Strategic Management of Technological Innovation Melissa Schilling

INTRODUCTION

Importance of Technological InnovationTechnological innovation now the single most important driver of competitive success in many industriesMany firms earn over one-third of sales on products developed within last five yearsGlobalization has increased competitive pressureProduct 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 featuresProcess innovations help make manufacturing more efficient.

Importance of Technological InnovationAdvances in information technology have enabled faster innovationCAD/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 introductionsGreater market segmentation

Why Innovation Is Becoming More ImportantTechnology is changing fast, new products come from new competitorsFast changing environment, product lifetimes shorter, need to replace products soonerProducts are increasingly difficult to differentiateCustomers are more sophisticated, segmented and demanding, and expect more in terms of customization, newness, quality and priceCustomers have more choiceApparently separate technologies come togetherMarkets forming and changing fastWith markets and technology changing fast, and good ideas quickly copied, there is continual pressure to devise new and better products, processes and services faster

Innovation Is A Positive MessageTell 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

Impact on SocietyThe 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 economiesEconomist 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

Impact on SocietyInnovation enables a wider range of goods and services to be delivered to people worldwideMore efficient food production, improved medical technologies, better transportation,etc.Increases Gross Domestic Product by making labor and capital more effective and efficientHowever, may result in negative externalities, E.g., pollution, erosion, antibiotic-resistant bacteria

Impact on SocietyGDP per Capita, 1971-2003; National Science Board

Impact on SocietyThe 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

Innovation by Industry: The Importance of StrategySuccessful innovation requires carefully crafted strategies and implementation processes.Innovation funnelMost 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

Research BriefHow 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 projectIncremental improvements took 8.6 months from concept to market introductionNext generation improvements took 22 months.New-to-the-firm product lines took 36 monthsNew-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.

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?

Part One: Industry Dynamics of Technological InnovationThe 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.