Topic 7: Entrepreneurship and Innovation. Technology based companies

What is the difference between invention and innovation?

Invention is the application of a new idea or the creation of a product/process for the first time.

Innovation is the commercialization of an invention —> improving on or making a significant contribution to something already invented 

What are the two types of innovation based on novelty?

1. Radical: Difficult to imitate, may change market structure, eliminate product families (diskettes), or open new possibilities (eg, Internet)

2. Incremental: Smaller improvements to existing products/process

What are the main types of innovation based on results?

1. Product innovation- New or improved goods/services 

2. Process Innovation- New or improved production methods

3. Organizational innovation- New organizational methods 

4. Marketing innovation- New marketing methods 

What is an innovative firm?

A firm that has developed at least one innovation - whether a new product, process, sales method, or organizational method (OECD, 2005)

What are the positive spillovers (benefits) of being an innovative firm?

• Better performance

• Competitive advantage 

• Value creation

• Higher sales growth rates

• Higher levels of export activity 

What are the 5 stages in the innovation process?

1. Basic knowledge

2. Invention 

3. Innovation 

4. Diffusion 

5. Adoption/Imitation 

What are the 3 phases of R&D?

1. Basic Investigation: Theoretical or experimental works 

2. Applied Investigation: Finding possible uses from basic investigation

3. Experimental Development: Deepening knowledge to produce products or implement processes 

What are the 4 types of learning that lead to innovation?

1. Learning by doing: Emerges spontaneously during production repetition (correcting mistakes, improving performance)

2. Learning before doing - Through

3. Learning by using - Information from users, clients, etc

4. Learning by failing- mistakes help redesign and improve technologies

What are the 7 innovation activities a firm can undertake?

1. Internal R&D

2. External R&D 

3. Machinery acquisition (hardware/software for new processes) 

4. Acquisition of external knowledge (not R&D)

5. Training for innovation activities 

6. Launching innovations in the market

7. Design and other production tasks (not R&D)

What is Moore’s Law?

The number of transistors on a microchip doubles every two years - describes exponential growth in computing power 

What is Kurweil’s Law?

The rate of change in evolutionary systems (including technology growth) tends to increase exponentially 

What are the 5 stages of the Technology Life Cycle?

1. R&D uncertainty - R&D to have successful entry 

2. Production level innovation- Imitation begins 

3. Technological competence- Growth or transition 

4. Standardization/maturity- industry standards emerge 

5. Decline/Aging- Technology becomes obsolete 

What is the S-Curve Model (Foster, 1986)

• Show that performance improvements are significant in early stages 

• After a threshold, yield increases become lower 

• Technologies may be replaced by new ones before reaching their limits (discontinuous technologies)

• Performance plateaus as technology matures

What are the two main legal methods to protect innovation?

1. Patents- (and other IPRs- registered brands, trademarks)

2. Industrial secret- Useful when you don’t want to reveal details through patents 

What are the 4 limitations of patents

1. Sometimes difficult to prove copying 

2. Fast technological change makes patents less useful 

3. Patents may not be necessary if copying implies high costs 

4. Patents reveal information that competitors can study 

Who captures value from innovation (4 parties)

1. Innovator firm 

2. Suppliers 

3. Clients 

4. Imitators and other followers 

What is the continuous innovation protection strategy?

• Become a technological leader + use time advantage 

• Challenge: Use competitive advantage from extra time to build capabilities that maintain market share and industry leadership 

• Keep innovating faster than competitors can copy 

What are examples of innovation leaders who FAILED to maintain their lead?

Computers: Xerox (lost to Apple, IBM) 

Video: Amplex, Sony Beta (Lost to Matsushita-Panasonic VHS) 

Videogames: Atari (lost to Sega, Nintendo) 

What does Control of Complementary Resources mean as a protection strategy?

• Marketing know-how

• Distribution channels 

• Technologies 

• Services 

• Finance 

• Production capabilities  

What are Network Effects/Externalities?

• Positive externalities: Value increases if more people acquire the product (Eg, Facebook, WhatsApp, Word) 

• Negative externalities: Value decreases if more people acquire the product (eg luxury products) 

What are 3 important factors in network industries 

1. Switching Costs - Cost to change from one technology to another 

2. Installed base in main product - Number of existing users 

3. Installed base in complementary products - Ecosystem of compatible products 

What is a Dominant Design?

• A single product or process architecture that dominates a product category (usually 50% + Market share) 

• A “de facto standard” - not officially enforced but has become the industry standard

• Once selected, industry focuses on improving efficiency rather than developing alternatives 

Why are dominant designs selected? (2 main reasons)

1. Learning Effects: The more a technology is used, the more it is developed and the more effective it becomes, generates revenue for reinvestment 

2. Absorptive Capacity: Organization’s ability to recognize, assimilate, and utilize new knowledge improves over time 

What are 5 strategies for winning a standards battle

1. Alliances - partner with suppliers, clients, competitors 

2. Leadership in technology development - Be first and best 

3. Expectation management - Shape market perception 

4. Brand management - Build a strong brand reputation

5. Compatibilities - Ensure backward/forward compatibility (eg PlayStation2 plays PS1 games) 

When should a firm be a Leader vs Follower in innovation? Consider two key questions:

1. Can the firm appropriate returns from innovation (protection strength) 

2. Is there a battle for a standard? (Network effects present) 

If strong protection + no standard battle —> Be a LEADER
If weak protection or standard battle —> Consider being a FOLLOWER 

What define a Technology-Based Company?

Firms that have their “core” the development and manufacturing of technology or providing technology as a service

eg: Apple, HP, IBM, Amazon, Microsoft, Google, Intel, Oracle, eBay 

What are 3 characteristics of tech companies?

1. Search for opportunities through technological advancements

2. Main resource is tacit knowledge (in employees) and explicit knowledge (documents, patents, code) - knowledge management is central 

3. Usually collaborate with unis, research centers, and even competitors 

What is a “New” Technology Based Firm (NTBF)?

Tech firms newly established (3 years or less in the market; some definitions say 6 or less) whose objective is to develop a marketable product or service

What are 4 characteristics of New Tech Based Firms?

1. Scarcity in financial resources

2. Big marketing efforts required

3. Founders tend of have high educational level and play crucial role

4. Oriented to products/markets in tech sectors with high growth opps

What is a Technology Ecosystem/Cluster?

Geographic concentration of technology companies that grow tech/scientific parks, including: 

• Tech companies

• Universities and research centers

• Labs 

• Venture capital firms

• Financial companies 

• Support services

Why do tech companies cluster together?

• Tendency to cooperate benefits from proximity 

• Shared knowledge and talent pool

• Access to specialized suppliers and services 

• Networking and partnership opps 

• Access to venture capital and funding 

What are 2 major transformations creating new innovation opps

1. Acceleration in the emergence of new tech and shorter tech life cycles 

2. Constant dev in science and tech - exponential growth rates 

How must firms adapt to these transformations? Firms must be innovative in:

1. Developing their activities 

2. Developing corporate culture 

3. The way of interacting with their HR 

Creates a virtuous cycle of change and adaptation