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Summary innovation management and strategy
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Innovation Management & StrategyPART I: TECHNOLOGY AND INNOVATION MANAGEMENT
1. Why study innovation?
Innovation contributes to wealth. According to Bolwijn & Kumpe, it’s the major driver of
competition:
Ø Productivity (60-70s)
Ø Quality (70-80s)
Introduction of the Japanese cars in Europe and the US. They could take a high
market share in both countries because they were better in quality.
Ø Flexibility (80-90s)
Ø Innovation (90-…)
These things are cumulative, no substitutes. This means that if you want to excel nowadays
as a company in a market, you have to be productive, you will have to deliver quality, you
have to be flexible and you have to innovate.
The importance of technological innovation
Technological innovation: the act of introducing a new device, method or material for
application to commercial or practical objectives. There are two important drivers:
1. Foreign competition
2. Advances in IT
Summary
Technological innovation is now often the single most important competitive driver
in many industries.
The increasing importance of innovation has been driven largely by the globalization
of markets.
Technological innovation has a number of important effects on society (for instance
an increase of GDP).
Technological innovation may also pose some negative externalities (for instance
pollution).
1
,2. Key concepts
2.1 Robert Solow
This part focuses on the macro-perspective. Solow made a production function approach
which aims to explain the economic output of a system or a country. What are important
drivers of wealth according to Solow?
1. Labour (quantity and quality)
The more highly educated people in your economy, the more the economy will
produce.
2. Capital
This includes infrastructure, buildings, routes… The more you have, the more
economical output a system or country will have.
Y =F ( L, C )
Y =α L C γ ( Cobb−Douglas )
β
Y =F ( L, C ) . A ( T ) with A ( T ) a technological progress parameter
2
R : will increase from ±20% to ±80%
If you put indications like innovation, R&D… in your model, it starts to explain much
more than when you only put capital and labor into it.
2.2 Examples of innovation on the company level
Companies who do not innovate might come in some big trouble.
Success is not eternal (see for instance the smartphone industry). In the early days,
Nokia was a very strong brand. Nowadays, Apple is the leader.
The difference between milk and Actimel. Actimel is for 95% the same as milk but is
much more expensive than milk. This is called creating added value.
2.3 Baumol W.
Baumol has written a lot about the importance of innovation in Western economies and is
talking about a free-market growth machine (which is producing wealth). He asks the
question ‘who is fuelling that machine?’ Baumol builds a lot on Schumpeter to answer this
question (but has a little bit of another vision).
The starting point of Baumol is the distinction between the entrepreneur on the one hand
and large established companies on the other hand (which you can also find back by
Schumpeter later on). Schumpeter II said that large established companies would
outperform and scale out the entrepreneurs, but Baumol says Schumpeter was wrong in
terms of ‘replacement’; both types of actors remain present.
2
, 2.4 Schumpeter
Schumpeter has two important periods, which are also called Schumpeter-I and
Schumpeter-II.
Schumpeter I
According to Schumpeter, there are 2 types of agents (in his first period):
1. Heroic entrepreneurs
Entrepreneurs are the engine behind economic growth and innovation. Schumpeter
calls them heroic because they need to overcome a lot of obstacles and there will be
resistance and difficulties that need to be addressed and in order to do so, you need
to have special people (= the so called heroic entrepreneurs).
Entrepreneurs are destabilizing agents because they change the existing relations
and techniques of production, which leads the economy towards a better use of
capital and knowledge (= necessary for macroeconomic growth and rising
productivity).
2. Imitators
They are more numerous than the entrepreneurs who followed in the wake of the
heroic pioneers in the first group.
Schumpeter-I is thus the theory of heroic entrepreneurship and creative destruction as
the engines behind business cycles.
Schumpeter II
In this theory, Schumpeter claims that large firms can also have some entrepreneurial
processes. In this phase, he is going to internalize science and technology into the economic
value chain.
Schumpeter says that also big companies contribute to introducing new products and
creating value. You can bureaucratize and routinize innovation activities into a large
company as well.
2.5 Abernathy and Utterback framework
If you look at a firm or part of a firm, you can define 3 different stages:
1. Fluid (emerging/chaos)
These are the early days. In this phase is a lot of variety and different products are
going to be introduced on (different) market segments.
2. Transitional
This is the selection to one specific design.
3. Specific (mature)
The industry is going to develop, refine and optimize the dominant design from the
previous phase.
3
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