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Summary Innovation managment
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Innovation managment
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Lecture 1 (9 september)Innovation is essentiel for the competitive position of companies.
Established firms versus startups
● Start-up entrepreneurs address customer needs in entirely new ways
● Differences in size, (age), resources, affect the way a firm operate along several
dimensions
Business cases analysis
● Opportunity to recognize patterns and apply theoretical concepts to real life situations
Why do firms exist?
- Neoclassical economic: firms as production functions that efficiently transform land,
labor & capital inputs into goods & services. Competitive marketws coordinate buyer-
seller exchanges via price signals.
➢ The main reason why it is profitable to establish a firm would seem to be that there is
a cost of using the price mechanism
Transaction: occurs whenever a good or service is transfeered across a technologically
separable interface Transaction cost theory.
- Alternative governance structure should be assessed based on their capacity to
economize on transaction costs (trade-off)
- Economic efficiency and organizations internal structure are related
- Optimize transaction costs
- Boundaries of the firm as a decision variable
➢ Firms exist to reduce transaction costs (loss of efficency)
Transactions costs relate to the searching/allocation itself. Indeed, incurring such
‘undesirable’ costs might still lead a firm to better/cheaper workers (thereby enhancing
efficiency, despite the extra transaction costs).
➔ Costst are simply a loss of value when transferring one type of capital to another.
When we analayze different ways of engaging in economic activities we should
minimize costs.
Behavioural assumptions to take into account
Transaction agreements never cover all possible future contingencies (“incomplete
contracting”). Transactors act under:
- Bounded rationality: Transactors are constrained by cognitive limits on their
capacities to process information efficiently (incomplete contracting)
- Opportunism: “Self-interest with guile” could induce strategic behavior by
transactors to lie to, cheat, confuse, mislead their exchange partners
Forms of governance
Nobel prize winner Oliver Williamson (1975, 1981) identified three fundamental forms of
transaction governance:
● Hierarchy (Make) = transactions among parties occur under a unified owner who
settles disputes (firm governance)
, ● Market (Buy) = Autonomous parties’ exchanges are governed by prices in supply-
demand equilibrium (market governance)
● Hybrid (Ally) = “Long-term contractual relations that preserve [parties’] autonomy, but
provide added transaction-specific safeguards as compared with the market.”
'Make' would translate here like: have your own HR department doing all salary
administration, instead of outsourcing it (='Buy')
Boundries of firms and governance structures
Criticism to TCE (transaction costs economics)
● Opportunism: too much emphasis
● Trust: among individuals between organizations is an alternative
basis for lowering transaction costs
● Learning curves: transactors become better over time
● Path dependence: the governance of a particular transaction may depend on how
previous transactions were governed.
● Heterogeneity:TCE neglects of differential capabilities and dynamics
What is innovation?
> Innovations are new combinations of existing resources
,While invention is the first occurrence of an idea for a new product or process, innovation is
the first attempt to carry it out into practice.
What is the role of innovation in economic and social change?
● Schumpeter’s notion of creative destruction: Growth is brought about by the
introduction of new technologies and creation of new firms, replacing existing firms
and technologies.
● Innovation introduces variety into the economic sphere. Should the stream of novelty
dry up, the economy will settle into a “stationary state” with little or no growth
(Metcalfe 1998).
> Innovation is the enige of growth
Technological innovation
The act of introducing a new device, method, or material for application to commercial or
practical objectives (Schilling, 2009)
● In many industries technological innovation is now the most important driver of
competitive success
● Increasing market segmentation and shorter productlife-cycles
● Diversification as part of competitive advantage
> From new things to new value
Business innovation: The creation of substantial new value for customers and the firm by
creatively changing one or more dimensions of the business system
➢ Starbucks: not the best company in coffee, but came up with third place. That's their
main innovation. Create a community feeling > that's why people pay a premium
price.
Innovation radar
Who innovates?
➔ Entrepreneurship: an acitivity which involves the process of discovery and
exploitation of a new opportunity
➔ Entrepreneur: is a person who undertakes the creation of an enterprise or business,
a person who identifies and exploits opportunities
, Social Entrepreneur: while typical entrepreneurs improve commercial markets, social
entrepreneurs improve social conditions.
Venture
Start-up entity developed with the intent of profiting financially. A business venture may also
be considered a small business. Many ventures will be invested in by one or more
individuals or groups with the expectation of the business bringing in a financial gain for all
backers. Most business ventures are created based on demand of the market or a lack of
supply in the market. Needs of consumers are identified for a product or a service and the
entrepreneur and investors will proceed to develop the idea, market the idea, and sell the
product or service developed.
An entrepreneur [...] invents a design for a radically new product. This person then makes
the rounds of incumbents in the industry, seeking support to develop further and
commercialize the revolu- tionary product. But the entrepreneur encounters indifference or
even hostility from the incumbents. [...] the entrepreneur manages to piece together the
funds to introduce the radically new product.
- Incumbent: firm that manufactured and sold products beloning to the product
generation that preceded the radical product innovation.
S-curve
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