Industry Dynamics: Rethinking the Effects of Velocity on Product Innovation

INDUSTRY DYNAMICS:RETHINKING THE EFFECTS OF VELOCITY ON PRODUCT INNOVATION
Ian P. McCarthy
Beedie School of Business
Simon Fraser University
Ian_mccarthy@sfu.ca

INTRODUCTION
Background – speed and being fast
What is environmental velocity?
The eureka moment.
What we did?
The implications.
Based on the following papers:
McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of Management Review, 35(4), 604-626
McCarthy I. P., Tsinopoulos C., Allen P.M & Rose-Anderssen C. 2006. New Product Development as a Complex Adaptive System of Decisions. Journal of Product Innovation Management, 23(5): 437-456.
2

THE CASE FOR BEING FAST
Speed Demons
How smart companies are creating new products -- and whole new businesses -- almost overnight

THE CASE FOR GOING SLOW
"Apple Goes Slow to Win Fast“
Paul Nunes & Tim Breene 2nd March 2011, HBR
“speed kills innovation” and "slow is the new fast“
Holman W. Jenkins JR 26th Jan 2011, WSJ

BEING FAST IS GOOD FOR HIGH VELOCITY ENVIRONMENTS
High velocity environments:
“those in which there is a rapid and discontinuous change in demand, competitors, technology and/or regulation” (Bourgeois and Eisenhardt 1988: 816)
“market boundaries are blurred, successful business models are unclear, and market players (i.e. buyers, suppliers, competitors, complementers) are ambiguous and shifting”. (Eisenhardt and Martin 2000: 1111)

SOME IMPLICATIONS OF HIGH VELOCITY
You need to be fast.
This is achieved by:
rational and formal strategic decision-making (Bourgeois & Eisenhardt 1988, Eisenhardt 1989, Judge & Miller 1991)
rapid product development (Eisenhardt & Tabrizi, 1995)
simple rules (Eisenhardt & Sull, 2001)
heuristic reasoning (Oliver & Roos, 2005)
team based decision-making (Nadkarni & Barr 2008)

HOWEVER, STUDIES SUGGEST THAT BIOTECH IS A HIGH VELOCITY INDUSTRY
7
Is this really the case?

SOME MORE OBSERVATIONS ABOUT RESEARCH ON VELOCITY
It seems that most industries have high-velocity environments. Can this be true?
Studies provide few industry specific definitions and substantiations
It is incorrectly assumed that:
high-velocity = high technology, and that velocity = speed
We argue that the above occurs because studies have:
treated velocity as single, latent descriptor i.e., a unidimensional concept
Ignored that velocity is a vector i.e., it has a rate and a direction of change

ENVIRONMENTAL VELOCITY:A MULTIDIMENSIONAL VECTOR
Consider what is changing?
Their rate of change (speed at which they move).
Their direction of change?

OUR FRAMEWORK
We conceptualize velocity in terms of:
Multiple dimensions (demand, competitors, technology, regulatory, and products)
Each dimension has a rate and direction of change
The degree to which different dimensions might have different velocities (homology)
The degree to which the velocities of different dimensions might affect one another over time (coupling)
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of Management Review, 35(4), 604-626

RATE AND DIRECTION
The rate of change = the amount of change in a dimension of the environment over a specified period of time (e.g. number of new products, regulations, patents, etc. per year)
The extent to which the changes are:
continuous (innovations that are more of the same and head in the same direction)
or discontinuous(innovations that are different from the past and go in a different direction)
Discontinuities can, therefore, be represented by inflection points in the trajectories that describe change in a dimension over time.
11

EXAMPLE: PRODUCT VELOCITY
13
2005
2010
Continuous
Discontinuous

EXAMPLE: PRODUCT VELOCITY
14
2000 Xbox
2005 Xbox 360
Continuous
2006 Wii
Discontinuous

VELOCITY HOMOLOGY AND VELOCITY COUPLING
Velocity homology is the degree to which the rates and directions of change of different velocity dimensions are similar to each other over a period of time.
Velocity coupling is the degree to which and the ways that velocity dimensions interact over time.
15

VELOCITY DIMENSIONS AND HOMOLOGY
16
D
Discontinuous
P
Direction of Change
C
D = demand
P = products
C =competitive
T = technological
R = regulatory
R
T
Low homology
Continuous
Low
High
Rate of Change

VELOCITY DIMENSIONS AND HOMOLOGY
17
Discontinuous
P
C
R
Direction of Change
D
T
High homology
D = demand
P = products
C =competitive
T = technological
R = regulatory
Continuous
Low
High
Rate of Change

VELOCITY COUPLING
18
= tight coupling
= loose coupling
D
Discontinuous
We suggest that many firms operate in industries with a velocity regime like this.
P
Direction of Change
C
R
T
D = demand
P = products
C =competitive
T = technological
R = regulatory
Continuous
Low
High
Rate of Change

THIS IS HOW VELOCITY REGIMES CAN VARY
R
D
R
D
C
T
P
C
T
P
R
D
C
R
D
T
C
P
T
P
Integrated Regime
Conflicted Regime
Direction of change
Direction of change
Tight
Rate of change
Rate of change
Simple Regime
Coupling
Divergent Regime
Direction of change
Direction of change
Loose
Rate of change
Rate of change
High
Low
Homology

CONSEQUENTLY
Effective decision-making and operations is more about rhythm and synchronization, rather than being simply fast or slow.

THIS IS BECAUSE VELOCITY HOMOLOGY IMPACTS HOW WE:
Think about the relationship between an organization and the temporal characteristics of its environment.
Keeping in time with the environment (external entrainment) is still important, but ….
Synchronizing organizational activities (internal entrainment) to be uniformly fast/slow might not be.
21

AND VELOCITY COUPLING IMPACTS HOW WE
think about the stability of velocity conditions and the impacts on how organizations coordinate changes in the pace and direction of their internal activities. For example:
Scanning, coordination mechanisms, and boundary spanning
Modularity of products, processes and organizations
Temporal orientations: monochronic versus polychronic
New product development frameworks: linear vs. recursive
22

TEMPORAL ORIENTATIONS
(Ancona, Okhuysen & Perlow, 2001; Bluedorn & Denhardt, 1988; Hall, 1959).

NPD FRAMEWORKS

Prod’t
Product
Design
Testing &
Validation
Concept
Product Launch &
Ramp-up
Idea or
Need
SG 1
SG 2
SG 3
SG 4
LINEAR FRAMEWORK
Waterfall model (Royce,1970)
The Stage Gate model (Cooper, 1990
The compression model (Eisenhardt & Tabrizi, 1995)
Strategic input and monitoring

RECURSIVE FRAMEWORKS
Kline and Rosenberg (1986) “chain-linked model” – relationships between stages described in terms of feedback loops and iterations.
Leonard-Barton (1988) “adaptation cycles” - NPD as a series of small and large recursive cycles that represent project set backs and restarts.
Schroeder et al.'s (1989) 'big bang' theory of innovation.
See: McCarthy I. P., Tsinopoulos C., Allen P.M & Rose-Anderssen C. 2006. New Product Development as a Complex Adaptive System of Decisions. Journal of Product Innovation Management, 23(5): 437-456

AN ALTERNATIVE VIEW OF NPDREALITY
Marketing
Senior
Management
Injector
Inputs
C
o
m
p
e
t
i
t
o
r
B
o
o
t
Bureaucracy
Bends
Product A Filter
Department
Final
Changes
Evaluation
Adapted from MacCormack 2001

GENERAL IMPLICATIONS
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Implications FOR organizational processes
29

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Industry Dynamics: Rethinking the Effects of Velocity on Product Innovation

by Ian McCarthy on Jul 28, 2011

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