INNOVATION
MANAGEMENT
,Contents
Lecture 1: innovation and innovators ..................................................................................................... 2
Lecture 2: making decisions under uncertainty ...................................................................................... 8
Lecture 3: organizational learning ......................................................................................................... 11
Lecture 4: profiting from innovation ..................................................................................................... 15
Lecture 5: developing sustainable competitive advantage ................................................................... 20
Lecture 6: marketing ............................................................................................................................. 28
Lecture 7: alliances and open innovation.............................................................................................. 36
Lecture 8: sustainable model innovation .............................................................................................. 42
1
,Lecture 1: innovation and innovators
Established firms VS startups
- Start-up entrepreneurs address customer needs in entirely new ways
- Differences in size, age, resources, affect the way firms operate along several dimensions
Business case analysis
- Opportunity to recognize patterns and apply theoretical concepts to real life situations
Why do firms exist→ to reduce traction costs
- Transaction cost. Costs to interact so not everyone is freelancer.
o A firm is more efficient. Saves money and time, less negotiating
- Firms as production functions that efficiently transform land, labor & capital inputs into
goods & services.
- Competitive markets coordinate buyer-seller exchanges via price signals.
o Markets set/determine prices. But takes time to negotiate when you’re on the
market. Coordination is costly, monetary and time.
- Fixed conditions
Transaction costs as unite of analysis
- A transaction occurs whenever a good or service is transferred across a technologically
separable interface
- Alternative governance structure should be assessed based on their capacity to economize
on transaction costs (less friction). This leads to trade-offs, e.g. regarding control and costs
- Economic efficiency and organizations’ internal structure are related
o What is efficient in terms of keeping within a firm and what not. What should you
outsource.
o Implies; boundaries of the firm as a decision variable
o Firms make important decision; which departments do we have.
Behavioural assumptions
- Transaction agreements never cover all possible future contingencies (“incomplete
contracting”).
- Transactors act under 2 behavioral assumptions:
o Bounded rationality
▪ Transactors are constrained by cognitive limits on their capacities to process
information efficiently (incomplete contracting because not everything is
know so impossible to put in contract)
o Opportunism
▪ “Self-interest with guile” could induce strategic behavior by transactors to lie
to, cheat, confuse, mislead their exchange partner
▪ Opportunism behaviour works both ways
▪ Agents are not fully trustworthy.
- Over time the field (management field) started to realize, things are not always super
rational. In reality actors don’t fully optimize in rational way. Raises the question outsourcing
and keeping it in. Limitated in resources they can access
Forms of governance
2
, - Williamson identified 3 fundamental forms of transaction governance
o Hierarchy (make)
▪ Transactions among parties occur under a unified owner who settles
disputes (firm governance)
o Market (buy)
▪ Autonomous parties’ exchanges are governed by prices in supply-demand
equilibrium (market governance)
o Hybrid (ally)
▪ “Long-term contractual relations that preserve [parties’] autonomy, but
provide added transaction-specific safeguards as compared with the
market.”
- Boundaries of firms and governance structures
o
- Make or buy decisions
o Where do we draw the boundaries of the firm
Critical dimensions for transactions
- Uncertainty
- Frequency with which transactions recur
- Extend to which investments are transaction-specific
o Therefor firm/product specific
o Is more important
o "The issue is less whether there are large fixed investments [...], than whether such
investments are specialized to a particular transaction."
▪ Specificity relates to costs, e.g. because of non-marketability problems
- Asset specificity can stem from 3 causes
o Site specificity
▪ when successive stations are located in cheek-by-jowl relation to each other
so as to economize on inventory and transportation expenses
o Physical specificity, e.g. charger for a specific socket
▪ Specialized dies are required to produce a component
o Human asset specificity (e.g. learning by doing)
Firms vs markets
- Advantages of common ownership (firm control)
o Reducing incentives to suboptimize
3
MANAGEMENT
,Contents
Lecture 1: innovation and innovators ..................................................................................................... 2
Lecture 2: making decisions under uncertainty ...................................................................................... 8
Lecture 3: organizational learning ......................................................................................................... 11
Lecture 4: profiting from innovation ..................................................................................................... 15
Lecture 5: developing sustainable competitive advantage ................................................................... 20
Lecture 6: marketing ............................................................................................................................. 28
Lecture 7: alliances and open innovation.............................................................................................. 36
Lecture 8: sustainable model innovation .............................................................................................. 42
1
,Lecture 1: innovation and innovators
Established firms VS startups
- Start-up entrepreneurs address customer needs in entirely new ways
- Differences in size, age, resources, affect the way firms operate along several dimensions
Business case analysis
- Opportunity to recognize patterns and apply theoretical concepts to real life situations
Why do firms exist→ to reduce traction costs
- Transaction cost. Costs to interact so not everyone is freelancer.
o A firm is more efficient. Saves money and time, less negotiating
- Firms as production functions that efficiently transform land, labor & capital inputs into
goods & services.
- Competitive markets coordinate buyer-seller exchanges via price signals.
o Markets set/determine prices. But takes time to negotiate when you’re on the
market. Coordination is costly, monetary and time.
- Fixed conditions
Transaction costs as unite of analysis
- A transaction occurs whenever a good or service is transferred across a technologically
separable interface
- Alternative governance structure should be assessed based on their capacity to economize
on transaction costs (less friction). This leads to trade-offs, e.g. regarding control and costs
- Economic efficiency and organizations’ internal structure are related
o What is efficient in terms of keeping within a firm and what not. What should you
outsource.
o Implies; boundaries of the firm as a decision variable
o Firms make important decision; which departments do we have.
Behavioural assumptions
- Transaction agreements never cover all possible future contingencies (“incomplete
contracting”).
- Transactors act under 2 behavioral assumptions:
o Bounded rationality
▪ Transactors are constrained by cognitive limits on their capacities to process
information efficiently (incomplete contracting because not everything is
know so impossible to put in contract)
o Opportunism
▪ “Self-interest with guile” could induce strategic behavior by transactors to lie
to, cheat, confuse, mislead their exchange partner
▪ Opportunism behaviour works both ways
▪ Agents are not fully trustworthy.
- Over time the field (management field) started to realize, things are not always super
rational. In reality actors don’t fully optimize in rational way. Raises the question outsourcing
and keeping it in. Limitated in resources they can access
Forms of governance
2
, - Williamson identified 3 fundamental forms of transaction governance
o Hierarchy (make)
▪ Transactions among parties occur under a unified owner who settles
disputes (firm governance)
o Market (buy)
▪ Autonomous parties’ exchanges are governed by prices in supply-demand
equilibrium (market governance)
o Hybrid (ally)
▪ “Long-term contractual relations that preserve [parties’] autonomy, but
provide added transaction-specific safeguards as compared with the
market.”
- Boundaries of firms and governance structures
o
- Make or buy decisions
o Where do we draw the boundaries of the firm
Critical dimensions for transactions
- Uncertainty
- Frequency with which transactions recur
- Extend to which investments are transaction-specific
o Therefor firm/product specific
o Is more important
o "The issue is less whether there are large fixed investments [...], than whether such
investments are specialized to a particular transaction."
▪ Specificity relates to costs, e.g. because of non-marketability problems
- Asset specificity can stem from 3 causes
o Site specificity
▪ when successive stations are located in cheek-by-jowl relation to each other
so as to economize on inventory and transportation expenses
o Physical specificity, e.g. charger for a specific socket
▪ Specialized dies are required to produce a component
o Human asset specificity (e.g. learning by doing)
Firms vs markets
- Advantages of common ownership (firm control)
o Reducing incentives to suboptimize
3
