
Roaming data base
Base station Controller (BSC)
Base station Controller (BSC)
Base station
Base station
Base station
Base station
Base station
Base station
12Products
Production
Users/markets
Firms
Operating subsystem
Ericsson Motorola Lucent T. Nortel NEC Siemens Nok
ia Alcatel Samsung Qualcomm
Business-to-business Business users heavily
involved in design and specifications
- CoPS
- unit, small batch, large batch production of
subsystems components - Project-based design implementation of systems
Switching subsystem
Base station controller
Radio base station
Nokia Sony/Ericsson Motorola Samsung, etc.
Consumer goods Mass marketing to final consumer
Mobile handset
Mass produced High volume
13Mobile handsets - PLC dynamics
- European suppliersmust reach levels of
efficiency in production achieved by Asian
manufacturers of high-volume consumer goods. The
associated dynamics of manufacturing design and
marketing of products with short life-cycles must
also be mastered (CEC, Green Paper, 1994) - Established suppliers - market share (2001)
- Nokia (35), Motorola (14) and Ericsson (7.5)
- New competition from East Asia
- Samsung (6.6), Panasonic (4.6), NEC (3.3)
14Generations of mobile systems
1G (1981) Analogue analogue transmission between handset RBS FDMA - divides channels by range of frequencies
2G (1992) Digital narrowband voice low-speed data 9.6kbps digital transmission TDMA (slice spectrum into time slots) CDMA (unique codes for each message)
3G (2001) Wide-band mix of circuit IP packet-switching overcomes 2g circuit-switch bottleneck (high-speed data) high-capacity (2mbps) services radio access based on CDMA
15Technical standards
NMT
GSM
W-CDMA
CDMA
CDMA2000
AMPS
D-AMPS
1G
2G
3G
1981-83 1992-5
2001
Significant technological evolution
Limited technological evolution
16Life cycle dynamics
New system generation phase
Architectural phase
Rate of Major Innovation
- Archictectural innovation
- RD efforts
- Development of standards
- Component systemic innovation
- Product design and manufacture
- Project development and implementation
17Ericsson
- Vertically-integrated telecoms manufacturer
(fixed and mobile networks) - Delivered world's first mobile system in 1981
- World ranking in 2001
- No. 1 supplier of mobile networks
- No. 3 supplier of mobile handsets
18Ericsson - 1G systems
- Strategic focus - 1970s 1980s
- Traditional focus on fixed telephony (AXE digital
switch) - Mobile unit - small, autonomous, entrepreneurial,
but marginal - Early 1980s - Ericsson becomes a provider of
complete integrated systems in mobile telephony - 'whole package' of switches, base stations and
cell plannning - Environment
- Benefits from rapid adoption of NMT standard
- Small home market encourages expansion abroad
(USA 1983) - Quick to take advantage of liberalised markets
(e.g. Vodafone UK 1983)
19Ericsson - 2G systems
- Mobile systems become strategic
- In 1994 Radio Communications over 50 of
Ericsson's sales 30 of the workforce - In 1997 Radio Communications 70 of total sales
- Expanding capabilities
- Only supplier to cover all technical standards
for 1G and 2G systems (e.g. AMPS, CDMA) - Environment
- EU selects GSM standard - based on NMT features
- GSM creates large market for Ericssons products
- GSM system - de facto world standard (mid-1990s)
20The world's leading supplier 1994
21Ericsson - 3G systems
- The strategic focus narrows further
- Pulls out of lower-value added manufacturing
(handsets) - Focuses on systems integration and services
- Capabilities
- Ericsson/Nokia support W-CDMA standard
- W-CDMA incorporates new interface - backwards
compatible with core GSM infrastructure - Environment
- Ericsson involved with NTT DoCoMo consortium to
develop W-CDMA standard - Experimental W-CDMA system in 1998 standard in
Japan by 1999 Ist commercial introduction in
Japan November 2001
22Ericsson's weakness - mass production
- Large losses in handsets (1.6bn loss in 2000)
- Mobile phones - over-engineered and poor design
- Handset division slow to recognise market trends
- 'They are a bunch of engineers who couldn't care
less what the phone looks like' Financial Times - Handset Division
- manufacture outsourced to Flextronics
- Design - alliance with Sony (20 April 2001) to
provide consumer electronics expertise
23Ericsson's strength - CoPS
- Mobile networks - 70 sales (2000)
- highest RD effort of system suppliers
- only supplier to cover all technical standards
- first supplier to introduce 1G, 2G 3G
- strategic partnerships acquisitions to fill
gaps in capabilities (e.g. Qualcomm for CDMA) - Strengths
- Systems integration, project managment and
solutions (e.g. set up Ericsson Global Services)
24Conclusions
- Innovation in CoPS industries
- Doesn't follow product life cycle dynamics
- Stability at systems integrator level
- Core capabilities in systems integration and
project management - Other examples of long-term stability
- Railways (Alstom, Siemens and Bombardier)
- Commercial airliners (Boeing vs. Airbus)
- Fixed telecoms (traditional suppliers - Nortel,
Siemens, Ericsson - co-exist with new IP-based
entrants e.g. Cisco and Ciena)