Science and technology from a business and economics perspective

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Science and technology from a business and
economics perspective

• Lecture 1
• 2007-10-22
• Emelie Stenborg

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Teaching week 1

• Monday 10-12 Creative destruction and industrial
  innovation
• Schumpeter Fagerberg (125-135, 141 f)
• Utterback (4, 2, 7, 10)
• Wednesday 10-12 Innovation in firms
• Tidd et al (1, 2, 12)
• Friday 10-12 Seminar with presentations

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Information

• Week 1 Emelie Stenborg
• Week 2 Astrid Szogs
• Week 3 Lars Coenen
• Week 4 Home exam

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The plan is then

• To start with the greatest influencer in
  evolutionary economics and see how he is relevant
  today
• Explain industrial dynamics in industries
• See how firms can manage innovation
• ? Hopefully we will be able to see both why
  innovation is important and how it can be managed
  in firms!

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Schumpeter Creative destruction
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Schumpeter

• First half of the 20th century
• Ideas resurfaced in the 1980s
• Influenced evolutionary economics and capitalist
  dynamics
• Was early in objecting to classical models
  (influenced by Marx)
• Still important as the holistic view still
  today often is not used

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Schumpeters opinions (1)

• Argues against ideas of perfect competition
• ?
• Even under mono- or oligopolistic competition
  great advances are made
• Effects the standard of life for people
• Includes quality and marketing in the competitive
  advantage of firms

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Schumpeters opinions (2)

• Also wants to move on from equillibrium models
• ?
• Sees them as nice ideal models
• Equillibrium would be destroyed by innovation
• New products, processes, organizations, markets
  poses the greatest threat
• Innovation only gives an initial advantage

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Schumpeters opinions (3)

• Defies the static view of economics
• ?
• Firms are shaped by the past and by the future
• Have to see the context to understand the firm
• Firms are organic in their structure
• Uncertainty is a genuine concern constrains
  innovation

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Schumpeters opinions (4)

• New way of looking at how innovation is produced
• ?
• New combinations of existing things not only
  technological
• The role of institutions
• Has to do with the non-technological issues
• From new entrants
• The role/characteristics of the entrepreneur

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Creative destruction

• Replacive new technology creating a new
  industry, destroying an old
• Creates new proffesions
• Big firms are innovative but under constant
  threat by young firms
• Comes as business cycles
• Is a societal reality and concern
• Key factor cheap, universally available input,
  rapidly falling cost, used in many sectors ?
  pervasive!

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Now, some discussions!

• Two and two, give example of creative
  destruction and (if you know) what happened to
  the old players and how has the industry changed?

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About organizational innovation

• Discuss fordism and post-fordism in terms of
• efficiency
• culture
• how to make it work

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Utterback Mastering the dynamics of innovation

• Chapter 4, 2, 7, 10

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This model tries to

• Link innovation, market and industry
• The level of product and process innovation can
  be related to the stage of the industry
• Handels both incremental and radical innovation
• Explanatory, general model
• Academically very influental (together with
  Abernathy)

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Innovation and Industrial Evolution

• Assembled products
• Not universal
• Links the following to the industry life cycle
• Product innovation
• Process innovation
• Organizational change
• Market
• Competition

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Innovation in an assembly sector
http//www.zanthus.com/databank/innovation/docs/ab
ernathy_utterback.ppt
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Keywords of different phases
Fluid Transitional Specific
Product Radical, frequent Dominant design Incremental, rare
Process Rare, rely on skills General equipment Specialised equipment
Organisation Organic Semi-structured Hierarchical
Market Fragmented Segments Commodity
Competition Increasing, different Decreasing, more similar Few similar
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What happens after the specific phase?

• New vawes of innovation
• Next generation
• Skip a generation
• Organisational innovation
• Japanese style
• Corporate ventures
• Networking organisation
• Mass customization

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Dominant design

• The design that wins the competition
• Not based on technological superiority but
  instead on a mixture of market and organizational
  factors
• Creates
• What defines the product
• What is required by the product
• Meets the need of most customers
• New proffesions

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How does it come about?

• Interplay between market and technology
• Important non-technological factors
• Collateral (Complementary) assets
• Policy
• Firm strategy
• Communication

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Effects of dominant design

• Competition
• Shifts the basis from product to process
• Less and less firms
• Slower introduction of change (maybe less true
  these days)
• Implication ? Organisational change is necessary!

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Organizational implications

• Leadership or followership
• Sets the boundaries for change (I thought about
  plastic waterbottles the other day)
• Constraints, users, habits, complementary assets
• Can we spot it? At least three variables
• Chance
• Technology
• Social process
• Disruptive change comes from outside of the
  industry (More on Wednesday)

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Radical innovation

• In industries times of stability are disrupted by
  times of discontinuity
• Example of generations of the ice industry in the
  USA manually harvested ? mechanical ice-making
  ? refrigerators
• In this context we talk about replacive products

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Performance of old and new technology
Product performance
t1
t2
t3
Time
Utterback, Mastering the Dynamics of Innovation
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Dynamics of radical innovation

• First inferior to old ones but with potential
• Early, demanding users but has to have mass
  market potential
• Timing decline of improvements of old
  technology, rapid improvement of new
• Sailing ship old technology fights back

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Old vs New firms

• Existing customers
• Existing products
• Resources (investments)
• Other stakeholders (shares, staff, funders)
• Existing organisational structure
• Bureaucracy
• Mindset emotionally comitted
• More?

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So, how to be an innovative firm?(According to
Utterback) (1)

• Technology, markets and organisation
• 1) Support radical developments
• Wide experimentation
• Learning organisation
• External vision
• Developed and balanced core competences
• Strategies
• Alliances
• Accept change it will happen!

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So, how to be an innovative firm?(According to
Utterback) (2)

• 2)The importance of incremental innovation!
• Improve and extend existing lines
• Parallell innovation
• Right structure
• Develop complementary assets

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Summary

• Utterback
• Innovation, market and industry
• Industry life cycle
• Fluid, transitional and specific phases
• Dominant design
• Radical innovation
• Schumpeter
• Imperfect competition
• Innovation is the driver of the economy
• Dynamic economics
• Innovation and non-technological aspects
• Creatve destruction

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Wednesday

• We will continue with how firms have to relate
  themselves to the management of innovation to
  stay in the business.

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Seminar assignment

• Work in groups of 2 to 3 people. Choose a firm
  (possibly a technology of a firm) and relate it
  to concepts introduced today and on Wednesday
• Creative destruction
• Industrial dynamics
• Management of innovation
• Presentation (10-15 minutes) on Friday!