Innovation and Information Technology IndustriesResearch Laboratory for the Economics of Innovation, HSE (and Manchester Institute of Innovation Research) Higher School of Economics , Moscow 2011 www.hse.ru
Outline• PART ONE: – IT Industries – Technological and Service Trajectories – IT innovation: new goods and services• PART TWO: – IT, Innovation and Competition – Winners, Losers, and Alliances – Futures of IT innovation Higher School of Economics, June 2011
Before we begin• Not all innovations come from private industry!• Knowledge for innovation is often developed in the public sector.
Before we begin• Not all innovations come from private industry!• Knowledge for innovation often developed in public sector.• Major new ways of doing things may be created in public sector institutions.• Links to such institutions may be important for firms – spin-offs, partnerships.
What do we mean by PART ONE Innovation?Product Innovation: Making new things (goods), doing new things (services)Process Innovation: doing or making things in new ways Realisation of an idea in a productSchumpeter,Freeman, or process that isOECD Oslo Manual Invention adopted by users. Applic- Develop- ation ment All stages require development and application of knowledge and Commerc- Diffusion skills ialisation
What do we mean by PART ONE IT (aka ICT)?• New Information Technology• Mechanical and Analogue ways of storing, communicating, processing information have been existence since beginning of history• Many specific innovations in C19th, including electricity-based ones: telephone, telegraph as well as mechanical and chemical ones (phonogram, photogram)• C20th: electronics – valves and transistors Transistor 1950s• Microelectronics (and optronics etc.) VLSI 1968
New IT triggers innovation Technological Opportunities “Swarming of Innovations” search forMarket Opportunities Invention Applic- Develop- ation mentProblems andNeeds maytrigger search forsolutions-Technology Commerc-possibilities may Diffusiontrigger search for ialisationproblems
What do we mean by the IT Industry (aka ICT Industry)? The Harvard Map SERVICES (bits) Communication Information Services ServicesCOMMUNICATION INFORMATIONMcLaughlin, JF andAntonoff, AL, 1986, Information InfMapping the and Informationinformation Business. Communication ProductsHarvard University EquipmentProgram onInformationResources Policy,Cambridge, MA GOODS/ PHYSICAL PRODUCTS (atoms)
PREST Institute of IT Industry (aka ICT Industry) Innovation Research The Houghton Framework Legal, Post, SERVICES (bits) accounting courier CALL BASIC HIGHER LEVEL PROFESSIONAL TELEPHONY TELEPHONY NETWORK SERVICES SERVICES SERVICES Communication Information BCS & Services LEASED Services COMPUTER, TRANSMISSION LINE & COMMS & NETWORKS & PSDN SOFTWARE SERVICES SERVICES SERVICES CONDUIT, CONTENT, FORM SUBSTANCE LINE. SWITCH, LAN, TRANSMISSION & NETWORK PACKAGED WAN, DATA SOFTWARE SOFTWARE BROADCASTING EQUIPMENT EQUIPMENT Communication COMPUTER Information SYSTEMS NETWORKED TERMINAL & Equipment EQUIPMENT Equipment SOFTWARE CONTENT PERIPHERAL Magazines,Paper, EQUIPMENT booksfilingcabinets Business forms GOODS/ PHYSICAL PRODUCTS (atoms)
IT Industry Sectors and Products RELATIONSHIPS Network (Information) Infrastructures ServicesTANGIBLE INTANGIBLE PhysicalComponents Information and Digital Content Communication Products Goods THINGS Software
IT Industry Sectors and Products Network (Information) Infrastructures Services PhysicalComponents Information and Digital Content Communication Products Goods Software
So the IT industry is very diverse• Goods and Services, Components and Systems• Communication, Data Processing, Content Production• Digitalisation Convergence• Different skills, cultures, markets Collision• C&C = Computers & Communications; = Convergence & Collision
Mergers and Acquisitions – vertical integration, economies..Some viewed as successes;Some disasters;General impacts on innovation?
Lets Look at the various IT Industry Sectors and Products RELATIONSHIPS Network (Information) Infrastructures ServicesTANGIBLE INTANGIBLE Physical Components Information and Digital Content Communication Products Goods THINGS Software
Components: underpinning trajectories Gordon Moore (Intel) noted in 1965 that this ratio was doubling every 18 months Number of transistors on a chip People now suggest a doubling every 2 yearsFrom Wikipedia,for more anddebate seehttp://www.kurzweilai.net/articles/ 1971 1981 1991 2001 2011
ManchesterInstitute ofInnovation Impact on Processing PowerResearch 100 Millions of Instructions per second (MIPS) 10 1.0 Mainframe Minicompr PC 0.1 Embedded From a .01 Scientific American 1960 1970 1980 1990 article
Problem Areas?• Batteries/power sources.• Vulnerability to EMP/solar flares/etc.• Dependence on rare earth elements.• Fabrication plants also become increasingly costly.• Underpin problems in many applications of these components
Physical Components Implications Physical Goods• Increases in amount of data that can be handled, in speed at which it can be handled• Continuing change in underpinning components means continual reinvention of products and creation of new products All sorts of information• ...performing new services, and performing are being digitised, services in new ways (speed, quality, both from old information mobility, customisability) and media industries,• IT involves a revolutionary new “heartland” and across economy. technology, with applications across the economy
Physical Goods Examples• Computers• Digital phones• PDAs, smartphones, tablets, etc.• Audiovisual equipment – digital TVs, PVRs, Music players; consumer electronics (incl. Synthesisers, cameras....); office and educational equipment (projectors, smartboards...)• Products using new IT: “informatised” household appliances and industrial equipment, new devices in medicine (scanners), utilities (metering), logistics, and automated manufacturing ....
Manchester Institute of Innovation Physical Goods Mark Weiser’s View Researchsource: http://www.ubiq.com/hypertext/weiser/UbiHome.html Envelope curve (systems of all types) Sales/Year UBIQUITY: many MAINFRAME: one PC: one computers computer serves ----- computer per person many people per person Remore Local Mobile Pervasive
Physical Goods Some Trajectories• Smaller, more powerful• Networked• User Interfaces – “anthropotropic” (Levinson)• Converged devices (though also specialisation)• Beginning to see: wearable (implantable?)• Speech and gesture recognition ((companionable?)• Many new plastic-based displays and devices; nanotechnology possibilities• New applications – health, security, home systems…
Networks & Infrastructure Infrastructure• Digitisation• Gilder’s Law - bandwidth triples every 12 months; Rabiner’s Law -the optical capacity on a single mode fibre doubles every 10 months. *Metcalf’s Law - the value of a computer network increases at a rate of the square of the number of connections.]• Extension of optical fibre, improved capabilities• Development of successive generations of mobile phone and wireless networks• Satellite systems
Infrastructure Trajectories• Increased scope for connectivity, with wider and higher-quality coverage• Cross-network interoperability of devices• Addressing security and reliability issues
Continuing with IT Industry Sectors and Products RELATIONSHIPS Network (Information) Infrastructures ServicesTANGIBLE INTANGIBLE Physical Components Information and Digital Content Communication Products Goods THINGS Software
Software Software• Instructs physical equipment concerning actions (on/off switches)• Operating Systems, Applications Development Software, Applications Software• Embedded in hardware, installed via storage media or download, accessed remotely (e.g. Cloud computing)• A huge industry (emerged from “unbundling”), but most small firms are simply customising applications for end-users
Software Software Trajectories• Production methods like Software Engineering & SOA to confront “software crisis”.• User-friendly interfaces for producing as well as using software• Open source and FLOSS production and access to software• Efforts to reduce ”bloatware” (impact of mobiles)
Information/ Communication Services Services• Computer Services – remote data processing, cloud computing• Communication Services – virtual networks, social networks, one-to-one and many-to- many services• Transactional Services – ecommerce, reservations and booking
Information/ Communication Services Services Trajectories• Location-based (mobile) services• Natural language processing• Semantic Web (Web 3.0)• Context-aware services• Agents
Digital Content Content• Digital(ised) Content Production, “Packaging”, Delivery• Traditional Media – were 1-to-many (digital converts- sometimes very latecomers) – Text and Graphics (print media) – Audio (recording industry, radio) – Video (TV, Film)• Information Services (databases, business news (digital converts and natives)• New Media (Born digital, digital natives) – Also Multimedia, videogames, websites...
Digital Content Content Trajectories• User produced content (Web 2.0)• Shared experiences• “Free” content• Content via narrowcast, P2P, social networks• “Realism” – 3D, VR,• Real-time access• Online storage
PART TWO Innovation in Context• Markets, Competition and Innovation
Successful Innovation• Diffusion and Adoption of a Product – Product life cycle and innovation• Disruptive Innovation – Often Digital natives versus (would-be) digital converts or digital deniers – Sometimes battle between digital platforms – Can incumbents maintain/regain position?
Diffusion of innovation • Examples: adoption of PCs, mobile phones Typical Model ofuptake of an innovation: percentage of market adopting Network effects: more people using compatible systems makes it easier to learn, easier to communicate, share
Diffusion of innovation • Examples: design of PCs, mobile phones New models? Product differentiation? Abernathy/ Competition over service/ Utterback extras Model ofProduct Life Cycle Dominant Teece: Design(s) Competitionstabilisation over efficiency of design paradigm Design flux Competition over functionality Increasing user-friendliness, less need for skill, economies of scale
Two ideas from David Teecehttp://www2.haas.berkeley.edu/faculty/teece_david.aspx• Stabilisation of design paradigms• Complementary assets – Innovations are rarely unique; first-comers often do not succeed in creating substantial markets; life is tough
Design Paradigm• Innovation begins when an idea is commercialised: we can offer this new/better service• But just what form does this take?• Often other firms will be trying to offer similar services – or if not, and if your idea is a good one, they soon will.• Competition at the outset is often about what design will prevail.• This may come to be seen as the “natural” solution – e.g. car or PC keyboard layout.
So who wins?• Not necessarily the person with the technically best design!• Not necessarily the cheapest!• Who can mobilise Complementary Assets – – Brands, marketing, distribution channels – Supply chain connections (e.g. hardware, content providers) – Intellectual property, intellectual assets – Links to users, etc.
Successful Innovation - 2• Diffusion and Adoption of a Product – Product life cycle and innovation• Disruptive Innovation – Often Digital natives versus (would-be) digital converts or digital deniers – Sometimes battle between digital platforms – Can incumbents maintain/regain position?
Examples of disruptive IT InnovationComp-onents • Semiconductors displace valves, LCDs displace CRTSInfrast-ructure • Telecomms networks displace postal serviceGoods • Microelectronic watches, cameras, CD players, etc. displace traditional designs • Music/film downloads challenge recordingContent and film industries, crisis in newspapers (and now books – already encyclopedia etc.?)Services • Travel agents , dating agencies etc.
It can be hard for incumbents to stay in the game• When there is a new business model, then adaptability is key – often very problematic• When there is new technology, then will usually need to acquire, or form alliances• Some successes with mergers• Many problems• Drives move to more Open Innovation (alliances, collaborations, etc.)
Often mergers fail Industries, Technologies, Products, Cultures,Components Organisation
ConvergenceDigital convergence: blurring boundaries(but multiple platforms)Wars over standards, platforms
Finally...• IT may be used in the innovation process itself• New tools for innovation: – Simulation, visualisation, CAD – Virtual laboratories, networking and division of labour• Support for open innovation: – Collaboration software – Online crowdsourcing
Conclusions• IT continues to be the source of many promising innovations• Even if rapid hardware evolution slows, much scope for new services and content• Continuing disruption and opportunities for new entrants and niches• Expect moves up and across sectoral categories by firms from emerging economies• Requires putting together right skills and knowledge – of markets and cultures as well as technology and technique