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 FASTSpeed DemonsHow smart companies are creating newproducts -- 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 VELOCITYENVIRONMENTS• 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 Is this really the case?7

SOME MORE OBSERVATIONS ABOUT RESEARCH ONVELOCITY• 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, a nd 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. See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of11 Management Review, 35(4), 604-626

TECHNOLOGICAL PRODUCT DEMAND REGULATORY COMPETITIVEVelocity The rate and direction The rate and The rate and The rate and The rate andDimension of change in the direction of direction of direction of direction ofDefinition production processes change in new change in the change in laws change in the and component product willingness and and regulations structure of technologies that introductions and ability of the that affect an competition underlie a specific product market to pay for industry within an industrial context. enhancements. goods and industry. services.Example The number of new The number of The change in The number of The change inmeasures of patents and new products industry sales in a new and industrythe rate of copyrights granted in introduced in a given period. amended laws population sizechange in the a given period. given period (i.e., and/or and density (i.e.,dimension product regulations number and size clockspeed). introduced in a of firms) in a given period given period.Example The changes in the The change in the The change in the The change in the The change inmeasures of direction of the nature of product trend (e.g., nature and scope industry growththe direction relationship between features as growth vs. of the control trends (e.g.,of change in the price and perceived by the decline) and provided by new growth vs.the technical market in a given nature (e.g., laws and decline) in a givendimension performance of period. personal vs. regulations in a period. technology in a given impersonal) of given period. period. demand in a given period. 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

EXAMPLE: PRODUCT VELOCITY 2005 2010 Continuous Discontinuous See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of13 Management Review, 35(4), 604-626

EXAMPLE: PRODUCT VELOCITY 2000 Xbox 2005 Xbox 360 Continuous 2006 Wii Discontinuous See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of14 Management Review, 35(4), 604-626

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. See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of15 Management Review, 35(4), 604-626

VELOCITY DIMENSIONS AND HOMOLOGY D Discontinuous Direction of P Change C R D = demand Low homology T P = products Continuous C =competitive T = technological Low Rate of Change High R = regulatory See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of16 Management Review, 35(4), 604-626

VELOCITY DIMENSIONS AND HOMOLOGY Discontinuous P Direction of Change C R D T High homology D = demand P = products Continuous C =competitive T = technological Low Rate of Change High R = regulatory See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of17 Management Review, 35(4), 604-626

= tight coupling VELOCITY COUPLING = loose coupling D Discontinuous We suggest that many firms operate in industries with a Direction of P Change C velocity regime like this. R T Continuous D = demand P = products C =competitive Low Rate of Change High T = technological R = regulatory See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of18 Management Review, 35(4), 604-626

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

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. See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of21 Management Review, 35(4), 604-626

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 See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of22 Management Review, 35(4), 604-626

TEMPORAL ORIENTATIONS Loose Coupling and Tight Coupling and Monochronic Teams Polychronic Teams Focus on one job at a time Focus on many jobs at once View time as linear and fixed View time as tangible and malleable Hate missing deadlines Not too worried by deadlines Guided by “clock time” Guided by “event time” Time is money Time is information(Ancona, Okhuysen & Perlow, 2001; Bluedorn & Denhardt, 1988; Hall, 1959).

NPD FRAMEWORKS Loose Coupling and Linear Tight Coupling and Recursive Frameworks FrameworksDescriptive Relatively fixed, discrete and A process with concurrent andBasis sequential stages. multiple feedback loops Connections, flows and between stages that generate outcomes are comparatively iterative behavior and deterministic. outcomes that are more difficult to predict.Insights & Simple and effective The dynamic, nonlinear andOutcomes representation of the fluid nature of the process. structural logic and flows. Suited to more radical Suited to incremental innovations. innovations activity.

LINEAR FRAMEWORKWaterfall model (Royce,1970)The Stage Gate model (Cooper, 1990The compression model (Eisenhardt & Tabrizi, 1995) Strategic input and monitoringIdea Product Prod’ Product Testing & or Concept Launch & t Design ValidationNeed Ramp-up S S S S G G G G 1 2 3 4

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. NewProduct Development as a Complex Adaptive System of Decisions. Journal ofProduct Innovation Management, 23(5): 437-456

AN ALTERNATIVE VIEW OF NPD REALITY Senior Marketing Management Inputs Injector Bureaucracy Bends Competitor Boot Product A Filter Department Final Changes EvaluationAdapted from MacCormack 2001

GENERAL IMPLICATIONS Existing View of Velocity Multidimensional View of Velocity Measures of Scalar measures: rate only Vector measure: rate and direction change Construct An aggregation or Patterns (regimes) of velocity Assumption unidimensional focus homology and velocity coupling Fundamental The organization as a whole Organizational sub-units should be implications – should be entrained with the entrained with the relevant strategic and environment dimension of the environment organizational Organizational sub-units and Synchronization between activities must be in organizational activities and sub- synchrony with one another units depends on the level of across the organization velocity homology and velocity coupling. See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of28 Management Review, 35(4), 604-626

IMPLICATIONS FOR ORGANIZATIONAL PROCESSES Existing View of Velocity Multidimensional View of Velocity Activities must be uniformly Low homology = dissimilar unsynchronized process entrained with the velocity activities (conflicted and divergent regimes) of the environment. For high velocity = fast, High homology = similar synchronized process activities formal and rationale, team- (integrated and simple regimes) based and the use of simple rules. Tight coupling = polychronic temporal orientation and recursive management frameworks (conflicted and integrated regimes) Loose coupling = monochronic temporal orientation and linear management frameworks (simple and divergent regimes) See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional conceptualization of environmental velocity. Academy of29 Management Review, 35(4), 604-626

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Rethinking the Effects of Velocity on Product Innovation

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