Honda introduced its first hybrid electric vehicle (HEV) in 1997. HEVs have increased fuel efficiency and decreased emissions without needing to be plugged in. Honda chose a different hybrid engine design than Toyota. While Toyota engaged in collaboration and licensing to sell more HEVs, Honda maintained its independence and sold fewer units. Honda was also developing fuel-cell vehicles, though they would take longer to commercialize. Ericsson heavily invested in 3G wireless technology in the late 1990s, but the transition was more complex than expected, slowing rollout and reducing Ericsson's profits. Technologies often improve through an S-curve, initially slowly, then rapidly, and eventually tapering off as limits are approached.
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ch 3.ppt
1. Chapter 3
TYPES AND PATTERNS OF INNOVATION
Strategic Management of
Technological Innovation
Melissa Schilling
2. Types & Patterns of Innovation 2
โข Honda had an established record of developing
environmentally-friendly cars and manufacturing
processes.
โข Introduced its first hybrid electric vehicle (HEV) in Japan
in 1997.
โ HEVs have increased fuel efficiency and decreased emissions
โ HEVs do not have to be plugged into an electrical outlet
โข Honda chose a different hybrid engine design than
Toyota.
โ Honda chose not to collaborate or license its technology to
others โ wanted to maintain its independence.
โข Toyota, which engaged in both collaboration and
licensing, sold almost three times as many HEVs.
โข Honda was also developing fuel-cell vehicles at the same
time, though they would take much longer to
commercialize.
Honda and Hybrid Electric Vehicles
3. Types & Patterns of Innovation 3
Discussion Questions:
1. Are hybrid electrical vehicles a radical innovation or an
incremental innovation? Are they competence enhancing or
competence destroying, and from whose perspective? How
would you answer these questions for fuel-cell vehicles?
2. What factors do you think will influence the rate at which
hybrid electric vehicles are adopted by consumers?
3. What would be the advantages or disadvantages of Honda
and Toyota using the same engine standard?
4. Is Hondaโs strategy of producing a different engine standard
than Toyota and not collaborating or licensing to other
automakers a good one? What would you recommend?
5. Why do you think Honda simultaneously developed both
hybrid vehicles and fuel-cell vehicles?
Honda and Hybrid Electric Vehicles
4. Types & Patterns of Innovation 4
Ericssonโs Gamble on 3G Wireless
โข Ericsson, founded as a telegraph repair shop in
1876; by end of 2002 was the largest supplier of
mobile telecommunications systems in the world.
โข First generation of cell phones had been analog.
Second generation (2G) was digital. By end of
1990s, sales of 2G phones were beginning to
decline.
โข Telecom leaders began to set their sights on 3G
phones that would utilize broadband channels,
enabling videoconferencing and high-speed web
surfing.
โข In late 1990s, Ericsson began focusing on 3G
systems, and put less effort on developing and
promoting its 2G systems.
5. Types & Patterns of Innovation 5
Ericssonโs Gamble on 3G Wireless
โข Ericsson experienced a significant erosion in
profits
โIn 2001, lost more than $2 billion; ROA went from
8.4% to -8.5%
โข Transition to 3G turned out to be more complex
than expected
โPace of rollout slowed by lack of affordable 3G
handsets and competing 3G network standards
โBillions of euros spend on upgrading networks and
purchasing licenses from government auctions
โCompanies now very deep in debt which caused
loss of investor support
โUsers did not value 3G features as much as hoped
6. Types & Patterns of Innovation 6
Overview
โข Several dimensions are used to categorize
innovations.
โThese dimensions help clarify how different
innovations offer different opportunities (and pose
different demands) on producers, users, and
regulators.
โข The path a technology follows through time is
termed its technology trajectory.
โMany consistent patterns have been observed in
technology trajectories, helping us understand how
technologies improve and are diffused.
7. Types & Patterns of Innovation 7
Types of Innovation
โขProduct vs Process Innovation
โ Product innovations are embodied in the outputs of an
organization โ its goods or services.
โข Ericssonโs development of 3G wireless networks and
network services
โ Process innovations are innovations in the way an
organization conducts its business, such as in techniques
of producing or marketing goods or services.
โข Improving the effectiveness or efficiency of production โ
reducing defect rates, increasing quantity produced in a
given time
โ Product innovations can enable process innovations and
vice versa.
8. Types & Patterns of Innovation 8
Product vs. Process Innovation
โข New processes may enable the production of new products
โ A new metallurgical technique enabled the development of the
bicycle chain which in turn enabled the development of
multiple-gear bicycles
โข New products may enable the development of new
processes
โ The development of advanced workstations enabled the
implementation of computer-aided-manufacturing processes
that increase the speed and efficiency of production
โข What is a product innovation for one organization might be
a process innovation for another
โ UPS created a new distribution service (product innovation)
that enables its customers to distribute their goods more
widely or more easily (process innovation)
9. Types & Patterns of Innovation 9
Types of Innovation
โขRadical vs Incremental Innovation
โThe radicalness of an innovation is the degree to
which it is new and different from previously existing
products and processes.
โข Radicalness is also defined in terms of risk
โ 3G wireless technology required
โข Investment in new networking equipment and
infrastructure
โข Development of new phones greater display and
memeory capabilities as well as a stronger battery
and/or better power utilization
โข Degree of user acceptance of the technology was
unknown
10. Types & Patterns of Innovation 10
Types of Innovation
โขRadical vs Incremental Innovation
โIncremental innovations may involve only a minor
change from (or adjustment to) existing practices.
โThe radicalness of an innovation is relative; it may
change over time or with respect to different
observers.
โข digital photography a more radical innovation for Kodak
(chemical photography expertise) than for Sony
(electronics expertise).
11. Types & Patterns of Innovation 11
Types of Innovation
โขCompetence-Enhancing vs
Competence-Destroying Innovation
โ Competence-enhancing innovations build on the firmโs
existing knowledge base
โข Intelโs Pentium 4 built on the technology for Pentium III.
โ Competence-destroying innovations renders a firmโs
existing competencies obsolete.
โข Electronic calculators rendered Keuffel & Esserโs slide rule
expertise obsolete.
โข HP and TI thrived as they had existing competencies in the
electronic components needed in electronic calculators.
โ Whether an innovation is competence enhancing or
competence destroying depends on the perspective of a
particular firm.
12. Types & Patterns of Innovation 12
Types of Innovation
โขArchitectural vs Component Innovation
โ A component innovation (or modular innovation) entails
changes to one or more components of a product system
without significantly affecting the overall design.
โข adding gel-filled material to a bicycle seat
โ An architectural innovation entails changing the overall
design of the system or the way components interact.
โข transition from high-wheel bicycle to safety bicycle.
โ In the 1800s, the front wheel of a bicycle has a very large circumference in
order to provide speed; gears did not exist yet
โ When gears and chains were invented, the bicycle took on a whole new
design
โ Most architectural innovations require changes in the
underlying components also.
13. Types & Patterns of Innovation 13
The High Wheel Bicycle
โข In 1870 the first all metal machine appeared. The pedals
were still attached directly to the front wheel. Solid rubber
tires and the long spokes of the large front wheel provided a
much smoother ride than its predecessor.
โ The front wheels became larger and larger as makers
realized that the larger the wheel, the farther you could
travel with one rotation of the pedals.
โข Safety issue: because the rider sat so high above the center
of gravity, if the front wheel was stopped by a stone or rut
in the road, the entire apparatus rotated forward on its front
axle, and the rider was dropped unceremoniously on his
head.
14. Types & Patterns of Innovation 14
The Hard-Tired Safety
โข Improvements in the metals used in the bicycle, enabled
the manufacturing of small chains and sprockets and were
light enough for a human being to power.
โข The design with two wheels of the same size returned,
with speed provided through the use of gears instead of
large wheels.
โข They were safer than the high-wheelers but lacked the
long, shock-absorbing spokes of the high-wheelers.
โ Buyers had to choose between safety and comfort until,
a few years later, when Dr. Dunlop developed the
pneumatic tire for his childโs bike.
15. Types & Patterns of Innovation 15
Technology S-Curves
โข Both the rate of a technologyโs improvement, and its rate of
diffusion to the market typically follow an s-shaped curve.
โข Plot technologyโs performance against the amount of effort
and money invested in the technology
S-curves in Technological Improvement
Technology improves
slowly at first because it is
poorly understood.
Then accelerates as
understanding increases.
Then tapers off as
approaches limits.
16. Types & Patterns of Innovation 16
Technology S-Curves
โขS-curves in technology performance and
market diffusion are related
โ better performance๏ faster adoption
โ greater adoption ๏ further investment in improvements
โขBut they are fundamentally different
processes
โขIf the effort invested is not constant over
time, the resulting s-curve can obscure the
true relationship
17. Types & Patterns of Innovation 17
Technology S-Curves
โขIn 1985, Gordon Moore, cofounder of Intel,
noted that the density of transistors on
integrated circuits had doubled every year
since the IC was invented
โThe rate has since slowed to doubling every
18 months but the rate of acceleration is
still very steep
18. Types & Patterns of Innovation 18
Improvements in Intel's
Transistor Density Over Time
โข In 1985, Gordon Moore, cofounder of Intel, noted that the density of
transistors on integrated circuits had doubled every year since the IC
was invented
โ The rate has since slowed to doubling every 18 months but the
rate of acceleration is still very steep
19. Types & Patterns of Innovation 19
Transistor Density versus
Cumulative R&D Expenses
โข However, Intelโs R&D dollars per year has also been
increasing rapidly
โ The big gains in transistor density have come at a big cost in
terms of effort invested
20. Types & Patterns of Innovation 20
Technology S-Curves
โข Technologies do not always get to reach their limits
โ May be displaced by new, discontinuous technology.
โข A discontinuous technology fulfills a similar market need by
means of an entirely new knowledge base.
โ E.g., switch from carbon copying to photocopying, or vinyl records
to compact discs
โข Technological discontinuity may initially have lower
performance than incumbent technology.
โ E.g., first automobiles were much slower than horse-drawn
carriages.
โ Firms may be reluctant to adopt new technology
because performance improvement is initially slow and
costly, and they may have significant investment in
incumbent technology
21. Types & Patterns of Innovation 21
Discontinuous Technology
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Incumbent
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New
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New
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Disruptive technology has a steeper s-curve
Disruptive technology has an s-curve that
increases to a higher performance limit
โข If the returns to effort invested in new technology are
much higher than effort invested in the incumbent
technology, in the long-run it is more likely to displace the
incumbent technology
22. Types & Patterns of Innovation 22
Technology S-Curves
โข S-Curves in Technology Diffusion (spread of
technology through a population)
โ Adoption is initially slow because the technology is
unfamiliar.
โ It accelerates as technology becomes better understood.
โ Eventually market is saturated and rate of new adoptions
declines.
โ Technology diffusion tends to take far longer than
information diffusion.
โข Technology may require acquiring complex knowledge or
experience.
โข Technology may require complementary resources to make it
valuable (e.g., electric lights didnโt become practical until
development of bulbs and vacuum pumps, cameras not
valuable without film).
23. Types & Patterns of Innovation 23
Technology S-Curves
โข S-curves of diffusion are in part a function of s-
curves in technology improvement
โ Learning curve leads to price drops, which
accelerate diffusion
24. Types & Patterns of Innovation 24
S-Curves as a Prescriptive Tool
โข Managers can use data on investment and
performance of their own technologies or data on
overall industry investment and technology
performance to map s-curve.
โข While mapping the technologyโs s-curve is useful for
gaining a deeper understanding of its rate of
improvement or limits, its use as a prescriptive tool is
limited.
โTrue limits of technology may be unknown
โShape of s-curve can be influenced by changes in the
market, component technologies, or complementary
technologies.
โFirms that follow s-curve model too closely could end
up switching technologies too soon or too late.
25. Types & Patterns of Innovation 25
S-Curves as a Prescriptive Tool
โข The benefits a company can achieve by switching to a
new technology depends on a number of factors
โ Advantages of the new technology
โ New technologyโs fit with the companyโs current abilities
โ New technologyโs fit with the firmโs position in
complementary resources โ lacks them or may make
compatible products
โ Expected rate of diffusion of the new technology
โข Firms that follow s-curve model too closely could end
up switching technologies too soon or too late.
26. Types & Patterns of Innovation 26
โข Everett M. Rogers created a typology of adopters:
โ Innovators are the first 2.5% of individuals to adopt an innovation. They
are adventurous, comfortable with a high degree of complexity and
uncertainty, and typically have access to substantial financial resources.
โ Early Adopters are the next 13.5% to adopt the innovation. They are
well integrated into their social system, and have great potential for
opinion leadership. Other potential adopters look to early adopters for
information and advice, thus early adopters make excellent "missionaries"
for new products or processes.
โ Early Majority are the next 34%. They adopt innovations slightly before
the average member of a social system. They are typically not opinion
leaders, but they interact frequently with their peers.
โ Late Majority are the next 34%. They approach innovation with a
skeptical air, and may not adopt the innovation until they feel pressure
from their peers. They may have scarce resources.
โ Laggards are the last 16%. They base their decisions primarily on past
experience and possess almost no opinion leadership. They are highly
skeptical of innovations and innovators, and must feel certain that a new
innovation will not fail prior to adopting it.
Diffusion of Innovation &
Adopter Categories
27. Types & Patterns of Innovation 27
Diffusion of Innovation &
Adopter Categories
28. Types & Patterns of Innovation 28
Technology Trajectories
and โSegment Zeroโ
โข Technologies often improve faster than customer requirements demand
โข This enables low-end technologies to eventually meet the needs of the mass
market. Mass market begins to feel they are paying for features they donโt
need.
โข Thus, if the low-end market is neglected, it can become a breeding ground
for powerful competitors.
- This market was coined โsegment zeroโ by Andy Grove, former CEO of Intel
29. Types & Patterns of Innovation 29
Technology Trajectories
and โSegment Zeroโ
โข Technologies often improve faster than
โ customer requirements demand and/or
โ customers can learn and adapt them to their work
โข This enables low-end technologies to eventually meet the
needs of the mass market.
โข Thus, if the low-end market is neglected, it can become a
breeding ground for powerful competitors.
โ The โsegment zeroโ that Intel focused on was low-end
personal computers
โ Itโs margins were unattractive at the beginning but, as the
technology curve advanced, the needs of the mass market
were met at a lower price than the high-end technology
30. Types & Patterns of Innovation 30
Technology Cycles
โขTechnological change tends to be cyclical:
โ Each new s-curve ushers in an initial period of turbulence,
followed by rapid improvement, then diminishing returns,
and ultimately is displaced by a new technological
discontinuity.
โ Utterback and Abernathy characterized the technology
cycle into two phases:
โข The fluid phase (when there is considerable uncertainty about
the technology and its market; firms experiment with different
product designs in this phase)
โข After a dominant design emerges (bringing a stable architecture
to the technology), the specific phase begins (when firms focus
on incremental improvements to the design and manufacturing
efficiency).
31. Types & Patterns of Innovation 31
Technology Cycles
โ Anderson and Tushman also found that technological
change proceeded cyclically.
โข Each discontinuity inaugurates a period of turbulence and uncertainty
(era of ferment) until a dominant design is selected, ushering in an era
of incremental change.
32. Types & Patterns of Innovation 32
Technology Cycles
โAnderson and Tushman found that:
โข A dominant design always rose to command the majority of
market share unless the next discontinuity arrived too early.
โข The dominant design was never in the same form as the original
discontinuity, but was also not on the leading edge of technology.
It bundled the features that would meet the needs of the majority
of the market.
โ During the era of incremental change, firms often
cease to invest in learning about alternative designs
and instead focus on developing competencies related
to the dominant design.
โ This explains in part why incumbent firms may have
difficulty recognizing and reacting to a discontinuous
technology.
33. Types & Patterns of Innovation 33
Discussion Questions
1. What are some of the reasons that established firms
might resist the adoption of a new technology?
2. Are well-established firms or new entrants more
likely to a) develop and/or b) adopt new
technologies? What are some reasons for your
choice?
3. Think of an example of an innovation you have
studied at work or school. How would you
characterize it on the dimensions described at the
beginning of the chapter?
4. What are some of the reasons that both technology
improvement and technology diffusion exhibit s-
shaped curves?