Strategic Management of Technological
Innovation
1 Introduction
The Importance of Technological Innovation
Technological innovation: The act of introducing a new device, method, or
material for application to commercial or practical objectives.
In many industries technological innovation ixs now the most important driver of
competitive success. Firms in a wide range of industries rely on products
developed within the past five years for almost one-third of their sales and profits.
The increasing importance of innovation is due in part to the globalization of
markets. Foreign competition has put pressure on firms to continuously innovate
in order to produce differentiated products and services. Introducing new
products helps firms protect their margins, while investing in process innovation
helps firms lower their costs.
While producing multiple product variations used to be expensive and
time-consuming, flexible manufacturing technologies now enable firms to
seamlessly transition from producing one product model to the next, adjusting
production schedules with real-time information on demand. Firms further reduce
production costs by using common components in many of the models.
The product life cycles (the time between a product’s introduction and its
withdrawal from the market or replacement by a next-generation product) have
become as short as 4 to 12 months for software, 12 to 24 months for computer
hardware and consumer electronics, and 18 to 36 months for large home
appliances. This spurs firms to focus increasingly on innovation as a strategic
imperative - a firm that does not innovate quickly finds its margin diminishing as
its products become obsolete.
The Impact of Technological Innovation on Society
Innovation enables a wider range of goods and services to be delivered to people
worldwide. The aggregate impact of technological innovation can be observed by
looking at gross domestic product (GDP). The gross domestic product of an
economy is its total annual output, measured by final purchase price.
Technological innovation increased the amount of output achievable from a given
quantity of labor and capital. Technological innovation has a number of important
effects on society, including fostering increased GDP, enabling greater
communication and mobility and improving medical treatments.
,Sometimes technological innovation results in negative externalities, including
pollution, resource depletion, and other unintended consequences of
technological change.
Externalities: Costs (or benefits) that are borne (or reaped) by individuals other
than those responsible for creating them. Thus, if a business emits pollutants
in a community, it imposes a negative externality on the community members;
if a business builds a park in a community, it creates a positive externality for
community members.
Technological innovation is the creation of new knowledge that is applied to
practical problems. Sometimes this knowledge is applied to problems hastily,
without full consideration of the consequences and alternatives, but overall it will
probably serve us better to have more knowledge than less.
,Innovation by Industry: The Importance of Strategy
The majority of effort and money invested in technological innovation comes from
industrial firms. However, in the frenetic race to innovate, many firms charge
headlong into new product development without clear strategies or
well-developed processes for choosing and managing projects. Such firms
often initiate more project than they can effectively support, choose projects
that are a poor fit with the firm’s resources and objectives, and suffer long
development cycles and high project failure rates as a consequence.
While government plays a significant role in innovation, industry provides the
majority of R&D funds that are ultimately applied to technological innovation.
The Innovation Funnel
Most innovative ideas do not become successful new products. The innovation
process is often conceived of as a funnel, with many potential new product
ideas going in the wide end, but very few making it through the development
process.
The Strategic Management of Technological Innovation
Improving a firm’s innovation success rate requires a well-crafted strategy.
A firm’s innovation projects should align with its resources and objectives,
leveraging its core competencies and helping it achieve its strategic intent.
A firm’s organizational structure and control systems should encourage the
generation of innovative ideas while also ensuring efficient implementation.
A firm’s new product development process should maximize the likelihood of
projects being both technically and commercially successful. To achieve these
things, a firm needs:
a. an in-depth understanding of the dynamics of innovation
b. a well-crafted innovation strategy
c. well-designed processes for implementing the innovation strategy.
, PART ONE
Industry Dynamics of Technological Innovation
2 Sources of Innovation
Innovation: The practical implementation of an idea into a new device or
process. Innovation can arise from many different sources.
● It can originate with individuals, as in the familiar image of the lone inventor or
users who design solutions for their own needs.
● Innovation can also come from the research efforts of universities,
government laboratories and incubators, or private nonprofit organizations.
● Firms are well suited to innovation activities because they typically have
greater resources than individuals and a management system to marshal
those resources toward a collective purpose. Firms also face strong
incentives to develop differentiating new products and services, which may
give them an advantage over non-profit or government-funded entities.
● An even more important source of innovation is the linkage between these
sources. Networks of innovators that leverage knowledge and other resources
from multiple sources are one of the most powerful agents of technological
advance.
○ We can thus think of sources of innovation as composing a complex
system wherein any particular innovation may emerge primarily from
one or more components of the system or the linkages between them.
Innovation begins with the generation of new ideas: something imagined or pictured
in the mind. The ability to generate new and useful ideas is termed creativity.
Creativity is defined as the ability to produce work that is useful and novel. Novel
work must be different from work that has been previously produced and surprising
in that it is not simply the next logical step in a series of known solutions.
Creativity
Individual Creativity
An individual’s creative ability is a function of his or her intellectual abilities,
knowledge, style of thinking, personality, motivation, and environment. The most
important intellectual abilities for creative thinking include the ability to look at
problems in unconventional ways, the ability to analyze which ideas are worth
pursuing and which are not, and the ability to articulate those ideas to others and
convince others that the ideas are worthwhile. The impact of knowledge on creativity
is somewhat double-edged. If an individual has too little knowledge of a field, he or
she is unlikely to understand it well enough to contribute meaningfully to it. On the
Innovation
1 Introduction
The Importance of Technological Innovation
Technological innovation: The act of introducing a new device, method, or
material for application to commercial or practical objectives.
In many industries technological innovation ixs now the most important driver of
competitive success. Firms in a wide range of industries rely on products
developed within the past five years for almost one-third of their sales and profits.
The increasing importance of innovation is due in part to the globalization of
markets. Foreign competition has put pressure on firms to continuously innovate
in order to produce differentiated products and services. Introducing new
products helps firms protect their margins, while investing in process innovation
helps firms lower their costs.
While producing multiple product variations used to be expensive and
time-consuming, flexible manufacturing technologies now enable firms to
seamlessly transition from producing one product model to the next, adjusting
production schedules with real-time information on demand. Firms further reduce
production costs by using common components in many of the models.
The product life cycles (the time between a product’s introduction and its
withdrawal from the market or replacement by a next-generation product) have
become as short as 4 to 12 months for software, 12 to 24 months for computer
hardware and consumer electronics, and 18 to 36 months for large home
appliances. This spurs firms to focus increasingly on innovation as a strategic
imperative - a firm that does not innovate quickly finds its margin diminishing as
its products become obsolete.
The Impact of Technological Innovation on Society
Innovation enables a wider range of goods and services to be delivered to people
worldwide. The aggregate impact of technological innovation can be observed by
looking at gross domestic product (GDP). The gross domestic product of an
economy is its total annual output, measured by final purchase price.
Technological innovation increased the amount of output achievable from a given
quantity of labor and capital. Technological innovation has a number of important
effects on society, including fostering increased GDP, enabling greater
communication and mobility and improving medical treatments.
,Sometimes technological innovation results in negative externalities, including
pollution, resource depletion, and other unintended consequences of
technological change.
Externalities: Costs (or benefits) that are borne (or reaped) by individuals other
than those responsible for creating them. Thus, if a business emits pollutants
in a community, it imposes a negative externality on the community members;
if a business builds a park in a community, it creates a positive externality for
community members.
Technological innovation is the creation of new knowledge that is applied to
practical problems. Sometimes this knowledge is applied to problems hastily,
without full consideration of the consequences and alternatives, but overall it will
probably serve us better to have more knowledge than less.
,Innovation by Industry: The Importance of Strategy
The majority of effort and money invested in technological innovation comes from
industrial firms. However, in the frenetic race to innovate, many firms charge
headlong into new product development without clear strategies or
well-developed processes for choosing and managing projects. Such firms
often initiate more project than they can effectively support, choose projects
that are a poor fit with the firm’s resources and objectives, and suffer long
development cycles and high project failure rates as a consequence.
While government plays a significant role in innovation, industry provides the
majority of R&D funds that are ultimately applied to technological innovation.
The Innovation Funnel
Most innovative ideas do not become successful new products. The innovation
process is often conceived of as a funnel, with many potential new product
ideas going in the wide end, but very few making it through the development
process.
The Strategic Management of Technological Innovation
Improving a firm’s innovation success rate requires a well-crafted strategy.
A firm’s innovation projects should align with its resources and objectives,
leveraging its core competencies and helping it achieve its strategic intent.
A firm’s organizational structure and control systems should encourage the
generation of innovative ideas while also ensuring efficient implementation.
A firm’s new product development process should maximize the likelihood of
projects being both technically and commercially successful. To achieve these
things, a firm needs:
a. an in-depth understanding of the dynamics of innovation
b. a well-crafted innovation strategy
c. well-designed processes for implementing the innovation strategy.
, PART ONE
Industry Dynamics of Technological Innovation
2 Sources of Innovation
Innovation: The practical implementation of an idea into a new device or
process. Innovation can arise from many different sources.
● It can originate with individuals, as in the familiar image of the lone inventor or
users who design solutions for their own needs.
● Innovation can also come from the research efforts of universities,
government laboratories and incubators, or private nonprofit organizations.
● Firms are well suited to innovation activities because they typically have
greater resources than individuals and a management system to marshal
those resources toward a collective purpose. Firms also face strong
incentives to develop differentiating new products and services, which may
give them an advantage over non-profit or government-funded entities.
● An even more important source of innovation is the linkage between these
sources. Networks of innovators that leverage knowledge and other resources
from multiple sources are one of the most powerful agents of technological
advance.
○ We can thus think of sources of innovation as composing a complex
system wherein any particular innovation may emerge primarily from
one or more components of the system or the linkages between them.
Innovation begins with the generation of new ideas: something imagined or pictured
in the mind. The ability to generate new and useful ideas is termed creativity.
Creativity is defined as the ability to produce work that is useful and novel. Novel
work must be different from work that has been previously produced and surprising
in that it is not simply the next logical step in a series of known solutions.
Creativity
Individual Creativity
An individual’s creative ability is a function of his or her intellectual abilities,
knowledge, style of thinking, personality, motivation, and environment. The most
important intellectual abilities for creative thinking include the ability to look at
problems in unconventional ways, the ability to analyze which ideas are worth
pursuing and which are not, and the ability to articulate those ideas to others and
convince others that the ideas are worthwhile. The impact of knowledge on creativity
is somewhat double-edged. If an individual has too little knowledge of a field, he or
she is unlikely to understand it well enough to contribute meaningfully to it. On the
