Summary Management of Digital Innovation
Full Summary
Disclaimer
This summary is the intellectual property of the author and other involved parties and may not be
shared, distributed or reproduced without the explicit consent of the author. The author assumes no
responsibility for the grades or the outcomes of any students using this summary.
, Summary Management of Digital Innovation 2023/2024
Contents
Lecture 1: The nature of digital technologies ......................................................................................... 5
Innovation management .................................................................................................................... 5
Recap: The technology Life Cycle.................................................................................................... 5
Recap: Technology roadmapping ................................................................................................... 6
Recap: Routinization of innovation................................................................................................. 6
Digital innovation ................................................................................................................................ 8
Important definitions ...................................................................................................................... 8
The five characteristics of digital innovation .................................................................................. 8
Affordances of pervasive digital technology ................................................................................. 12
Lecture 2: Digital platforms .................................................................................................................. 13
Platforms .......................................................................................................................................... 13
The economic perspective: Platforms as multi-sided markets ......................................................... 14
Engineering perspective: Modularity and platform architectures.................................................... 17
Modularity .................................................................................................................................... 17
Platform architectures .................................................................................................................. 18
Platform ecosystems: open system architectures ............................................................................ 20
Standards and coopetition................................................................................................................ 21
Lecture 3: Disruptive innovation .......................................................................................................... 24
Disruptive innovations ...................................................................................................................... 24
Digital technology and disruption ..................................................................................................... 26
Responses to disruption ................................................................................................................... 27
Disruption in ecosystems .................................................................................................................. 28
Lecture 4: Evolution of digital innovation............................................................................................. 30
The technological evolution.............................................................................................................. 30
S-curves......................................................................................................................................... 30
Dominant designs ............................................................................................................................. 35
Technology life cycle ..................................................................................................................... 35
Why do dominant designs emerge? ............................................................................................. 35
Interdependencies between technologies ....................................................................................... 38
Lecture 5: Innovation strategy.............................................................................................................. 39
2
, Summary Management of Digital Innovation 2023/2024
Innovation strategies ........................................................................................................................ 39
Deliberate and emergent strategy (Mintzberg) ............................................................................ 40
Innovation decision-making under uncertainty ................................................................................ 42
Four approaches to deal with uncertainty........................................................................................ 43
Scaling up .......................................................................................................................................... 47
Lecture 6: Digital innovation ecosystems ............................................................................................. 48
Open innovation ............................................................................................................................... 48
Competitive markets for innovation ................................................................................................. 50
Collaborative communities ............................................................................................................... 52
Collaborative-competitive communities .......................................................................................... 53
Crowd complementors ..................................................................................................................... 57
Lecture 7: Innovation processes ........................................................................................................... 58
Innovation process............................................................................................................................ 58
NPD processes .................................................................................................................................. 59
NPD processes over time .............................................................................................................. 59
(1) Linear versus cyclical activity ................................................................................................... 59
(2) Sequential versus parallel activity ........................................................................................... 60
(3) Monodisciplinary versus multidisciplinary .............................................................................. 61
(4) Rational planning versus emergent planning .......................................................................... 61
Experimentation through analysing use data ............................................................................... 67
Added service layer....................................................................................................................... 68
Consequences of developing digital innovations.............................................................................. 69
Changing role of IT department .................................................................................................... 69
Lecture 8: Use of data to innovate products and services ................................................................... 71
Servitization for incumbents ............................................................................................................. 71
Framework for mapping digital B2B product-service combinations ............................................ 72
Two ways to servitize your products ................................................................................................ 73
(1) Starting from an existing product ............................................................................................ 73
(2) Starting from the data ............................................................................................................. 75
Digital-physical complexity ............................................................................................................... 77
(1) Consumer products ................................................................................................................. 77
(2) Industrial products .................................................................................................................. 79
3
, Summary Management of Digital Innovation 2023/2024
Lecture 9: Agile and design approaches ............................................................................................... 80
New emerging development approaches of digital innovation........................................................ 80
Agile .............................................................................................................................................. 80
Agile stage-gate hybrid ................................................................................................................. 82
Lean startup .................................................................................................................................. 84
Design thinking ................................................................................................................................. 85
Double diamond model ................................................................................................................ 85
Design thinking and organizational culture .................................................................................. 86
Emergent approaches ....................................................................................................................... 87
4
, Summary Management of Digital Innovation 2023/2024
Lecture 1: The nature of digital technologies
In this lecture we will discuss:
- What innovation management is
- What digital innovation is
- What characteristics of digital innovation are in
o Characteristics of digital technology
o Consequences for products and services
o Implications for innovation management
Innovation management
Recap: The technology Life Cycle
In the picture on the right, the Technology Life Cycle is depicted. This model is made by Anderson
and Tushman and based on a model made by Utterback and Abernathy. Anderson and Tushman
found that each technological
discontinuity (the introduction of a new
technology that fulfils a similar market
need, but is based on new knowledge)
inaugurated a period of turbulence and
uncertainty where they experiment a lot,
which they termed the era of ferment.
The new technology might offer
breakthrough capabilities, but there is little agreement about what the major subsystems of the
technology should be or how they should be configured together. Furthermore, as later researchers
noted, during the era of ferment different stakeholders might have different concepts of what
purpose the technology should serve or how a business model might be built around it. Thus, while
the new technology displaces the old (substitutes) there is considerable design competition as firms
experiment with different forms of the technology. Eventually a dominant design will arise to
command the majority of the market share, unless the next discontinuity arrives soon and disrupts
the cycle or several producers patented their own proprietary technologies and refused to license to
each other. A dominant design is a product design that is adopted by the majority of producers,
typically creating a stable architecture on which the industry can focus its efforts. Instead of
maximizing performance on any individual dimension of the technology, the dominant design tended
to bundle together a combination of features that best fulfilled the demands of the majority of the
market. The rise of a dominant design signals the transition from the era of ferment to the era of
incremental change. In this era, firms focus on efficiency and market penetration. Firms may attempt
to achieve greater market segmentation by offering different models and price points. They may also
attempt to lower production costs by simplifying the design or improving the production process.
This period of accumulating small improvements may account for the bulk of the technological
progress in an industry and it continues until the next technological discontinuity.
This model still applies to today’s environment, but the 4 stages follow each other up much faster
nowadays. For example, for the music industry: first you had vinyl, then cd’s, then an era of
downloading music and now streaming from streaming services like Spotify.
5
, Summary Management of Digital Innovation 2023/2024
Recap: Technology roadmapping
Another tool that is commonly used regards the technology roadmap as described by Schoenmaker
(1997) in his paper "How to Map Technological Developments: An Exploratory Study of Different
Approaches." This paper introduced the concept of technology roadmapping and described a
structured approach to creating
technology roadmaps. Schoenmaker's
approach laid the foundation for many
subsequent developments in the field of
technology roadmapping. This tool is
applied at a firm level. First, an
organization has to make an inventory of
where the market is going and what
technologies could potentially respond
to that heading. Then, the organization
need to look at R&D projects that could
fulfil the market need. However, this model might be a little unrealistic, as it is hard to look into the
future in today’s market environment. In a reactive mode, you might be too late, but if you are in an
active mode, you might miss the plank as planning in advance is very hard .
Recap: Routinization of innovation
The stage-gate model is a model developed by Cooper (2008), which assumes that there are several
stages in an innovation process. However, phase (stage) B may only start after phase (stage) A has
been completed and positively assessed (go) in a gate. This is also shown in the picture below. For
the exam you do not need to know the labels of the different stages or gates: enough knowledge
about the stage-gate concept is sufficient.
Each phase (stage) consists of:
Ø Activities: information gathering activities by the project team.
Ø Integrated analysis: An integrated analysis of the results of the activities by the project team.
Ø Deliverables: The result of integrated analysis - That which will be tested at the 'gate'.
And is followed up by a:
6
, Summary Management of Digital Innovation 2023/2024
Ø 'Gate': A progress/not progress decision point in which results are assessed and a decision is
made to invest more in the project or not (invest in the form of money or time). When a
'stage' receives permission to progress through a 'gate', the next stage in the innovation
process may be started. A 'gate' is also called a decision gate. The purpose of these gates is
to kill off bad ideas at the earliest possible stage. The next stage only 'opens' when you have
indications that the previous stage is fine and that the product is still expected to be
successful.
Before a go/no-go is issued for a stage, the deliverables are required. These are then assessed
against predetermined criteria. A 'gate' can give the following outputs:
Ø Go: Project is allowed to proceed to the next stage;
Ø Kill: Project will not be continued;
Ø Hold: project still needs to meet some criteria before it is allowed to proceed to the next
stage;
Ø Recycle: project gets recycled.
Selecting/judging projects in a gate is done by a multidisciplinary board with representatives from
the functions/departments. They are also called the gatekeepers. Projects are thus not assessed by
the developers (project managers) as they may have biases such as 'over commitment' or tunnel
vision. An objective opinion/vision (because they are less connected to the project) from the
gatekeepers is required.
According to the stage-gate model, the cost of the project increases, but the uncertainty decreases
with time. This is true for each stage (stage B is more expensive/certain than stage A, but stage C is
again more expensive/certain than B). With details becoming clearer and clearer, the idea becomes
clearer and uncertainty decreases. However, this does increase costs, because you have to take more
and more factors into
account and because making
a concept (one of the first
stages in the innovation
process) is a lot cheaper
than, say, manufacturing the
product (a much later stage
in the innovation process).
Data shows that over time, companies are getting better and better at letting good projects through.
So project/idea selection through the stage-gate model, for example, is getting better and better.
7
, Summary Management of Digital Innovation 2023/2024
Important addition!
What remains important in todays business environment are the gates. This, as in today’s
environment, it takes much more experimenting and iterations resulting in products never being
‘finished’. This notion, however, does not fit in the stage gate model, given that a product should be
finished after stage 5. Therefore, solely the idea of gates is used at a regular base for digital
innovations.
Digital innovation
Important definitions
Digital innovation is defined as “the use of digital technology in new products, services, business
models, and business processes.” In this context, digital technology is defined as “a broad category of
technologies that use digital information and data to perform various functions, processes, and
tasks.”
However, besides the above definition, there are slight deviations on the prior definitions. Yoo et al
(2012) defined digital innovation as “the incorporation of digital capabilities into objects that
previously had a purely physical materiality”. This definition imposes that there is a distinction to be
made between digital and physical. Fichman (2014) defined digital innovation as “a product, service,
process, or business model that is perceived as new, requires some significant changes on the part of
adopters, and is embodied in or enabled by IT. ” Last, Nambisan et al (2017) defined digital innovation
as “the creation of (and consequent change in) market offerings, business processes, or models that
result from the use of digital technology.”
Another important definition that needs to be highlighted regards the differences between
digitization and digitalization:
• Digitization is the encoding of analogue information into a digital format: this regards binary
digits (bits);
• Digitalization on the other hand is a sociotechnical process of applying digitizing techniques
to broader social and institutional contexts à ‘going online’
The five characteristics of digital innovation
There are 5 characteristics of digital innovation. These caharcateristics are:
8
, Summary Management of Digital Innovation 2023/2024
1. Homogenization & decoupling: In recent years, the nature of data has become more
homogenous. The way the information data was stored was coupled with the product it was
stored on (for example music used to be stored on CD’s, messages on paper, et cetera.). The
same data and information can now be used on a variety of carriers like your phone, your
car, USB-sticks, et cetera. This allows for a much easier way of sharing information. “Because
all digital information assumes the same form, it can, at least in principle, be processed by
the same technologies. Consequently, digitizing has the potential to remove the tight
couplings between information types and their storage, transmission, and processing
technologies” ~ Tilson et al. (2010). The homogenization and decoupling of data resulted in
two (2) consequences:
a. Low marginal costs: Digitized information
can be transmitted, stored, and computed
in fast and low cost ways (e.g. electronics,
electromagnetic waves, optical signals). This
is due to Moore’s law: Moore’s law states
that every two years, the possible
computing power of computers doubles.
This indicates that the computing power of
computers is growing exponentially and is
not following the technology S-curve until
now.
Due to lower marginal costs, it is easier to
enter a market (accounts for some markets).
However, this isn’t the case for all markets,
given that companies that aren’t first cannot profit from the first mover advantage.
Therefore, implications for innovations as a result of this characteristic are disruption
and the winner takes it all.
b. Convergent user experience: Industries and products merge together. Not only
products converge (combine), but also industries (convergence of industries).
Competition becomes more complex as you also compete with firms in other
industries than your own. For example, first there was a car industry and a
technology industry, but now cars have implemented technologies and therefore the
two industries have merged. Another example is the route mapping industry as they
used to sell maps and another industry compasses, but today these two products are
combined into one app in for example Google Maps (combinatorial innovation).
2. Connectivity: Connectivity refers to connections with other users, connections with other
applications, and connections between firms and customers. Connectivity has a number of
consequences in:
a. Network externalities: Greater use leads to more specialized complements. Also
termed positive consumption externalities, this is when the value of a good to a user
increases with the number of other users of the same or a similar good or when
many complementary goods are available for a product. When products or systems
function conjointly, we call this interoperability. Take Bluetooth for example. The
more Bluetooth devices there are, the more likely one will buy Bluetooth devices.
Interoperability drives network externalities. There are different types of network
externalities:
1. Direct network effects (same side): When the value of a good to a user
increases with the number of other users of the same-or a similar-good.
9
, Summary Management of Digital Innovation 2023/2024
Network effects are greater with a larger installed base: the number of
people using the technology. For example: If you have a phone, but
others don’t, you have no use for it. When everyone has a phone, there is
use for it. Same goes for Whatsapp.
Indirect network effects (cross-side): The presence of other type of
actors (for example complementors) generates additional value. If there
are no users, I won’t be interested in making complementary products,
on the other hand, if there are complementary products, I will be
interested as a customer to join the network and vice versa.
2.
a. Complementary goods: Additional goods and services that
enable or enhance the value of another good.
Implications for innovation are disruption, winner-takes-all and
ecosystems. Moreover, network effects are self-reinforcing meaning that
it is hard for alternatives to gain ground. For example: Whatsapp is
biggest in the Netherlands due network effects and other platforms are
used way less and gain almost no ground.
b. Connections with other applications: If your smartphone can have many aopps, the
value is higher. If smart home products can collaborate with other devices, the value
10
Full Summary
Disclaimer
This summary is the intellectual property of the author and other involved parties and may not be
shared, distributed or reproduced without the explicit consent of the author. The author assumes no
responsibility for the grades or the outcomes of any students using this summary.
, Summary Management of Digital Innovation 2023/2024
Contents
Lecture 1: The nature of digital technologies ......................................................................................... 5
Innovation management .................................................................................................................... 5
Recap: The technology Life Cycle.................................................................................................... 5
Recap: Technology roadmapping ................................................................................................... 6
Recap: Routinization of innovation................................................................................................. 6
Digital innovation ................................................................................................................................ 8
Important definitions ...................................................................................................................... 8
The five characteristics of digital innovation .................................................................................. 8
Affordances of pervasive digital technology ................................................................................. 12
Lecture 2: Digital platforms .................................................................................................................. 13
Platforms .......................................................................................................................................... 13
The economic perspective: Platforms as multi-sided markets ......................................................... 14
Engineering perspective: Modularity and platform architectures.................................................... 17
Modularity .................................................................................................................................... 17
Platform architectures .................................................................................................................. 18
Platform ecosystems: open system architectures ............................................................................ 20
Standards and coopetition................................................................................................................ 21
Lecture 3: Disruptive innovation .......................................................................................................... 24
Disruptive innovations ...................................................................................................................... 24
Digital technology and disruption ..................................................................................................... 26
Responses to disruption ................................................................................................................... 27
Disruption in ecosystems .................................................................................................................. 28
Lecture 4: Evolution of digital innovation............................................................................................. 30
The technological evolution.............................................................................................................. 30
S-curves......................................................................................................................................... 30
Dominant designs ............................................................................................................................. 35
Technology life cycle ..................................................................................................................... 35
Why do dominant designs emerge? ............................................................................................. 35
Interdependencies between technologies ....................................................................................... 38
Lecture 5: Innovation strategy.............................................................................................................. 39
2
, Summary Management of Digital Innovation 2023/2024
Innovation strategies ........................................................................................................................ 39
Deliberate and emergent strategy (Mintzberg) ............................................................................ 40
Innovation decision-making under uncertainty ................................................................................ 42
Four approaches to deal with uncertainty........................................................................................ 43
Scaling up .......................................................................................................................................... 47
Lecture 6: Digital innovation ecosystems ............................................................................................. 48
Open innovation ............................................................................................................................... 48
Competitive markets for innovation ................................................................................................. 50
Collaborative communities ............................................................................................................... 52
Collaborative-competitive communities .......................................................................................... 53
Crowd complementors ..................................................................................................................... 57
Lecture 7: Innovation processes ........................................................................................................... 58
Innovation process............................................................................................................................ 58
NPD processes .................................................................................................................................. 59
NPD processes over time .............................................................................................................. 59
(1) Linear versus cyclical activity ................................................................................................... 59
(2) Sequential versus parallel activity ........................................................................................... 60
(3) Monodisciplinary versus multidisciplinary .............................................................................. 61
(4) Rational planning versus emergent planning .......................................................................... 61
Experimentation through analysing use data ............................................................................... 67
Added service layer....................................................................................................................... 68
Consequences of developing digital innovations.............................................................................. 69
Changing role of IT department .................................................................................................... 69
Lecture 8: Use of data to innovate products and services ................................................................... 71
Servitization for incumbents ............................................................................................................. 71
Framework for mapping digital B2B product-service combinations ............................................ 72
Two ways to servitize your products ................................................................................................ 73
(1) Starting from an existing product ............................................................................................ 73
(2) Starting from the data ............................................................................................................. 75
Digital-physical complexity ............................................................................................................... 77
(1) Consumer products ................................................................................................................. 77
(2) Industrial products .................................................................................................................. 79
3
, Summary Management of Digital Innovation 2023/2024
Lecture 9: Agile and design approaches ............................................................................................... 80
New emerging development approaches of digital innovation........................................................ 80
Agile .............................................................................................................................................. 80
Agile stage-gate hybrid ................................................................................................................. 82
Lean startup .................................................................................................................................. 84
Design thinking ................................................................................................................................. 85
Double diamond model ................................................................................................................ 85
Design thinking and organizational culture .................................................................................. 86
Emergent approaches ....................................................................................................................... 87
4
, Summary Management of Digital Innovation 2023/2024
Lecture 1: The nature of digital technologies
In this lecture we will discuss:
- What innovation management is
- What digital innovation is
- What characteristics of digital innovation are in
o Characteristics of digital technology
o Consequences for products and services
o Implications for innovation management
Innovation management
Recap: The technology Life Cycle
In the picture on the right, the Technology Life Cycle is depicted. This model is made by Anderson
and Tushman and based on a model made by Utterback and Abernathy. Anderson and Tushman
found that each technological
discontinuity (the introduction of a new
technology that fulfils a similar market
need, but is based on new knowledge)
inaugurated a period of turbulence and
uncertainty where they experiment a lot,
which they termed the era of ferment.
The new technology might offer
breakthrough capabilities, but there is little agreement about what the major subsystems of the
technology should be or how they should be configured together. Furthermore, as later researchers
noted, during the era of ferment different stakeholders might have different concepts of what
purpose the technology should serve or how a business model might be built around it. Thus, while
the new technology displaces the old (substitutes) there is considerable design competition as firms
experiment with different forms of the technology. Eventually a dominant design will arise to
command the majority of the market share, unless the next discontinuity arrives soon and disrupts
the cycle or several producers patented their own proprietary technologies and refused to license to
each other. A dominant design is a product design that is adopted by the majority of producers,
typically creating a stable architecture on which the industry can focus its efforts. Instead of
maximizing performance on any individual dimension of the technology, the dominant design tended
to bundle together a combination of features that best fulfilled the demands of the majority of the
market. The rise of a dominant design signals the transition from the era of ferment to the era of
incremental change. In this era, firms focus on efficiency and market penetration. Firms may attempt
to achieve greater market segmentation by offering different models and price points. They may also
attempt to lower production costs by simplifying the design or improving the production process.
This period of accumulating small improvements may account for the bulk of the technological
progress in an industry and it continues until the next technological discontinuity.
This model still applies to today’s environment, but the 4 stages follow each other up much faster
nowadays. For example, for the music industry: first you had vinyl, then cd’s, then an era of
downloading music and now streaming from streaming services like Spotify.
5
, Summary Management of Digital Innovation 2023/2024
Recap: Technology roadmapping
Another tool that is commonly used regards the technology roadmap as described by Schoenmaker
(1997) in his paper "How to Map Technological Developments: An Exploratory Study of Different
Approaches." This paper introduced the concept of technology roadmapping and described a
structured approach to creating
technology roadmaps. Schoenmaker's
approach laid the foundation for many
subsequent developments in the field of
technology roadmapping. This tool is
applied at a firm level. First, an
organization has to make an inventory of
where the market is going and what
technologies could potentially respond
to that heading. Then, the organization
need to look at R&D projects that could
fulfil the market need. However, this model might be a little unrealistic, as it is hard to look into the
future in today’s market environment. In a reactive mode, you might be too late, but if you are in an
active mode, you might miss the plank as planning in advance is very hard .
Recap: Routinization of innovation
The stage-gate model is a model developed by Cooper (2008), which assumes that there are several
stages in an innovation process. However, phase (stage) B may only start after phase (stage) A has
been completed and positively assessed (go) in a gate. This is also shown in the picture below. For
the exam you do not need to know the labels of the different stages or gates: enough knowledge
about the stage-gate concept is sufficient.
Each phase (stage) consists of:
Ø Activities: information gathering activities by the project team.
Ø Integrated analysis: An integrated analysis of the results of the activities by the project team.
Ø Deliverables: The result of integrated analysis - That which will be tested at the 'gate'.
And is followed up by a:
6
, Summary Management of Digital Innovation 2023/2024
Ø 'Gate': A progress/not progress decision point in which results are assessed and a decision is
made to invest more in the project or not (invest in the form of money or time). When a
'stage' receives permission to progress through a 'gate', the next stage in the innovation
process may be started. A 'gate' is also called a decision gate. The purpose of these gates is
to kill off bad ideas at the earliest possible stage. The next stage only 'opens' when you have
indications that the previous stage is fine and that the product is still expected to be
successful.
Before a go/no-go is issued for a stage, the deliverables are required. These are then assessed
against predetermined criteria. A 'gate' can give the following outputs:
Ø Go: Project is allowed to proceed to the next stage;
Ø Kill: Project will not be continued;
Ø Hold: project still needs to meet some criteria before it is allowed to proceed to the next
stage;
Ø Recycle: project gets recycled.
Selecting/judging projects in a gate is done by a multidisciplinary board with representatives from
the functions/departments. They are also called the gatekeepers. Projects are thus not assessed by
the developers (project managers) as they may have biases such as 'over commitment' or tunnel
vision. An objective opinion/vision (because they are less connected to the project) from the
gatekeepers is required.
According to the stage-gate model, the cost of the project increases, but the uncertainty decreases
with time. This is true for each stage (stage B is more expensive/certain than stage A, but stage C is
again more expensive/certain than B). With details becoming clearer and clearer, the idea becomes
clearer and uncertainty decreases. However, this does increase costs, because you have to take more
and more factors into
account and because making
a concept (one of the first
stages in the innovation
process) is a lot cheaper
than, say, manufacturing the
product (a much later stage
in the innovation process).
Data shows that over time, companies are getting better and better at letting good projects through.
So project/idea selection through the stage-gate model, for example, is getting better and better.
7
, Summary Management of Digital Innovation 2023/2024
Important addition!
What remains important in todays business environment are the gates. This, as in today’s
environment, it takes much more experimenting and iterations resulting in products never being
‘finished’. This notion, however, does not fit in the stage gate model, given that a product should be
finished after stage 5. Therefore, solely the idea of gates is used at a regular base for digital
innovations.
Digital innovation
Important definitions
Digital innovation is defined as “the use of digital technology in new products, services, business
models, and business processes.” In this context, digital technology is defined as “a broad category of
technologies that use digital information and data to perform various functions, processes, and
tasks.”
However, besides the above definition, there are slight deviations on the prior definitions. Yoo et al
(2012) defined digital innovation as “the incorporation of digital capabilities into objects that
previously had a purely physical materiality”. This definition imposes that there is a distinction to be
made between digital and physical. Fichman (2014) defined digital innovation as “a product, service,
process, or business model that is perceived as new, requires some significant changes on the part of
adopters, and is embodied in or enabled by IT. ” Last, Nambisan et al (2017) defined digital innovation
as “the creation of (and consequent change in) market offerings, business processes, or models that
result from the use of digital technology.”
Another important definition that needs to be highlighted regards the differences between
digitization and digitalization:
• Digitization is the encoding of analogue information into a digital format: this regards binary
digits (bits);
• Digitalization on the other hand is a sociotechnical process of applying digitizing techniques
to broader social and institutional contexts à ‘going online’
The five characteristics of digital innovation
There are 5 characteristics of digital innovation. These caharcateristics are:
8
, Summary Management of Digital Innovation 2023/2024
1. Homogenization & decoupling: In recent years, the nature of data has become more
homogenous. The way the information data was stored was coupled with the product it was
stored on (for example music used to be stored on CD’s, messages on paper, et cetera.). The
same data and information can now be used on a variety of carriers like your phone, your
car, USB-sticks, et cetera. This allows for a much easier way of sharing information. “Because
all digital information assumes the same form, it can, at least in principle, be processed by
the same technologies. Consequently, digitizing has the potential to remove the tight
couplings between information types and their storage, transmission, and processing
technologies” ~ Tilson et al. (2010). The homogenization and decoupling of data resulted in
two (2) consequences:
a. Low marginal costs: Digitized information
can be transmitted, stored, and computed
in fast and low cost ways (e.g. electronics,
electromagnetic waves, optical signals). This
is due to Moore’s law: Moore’s law states
that every two years, the possible
computing power of computers doubles.
This indicates that the computing power of
computers is growing exponentially and is
not following the technology S-curve until
now.
Due to lower marginal costs, it is easier to
enter a market (accounts for some markets).
However, this isn’t the case for all markets,
given that companies that aren’t first cannot profit from the first mover advantage.
Therefore, implications for innovations as a result of this characteristic are disruption
and the winner takes it all.
b. Convergent user experience: Industries and products merge together. Not only
products converge (combine), but also industries (convergence of industries).
Competition becomes more complex as you also compete with firms in other
industries than your own. For example, first there was a car industry and a
technology industry, but now cars have implemented technologies and therefore the
two industries have merged. Another example is the route mapping industry as they
used to sell maps and another industry compasses, but today these two products are
combined into one app in for example Google Maps (combinatorial innovation).
2. Connectivity: Connectivity refers to connections with other users, connections with other
applications, and connections between firms and customers. Connectivity has a number of
consequences in:
a. Network externalities: Greater use leads to more specialized complements. Also
termed positive consumption externalities, this is when the value of a good to a user
increases with the number of other users of the same or a similar good or when
many complementary goods are available for a product. When products or systems
function conjointly, we call this interoperability. Take Bluetooth for example. The
more Bluetooth devices there are, the more likely one will buy Bluetooth devices.
Interoperability drives network externalities. There are different types of network
externalities:
1. Direct network effects (same side): When the value of a good to a user
increases with the number of other users of the same-or a similar-good.
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, Summary Management of Digital Innovation 2023/2024
Network effects are greater with a larger installed base: the number of
people using the technology. For example: If you have a phone, but
others don’t, you have no use for it. When everyone has a phone, there is
use for it. Same goes for Whatsapp.
Indirect network effects (cross-side): The presence of other type of
actors (for example complementors) generates additional value. If there
are no users, I won’t be interested in making complementary products,
on the other hand, if there are complementary products, I will be
interested as a customer to join the network and vice versa.
2.
a. Complementary goods: Additional goods and services that
enable or enhance the value of another good.
Implications for innovation are disruption, winner-takes-all and
ecosystems. Moreover, network effects are self-reinforcing meaning that
it is hard for alternatives to gain ground. For example: Whatsapp is
biggest in the Netherlands due network effects and other platforms are
used way less and gain almost no ground.
b. Connections with other applications: If your smartphone can have many aopps, the
value is higher. If smart home products can collaborate with other devices, the value
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