Chapter 1
Technological innovation
→ The act of introducing a new device, method, or material for application to commercial or
practical objectives.
→ The most important driver of competitive success (in many industries)
→ Firms in a wide range of industries rely on products developed within the past five years for
almost one-third (or more) of their sales and profits.
The increasing importance of innovation is due in part to:
→ the globalization of markets: Foreign competition has put pressure on firms to continuously
innovate in order to produce differentiated products and services.
→ Advances in information technology: Computer-aided design and computer-aided
manufacturing have made it easier and faster for firms to design and produce new products,
while flexible manufacturing technologies have made shorter production runs economical and
have reduced the importance of production economies of scale. (These technologies help firms
develop and produce more product variants that closely meet the needs of narrowly defined
customer groups, thus achieving differentiation from competitors.)
*The net results are greater market segmentation and rapid product obsolescence
Introducing new products helps firms protect their margins, while investing in process
innovation helps firms lower their costs.
THE IMPACT OF TECHNOLOGICAL INNOVATION ON SOCIETY
Gross domestic product (GDP)
→ The total annual output of an economy as measured by its final purchase price.
→ The aggregate impact of technological innovation can be observed by looking at the gross
domestic product (GDP).
→ Technological innovation increased the amount of output achievable from a given quantity of
labor and capital.
Sometimes technological innovation results in negative externalities:
→ Production technologies may create pollution that is harmful to the surrounding communities
,externalities
→ Costs (or benefits) that are borne (or reaped) by individuals other than those responsible for
creating them.
→ Thus, if a business emits pollutants in a community, it imposes a negative externality on the
community members; if a business builds a park in a community, it creates a positive externality
for community members.
INNOVATION BY INDUSTRY: THE IMPORTANCE OF STRATEGY
Many projects do not result in technically feasible products and, of those that do, many fail
to earn a commercial return.
→ it takes about 3,000 raw ideas to produce one significantly new and successful commercial
product.
The innovation process is thus often conceived of as a funnel, with many potential new product
ideas going in the wide end, but very few making it through the development process. (see
below)
, The Strategic Management of Technological Innovation
A firm’s innovation projects should align with its resources and objectives, leveraging its core
competencies and helping it achieve its strategic intent.
A firm’s new product development process should maximize the likelihood of projects being
both technically and commercially successful. To achieve these things, a firm needs:
→ An in-depth understanding of the dynamics of innovation,
→ A well-crafted innovation strategy, and
→ Well-designed processes for implementing the innovation strategy.
Chapter 2
Innovation
→ Generation of creative ideas
→ The practical implementation of an idea into a new device or process.
→ Requires combining a creative idea with resources and expertise that make it possible to
embody the creative idea in a useful form.
→ Can arise from many different sources
Firms are well suited to innovation activities because:
→ They typically have greater resources than individuals and a management system to marshal
those resources toward a collective purpose.
→ Firms also face strong incentives to develop differentiating new products and services, which
may give them an advantage over nonprofit or government-funded entities.
Networks of innovators that leverage knowledge and other resources from multiple sources are
one of the most powerful agents of technological advance.
Innovation management
→ the art and science of managing the process of implementation of ideas into valuable
products, processes, or services.
