HC2 THE INNOVATION ENVIRONMENT
What are firm survival rates?
- Less than 0.1% of the US firms live to the age of 40
- For example, firms founded in 1976
o 10% survived 10 years later
o 2,5% survived 20 years
- Conclusion: Average firms do not live as long as ordinary human beings.
So what explains firm survival rates?
- Size Large can change more so than a small firm, easier to adopt to customer preferences
for example
- Financial resources makes it easier to invest to regain money later on the road.
- Human Capital The expertise and knowledge that is within the company. The more
knowledge you have within the firm create new products or services makes it easier to
survive.
- Social Capital External capability to maintain your clients and customers. You will be able
to create better business relations.
- Any other resources?
So what explains firm survival rates?
- Using an evolutionary lens:
o Darwin was right:
“Neither strength nor intelligence guarantees survival”
Only adaption can do that.
- So what separates the few successful firms from the thousands that fail?
Leaving aside luck… What separates such firms?
- Ability to innovate
, Different types of innovation Innovation Matrix
Improvement / Incremental Renewal / Radical
- Evolutionary; incremental - Revolutionary: “jumps”
- “Leitmotiv”: we can always improve (more of the - Leitmotiv: Crisis – we have to change (first
same; 1e order solutions change, then improve; 2nd order)
- Preventive; correctable - Destructive: no way back
- Focus: management of operation (efficiency - Focus: management of opportunities
- Dominant role of planning and control (resource leverage; NBD/NPD)
e.g.: TQM, ISO 9000 - Focus on creativity & entrepreneurship
- E.g.: biotechnology, internet, cars, airplanes,
steam boat.
What are the consequences of improvement vs renewal?
Improvement / Incremental Renewal / Radical
- Source of short-term financial revenue - Source of short-term financial costs
- NO guarantee for long-term survival - Necessary for long-term survival
A closer examination of the innovation environment
- An evolutionary pattern of innovation
o Abernathy and Utterback, 1978
- Technological discontinuities
o Tushman and Anderson, 1986
,Product life cycle / S-curve
Early on in the life cycle the revenues will be similar to
the product performance cycle. You will only start to
make revenues as soon as you develop a good
performance product.
In the product life cycle, you see the reversed S curve
compared to the product performance cycle. As soon
as you get a good performance product ( The
dominant design) you do not need to make that much
innovations.
Process innovation peaks in the middle section of the
product life cycle. Once a company has established
which product is dominant, you want to come up with
a process that will be able to make this product as
efficient as possible. A lot of the process innovations
come before the dominant design so it can show that
price performance wise it is better than any other
product sold at that point.
, Fluid phase
- Innovation emphasis Functional product/service performance
- Stimulated by: Technological possibilities
- Type of innovation: Frequent product changes
- Process General, flexible but inefficient
- Size of organization Small-scale, more flexible
- Organizational control Informal, entrepreneurial
Traditional phase
- Innovation emphasis Product/Service optimization and variation
- Stimulated by Users and technological possibilities
- Type of innovation Large process changes
- Process More specialize, less flexible but more efficient
- Size of organization Medium-scale
- Organization control Project teams
Specific phase
- Innovation emphasis Process optimization (cost reduction)
- Stimulated by Cost pressure and improving quality
- Type of innovation Incremental process changes
- Process Highly efficient, by inflexible
- Size of organization Large-scale
- Organizational control Formal, rules, structure
What are firm survival rates?
- Less than 0.1% of the US firms live to the age of 40
- For example, firms founded in 1976
o 10% survived 10 years later
o 2,5% survived 20 years
- Conclusion: Average firms do not live as long as ordinary human beings.
So what explains firm survival rates?
- Size Large can change more so than a small firm, easier to adopt to customer preferences
for example
- Financial resources makes it easier to invest to regain money later on the road.
- Human Capital The expertise and knowledge that is within the company. The more
knowledge you have within the firm create new products or services makes it easier to
survive.
- Social Capital External capability to maintain your clients and customers. You will be able
to create better business relations.
- Any other resources?
So what explains firm survival rates?
- Using an evolutionary lens:
o Darwin was right:
“Neither strength nor intelligence guarantees survival”
Only adaption can do that.
- So what separates the few successful firms from the thousands that fail?
Leaving aside luck… What separates such firms?
- Ability to innovate
, Different types of innovation Innovation Matrix
Improvement / Incremental Renewal / Radical
- Evolutionary; incremental - Revolutionary: “jumps”
- “Leitmotiv”: we can always improve (more of the - Leitmotiv: Crisis – we have to change (first
same; 1e order solutions change, then improve; 2nd order)
- Preventive; correctable - Destructive: no way back
- Focus: management of operation (efficiency - Focus: management of opportunities
- Dominant role of planning and control (resource leverage; NBD/NPD)
e.g.: TQM, ISO 9000 - Focus on creativity & entrepreneurship
- E.g.: biotechnology, internet, cars, airplanes,
steam boat.
What are the consequences of improvement vs renewal?
Improvement / Incremental Renewal / Radical
- Source of short-term financial revenue - Source of short-term financial costs
- NO guarantee for long-term survival - Necessary for long-term survival
A closer examination of the innovation environment
- An evolutionary pattern of innovation
o Abernathy and Utterback, 1978
- Technological discontinuities
o Tushman and Anderson, 1986
,Product life cycle / S-curve
Early on in the life cycle the revenues will be similar to
the product performance cycle. You will only start to
make revenues as soon as you develop a good
performance product.
In the product life cycle, you see the reversed S curve
compared to the product performance cycle. As soon
as you get a good performance product ( The
dominant design) you do not need to make that much
innovations.
Process innovation peaks in the middle section of the
product life cycle. Once a company has established
which product is dominant, you want to come up with
a process that will be able to make this product as
efficient as possible. A lot of the process innovations
come before the dominant design so it can show that
price performance wise it is better than any other
product sold at that point.
, Fluid phase
- Innovation emphasis Functional product/service performance
- Stimulated by: Technological possibilities
- Type of innovation: Frequent product changes
- Process General, flexible but inefficient
- Size of organization Small-scale, more flexible
- Organizational control Informal, entrepreneurial
Traditional phase
- Innovation emphasis Product/Service optimization and variation
- Stimulated by Users and technological possibilities
- Type of innovation Large process changes
- Process More specialize, less flexible but more efficient
- Size of organization Medium-scale
- Organization control Project teams
Specific phase
- Innovation emphasis Process optimization (cost reduction)
- Stimulated by Cost pressure and improving quality
- Type of innovation Incremental process changes
- Process Highly efficient, by inflexible
- Size of organization Large-scale
- Organizational control Formal, rules, structure
