35C00400
Lectures at Tue & Thu 15:15 – 16:45
Lecture hall U8 / U270
Otakaari 1, U-Wing, Otaniemi
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Course evaluation
Cases 50%
1. 3M Taiwan 10%
2. Amazon, Apple, Facebook,
Google 20%
3. Accenture: Industrial internet
term project 20%
Exam 50%
based on course book, lectures,
articles and other material
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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
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Case: 3M Taiwan 10%
• Due date 22.9. 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.
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Case Amazon, Apple, Facebook and Google 20%
• Due date 11.10. lecture when the case will be discussed
• Remember to prepare a presentation?
• Assignment questions:
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?
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NOTICE: Still subject to changes!?
Case: Accenture/Industrial Internet 20%
• Due date 18.10. class when case reports will be discussed
• 6.10. lecture Industrial Internet – Opportunities for new
services business
– by Kari Kaario, Managing Director, Accenture Digital, Nordics,
– the assignment for the Case/Term project will be delivered
• Assignment questions:
1. Application type?
2. Company/industry/markets/ affected?
3. Examples or priciples?
4. Conclusions/Recommendations
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Exam 50%
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Objectives & Contents:
8
Joe Tidd
and
John Bessant
ISBN: 978-0-470-99810-6
http://www.managing-innovation.com/
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© 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
• Four guest lectures – Strategy& (PwC network),
Accenture, and Enfo, as well as Prof Uday Apte, NPS
• No course wrap up lecture
• Exam in last class Thu 20. Oct at 15:15-18:00
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The logic and structure of the course
Lecture on
Managing Innovations and Finnish Innovation System
The rest of the lectures are corporate guest speakers and case sessions.
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Contact information
Ari Vepsäläinen, 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
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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
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Managing Innovation
Session 1 outline:
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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Session Plan
Definitions
of Innovation
Creating &
Capturing Value Innovation &
From Innovation Performance
Models &
Modes of
Innovation
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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)
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Innovation and Performance
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)
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
What means
Technology, and Business?
Dictionary tells:
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What is technology?
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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
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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
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Why is Technology important?
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Innovation and Performance
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
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Innovation and Performance – cont’d
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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R&D spending may lead to success – or then not?!
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Innovation and Performance – still cont’d
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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.
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Innovation and Performance – some factors
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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.
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Types of Innovation
- Competence-Enhancing vs. Competence-Destroying Innovation -
• Competence-enhancing • Competence-destroying
innovations build on the innovations render a firm’s
firm’s existing knowledge existing competencies
base. obsolete.
– creating opportunities to – eliminating an entire
increase sales or market product line or type of
penetration technology
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Types of Innovation
- Architectural vs Component Innovation -
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Types of Innovation
- Product vs Process Innovation -
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Creating and Capturing Value
- Keith Pavitt
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Creating and Capturing Value
Managers with ‘mature Managers with ‘dynamic
perceptions’ believe perceptions’ believe that:
that:
1. The industry is stable 1. There is potential for
with slow demand change, new ways of
growth & incremental operating, & new strategies
changes in technology
2. Profitability is achieved 2. Value is created through
by process improvement innovation in positions and
and product paradigms
differentiation
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Creating and Capturing Value
‘Mature’ managers view: ‘Dynamic’ managers view:
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Creating and Capturing Value
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Creating and Capturing Value
100
80
60
40
20
0
Japan Germany USA France UK
Source: OECD
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Creating and Capturing Value
Entrepreneurial Activity
15
10
0
USA UK Germany France Japan
Source: OECD
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Creating and Capturing Value
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
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Conclusions 1:
Innovation and Performance
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
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Conclusions 2:
Innovation and Performance
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
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Discussion Questions
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www.managing-innovation.com
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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
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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
© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
The Dynamics of Innovation
Rate of major
innovation
Product innovation Process innovation
Time
Era of Era of Era of
Ferment Dominant Design Incremental change
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The technology life cycle
Disruption/
Era of Ferment
“Dominant design”
Maturity
emerges
Incremental
Innovation
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Technological discontinuities trigger the
next waves of technological variation
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Era of Ferment - Fluid phase
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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
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”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)
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Dominant design phase
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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
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Era of Incremental Change
- Specific phase
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The Dynamics of Innovation
- from Ferment to Incremental Change
F
From high variety, to dominant design, to incremental r
Product
innovation on standardized products o
m
M
Manufacturing progresses from heavy reliance on skilled
a
Process labor to general purpose equipment tended by low-skilled
n
labor
u
F
From entrepreneurial organic firm to hierarchical
r
Organization mechanistic firm with defined tasks and procedures and
o
few rewards for radical innovation
m
F
From fragmented and unstable with diverse products and
r
Market rapid feedback to commodity-like with largely
o
undifferentiated products
m
F
From many small firms with unique products to an oligopoly r
Competition
of firms with similar products o
m
(Utterback,1994)
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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
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The Reverse Product Cycle
Rate of
innovation Process Product
innovation innovation
Time
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Example of Reverse Product Cycle
Electronic ATMs Internet
Rate of records banking
innovation
Time
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Systems Innovation
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Systems Innovation
How it really happens …..
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Routines & Innovation (Nelson & Winter, 1982)
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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).
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Innovation Process
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Innovation & Context
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
Innovation Process
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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.
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The industry life cycle as an S-curve
- organizational and marketing challenges
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Managerial implications: Firms need a
portfolio of radical and incremental innovation
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The nature of technical work changes
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Examples of existing operating structures
inhibiting innovation…
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The marketing challenge evolves
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Some strategies to consider
1. Era of Ferment
– Focus on niche products – Speed, IPs product
– Build collateral assets
– Invest to influence the dominant design
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Industry attractiveness in different
phases Era of Era of Era of
ferment dominant incremental
design change
Bargaining power of
Low High High
suppliers
Bargaining power of
High High High
customers
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Timing of
management attention and influence
Build Project
knowledge definition Design
and Idea and and build Pilot Manufacturing
capability generation selection prototypes production ramp up
High
Ability to
influence
outcomes
Index of attention
and influence