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UNIT 5
Impact on Society
Innovation enables a wider range of goods and services to be delivered to people
worldwide.
• More efficient food production, improved medical technologies, better transportation, etc.
• Increases Gross Domestic Product by making labor and capital more effective and efficient.
Discussion Questions
3. Why do you think so many innovation projects fail to generate an economic return?
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Effects of timing of entry, and how firms can identify (and manage) their entry
options.
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Appliance manufacturer Godrej & Boyce decided to make a smaller, cheaper refrigerator to tap this
market.
Many of their assumptions turned out to be wrong; they ended up making a lightweight portable battery
operated refrigerator with customizable skins to make them cool and aspirational, and sold to multiple
market segments, including the urban affluent.
Godrej & Boyce also pioneered a novel distribution system: the Chotukool would be sold at the post
office.
The Chotukool won several design awards and FastCompany gave Godrej its “Most Innovative Company”
award.
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Overview
Several dimensions are used to categorize innovations.
• These dimensions help clarify how different innovations offer different opportunities (and pose
different demands) on producers, users, and regulators.
The path a technology follows through time is termed its technology trajectory.
• Many consistent patterns have been observed in technology trajectories, helping us understand
how technologies improve and are diffused.
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Types of Innovation
Product versus 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.
• Product innovations can enable process innovations and vice versa.
• What is a product innovation for one organization might be a process
innovation for another.
• For example, UPS creates a new distribution service (product
innovation) that enables its customers to distribute their goods more
widely or more easily (process innovation).
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Types of Innovation
Radical versus Incremental Innovation:
• The radicalness of an innovation is the degree to which
it is new and different from previously existing products
and processes.
• Incremental innovations may involve only a minor
change from (or adjustment to) existing practices.
• The radicalness of an innovation is relative; it may
change over time or with respect to different
observers.
• For example, digital photography a more radical
innovation for Kodak than for Sony.
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Types of Innovation
Competence-Enhancing versus Competence-Destroying Innovation:
• Competence-enhancing innovations build on the firm’s existing knowledge base (Intel’s
Pentium 4 built on the technology for Pentium III).
• Competence-destroying innovations renders a firm’s existing competencies obsolete
(electronic calculators rendered Keuffel & Esser’s slide rule expertise obsolete).
Types of Innovation
Architectural versus Component Innovation:
• A component innovation=modular innovation entails changes to one or more components of
a product system without significantly affecting the overall design (adding gel-filled material to a
bicycle seat).
• An architectural innovation entails changing the overall design of the system or the way
components interact (transition from high-wheel bicycle to safety bicycle).
Research Brief
Diffusion of Innovation
and Adopter Categories
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Theory In Action
“Segment Zero” – A serious threat to Microsoft?
• Technologies often improve faster than customer requirements demand.
• This enables low-end technologies to eventually meet the needs of the mass market.
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Theory in Action
From 1980 to 2011, Microsoft was the dominant personal computer operating system.
However, operating systems for smartphones and tablets were improving to the point
where they could replace many personal computer functions.
In 2015, Apple’s iPhone operating system and Google’s Android collectively controlled
over 90% of the market for smartphone purchases. Microsoft’s Windows Phone held a
share of only 3%.
As tablets based on these systems became fully functional computers, would
Microsoft’s dominance evaporate?
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Technology Cycles
Technological change tends to be cyclical:
• Each new s-curve ushers in an initial period of turbulence, followed by rapid
improvement, then diminishing returns, and ultimately is displaced by a new
technological discontinuity.
• Utterback and Abernathy characterized the technology cycle into two phases:
• The fluid phase (when there is considerable uncertainty about the technology and its
market; firms experiment with different product designs in this phase).
• After a dominant design emerges, the specific phase begins (when firms focus on
incremental improvements to the design and manufacturing efficiency).
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Technology Cycles
Anderson and Tushman also found that technological change proceeded cyclically.
• Each discontinuity inaugurates a period of turbulence and uncertainty (era of ferment) until a
dominant design is selected, ushering in an era of incremental change.
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Technology Cycles
Anderson and Tushman found that:
• A dominant design always rose to command the majority of market share unless the next
discontinuity arrived too early.
• The dominant design was never in the same form as the original discontinuity, but was also not on
the leading edge of technology. It bundled the features that would meet the needs of the majority of
the market.
During the era of incremental change, firms often cease to invest in learning about
alternative designs and instead focus on developing competencies related to dominant
design.
This explains in part why incumbent firms may have difficulty recognizing and reacting to
a discontinuous technology.
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Overview
1. Firms must often choose between performing innovation activities alone or in
collaboration.
2. Collaboration can enable firms to achieve more, at a faster rate, and at less cost and
risk.
3. However, collaboration also entails sharing control and rewards, and may risk partner
malfeasance.
4. The advantages of going solo are compared with those of collaborating, and then
different forms of collaboration are compared.
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Collective NA NA NA NA NA NA
Research
Research Brief
Strategic Positions in Collaborative Networks
Overview
1. Firms must decide whether and how to protect their technological innovations.
2. Protecting innovation helps a firm retain control over it and appropriate the rents
from it.
3. However, sometimes not protecting a technology is to the firm’s advantage – it may
encourage others to support the technology and increase its likelihood of becoming
dominant.
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Appropriability
Appropriability: The degree to which a firm is able to capture the rents from its
innovation.
• Appropriability is determined by how easily or quickly competitors can copy the
innovation.
• Some innovations are inherently difficult to copy (tacit, socially complex, etc.).
• Firms may also attempt to protect innovations through patents, trademarks, copyrights or
trade secrets.
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Trade Secrets
Trade Secret: information that belongs to a business that is generally unknown to others.
• Firm can protect proprietary product or process as trade secret without disclosing
detailed information that would be required in patent.
• Enables broad class of assets and activities to be protectable.
• To qualify:
• Information must not be generally known or ascertainable.
• Information must offer a distinctive advantage to the firm that is contingent upon its secrecy.
• Trade secret holder must exercise reasonable measures to protect its secrecy.
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Theory In Action
IBM and the Attack of the Clones
• In 1980, IBM was in a hurry to introduce a personal computer (PC). It used off-
the-shelf components such as Intel microprocessors an operating system from
Microsoft, MS DOS.
• It believed that its proprietary basic input/output system (BIOS) would protect the
computer from being copied.
• However, Compaq reverse engineered the BIOS in a matter of months without
violating the copyright, and quickly introduced a computer that behaved like an
IBM computer in every way. Compaq sold a record-breaking 47,000 IBM-
compatible computers its first year, and other clones were quick to follow.
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1. Structuring the firm to improve its likelihood of innovating, its effectiveness at new
product development, and its speed of new product development.
2. Managing new product development processes to maximize fit with customer needs,
while simultaneously minimizing development cycle time and controlling
development costs.
3. Composing, structuring, and managing new product development teams to
maximize new product development effectiveness.
4. Crafting a strategy for effectively deploying the innovation into the marketplace,
including timing, licensing strategies, pricing strategies, distribution, and marketing.
Crafting a Deployment Strategy
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Overview
Timing
The timing of a market launch can be an important
deployment strategy.
• Strategic Timing of Entry.
• Firms can use timing of entry to take advantage of business cycle
or seasonal effects (video game consoles are always launched
just before Christmas).
• Timing also signals customers about the generation of
technology the product represents (if too early, may not be seen
as “next generation”).
• Timing must be coordinated with production capacity and
complements availability, or launch could be weak.
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Timing
• Optimizing Cash Flow versus Embracing Cannibalization.
• Traditionally firms managed product lifecycles to optimize cash flow and return on
investment would not introduce new generation while old generation selling well.
• However, in industries with increasing returns this is risky.
• Often better for firm to invest in continuous innovation and willing cannibalize its own
products to make it difficult for competitors to gain a technological lead.
• Cannibalization: when a firm’s sales of one product (or at one location) diminish its sales of another (or
another location).
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Pricing
Price influences product positioning, rate of adoption, and cash flow.
• What are firm’s objectives?
• Survival.
• Maximize current profits.
• Maximize market share.
Pricing
• Penetration Pricing (very low price or free).
• Accelerates adoption, driving up volume.
• Requires large production capacity be established early.
• Risky; may lose money on each unit in short run.
• Common strategy when competing for dominant design.
Distribution
Selling Direct versus Using Intermediaries
• Selling direct:
• Gives firm great control over selling process, price and service.
• Can be expensive and/or impractical.
• Intermediaries may include:
• Manufacturers’ representatives: independent agents that may promote and sell the product lines
of one or a few manufacturers.
• Useful for direct selling when its impractical for manufacturer to have own direct sales force for all
markets.
• Wholesalers: firms that buy manufacturer’s products in bulk then resell them (typically in smaller,
more diverse bundles).
• Provide bulk breaking and carry inventory.
• Handles transactions with retailers and provides transportation.
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Distribution
• Retailers: firms that sell goods to public.
• Provide convenience for customers.
• Enable on-site examination and service.
• Original equipment manufacturers (OEMs):
• A company that buys products (or components) from other manufacturers and assembles them or
customizes them and sells under its own brand name. For example, Dell Computer.
• Aggregates components from multiple manufacturers.
• Provides single point-of-contact and service for customer.
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Distribution
These factors help determine whether and what types of intermediaries the firm should
use:
1. How does the new product fit with the distribution requirements of firm’s existing
product lines?
2. How numerous and dispersed are customers, and how much product education or
service will they require? Is prepurchase trial necessary? Is installation or
customization required?
3. How are competing products or substitutes sold?
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Distribution
Strategies for Accelerating Distribution:
• Alliances with distributors.
• Providing distributor with stake in product’s success/exclusivity contract can motivate them to promote more.
• Bundling relationships.
• Sell in tandem with product already in wide use.
• Contracts and sponsorship.
• Provide price discounts, special service contracts or advertising assistance to distributors, complementary
goods providers or large and influential end users.
• Guarantees and consignment.
• Reduces risk to intermediaries and complements providers.
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Marketing
Major marketing methods include advertising, promotions, and publicity/public
relations.
• Advertising:
• Requires effective message.
• Requires media that conveys message to appropriate target market.
• Varies in match to audience, richness, reach, and cost.
• Must strike appropriate balance between entertainment or aesthetics (to make memorable) versus
information content (to make useful).
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Marketing
Major Advertising Media
Media Advantages Disadvantages
Online Advertising: Can be highly targeted to a particular audience; pay only for Vulnerable to click-through fraud (for example, clicks by a
Pay-per-click (search results (clicks); fast to deploy, and can be adjusted or deleted just competitor or an unhappy customer or employee), which
engines) as quickly; enables rapid and efficient tracking of responses for could result in wasted advertising spend
analyzing effectiveness of the ad
Online Advertising: Can connect with customers in a rich way; potential for broad Conversion of visitors to customers is often low; can be
Social Media reach and viral marketing; can be highly targeted to a particular difficult to build awareness and traffic to social media site
audience; relatively inexpensive; can be quickly deployed and
adjusted; can track visitors in real-time
Television High sensory richness that combines sight, sound, and motion; Increasingly fragmented audience due to proliferation of
high geographic and demographic reach; independent stations stations; increasing use of DVR’s enables viewers to skip
offer new opportunities to more directly target specific audiences the advertising; high absolute cost; fleeting exposure
Radio High geographic and demographic selectivity; medium reach; Audio presentation only; advertisers may need to buy ads
relatively low cost with multiple stations to achieve desired audience reach;
fleeting exposure
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Marketing
Major Advertising Media
Media Advantages Disadvantages
Newspaper Timeliness; good local market coverage; broad acceptance; Newspaper audiences are decreasing; easy for audience to
high believability; audience can keep or revisit the skip over ad; relatively poor production quality; high
advertisement; wide price ranges available advertising clutter; may be difficult to selectively target a
particular audience
Magazine High geographic and demographic selectivity; high quality Slow deployment (long ad purchase lead times); some
visual production; long life; can enable significant technical waste circulation; may require advertising in multiple
content; good pass-along readership magazines to achieve desired reach
Direct Mail High audience selectivity; no ad competition within the Relatively high cost; “junk mail” image; requires access to
same medium; personalization; enables communication of good mailing lists; requires relatively long lead times for
significant technical content; may be passed along to others; printing and mailing
responses can usually be efficiently tracked
Outdoor (for example, High repeat exposure; low cost; low competition Limited audience selectivity; very limited technical content
billboards, banners)
Telephone High audience selectivity; can give personalized message Relatively high cost; can be perceived as an annoyance
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Marketing
• Promotions.
• Temporary selling tactics that include:
• Samples or free trial.
• Cash rebates after purchase.
• Including an additional product (a “premium”) with purchase.
• Incentives for repeat purchase.
• Sales bonuses to distributor or retailer sales representatives.
• Cross promotions between two or more non-competing products to increase pulling power.
• Point-of-purchase displays to demonstrate the product’s features.
• Publicity and Public Relations.
• Attempt to generate free publicity and word-of-mouth (mention in articles, television programs, etc.).
• Produce own internally generated publications.
• Sponsor special events.
• Viral marketing is an attempt to capitalize on social networks by “seeding” information to well-connected
individuals.
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Theory In Action
Generating Awareness for Domosedan
• Farmos wanted to build awareness of its new innovation in animal painkillers.
• Asked university professors and advanced practitioners to help with testing process
for drug – acted as premarketing tool.
• Drug was featured in conferences, articles, dissertations.
• Farmos also hosted a large dinner party for all practicing veterinarians at the drug’s
launch.
• Domosedan was adopted rapidly around the world and became a commercial
success.