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Industry Dynamics: Rethinking the Effects of Velocity on Product Innovation

Focusing on new product development, I present a framework that dispels this notion that speed always leads to business success. I explain that to simply characterize business environments as fast-changing or highly dynamic, is to overlook the fact that the velocity of an industry - its rate and direction of change - is composed of multiple factors, each with a distinct velocity of its own. These factors, or industry dimensions as we call them, include: technologies, products, competitors, demand and regulations. It is rare for an industry to be uniformly high-velocity in nature (i.e. all dimensions are changing rapidly and discontinuously). Instead, businesses typically face what we call “velocity regimes”, patterns of multiple velocities of all the different dimensions involved. Thus, I will argue that it is misguided to focus on designing and managing a business that is uniformly fast. What’s important is determining your “velocity regime” – the multiple different rates and directions of change in your world – and then ensuring that different innovation activities are organized and coordinated to effectively respond to these different velocities.

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Industry Dynamics: Rethinking the Effects of Velocity on Product Innovation

  1. 1. INDUSTRY DYNAMICS: RETHINKING THE EFFECTS OF VELOCITY ON PRODUCT INNOVATION Ian P. McCarthy Beedie School of Business Ian_mccarthy@sfu.ca Based on the following research: McCarthy I. P., Lawrence T. B., Wixted B., & Gordon B. R. 2010. A multidimensional conceptualization of environmental velocity. Academy of Management Review, 35(4): 604-626 Access the full paper here.
  2. 2. INTRODUCTION Speed Demons How smart companies are creating new products -- and whole new businesses -- almost overnight
  3. 3. INTRODUCTION “speed kills innovation” and "slow is the new fast“ Holman W. Jenkins JR 26th Jan 2011, WSJ "Apple Goes Slow to Win Fast“ Paul Nunes & Tim Breene 2nd March 2011, HBR
  4. 4. INDUSTRY DYNAMICS: VELOCITY • Speed is central to industry change (dynamism) and performance. • High velocity industries (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) • Velocity is the rate (speed) and direction of change
  5. 5. 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)
  6. 6. HOWEVER, STUDIES SUGGEST THAT BIOTECH IS A HIGH VELOCITY INDUSTRY 6 Is this really the case?
  7. 7. EnvironmentalVelocityLowHigh INDUSTRIES DESCRIBED USING VELOCITY Computer industry Bourgeois & Eisenhardt (1988) Stepanovic & Uhrig (1999) Healthcare Finance, utilities & healthcare Baum & Wally (2003) Judge & Miller (1991) Biotechnology Healthcare Textiles “it is obvious that the industry is a high-velocity environment”
  8. 8. By Nadkarni & Narayanan 2007
  9. 9. SOME OBSERVATIONS • It seems that most industries have high-velocity environments • Few industry specific definitions and substantiations • An assumption that high technology = high-velocity • An assumption that velocity = speed • Simple, aggregated, erroneous and inconsistent conceptualizations. • 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
  10. 10. ENVIRONMENTAL VELOCITY: A MULTIDIMENSIONAL VECTOR • Consider what is changing? • Their rate of change (speed at which they move). • Their direction of change?
  11. 11. 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)
  12. 12. PRODUCT VELOCITY 12 2005 2010 Continuous and 6 new models Discontinuous
  13. 13. PRODUCT VELOCITY 13 2000 Xbox 2005 Xbox 360 Continuous and 1 new model 2006 Wii Discontinuous
  14. 14. VELOCITY DIMENSIONS AND HOMOLOGY 14 Direction of Change Discontinuous Continuous Rate of ChangeLow High D = demand P = products C =competitive T = technological R = regulatory P R T D C High homology T P D C R Low homology P R T D C High homology
  15. 15. VELOCITY COUPLING 15 Direction of Change Discontinuous Continuous Rate of ChangeLow High D = demand P = products C =competitive T = technological R = regulatory T D C R P = tight coupling = loose coupling
  16. 16. Coupling Homology Tight Loose HighLow Rate of change Direction of change Integrated Regime C P T R D Rate of change Direction of change Conflicted Regime C P T R D C P T R D Divergent Regime Direction of change Rate of change Simple Regime C P T R D Rate of change Direction of change VELOCITY REGIMES
  17. 17. IMPLICATIONS OF VELOCITY HOMOLOGY • Affects 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. • Effective management is more about rhythm and synchronization, rather than being simply fast or slow. 17
  18. 18. FUNDAMENTAL IMPLICATION OF VELOCITY COUPLING • Affects 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 • Scanning, coordination mechanisms, and boundary spanning • Modularity of products, processes and organizations • Temporal orientations: monochronic versus polychronic • Management frameworks: linear vs. recursive 18
  19. 19. TEMPORAL ORIENTATIONS • “A temporal orientation is a cognitive concept that describes how individuals and teams conceive of time”
  20. 20. TEMPORAL ORIENTATIONS 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 Strictly adhere to plans and hate missing deadlines Frequently change plans and don’t worry about deadlines Guided by “clock time” Guided by “event time” Time is money Time is information Simple and divergent velocity regimes Conflicted and integrated velocity regimes (Ancona, Okhuysen & Perlow, 2001; Bluedorn & Denhardt, 1988; Hall, 1959).
  21. 21. SYNCHRONY • Research on environmental velocity highlights "the importance of organizations operating “in time” with their environments and in synchrony across their subunits and activities“ (McCarthy et al. 2010: 618)
  22. 22. THE CASE FOR POLYCHRONICITY • “The polychronic teams proved to be superior information brokers, absorbing and disseminating more-insightful information than their average and monochronic counterparts” (Soutiaris and Maestro. 2012) • “Under some circumstances, top management teams perform better when they accept—even relish— interruptions.” (Soutiaris and Maestro. 2012)
  23. 23. SO, IN SUM • Most industries do not have classic high velocity conditions • Thus, being fast has it benefits, but it is rare that all business functions need to be uniformly fast • Industry dynamics are complex – Multiple velocity dimensions, each with a rate and direction of change – Homology and coupling – velocity regimes • Performance is linked to appropriate rhythms, synchronization, and temporal orientations

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Focusing on new product development, I present a framework that dispels this notion that speed always leads to business success. I explain that to simply characterize business environments as fast-changing or highly dynamic, is to overlook the fact that the velocity of an industry - its rate and direction of change - is composed of multiple factors, each with a distinct velocity of its own. These factors, or industry dimensions as we call them, include: technologies, products, competitors, demand and regulations. It is rare for an industry to be uniformly high-velocity in nature (i.e. all dimensions are changing rapidly and discontinuously). Instead, businesses typically face what we call “velocity regimes”, patterns of multiple velocities of all the different dimensions involved. Thus, I will argue that it is misguided to focus on designing and managing a business that is uniformly fast. What’s important is determining your “velocity regime” – the multiple different rates and directions of change in your world – and then ensuring that different innovation activities are organized and coordinated to effectively respond to these different velocities.

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