MoT Intro Managing Innovation TB 1-2

Management of Technology
35C00400
Lectures at Tue & Thu 14:15 15:45
Lecture hall U8 / U270
Otakaari 1, U-Wing, Otaniemi
Course evaluation
Cases 50%
1. 3M Taiwan 20%
2. Amazon, Apple, Facebook,
Google
20%
3. Accenture: Industrial internet
term project 10%
Exam 50%
based on course book, lectures,
articles and other material
Cases Working rules
Groups
2 - 5 persons, please kick free riders out!
Larger group means somewhat higher requirements
However, singles not encouraged
Reporting
Max. sixteen (16) Powerpoint slides
Possibility of class presentation earn one point
Returning
Well before the lecture case will be discussed (before 2 pm)
By email to ari.vepsalainen@aalto.fi
(or in color print to lecture hall, or to Chydenia 5th floor mail box)
Late submissions graded at 50% reduced
Case: 3M Taiwan
20%
Due date 24.9. lecture when case will be

discussed
Assignment questions:
1. Should Chung proceed with the Acne
Dressing project?
2. What options does Chung have regarding
the launch of Acne Dressing?
3. What resources (if any) should Chung seek

from headquarters and/or other
subsidiaries?
4. Recommend a path forward for Chung.
Case Amazon, Apple, Facebook and Google 20%
Due date 1.10. lecture when the case will be discussed
Remember to prepare a presentation?
1.
Define the contested boundaries among Amazon, Apple, Facebook and Google
2.
For each contested boundary that you have identified, how is the contest likely to
play out? How many contests give rise to winner-take-all markets? How many to
always-a-share markets? How will the complex ecosystems, in which online
businesses are built on top of other online businesses, and third-party sellers that
rely on platforms, evolve?
3.
Identify a firm that you know something about, for example a media company, a
retailer, or manufacturing firm, with some involvement in the online economy.
Which, if any, of the big four firms does it currently rely on? Might that reliance
change? How might that firm hedge the risk it will face if there is a transition to one
of the others?
4.
What skills will be under-supplied in the future of digital economy that you
envisage?
NOTICE: Still subject to changes!?

Case: Accenture/Industrial Internet
20%
Due date 13.10. class when case reports will be discussed

8.10. lecture Industrial Internet Opportunities for new
services business
by Kari Kaario, Managing Director, Accenture Management
Consulting,
the assignment for the Case/Term project will be delivered
1.
2.
3.
4.
Application type?
Company/industry/markets/ affected?
Examples or priciples?
Conclusions/Recommendations
Exam 50%
Based on course book, articles and lectures

Essay questions and concept explanations
Exam dates:
Thu 15 Oct 2015 14:15-17:00 (in class, no
registration needed)
Tue 20 Oct 2015 9:00-12:00
Wed 20 Dec 2015 9:00-13:00
Advance registration via WebOodi
Objectives & Contents:

This course concerns the formulation of business
strategy and the management of business enterprises in
rapidly evolving, technology-intensive industries.
The primary goal of this course is to develop the
participants understanding of the management
problems and the nature of the forces driving
competitive inter-action between technology-based
firms.
Joe Tidd
and
John Bessant
ISBN: 978-0-470-99810-6
http://www.managing-innovation.com/
2009 John Wiley & Sons Ltd.

www.managing-innovation.com
Lectures and requirements

Introductory lecture
Lectures based on book and other material
Three case assignments in teams
Three guest lectures Strategy& (PwC network),
Accenture, and Enfo
No course wrap up lecture
Exam in last class Thu 15. Oct at 14:15-17:00
Detailed Schedule Fall 2015 see MyCourses
10
The logic and structure of the course
Lecture on
Managing Innovations and Finnish Innovation System
Lecture on
Lecture on
Lecture on
Search for
sources and
partners
Select
Implementation and Capture
Lecture on
Context of innovation: Organization and strategy
The rest of the lectures are corporate guest speakers and case sessions.
11
Contact information
Ari Vepslinen, Professor of Logistics
ari.vepsalainen@aalto.fi
Chydenia room H 5.30, phone +358 50 589 7485
Call by phone, send e-mail, or come by
Suvituulia Taponen, Research Associate
suvituulia.taponen@aalto.fi
phone +358 50 465 7044
12
1-13
Managing Innovation (Ch. 1)
Learning Outcomes:
1. Innovation and performance
2. Models and modes of innovation
3. Creating and capturing value from innovation
1. How different types of innovation affect the
commercialization process, specifically the novelty of
technology and markets;
2. The development and commercialization processes for four
different types of innovation differentiated, technological,
architectural and complex;
3. The similarities and differences between new product and
new service development
14
Managing Innovation
Session 1 outline:
1. Innovation and performance
2. Models and modes of innovation
3. Creating and capturing value from innovation

15
16
Session Plan
Definitions
of Innovation
Creating &
Capturing Value
From Innovation
Innovation &
Performance
Models &
Modes of
Innovation

17
Innovation and Performance

What is innovation?
Companies achieve competitive advantage through
acts of innovation.
They approach innovation in its broadest sense,
including both new technologies & new ways of
doings things
- Michael Porter
(emphasis added)

18

Innovation has to be actively managed:
Innovation is the specific tool of entrepreneurs, the
means by which they exploit change as an opportunity
for a different business or service. It is capable of being
presented as a discipline, capable of being learned,
capable of being practiced
- Peter Drucker
(emphasis added)

19
What means
Technology, and Business?
Dictionary tells:
Tech-nol-o-gy 1. The application of
science, esp. in industry or commerce.
2. The methods and materials thus used.
(Greek techn, skill, art, +logy).
Busi-ness 1. The occupation in which a person is engaged.

2. Commercial, industrial or professional dealings.
3. Any commercial establishment.
4. Commercial policy or practice.
(Old English bisignis, care, solicitude, bisig, busy)
20
What is technology?
21
What is technology?
Definition of technology:
The application of science, especially in industry or commerce.
The methods and materials thus used.
Classes of technology:
Technology as Objects
Technology as Knowledge
Technology as Activities
Technology as a Process
Technology as a Sociotechnical System
22
Why is Technology Management and

Innovation important?
Industrial research and development expenditures have
been steadily increasing
3-10% of sales are invested in R&D in technology
intensive sectors
Technology-intensive industries account for a large
share of sales growth
23
Why is Technology important?

Positive relationship between investments in technology
and economic growth
Economic development as we know it essentially started
with the industrial revolution
Large proportion of economic growth cannot be
explained by increased use of factors of production or
inputs (e.g. raw materials, labor and capital), it is caused
by technological change, or innovation
24

Some stylized facts about the relationships
between innovation and performance:
1. Relationships between R&D, patents, new products and
performance are strongest at the industry level,
weakest at the firm level
2. Returns from process innovation are typically four

times those from product innovation
3. R&D expenditure stronger than patents in predicting
performance
4. At firm level, both R&D and new products associated
with higher value-added and market to book values

25
Innovation and Performance contd

1. Returns from use of new technology higher than from its
generation
2. Highest variability in performance is at firm level
3. Senior management typically accounts for 15-50% of
variance
Sources: J. Bessant & J. Tidd (2007) Innovation and Entrepreneurship (Wiley);
J. Tidd (2006) From Knowledge Management to Strategic Competence (Imperial College
Press, 2nd edition);
J. Tidd, J. Bessant & K. Pavitt (2005) Managing Innovation: Integrating technological,
market & organizational change (Wiley, 3rd edition);
S. Isaksen & J. Tidd (2006) Meeting the Innovation Challenge: Leadership for
Transformation and Growth (Wiley, 2006).

26
27
28
29
R&D spending may lead to success or then not?!
30
Innovation and Performance still contd

Innovation has an inherent variability, but rate of
success can be improved through better & different
management:
85% of new ideas never reach a market
60% of R&D projects are market failures
40% of consumer products & services fail

20% of business products & services fail

31
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.
32
Innovation and Performance some factors

Some explanations for the observed wide variation in
the relationships between innovation and performance:
1. Scale of technological inputs, critical mass, and
market value of commercial outputs
complementary assets
2. Opportunity spill-overs within sectors and
between firms
3. Management differences in cognition, coordination and control

33
Models and Modes of Innovation

Dimensions of innovation space the 4 Ps:
1. Product changes in the things (products/services)
which an organization offers,
2. Process changes in the ways in which they are
created and delivered
3. Position changes in the context in which the
products/services are introduced
4. Paradigm changes in the underlying mental &
business models which frame what the organization
does

34

35

36
Types of Innovation
- Radical vs Incremental Innovation 1. The radicalness of an innovation is the
degree to which it is new and different
from previously existing products and
processes.
2. Incremental innovations may involve
only a minor change from (or adjustment
to) existing practices.
3. The radicalness of an innovation is
relative; it may change over time or with
respect to different observers.
37

38
Types of Innovation
- Competence-Enhancing vs. Competence-Destroying Innovation -
Competence-enhancing
innovations build on the
firms existing knowledge
base.
Competence-destroying
innovations render a firms
existing competencies
obsolete.
creating opportunities to
increase sales or market
penetration
eliminating an entire
product line or type of
technology
39
Types of Innovation
- Architectural vs Component Innovation -
A component innovation (or modular innovation)

creates changes to one or more components of a
product system without significantly affecting the
overall design.
An architectural innovation entails changing the

overall design of the system or the way
components interact.
40

41
Types of Innovation
- Product vs Process Innovation -
Product innovations are embodied in the outputs of

an organization its goods or services.
Process innovations are innovations in the way an
organization conducts its business, such as in
techniques of producing or marketing goods or
services.
1. Product innovations can enable
process innovations and vice versa.
2. What is a product innovation for one
organization might be a process
innovation for another
42
Creating and Capturing Value

lack of technological knowledge is rarely the cause of
innovation failuresthe main problems arise in
organization and, more specifically, in co-ordination and
control four mechanisms identified by earlier analysts
of the innovating firms: competition, cognition, coordination and control
- Keith Pavitt

43

Managers with mature
perceptions believe
that:
Managers with dynamic

perceptions believe that:
1. The industry is stable

with slow demand
growth & incremental
changes in technology
2. Profitability is achieved
by process improvement
and product
differentiation
1. There is potential for

change, new ways of
operating, & new strategies

2. Value is created through

innovation in positions and
paradigms
44

Mature managers view:
Dynamic managers view:
1.
1. Profitability is determined by the

firm. Mature industries offer
many opportunities
2. Market share is reward for
creating value
3. Effectiveness, not extent of
resources counts
2.
3.
Profitability is determined by
industry, it is limited in
mature industries
Market share is critical for
competitiveness
Dominance demands
extensive resources

45

Choice of strategy (& luck) are more important than
industry:
choice of industry
8.35%
choice of strategy
46.4%
parent company
unexplained (e.g. luck)

0.8%
44.5%
46

Patents per million population
100
80
60
40
20
0
Japan
Germany
USA
France
Source: OECD

47
UK

Entrepreneurial Activity
15
10
5
0
USA
UK
Germany
France
Source: OECD

48
Japan

Advantages of innovation in position or paradigm:
1. Reputation as a pioneer
2. Early learning curve benefits
3. Establish barriers to entry e.g. Design, patents,

standards
4. Dominate new supply & distribution networks
5. Earn 'monopoly' profits
6. But, beware regulatory & demand uncertainty, e.g.
burden of educating users

49
Conclusions 1:
Conclusions and implications from observation and
research:
1. Relationships between R&D, patents, new products and
performance are strongest at the industry & sector level, but
weakest at the firm level but, management & strategy can
make a difference
2. Too much emphasis on technological innovation, process
improvement & product differentiation produces low returns

50
Conclusions 2:
1. Greater focus on a wider range of innovation e.g.
positional and paradigm innovation has potential to
improve returns from innovation
2. This suggests active search for external technology
spill-overs (inputs) and exploitation of commercial
complementary assets (outputs)
3. (Re) combination & integration of different types of
innovation important role of international alliances
& corporate venturing to help identify, create &
exploit new businesses and services

51
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?
52

53

54

55
Innovation as a Core Business Process (Ch. 2)
Learning Outcomes:
1. The similarities and differences between new product
and new service development
Key issues:
1. Dangers of an ad hoc approach
2. Routines & innovation
3. A generic process for innovation

4. Influence of context & contingency
56
Chapter 2
Innovation as a Core Business Process

Key issues:
1. Dangers of an ad hoc approach
2. Routines & innovation
3. A generic process for innovation
4. Influence of context & contingency

57
The Dynamics of Innovation

Rate of major
innovation
Product innovation
Process innovation
Time
Era of
Ferment
Era of
Dominant Design
58
Era of
Incremental change
The technology life cycle

Disruption/
Era of Ferment
Dominant design
emerges
Maturity
Incremental
Innovation
59
Technological discontinuities trigger the

next waves of technological variation
(Tushman et. al. 1997, 8)
60
Era of Ferment - Fluid phase

Market consists of early adapters and lead users
Alternative, competing technological standards
Emphasis on product differentiation, customization and
technical performance
Skilled labor required
Price not an issue
Competing, often new, technology-based firms

Focus on product innovation, rate of process innovation slow
Both producers and customers are experimenting
61
Era of Dominant Design

- Transitional phase
Product innovation slows down, process innovation
speeds up
Production volume rises
Production becomes more automated
R&D focus on specific product features
62
A dominant design in a product class is, by definition the one that

wins the allegiance of the marketplace, the one that competitors and
innovators must adhere to if they hope to command significant
market following (Utterback, 1994)
63
Dominant design phase

New product synthesised from a number of
innovations in previous products
Sets a benchmark and defines in peoples minds
how the product should look
Satisficer for many instead of an optimizer for few
Examples: QWERTY, VCR, IBM PC
64
How does a
Dominant Design occur?
Technological superiority
Network externalities
Collateral assets
Industry regulation and government intervention
Strategic maneuvering at the firm level
Communication between producers and users
Industry consolidation
65
Era of Incremental Change

- Specific phase
Highly defined and standardized products
Classic oligopoly with stable market shares
Competition on price
Economies of scale become important

Late adapters, mass market
Division between broad cost competitors and
specialized niche players
66
The Dynamics of Innovation

- from Ferment to Incremental Change
Product
From high variety, to dominant design, to incremental

innovation on standardized products
Process
Manufacturing progresses from heavy reliance on skilled

labor to general purpose equipment tended by low-skilled
labor
Organization
From entrepreneurial organic firm to hierarchical

mechanistic firm with defined tasks and procedures and
few rewards for radical innovation
Market
From fragmented and unstable with diverse products and

rapid feedback to commodity-like with largely
undifferentiated products
Competition
From many small firms with unique products to an oligopoly

of firms with similar products
(Utterback,1994)
67
F
r
o
m
M
a
n
u
F
r
o
m
F
r
o
m
F
r
o
m
Special issues: Innovation in Services

The reverse product cycle
(Barras, 1986)
1.
First phase: the applications

of new technology are
designed to increase the
efficiency of delivery of
existing services
2.
Second phase: the new

technology is applied to
improve the quality of the
service
3.
Third phase: the new

technology assists in
generating transformed or
new services
68
The Reverse Product Cycle

Rate of
innovation
Process
innovation
Product
innovation
Time
Increased
efficiency
Service
quality
69
Product
transformation
Example of Reverse Product Cycle

Rate of
innovation
Electronic
records
ATMs
Internet
banking
Time
Increased
efficiency
Service
quality
70
Product
transformation
71
Systems Innovation
How innovation happens?
Process

72
Success (?)

73
Systems Innovation
How it really happens ..

74
Routines & Innovation (Nelson & Winter, 1982)

What are Organizational Routines?
1. Regular & predictable
2. Collective, social & tacit
3. Guide cognition, behaviour & performance
4. Promise to bridge (economic & cognition) theory &
(management & organizational) practices
5. the way we do things around here
6. Can promote or prohibit innovation

75
Routines & Innovation (Becker, 2005):

Characteristics of Routines
1. Enable co-ordination
2. Provide a degree of stability in behaviour
3. Enable tasks to be executed sub-consciously,
economizing on limited cognitive resources
4. Binding knowledge, including tacit knowledge.
5. But, difficult to operationalize, research or
manage
6. Need to focus on cognition & practice

76
Routines & Innovation (Feldman & Pentland, 2003):

Routines in Practice
1. Dual nature, sites of both stability/reproduction &
creation/change
2. Distinguish between 'ostensive' aspects (what they
aim or claim to do), and 'performative' aspects (what
they actually do).

77
Innovation Process
Generic phases of the innovation process:
1. Searching & scanning the internal & external
environments
2. Filtering & selecting potential opportunities
3. Acquiring the technical, financial & market resources

4. Implementing development & commercialisation
5. Reviewing & learning from experience

78
Innovation & Context

PIMS (Profit Impact of Marketing Strategy) data:
1. Impact of innovation on performance depends on contingency
& configuration, not industry
2. Effect of R&D depends on market share
3. Effect of patents depends on firm size
4. Effect of new products depends on market maturity

79
Innovation Process
Scanning the external environment:
1. Identify, segment & exploit lead customers
2. Identify, segment & involve key suppliers

3. Explicit criteria for selecting alliance partners
4. Clear objectives & guidelines for licensing & out-sourcing
5. Involve all relevant parties e.g. financial & regulatory
6. Use formal exploratory techniques to identify future trends

80

81
Why was it that firms that could be

esteemed as ... innovative,
customer-sensitive organizations
could ignore or attend belatedly to
technological innovations with
enormous strategic importance?
Commitment to existing
corporate operating structures
(with their overhead) makes
organizations slow to recognize
totally new opportunities that may
arise.
82
The industry life cycle as an S-curve

- organizational and marketing challenges
83
Managerial implications: Firms need a

portfolio of radical and incremental innovation
Riding the two horses dilemma (Tidd et al., 2001)

84
The nature of technical work changes
85
Examples of existing operating structures

inhibiting innovation
a) With the invention of the
telegraph Pony Express
bought faster horses.
b) Smaller disk drives were

rejected because computers
always filled whole rooms.
c) ATMs were put outside
banks and were available
only during business hours.
86
Open during
business hours
9.00-17.00
The marketing challenge evolves
87
Some strategies to consider

1. Era of Ferment
Focus on niche products Speed, IPs
product
Build collateral assets

Invest to influence the dominant design
2. Era of dominant design

Focus on differentiated products and services
process and product
Invest in capacity, brand advertising and R&D

Contract with suppliers, improve reliability
3. Era of Incremental change

Focus on low cost
process
Emphasize quality
Signal commitments by advertising and R&D
88
Industry attractiveness in different

phases
Era of
Era of
ferment
dominant
design
Era of
incremental
change
Rivalry among existing

competitors
Low
Low
High
Threat of new entrants
High
Low/High
Low
Bargaining power of
suppliers
Low
High
High
Bargaining power of
customers
High
High
High
Threat of substitutes
High
Low/High
High
89
Timing of
management attention and influence
Build
knowledge
and
capability
Idea
generation
Project
definition
and
selection
Design
and build
prototypes
Pilot
production
Manufacturing
ramp up
High
Index of attention
and influence
Ability to
influence
outcomes
Actual profile of management activity

Low
(Wheelwright Clark 1992)

90
91

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Management of Technology

Cases Working rules

However, singles not encouraged

Possibility of class presentation earn one point

Due date 24.9. lecture when case will be

3. What resources (if any) should Chung seek

Case Amazon, Apple, Facebook and Google 20%

Due date 1.10. lecture when the case will be discussed

Remember to prepare a presentation?

NOTICE: Still subject to changes!?

Due date 13.10. class when case reports will be discussed

Based on course book, articles and lectures

Advance registration via WebOodi

Objectives & Contents:

2009 John Wiley & Sons Ltd.

Lectures and requirements

The logic and structure of the course

Managing Innovations and Finnish Innovation System

Implementation and Capture

Context of innovation: Organization and strategy

Managing Innovation (Ch. 1)

2009 John Wiley & Sons Ltd.

2009 John Wiley & Sons Ltd.

Innovation and Performance

2009 John Wiley & Sons Ltd.

Innovation and Performance

2009 John Wiley & Sons Ltd.

Busi-ness 1. The occupation in which a person is engaged.

Why is Technology Management and

Why is Technology important?

Innovation and Performance

2. Returns from process innovation are typically four

2009 John Wiley & Sons Ltd.

Innovation and Performance contd

2009 John Wiley & Sons Ltd.

R&D spending may lead to success or then not?!

Innovation and Performance still contd

40% of consumer products & services fail

2009 John Wiley & Sons Ltd.

Innovation and Performance some factors

2009 John Wiley & Sons Ltd.

Models and Modes of Innovation

2009 John Wiley & Sons Ltd.

2009 John Wiley & Sons Ltd.

2009 John Wiley & Sons Ltd.

2009 John Wiley & Sons Ltd.

A component innovation (or modular innovation)

An architectural innovation entails changing the

2009 John Wiley & Sons Ltd.

Product innovations are embodied in the outputs of

Creating and Capturing Value

2009 John Wiley & Sons Ltd.

Creating and Capturing Value

Managers with dynamic

1. The industry is stable

1. There is potential for

2009 John Wiley & Sons Ltd.

2. Value is created through

Creating and Capturing Value

Dynamic managers view:

1. Profitability is determined by the

2009 John Wiley & Sons Ltd.

Creating and Capturing Value

2009 John Wiley & Sons Ltd.