Strategic Management of Technologica

l Innovation – Melissa Schilling

INTRODUCTION
Importance of Technological Innovation
• Technological innovation now the single most impor
tant driver of competitive success in many industrie
s
– Many firms earn over one-third of sales on products d
eveloped within last five years
– Globalization has increased competitive pressure
• Product innovations help firms protect margins by of
fering new, differentiated features.
– Sony produces more than 75 models of its Walkman that differ
in size, color, music format and other features
• Process innovations help make manufacturing more
efficient.

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Importance of Technological Innovation
– Advances in information technology have enabled fa
ster innovation
• CAD/CAM systems enable rapid design and shorter pro
duction runs

– Importance of innovation and advances in informati

on technology have lead to:
• Shorter product lifecycles (more rapid product obsoles
cence)
• More rapid new product introductions
• Greater market segmentation

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Why Innovation Is Becoming
More Important
• Technology is changing fast, new products come from new co
mpetitors
• Fast changing environment, product lifetimes shorter, need to
replace products sooner
• Products are increasingly difficult to differentiate
• Customers are more sophisticated, segmented and demandin
g, and expect more in terms of customization, newness, qualit
y and price
• Customers have more choice
• Apparently separate technologies come together
• Markets forming and changing fast
• With markets and technology changing fast, and good ideas q
uickly copied, there is continual pressure to devise new and b
etter products, processes and services faster
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Innovation Is A Positive Message

• Tell people you are going to cut headcount - and lose their su
pport

• Tell people you are going to downsize - and lose their suppor
t

• Tell people you are going to reengineer - and 80% won't coo
perate

• Tell people you are going to be innovative - and win their ent
husiastic support

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 Impact on Society

• The aggregate impact of technological innovation ca

n be seen in GDP (gross domestic product – the tot
al annual output of an economy).
• The average GDP per capita for the world has risen
steadily since 1971, particularly in the developed ec
onomies
• Economist Robert Solow showed that the growth in
GDP was not solely on growth in labor and capital in
puts but technological changes as well (Nobel prize
1981)
• GDP relates to improved quality of life and thus tec
hnological innovation has a positive impact on socie
ty
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 Impact on Society

• Innovation enables a wider range of goods and ser

vices to be delivered to people worldwide
– More efficient food production, improved medical tec
hnologies, better transportation, etc.
– Increases Gross Domestic Product by making labor a
nd capital more effective and efficient
– However, may result in negative externalities,
• E.g., pollution, erosion, antibiotic-resistant bacteria

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Impact on Society

GDP per Capita, 1971-2003; National Science Board

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 Impact on Society

• The majority of R&D funds spent in OECD countries come from i

ndustry, and percentage has been increasing.
• The role of the government in supporting this research has been
declining

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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 produ
cts.
• Pharmaceutical industry – 1 out of 10,000 compounds succeeds as a ne
w drug, 12 years from discovery to market at a cost of $350 million

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Research Brief

How long does new product development take?

– Study by Abbie Griffin of 116 firms developing B2B innov
ations found:
• Length of development cycle varies with innovativeness of
project
• Incremental improvements took 8.6 months from concept t
o market introduction
• Next generation improvements took 22 months.
• New-to-the-firm product lines took 36 months
• New-to-the-world products took 53 months.
• Half of the companies had reduced their cycle time by an a
verage of 33% over last five years.

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Discussion Questions
1. Why is innovation so important for firms to compete
in many industries?

2. What are some of the advantages of technological i

nnovation? Disadvantages?

3. Why do you think so many innovation projects fail t

o generate an economic return?

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