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Management of Product Innovation Summary and Practice Questions!
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Management of Product InnovationWhat is innovation?: Schilling (2020)
Innovation begins with the generation of new ideas, but innovation is more than the generation of
creative ideas; it is the implementation of those ideas into some new device or process.
So innovation is the act of introducing a new device, method or material for application to commercial
or practical objectives, or the result of this act. (= Definition of innovation for this course.)
Innovation = invention (coming up with a new idea and make that technically workable) +
commercialization (but also that you can actually find customers that are willing to buy your
invention).
So without a customers perspective / (successful) commercialization, in this course we will not call it
innovation.
What exactly is ‘’new’’?: radicalness
Schilling (2020)
The degree to which innovation represents departure from existing practises; combination of newness
(what did not exist before) & degree of differentness (different from what is already known). So
radicalness is for her a combination of two things
Radicalness is Relative; radicalness may change (a) over time or (what was radically new 50 years ago
is not so new today) (b) with respect to different observers (could be radically new for a producer, but
not so much for a customer)
› New & different to firm or/and customer?
In this course, customers are per definition involved in innovation.
Continuum:
› Radical innovation: very new and different from prior solutions
› Incremental innovation: relatively minor change from, or adjustment to, existing practices
Misperceptions about innovation
1. ‘’Innovation is about getting good ideas.’’ Only getting a good idea is not enough, a good idea
is just a starting point
2. ‘’The innovation process cannot be managed.’’ The basic idea of innovation is that it is a
process, but of course it can be managed (management of product innovation).
The discipline of innovation (Drucker, 2002)
‘’Innovation is real work, and it can and should be managed like any other corporate function.’’
Importance of innovation
› (Innovation is) Often single most important competitive driver in many industries
o Many firm receive more than one-third of sales and profits from products developed
within past five years
, › Increasing importance driven largely by:
o Globalization of markets;
o Advent of advanced technologies.
› Number of important effects on society, including:
o Fostering increased GDP (bevorderen van een verhoogd bbp);
o Enabling greater communication and mobility;
o Improving medical treatments → COVID-19
New product failure rates
So even though innovation is a process that is
manageable, success is not guaranteed. See the
image for the numbers. So there are 3000 ideas
required for only 1 successful product or service.
So it is not easy to come up with real innovations.
R&D spending vs innovation performance
Studies show that there is no direct relationship
between money spent on R&D and firm innovation
performance. So you cannot spend your way into
innovation success.
o In every Global Innovation 1000 study: the
top 10 most innovative companies
outperform the top 10 R&D spenders on
several financial metrics.
In 2018, Apple spent less on R&D as percentage of
sales (5.1%) than eight of the other nine companies
selected as most innovative (Intel (20.9%), Facebook
(19.1%), Alphabet (14.6%), Amazon (12.7%)).
The most innovative companies are not the ones
that spend the most on R&D
Key takeaways
› Innovation: NOT about having good ideas, but about successfully developing them into new
products or services and launching them in the market
› Innovations differ in degree of radicalness:
o From very minor, incremental innovations to new-to-the-world radical innovations
› Innovation is of critical importance for a firm’s future, AND creates many challenges, resulting
in many failed innovations:
o R&D spending does not directly result in firm innovation performance: you cannot buy
your way to success!
____
,Technological evolution
Numerous studies of innovation have revealed recurring patterns in how new technologies emerge,
evolve, are adopted and are displaces by other technologies.
Moore’s Law: Gordon Moore – cofounder of Intel in 1965: ‘’number of transistors in a dense
integrated circuit doubles approximately every two years.’’ He basically made a predication how this
technology will evolve over time. Evolve in a sense of what of a performance technology could deliver.
As a chipmaker he measured performance in sense of the number of transistors in a circuit board.
The more transistors you can put in a circuit board, the more competitional power this chip will have,
and the more performance it will deliver.
Moore’s Law is reaching its end: no more transistors can be put into an integrated circuit as what they
are already doing. If indeed Moore’s Law is coming to and end, we will face difficulties, because things
as smartphones and electric cars in which integrated circuit boards are used demand more and more
competitional power; performance. So if indeed Moore’s Law is coming to and end, society will have
huge technological challenges.
Moore’s Law is a great example of how
technology evolves over time in terms of
technology performance and if you put this
in a graph, you get the well known
Technology S-curve. In Moore’s Law
performance was the amount of transistors
you can put into an integrated circuit board.
The idea is that each type of technology has
a certain limit, determined by laws of
physics or chemistry or other laws of
nature. So regardless of the amount of
effort you put in a technology, at some
point the performance is maxed out.
Technology succession
Succession stages:
› New technology (discontinuity),
initially lower performance than
existing technology
› Then crosses performances of
existing technology
› And ends at a higher plateau
Technology reaches at some point it’s
maximum performance, but in the mean
time also new technology pops up. This is
called a discontinuity. A technology discontinuity is basically a technology that delivers a certain type
of performance, but they are making use of a totally different type of knowledge base. So for example
AI can result in also increasing of competitional power, while making use of a totally different type of
knowledge base.
, These new technologies reach higher
performance levels than older technologies
could.
Key takeaways:
› First advice: abandon maturing
technology and embrace new to stay
competitive
› However: S-curve as a prescriptive tool?
o True limits of technology are
rarely known in advance. You
never know at which exact
point you have to leave the old technology and switch to the new one.
o The shape of an S-curve is not set in stone
o Firms can influence shape of an S-curve through their development activities
But it is always good to know that at some point all technologies mature, and new technologies will
develop. But that does not mean that old technologies cannot be used anymore or will not make any
profit or something like that.
The standard technology S-curve plots
effort on the X axis and performance
on the Y axis. Performance is then
operationalized in a certain
performance measure, like the number
of chips on an integrated circuit board.
Disruptive technology or disruptive
innovation. Uber was disruptive in the
taxi industry, Airbnb was disruptive in
the hospitality industry. Disruptive was
something that was coined by Clayton
Christensen in his book ‘’The innovator’s dilemma’’. He researched: what happens if you continue
working with the old sustaining technology and do not work with the new technology. He figured the
performance driver. Normally speaking, how we measure performance stays the same. In the sense of
it is an important thing that customers value, so you could say that actually a customer need can be
seen as the performance driver.
Normally you would say that all technologies matures to this performance driver and a new
technology performs better on the same performance measure. But what could also happen is that
customers switch performance drivers, so that new unstated customer need are getting more
important then they were. So that the performance of the technology is measured on a different
scale, using a different performance measure / driver.
In other words:
› Obvious: old technology matures relatively to dominant performance driver
› Less obvious: performance driver matures, new driver emerges from unstated customer
needs
o Old technology is unable to meet new performance driver
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