Lecture 1: Types of Innovation and Technological Change

What is Innovation?

* The ability of generate new and useful ideas
* Creation of a new idea or a new technology
* *"the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth. Innovation, indeed, creates a resource"* (Drucker, 1985)
* *"…Includes both improvements in technology and better methods or ways of doing things..[innovations] shift competitive advantage"* (Porter, 1990)

Why does innovation matter?

"Under capitalism, innovative activity - which in other types of economies is fortuitous and optional - becomes mandatory, a life-and-death matter for the firm" (William Baumol, 2002)

Innovation is the **long-term engine of growth** for organizations and economies alike.

Innovation For people and society:

* Plastic-Munching Bacteria can make trash biodegradable 
* Genetic fortune telling babies will get report cards at both predicting their chances of getting a disease
* Gene Editing to treat deadly diseases 
* Drones applications in the Covid-19 crisis

Innovation For the corporate world:

* Share price
* Growth in product usage
* Growth sales
* Profits

Types of innovation

**Focus:**

* Product vs Process Innovation vs Service Innovation 

**Change:** 

* Radical vs Incremental Innovation
* Competence enhancing vs Competence destroying innovation
* Component vs Architectural Innovation

 **Impact**

* Sustaining vs Disruptive Innovation

 **Strategy**

* Business Model innovation
* Open vs Closed innovation
* Platform Innovation

Product vs process

**Product innovation** can enable process innovation

* Development of advanced robots (PRODUCT) enables the implementation of processes that allow using robots in manufacturing to increase the speed and efficiency of production (PROCESS

 

**Process innovation** can enable product innovation

* A new metallurgical technique (PROCESS) enabled the development of the bicycle chain which in turn enabled the development of multiple-gear bicycles (PRODUCT) 

 

What is a product innovation for one organization might be a process innovation for another

* UPS creates a new distribution service (product innovation) that enables its customers to distribute their goods more widely or more easily (process innovation)

Radical vs incremental

\

Competence enhancing vs destroying innovation

Component vs Architectural 

Sustaining vs Disruptive 

Disruption in the **steel industry:** Integrated steel companies vs Mini Mills 

__Disruptive innovation: The innovator's dilemma__ 

"The highest performing companies, therefore, have well developed systems for killing ideas that their customers don’t want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies –lower margin opportunities that their customers don’t want –until their customers want them. And by then it is too late.” (Christensen, 1997, p. 265) \n \n **The Dilemma**: The logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership

How useful is the theory of Disruptive Innovation?

The theory of disruptive innovation provides:

* “a generally useful warning about managerial myopia” 
* “a useful reminder of the importance of testing assumptions, seeking outside information, and other means of reducing myopic thinking”
* “describes case examples of dysfunction and failure, __not what the average business may do__" 

The inflection point

"The **inflection point** - is a change in the business environment that dramatically shifts some element of your activities, throwing certain taken-for-granted assumptions into question. Someone, somewhere, sees the implications, but all too often they are not heard. That someone might be you!”

__Types of Innovation:__ __**Business Model**__

Business model articulates the **customer value proposition**, it identifies a **market segment**, and it specifies the **revenue generation mechanisms**

Open vs Closed Innovation

**Open innovation** - is a **distributed innovation process** based on **purposively managed knowledge** flows across **organizational boundaries**, using **pecuniary** and **non-pecuniary mechanisms** in line with each **organization’s business model**

 

**Platform innovation** - a platform is a business based on enabling value-creating interactions between external producers and consumers. The platform provides an open, participative infrastructure for these interactions and sets governance conditions for them

Path dependency, paradigms and trajectories

**Technological Paradigms** 

* Thought structure or way of thinking (about a problem)
* Paradigms identify the problems to be addressed, and close off other approaches 

 

**The Cumulative Nature of Technological Knowledge** 

* Technologies build on one another
* Path Dependent Trajectories

 

“...we shall define a ‘t**echnological paradigm**’ as ‘model’ and a ‘pattern’ of solution of selected technological problems, based on selected principles derived from natural sciences and on selected material technologies...As ‘normal science’ is the ‘actualization of a promise’ contained in a scientific paradigm, so is ‘technical progress’ defined by a certain ‘technological paradigm’. 

 

We will define a **technological trajectory** as the pattern of ‘normal’ problem solving activity(i.e. of ‘progress’) on the ground of a technological paradigm”

Consequences of technological change

* Newly emerging technologies attract **investments**
* New skills and expertise **(human capital)** are generated
* New **industries** begin to evolve
* New technological opportunities lead to a **redistribution** of profitable activities from old sectors to new sectors 
* New patterns of **industrial relations**, national/international **regulations** emerge

Technological change: key learning points

* Technological change is typically **cumulative** and **evolutionary**
* Technological development is **not a smooth, automatic process**
* Some changes can be retrospectively identified as ‘**revolutionary**’ in nature, leading to ‘**technological revolutions**’ or new ‘**techno-economic paradigms**’
* Technological change has major **implications** for the **competitiveness** of firms