MIST 626 Handout STRATEGIC MANAGEMENT OF TECHNOLOGY … · MIST 626 STRATEGIC MANAGEMENT OF...

MIST 626 STRATEGIC MANAGEMENT OF TECHNOLOGY AND INNOVATION, Dr Geoffrey Kamau 1

MIST 626 STRATEGIC MANAGEMENT OF TECHNOLOGY AND INNOVATION


TABLE OF CONTENT

1. Course outline ................................................................................................................................. 3

2. Introduction .................................................................................................................................... 3

2.1. Fundamentals of Technology and innovations ......................................................................... 3

2.2. Impact of innovation on a firm ................................................................................................. 3

2.3. Schumpeter and disruptive innovations .................................................................................... 3

2.4. Novelty of an innovation........................................................................................................... 4

3. Understanding innovations ........................................................................................................... 4

3.1. Sources of innovation................................................................................................................ 4

3.2. Types of innovations ................................................................................................................. 4

3.2.1. Disruptive ........................................................................................................................... 4

3.2.2. Incremental......................................................................................................................... 5

3.3. Dimensions of innovations........................................................................................................ 5

3.4. Drivers of innovation ................................................................................................................ 5

4. Innovation activities in the firm .................................................................................................... 5

4.1. Innovation activities for product and process innovations ........................................................ 5

4.2. Innovation activities for marketing and organisational innovations ......................................... 6

4.3. Classifying firms by degree of innovativeness ......................................................................... 6

4.4. Sources of transfer of knowledge and technology .................................................................... 7

4.5. Innovation & R&D surveys ...................................................................................................... 7

4.6. Data collection: The survey approach ....................................................................................... 7

5. Industry Context Adoption of Innovation ................................................................................... 8

5.1. Kinds of innovation activities ................................................................................................... 8

5.2. Factors influencing innovation.................................................................................................. 8

5.3. Objectives and effects of innovation ......................................................................................... 8

5.4. Impacts and outcomes ............................................................................................................... 9

5.5. Factors hampering innovation activities ................................................................................... 9

5.6. Expenditures.............................................................................................................................. 9

5.7. Linkages .................................................................................................................................. 10

6. Adoption of Innovations and Technology .................................................................................. 10

6.1. Diffusion of innovations ......................................................................................................... 10

6.2. Technology life-cycle ............................................................................................................. 11

6.3. Factors that influence adoption of innovation ......................................................................... 12

6.4. Technology s-curve innovations ............................................................................................. 13

6.5. New Product Development ..................................................................................................... 14

6.6. Internal Corporate Venturing .................................................................................................. 15


1. Course outline

2. Introduction

2.1. Fundamentals of Technology and innovations

Technology: new developments from basic science or applied engineering that deliver significant

benefits by improving effectiveness or efficiency in a system, process or product as measured by

factors such as cycle time or time response, service or quality level, capacity or productivity, and/or

cost.

Innovation: is the implementation of a new or significantly improved product (good or service), or

process, a new marketing method, or a new organisational method in business practices, workplace

organization or external relations. The creative destruction of the past, the planned abandonment of

the familiar way of doing things to embrace a new direction that strives to increase economic

growth. Innovation can create without technology or apply technology to a market requirement by

providing customers with a new way of achieving their needs whether implicitly or explicitly stated.

Comparing innovation and technology:

• You can have innovation without new technology (i.e., innovation does not require new

technology).

• You cannot have a new technology without also having innovation (i.e., new technology

requires innovation – innovation is a necessary, but not a sufficient condition for new technology).

Strategy: the persistence of a vision – a strategy will articulate the ways that a firm creates

opportunities and exploits its capabilities to achieve its desired objectives. Strategy is a defining

statement that will describe both intent and direction of an organization by delineating the plans and

actions required to achieve its long-range objectives along with a set of measurable milestones to

evaluate its progress.

Innovation management: the set of choices that an organization makes to develop unique

solutions to its critical business challenges and to capitalize upon the opportunities presented by

discontinuities in market or technology conditions.

Integration: linkage and alignment of organization-wide resources and innovation efforts,

technological progress, and new business development to achieve strategic goals of an organization

and deliver long-term business strength.

Innovative technology differentiates an organization only when it does something with that

technology that inspires customers and markets and that technology is integrated into its business –

not developed for a research silo. Technology generates its full power only when the effectiveness

of a company’s product technology capability is matched by the effectiveness of its business

leadership capability – both technology innovation and management innovation must develop

simultaneously for organizations to achieve enduring success.

2.2. Impact of innovation on a firm

• Key source of competitive success

• Enhances a firm’s strategic competitiveness and financial performance.

• Firms competing in global industries that invest more in innovation also achieve the highest

returns.

2.3. Schumpeter and disruptive innovations

Product innovation: introduction of a good or service that is new or significantly improved with

respect to its characteristics or intended uses. This includes significant improvements in technical


specifications, components and materials, incorporated software, user friendliness or other

functional characteristics.

Process innovation: implementation of a new or significantly improved production or delivery

method. This includes significant changes in techniques, equipment and/or software.

Marketing innovation: implementation of a new marketing method involving significant changes in

product design or packaging, product placement, product promotion or pricing.

Organisational innovation: implementation of a new organisational method in the firm’s business

practices, workplace organisation or external relations.

2.4. Novelty of an innovation

How novel an innovation is can be measured by the extent of its diffusion, the extent that it creates

a new to the firm, new market, a new world, and how disruptive the innovation is:

1. Diffusion is the way in which innovations spread, through market or non-market channels,

from their first worldwide implementation to different consumers, countries, regions, sectors,

markets, and firms. Without diffusion, an innovation will have no economic impact. The minimum

entry for a change in a firm’s products or functions to be considered as an innovation is that it must

be new (or significantly improved) to the firm.

2. New to the firm: A product, process, marketing method, or organisational method can

already have been implemented by other firms, but if it is new to the firm (or in case of products

and processes: significantly improved), then it is an innovation for that firm.

3. New to the market: the firm is the first to introduce the innovation onto its market.

4. The market is defined as the firm and its competitors. The geographical scope is subject to

the firm’s own view of its operating market and thus can include both domestic and international

firms.

5. New to the world: the firm is the first to introduce the innovation for all markets and

industries, domestic and international.

6. implies a qualitatively greater degree of novelty than new to the market.

7. Disruptive innovations: an innovation that has a significant impact on a market and on the

economic activity of firms in that market. It focuses on the impact of innovations as opposed to

their novelty. These impacts can, for example, change the structure of the market, create new

markets, or render existing products obsolete. However, it might not be apparent whether an

innovation is disruptive until long after the innovation has been introduced.

3. Understanding innovations

3.1. Sources of innovation

Drucker identified 4 sources of innovation within a company or an industry:

• Unexpected occurrences

• Incongruities

• Process needs

• Industry and market changes

3.2. Types of innovations

3.2.1. Disruptive

Disruptive innovation: It involves change in value proposition and fundamental changes in

marketplace. Inventions usually result in disruptive innovations.


3.2.2. Incremental

Incremental innovation involve steady improvements based on sustained technologies favourable to

cultural routines and norms that create immediate gains and develops customer loyalty.

Incremental innovations include:

• Extension

• Duplication

• Synthesis

3.3. Dimensions of innovations

This refers to the characteristics of innovation on:

• Extent of change (radical—incremental)

• Modality of change (product—process)

• Complexity of change (component—architecture)

• Materiality of change (physical—intangible)

• Capabilities and change (enhances or destroys market/technological capabilties)

• Relatedness of change (replaces a firm’s existing product or extends it)

• Appropriability/Imitability (difficult or hard to hang on to)

• Cycle of innovation (time between discontinuities)

3.4. Drivers of innovation

• Financial pressures to reduce costs, increase efficiency, do more with less, etc

• Increased competition

• Shorter product life cycles

• Value migration

• Stricter regulation

• Industry and community needs for sustainable development

• Increased demend for accountability

• Demographic, social and maket changes

• Rising customer expectations regarding service and quality

• Changing economy

• Greater availability of potentially useful technologies coupled with a need to exceed the

competition in these technologies

•

4. Innovation activities in the firm

4.1. Innovation activities for product and process innovations

Innovation activities_are all scientific, technological, organisational, financial and commercial steps

which actually, or are intended to, lead to the implementation of innovations. Some innovation

activities are themselves innovative, others are not novel activities but are necessary for the

implementation of innovations. Innovation activities also include R&D that is not directly related to

the development of a specific innovation.

1. Intramural (in-house) R&D: This comprises all R&D conducted by the enterprise, including

basic research.

2. Acquisition of R&D (extramural R&D): R&D purchased from public or private research

organisations or from other enterprises (including other enterprises within the group).

3. Acquisition of other external knowledge: Acquisition of rights to use patents and non-


patented inventions, trademarks, know-how and other types of knowledge from other enterprises

and institutions such as universities and government research institutions, other than R&D.

4. Acquisition of machinery, equipment and other capital goods: Acquisitions of advanced

machinery, equipment, computer hardware or software, and land and buildings (including major

improvements, modifications and repairs), that are required to implement product or process

innovations.

5. Other preparations for product and process innovations: Other activities related to the

development and implementation of product and process innovations, such as design, planning and

testing for new products (goods and services), production processes, and delivery methods that are

not already included in R&D.

6. Market preparations for product innovations: Activities aimed at the market introduction of

new or significantly improved goods or services.

7. Training: Training (including external training) linked to the development of product or process

innovations and their implementation.

4.2. Innovation activities for marketing and organisational innovations

1. Preparations for marketing innovations: Activities related to the development and

implementation of new marketing methods. Includes acquisitions of other external knowledge and

other capital goods that are specifically related to marketing innovations.

2. Preparations for organisational innovations: Activities undertaken for the planning and

implementation of new organisation methods. Includes acquisitions of other external knowledge

and other capital goods that are specifically related to organisational innovations.

4.3. Classifying firms by degree of innovativeness

1. The innovative firm is one that has introduced an innovation during the period under review.

The innovations need not have been a commercial success – many innovations fail.

2. An innovation active firm is one that has had innovation activities during the period under

review, including those with ongoing and abandoned activities. In other words, firms that have had

innovation activities during the period under review, regardless of whether the activity resulted in

the implementation of an innovation, are innovation active.

3. A potentially innovative firm is one type of “innovation active firm”, that has made innovation

efforts but not achieved results. This is a key element in innovation policies: to help them

overcome the obstacles that prevent them from being innovative (converting efforts into

innovations) – Annex for developing countries.


4.4. Sources of transfer of knowledge and technology

4.5. Innovation & R&D surveys

1. R&D and innovation are related phenomena which can lead some countries to consider the

combination of R&D and innovation surveys. There are a number of points for and against:

• Overall response burden of the reporting units will be reduced.

• Length of questionnaire could lead to a decline in response rates.

• Possibility of analysing the relations between R&D and innovation activities at the unit

level.

• Units not familiar with the concepts of R&D and innovation can confuse them.

• Efficient method of increasing the frequency of innovation surveys.

• The frames for the two surveys will generally be different. For example, the frame

population for innovation surveys may cover industrial classifications (and small units) that are not

included in R&D surveys. Combining them might involve sending questions about R&D to a large

number of non-R&D performers that are included in the frame population for the innovation survey,

and this would increase the cost of the joint survey.

2. In principle, other business surveys can also be merged with innovation surveys, including

surveys on the diffusion of ICTs, and on the adoption of knowledge management practices.

4.6. Data collection: The survey approach

• The “subject” based approach starts from the innovative behaviour and activities of the firm

as a whole. The idea is to explore the factors influencing the innovative behaviour of the firm

(strategies, incentives and barriers to innovation) and the scope of various innovation activities, and


above all to examine the outputs and effects of innovation. These surveys are designed to be

representative of all industries so the results can be grossed up and comparisons made between

industries.

• The “object” approach involves the collection of data about specific innovations (usually a

‘significant innovation’ of some kind, or the main innovation of a firm). The approach involves

collecting some descriptive, quantitative and qualitative data about the particular innovation at

the same time as data is sought about the firm.

5. Industry Context Adoption of Innovation

5.1. Kinds of innovation activities

1. Successful in having resulted in the implementation of a new innovation (though they need

not have been commercially successful).

2. Ongoing, work in progress, which has not yet resulted in the implementation of an

innovation.

3. Abandoned before the implementation of an innovation.

5.2. Factors influencing innovation

1. Objectives: Identifying enterprises’ motives for innovating and measuring their importance

2. Hampering factors: reasons for not starting innovation activities at all, or factors that slow

innovation activity or have a negative effect on expected results. These include economic

factors, such as high costs or lack of demand, enterprise factors such as lack of skilled personnel

or knowledge, and legal factors such as regulations or tax rules. The ability of enterprises to

appropriate the gains from their innovation activities is also a factor affecting innovation.

5.3. Objectives and effects of innovation

Competition, demand and markets

• Replace products being phased out

• Increase range of goods and services

• Develop environment-friendly products

• Increase or maintain market share

• Enter new markets

• Increase visibility or exposure for products

• Reduced time to respond to customer needs

Production and delivery

• Improve quality of goods and services

• Improve flexibility of production or service provision

• Increase capacity of production or service provision

• Reduce unit labour costs

• Reduce consumption of materials and energy

• Reduce product design costs

• Achieve industry technical standards

• Reduce production lead times

• Reduce operating costs for service provision

• Increase efficiency or speed of supplying and/or delivering goods or services

• Improve IT capabilities

Workplace organisation

• Improve communication and interaction among different business activities


• Increase sharing or transferring of knowledge with other organisations

• Increase the ability to adapt to different client demands

• Develop stronger relationships with customers

• Improve working conditions

Other

• Reduce environmental impacts or improve health and safety

• Meet regulatory requirements

5.4. Impacts and outcomes

• Impacts of innovations on firm performance range from effects on sales and market share to

changes in productivity and efficiency. Important impacts at industry and national levels are

changes in international competitiveness and in total factor productivity, knowledge spillovers of

firm-level innovations, and an increase in the amount of knowledge flowing through networks.

• The outcomes of product innovations can be measured by the percentage of sales derived from

new or improved products.

5.5. Factors hampering innovation activities

Knowledge factors:

• Innovation potential (R&D, design, etc.) insufficient

• Lack of qualified personnel: Within the enterprise / In the labour market

• Lack of information on technology / markets

• Deficiencies in the availability of external services

• Difficulty in finding co-operation partners for: Product or process development / Marketing

partnerships

• Organisational rigidities within the enterprise: Attitude of personnel/ managers towards

change, Managerial structure of enterprise

• Inability to devote staff to innovation activity due to production requirements

Institutional factors:

• Lack of infrastructure

• Weakness of property rights

• Legislation, regulations, standards, taxation

Cost factors:

• Excessive perceived risks

• Cost too high

• Lack of funds within the enterprise

• Lack of finance from sources outside the enterprise: Venture capital / Public sources of

funding

Market factors:

• Uncertain demand for innovative goods or services

• Potential market dominated by established enterprises

Other reasons for not innovating:

• No need to innovate due to earlier innovations

• No need because of lack of demand for innovations

5.6. Expenditures

Total expenditure for innovation activities comprises current and capital expenditure incurred for

the innovation activities defined above. Current innovation expenditures are composed of labour


costs and other current costs. Capital expenditures for innovations are composed of gross

expenditures on land and buildings, on instruments and equipment and on computer software.

Capital expenditures that are part of R&D are included in intramural R&D, while non-R&D capital

expenditures linked to product and process innovations are included in acquisition of machinery,

equipment and other capital goods. Non-R&D capital expenditures specifically linked to marketing

or organisational innovations are included in preparations for marketing innovations and

preparations for organisational innovations, respectively. The remaining categories of innovation

activity consist solely of current expenditure.

5.7. Linkages

The innovative activities of a firm partly depend on the variety and structure of its links to sources

of information, knowledge, technologies, practices, and human and financial resources. Each

linkage connects the innovating firm to other actors in the innovation system: government

laboratories, universities, policy departments, regulators, competitors, suppliers, and customers.

Innovation surveys can obtain information on the prevalence and importance of different types of

linkages, plus the factors that influence the use of specific linkages.

Types of external linkages:

• Open information sources provide openly available information that does not require the

purchase of technology or intellectual property rights, or interaction with the source.

• Acquisition of knowledge and technology are purchases of external knowledge and capital

goods (machinery, equipment, software) and services embodied with new knowledge or technology

that do not involve interaction with the source.

• Innovation co-operation is active co-operation with other firms or public research

institutions for innovation activities (which may include purchases of knowledge and technology).

•

6. Adoption of Innovations and Technology

6.1. Diffusion of innovations

Diffusion is the process by which an innovation is communicated through certain channels over

time among the members of a social system (5). Given that decisions are not authoritative or

collective, each member of the social system faces his/her own innovation-decision that follows a 5-

step process:

1) Knowledge – person becomes aware of an innovation and has some idea of how it

functions,

2) Persuasion – person forms a favorable or unfavorable attitude toward the innovation,

3) Decision – person engages in activities that lead to a choice to adopt or reject the

innovation,

4) Implementation – person puts an innovation into use,

5) Confirmation – person evaluates the results of an innovation-decision already made.

Diffusion scholars divide this bell-shaped curve to characterize five categories of system member

innovativeness, where innovativeness is defined as the degree to which an individual is relatively

earlier in adopting new ideas than other members of a system. These groups are: 1) innovators, 2)

early adopters, 3) early majority, 4) late majority, and 5) laggards.


Innovators are venturesome types that enjoy being on the cutting edge. The innovation’s possible

benefits make it exciting; the innovators imagine the possibilities and are eager to give it a try. The

implementation and confirmation stages of the innovators’ innovation-decisions are of particular

value to the subsequent decisions of potential adopters.

Early adopters use the data provided by the innovators’ implementation and confirmation of the

innovation to make their own adoption decisions. If the opinion leaders observe that the innovation

has been effective for the innovators, then they will be encouraged to adopt. This group earns

respect for its judicious, well-informed decision-making, and hence this group is where most

opinion leaders in a social system reside. Much of the social system does not have the inclination

or capability to remain abreast of the most recent information about innovations, so they instead

trust the decisions made by opinion leaders. Additionally, much of the social system merely wants

to stay in step with the rest. Since opinion leader adoption is a good indicator that an innovation is

going to be adopted by many others, these conformity-loving members are encouraged to adopt.

So a large subsection of the social system follows suit with the trusted opinion leaders. This is the

fabled tipping point, where the rate of adoption rapidly increases. The domino effect continues as,

even for those who are cautious or have particular qualms with the innovation, adoption becomes a

necessity as the implementation of the innovation-decisions of earlier adopters result in social

and/or economic benefit. Those who have not adopted lose status or economic viability, and this

contextual pressure motivates adoption.

The last adopters, laggards, can either be very traditional or be isolates in their social system. If

they are traditional, they are suspicious of innovations and often interact with others who also have

traditional values. If they are isolates, their lack of social interaction decreases their awareness of

an innovation’s demonstrated benefits. It takes much longer than average for laggards to adopt

innovations.

So we have seen potential adopters’ uncertainty about an innovation is assuaged through a stepwise

social process. The tipping point is marked by opinion leader adoption. Well-informed opinion

leaders communicate their approval or disapproval of an innovation, based on the innovators’

experiences, to the rest of the social system. The majority responds by rapidly adopting. This

analysis suggests that the spread of an innovation hinges on a surprisingly small point: namely,

whether or not opinion leaders vouch for it.

6.2. Technology life-cycle

The TLC may be seen as composed of four phases:


The research and development (R&D) phase (sometimes called the "bleeding edge") when

incomes from inputs are negative and where the prospects of failure are high

The ascent phase when out-of-pocket costs have been recovered and the technology begins to

gather strength by going beyond some Point A on the TLC (sometimes called the "leading edge")

The maturity phase when gain is high and stable, the region, going into saturation, marked by M,

and

The decline (or decay phase), after a Point D, of reducing fortunes and utility of the technology.

6.3. Factors that influence adoption of innovation

The result was a set of five factors identified as essential influencers in our decision to adopt or

reject new ideas: relative advantage, compatibility, complexity, trialability, and observability.

1. Relative Advantage is the degree to which an idea or product is perceived as better than the

existing standard. Just how much of an improvement is it over the previous generation? The higher

the Relative Advantage, the greater the chance of adoption. Relative Advantage is what most people

think of when they visualize something being “innovative.”

2. Compatibility. How easily can I use my past experience to understand how this new product

functions or what this new work means? The higher the similarity with existing norms, the better

the chances of adoption. Ideas and people that miss the Compatibility factor are often described as

“ahead of their time.” The higher the similarity with existing norms, the better the chances of

adoption.

3. Complexity (or simplicity) is how easy it is for people to understand the new idea or use the

new product. Is this idea a simple extension of logic? Is it an easy-to-use product? If the work or

product is seen as highly complex or difficult to grasp, people will shy away from engaging with the

product or adopting the idea.

.4. Trialability. How effortless it is for the target audience to interact with the new concepts or

experiment with the product? How easily can they try it out? The more potential users or patrons

can test the product or view the work, the more likely individuals will adopt it.

5. Observability is the noticeable results of trying or consuming the idea. When new products are

highly visible, it drives more people to share it and increases the likelihood of mass adoption.


6.4. Technology s-curve innovations

The shape of the technology lifecycle is often referred to as S-curve. S-curves visually depict how

a product, service, technology or business progresses and evolves over time. S-curves can be

viewed on an incremental level to map product evolutions and opportunities, or on a macro scale to

describe the evolution of businesses and industries. On a product, service, or technology level, S-

curves are usually connected to “market adoption” since the beginning of a curve relates to the birth

of a new market opportunity, while the end of the curve represents the death, or obsolescence of the

product, service, or technology in the market. Usually the end of one S-curve marks the emergence

of a new S-curve – the one that displaces it (e.g., video cassette tapes versus DVDs, word

processors versus computers, etc.). Some industries and technologies move along S-curves faster

than others. High tech S-curves tend to cycle more quickly while certain consumer products move

more slowly.


6.5. New Product Development

• Idea Generation and Screening

• Concept Development and Testing

• Marketing Strategy

• Business Analysis

• Product Development

• Test Marketing

• Commercialization


Idea funnel

6.6. Internal Corporate Venturing

Innovation is necessary but not sufficient condition to competitive success

Need processes and structures in place so that the firm can successfully implement the outcomes of

internal corporate ventures is as crucial as the actual innovations themselves

Two types

• Autonomous Strategic Behavior

• Induced Strategic Behavior

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