Lecture 1 The Innovation Environment
What are firm survival rates?
• Less than 0.1% of US firms live to the age of 40
• For example, firms founded in 1976
- 10% survived 10 years later
- 2,5% survived 20 later
• Conclusion: Average firms do not live as long as ordinary human beings
So what explains firm survival rates?
• Size? (Smaller firm more dependent on less people → less likely to survive). Measure =
number of employees for example. Larger firms typically can weather more storms. If
something change in customer preference: less easy to adapt.
• Financial Resources?
• Human capital? The more you have expert knowledge base that you can control within the
firm → also more likely to survive (intellectual human capital).
• Social Capital? More trusting customers you have characterize that social relations determine
whether you can keep these customers. Good relation with your supplier: you can do
concessions (pay you later for example). Next to that, labor unions and government: managing
the environment (lobbying).
• Any other resources??
How do you measure those elements is important (number of competitors when you are talking about
competition on the market for example).
Market = number of clients (how niche the is). If few people (1000) have a particular sickness, than it
is not that useful for a big company to focus on that population.
Examples
Have bankrupt
- Lehman Brothers. Had invested in too many mortgage back security’s knowing that they were pretty
problematic (company’s couldn’t afford it for example). Most amount of debt (615 billion).
- Nokia (didn’t innovate). Didn’t catch up with the trends and technology.
- Kodak (didn’t innovate). Dominated the market for a long time. Digital photography replaced
Kodak. Competitors get Kodak out of the market.
So what explains firm survival rates?
• Using an evolutionary lense:
- Darwin was right:
“Neither strength nor intelligence guarantees survival”
Only adaptation can do that (use that strength and survival to adapt)
• So, what separates the few successful firms from the thousands that fail?
• Leaving aside luck… what separates such firms?
- Ability to Innovate
Difference types of innovations
,Difference between product and process innovations:
- Product: consumer product (design of the iPhone).
Goods and professional services (Airbnb, Uber)
- Process (in technology and organizations) the way you conduct or organize something. Process in
which you deliver a certain service for example.
Technological interventions (from travel agents to the internet) (change the way things are
manufactured) or organizational changes (how do you place people on a manufacturing line).
Comes hand in hand with each other. New iPhone (product). → you also have to do innovation in the
manufacturing processes.
Innovation matrix
The degree to which a product or process changes. Move from incremental to a radical innovation.
Improvement vs renewal
Improvement/ Incremental
• evolutionary; incremental. Changes a little bit.
• “leitmotiv”: we can always improve (more of the same; 1e order solutions). We can always
improve on something that is preexisting. Improvement of a car for example.
• preventive; correctable. Reducing errors.
• focus: management of operations (efficiency)
, • dominant role of planning & control.
• e.g.: TQM (allows to use waste), ISO 9000.
- Step by step: iPhone 4 → iPhone 5.
Renewal/Radical (technology push)
• revolutionary: “jumps”.
• leitmotiv: crisis – we have to change (first change, then improve; 2nd order). Crisis compels
people to radically invent. Fuji where at a crisis (photo film industry), they managed the
innovate by producing a new product).
• destructive: no way back. Changes the main stream (e-mail is possible nowadays with regard
to stamps).
• focus: management of opportunities (resource leverage; NB (Business) D/NPD). Creating a
new set of customers in the future (invention of a car). New product development. Kodak
failed in this. Fuji managed to do so. Taught about potential opportunities.
• focus on creativity & entrepreneurship
• e.g.: biotechnology, Internet, Cars, Airplanes, Steam boat
- Uber and Airbnb. Changing the whole industry for taxies and hotels.
What are the consequences of improvement vs renewal?
Improvement/Incremental (market pull)
• Source of short-term financial revenue
• NO guarantee for long-term survival
Renewal/Radical
• Source of long-term financial costs. You need to invest a long of time, effort and especially
financial resources.
• Necessary for long-term survival
A closer examination of the innovation environment
• An evolutionary pattern of innovation
- Abernathy and Utterback, 1978
• Technological discontinuities
- Tushman and Anderson, 1986
Product life cycle / S-curve (Abernathy and Utterback, 1978)
, Non-lineair relationship. You have ideas, different way to think about the ideas (spend a lot of time),
however a lot of ideas not necesarilly leading to product performance (spending more in times of
effort and energy). Typically of a lot of new products and services. You do experiments, develop
prototypes etc. It changes in the middle. Line gets steeper; the time or enigineering effort is leading to
a higher proportion of product performance. Much of the process innovation becomes place at that
point, products get more efficient and the quality better.
(x = time, y = revenues)
Somebody thinks they can leverage the internet. The internet pushes people way to think how this can
take place. The market starts demanding those products. The middle of the S curve is the highest
return. The more time pasts, the more competition there will be.
If you refine a product in the middle.
Reversed S-curve:
What are firm survival rates?
• Less than 0.1% of US firms live to the age of 40
• For example, firms founded in 1976
- 10% survived 10 years later
- 2,5% survived 20 later
• Conclusion: Average firms do not live as long as ordinary human beings
So what explains firm survival rates?
• Size? (Smaller firm more dependent on less people → less likely to survive). Measure =
number of employees for example. Larger firms typically can weather more storms. If
something change in customer preference: less easy to adapt.
• Financial Resources?
• Human capital? The more you have expert knowledge base that you can control within the
firm → also more likely to survive (intellectual human capital).
• Social Capital? More trusting customers you have characterize that social relations determine
whether you can keep these customers. Good relation with your supplier: you can do
concessions (pay you later for example). Next to that, labor unions and government: managing
the environment (lobbying).
• Any other resources??
How do you measure those elements is important (number of competitors when you are talking about
competition on the market for example).
Market = number of clients (how niche the is). If few people (1000) have a particular sickness, than it
is not that useful for a big company to focus on that population.
Examples
Have bankrupt
- Lehman Brothers. Had invested in too many mortgage back security’s knowing that they were pretty
problematic (company’s couldn’t afford it for example). Most amount of debt (615 billion).
- Nokia (didn’t innovate). Didn’t catch up with the trends and technology.
- Kodak (didn’t innovate). Dominated the market for a long time. Digital photography replaced
Kodak. Competitors get Kodak out of the market.
So what explains firm survival rates?
• Using an evolutionary lense:
- Darwin was right:
“Neither strength nor intelligence guarantees survival”
Only adaptation can do that (use that strength and survival to adapt)
• So, what separates the few successful firms from the thousands that fail?
• Leaving aside luck… what separates such firms?
- Ability to Innovate
Difference types of innovations
,Difference between product and process innovations:
- Product: consumer product (design of the iPhone).
Goods and professional services (Airbnb, Uber)
- Process (in technology and organizations) the way you conduct or organize something. Process in
which you deliver a certain service for example.
Technological interventions (from travel agents to the internet) (change the way things are
manufactured) or organizational changes (how do you place people on a manufacturing line).
Comes hand in hand with each other. New iPhone (product). → you also have to do innovation in the
manufacturing processes.
Innovation matrix
The degree to which a product or process changes. Move from incremental to a radical innovation.
Improvement vs renewal
Improvement/ Incremental
• evolutionary; incremental. Changes a little bit.
• “leitmotiv”: we can always improve (more of the same; 1e order solutions). We can always
improve on something that is preexisting. Improvement of a car for example.
• preventive; correctable. Reducing errors.
• focus: management of operations (efficiency)
, • dominant role of planning & control.
• e.g.: TQM (allows to use waste), ISO 9000.
- Step by step: iPhone 4 → iPhone 5.
Renewal/Radical (technology push)
• revolutionary: “jumps”.
• leitmotiv: crisis – we have to change (first change, then improve; 2nd order). Crisis compels
people to radically invent. Fuji where at a crisis (photo film industry), they managed the
innovate by producing a new product).
• destructive: no way back. Changes the main stream (e-mail is possible nowadays with regard
to stamps).
• focus: management of opportunities (resource leverage; NB (Business) D/NPD). Creating a
new set of customers in the future (invention of a car). New product development. Kodak
failed in this. Fuji managed to do so. Taught about potential opportunities.
• focus on creativity & entrepreneurship
• e.g.: biotechnology, Internet, Cars, Airplanes, Steam boat
- Uber and Airbnb. Changing the whole industry for taxies and hotels.
What are the consequences of improvement vs renewal?
Improvement/Incremental (market pull)
• Source of short-term financial revenue
• NO guarantee for long-term survival
Renewal/Radical
• Source of long-term financial costs. You need to invest a long of time, effort and especially
financial resources.
• Necessary for long-term survival
A closer examination of the innovation environment
• An evolutionary pattern of innovation
- Abernathy and Utterback, 1978
• Technological discontinuities
- Tushman and Anderson, 1986
Product life cycle / S-curve (Abernathy and Utterback, 1978)
, Non-lineair relationship. You have ideas, different way to think about the ideas (spend a lot of time),
however a lot of ideas not necesarilly leading to product performance (spending more in times of
effort and energy). Typically of a lot of new products and services. You do experiments, develop
prototypes etc. It changes in the middle. Line gets steeper; the time or enigineering effort is leading to
a higher proportion of product performance. Much of the process innovation becomes place at that
point, products get more efficient and the quality better.
(x = time, y = revenues)
Somebody thinks they can leverage the internet. The internet pushes people way to think how this can
take place. The market starts demanding those products. The middle of the S curve is the highest
return. The more time pasts, the more competition there will be.
If you refine a product in the middle.
Reversed S-curve:
