MoT Intro Managing Innovation TB 1-2

Management of Technology
35C00400
Lectures at Tue & Thu 15:15 – 16:45
Lecture hall U8 / U270
Otakaari 1, U-Wing, Otaniemi
1
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
2
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
3
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.
4
Case Amazon, Apple, Facebook and Google 20%
• Due date 11.10. 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?
5
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
1. Application type?
2. Company/industry/markets/ affected?
3. Examples or priciples?
4. Conclusions/Recommendations
6
Exam 50%
• Based on course book, articles and lectures

– Essay questions and concept explanations
– Exam dates:
• Thu 20 Oct 2016 15:15-18:00 (in class, no
registration needed)
• Tue 25 Oct 2016 9:00-12:00
• Tue 20 Dec 2016 9:00-12:00
(25.10. and 20.12. Advance registration via WebOodi !!)
7
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.
8
Joe Tidd
and
John Bessant
ISBN: 978-0-470-99810-6
http://www.managing-innovation.com/
9
© 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
• Detailed Schedule Fall 2016 – 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 Select Implementation and Capture
sources and Lecture on
partners Context of innovation: Organization and strategy
The rest of the lectures are corporate guest speakers and case sessions.
11
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
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 Innovation &
From 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 technê, 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 – cont’d
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 cont’d
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, co-
ordination 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 • 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
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 failures…the 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, co-
ordination and control ”
- Keith Pavitt
43
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
44
‘Mature’ managers view: ‘Dynamic’ managers view:
1. Profitability is determined by 1. Profitability is determined by the

industry, it is limited in firm. Mature industries offer
mature industries many opportunities
2. Market share is critical for 2. Market share is reward for
competitiveness creating value
3. Dominance demands 3. Effectiveness, not extent of
extensive resources resources counts
45
Choice of strategy (& luck) are more important than

industry:
– choice of industry 8.35%
– choice of strategy 46.4%
– parent company 0.8%
– unexplained (e.g. luck) 44.5%
46
Patents per million population
100
80
60
40
20
0
Japan Germany USA France UK
Source: OECD
47
Entrepreneurial Activity
15
10
0
USA UK Germany France Japan
Source: OECD
48
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 Era of Era of
Ferment Dominant Design Incremental change
58
The technology life cycle
Disruption/
Era of Ferment
“Dominant design”
Maturity
emerges
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 people’s 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
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)
67
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 Product
innovation innovation
Time
Increased Service Product

efficiency quality transformation
69
Example of Reverse Product Cycle
Electronic ATMs Internet
Rate of records banking
innovation
Time
Increased Service Product

efficiency quality transformation
70
71
Systems Innovation
How innovation happens?
Process Success (?)
72
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. Open during
business hours
b) Smaller disk drives were 9.00-17.00
rejected because computers
always filled whole rooms.
c) ATM’s were put outside
banks and were available
only during business hours.
86
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 Era of
ferment dominant incremental
design change
Rivalry among existing

Low Low High
competitors
Threat of new entrants High Low/High Low
Bargaining power of
Low High High
suppliers
Bargaining power of
High High High
customers
Threat of substitutes High Low/High High
89
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
Actual profile of management activity

Low
(Wheelwright – Clark 1992)

90
91

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Management of Technology

• Based on course book, articles and lectures

 This course concerns the formulation of business

• Detailed Schedule Fall 2016 – see MyCourses

Lecture on Lecture on Lecture on

Suvituulia Taponen, Research Associate

1. Innovation and performance

Tech-nol-o-gy – 1. The application of

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

• Positive relationship between investments in technology

1. Returns from use of new technology higher than from its

Sources: J. Bessant & J. Tidd (2007) Innovation and Entrepreneurship (Wiley);

Innovation has an inherent variability, but rate of

– 85% of new ideas never reach a market

Some explanations for the observed wide variation in

1. Scale – of technological inputs, critical mass, and

• A component innovation (or modular innovation)

• Product innovations are embodied in the outputs of

“ lack of technological knowledge is rarely the cause of

1. Profitability is determined by 1. Profitability is determined by the

Choice of strategy (& luck) are more important than

Patents per million population

1. Why is innovation so important for firms to compete

2. What are some of the advantages of technological

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

(Tushman et. al. 1997, 8)

• Market consists of early adapters and lead users

• New product synthesised from a number of

• Highly defined and standardized products

Increased Service Product

Increased Service Product

How innovation happens?

Process Success (?)

What are Organizational Routines?

Generic phases of the innovation process:

PIMS (Profit Impact of Marketing Strategy) data:

1. Impact of innovation on performance depends on contingency

Scanning the external environment:

”Riding the two horses dilemma” (Tidd et al., 2001)

a) With the invention of the

2. Era of dominant design

3. Era of Incremental change

Rivalry among existing

Threat of new entrants High Low/High Low

Threat of substitutes High Low/High High

Actual profile of management activity

(Wheelwright – Clark 1992)

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