Lecture 1
Tutorials are compulsory.
The guest lectures are not exam readings, but
good inputs for the paper.
In june you will write a paper with 3 people.
What makes digital innovation different from other types of innovation?
Digital innovation = new combo’s of digital and physical components to produce novel products
→ focus on product innovation, not process innovation → increasing computer power and
decreasing costs → made it possible to digitize all sorts of products → how existing sectors are
affected by introduction of digital innovations within existing tech systems.
→ some process innovation build on product innovation (FEX. robotics).
Digitization = transformation of mechanical (analog) into digital products → digitize info means
to turn into digital format (bits of 0 and 1) → FEX sounds, visuals and printed texts →
functionalities can be broadenend to weight, temperature, wind, sun, etc. → dominant vision for
the future: from Internet of Text to Internet of Things (most objects are part of internet).
→ DI not just virtual, also physical: digital techs always rely on a physical basis (energy, artifacts),
location (wifi, data centres) and with physical effects (waste, rare materials, electricity use).
→ digitization causes new forms of inequality → FEX. between China+US and the rest of the
world → between city and countryside → between high and low educated people.
Characteristics DI:
- Re-programmability: physical carriers can be used for many purposes → traditionally a
product can hardly be changed when it is produced.
- Homogenization of data: data are independent of physical carriers → transformed into 0
and 1 you can combine data and categorize them → can be analysed, edited, sold etc.
- ‘Self-referential’: network externalities; each adopter of a digital innovation increases the
value of use for other adopters, both directly (e.g., social media) and indirectly (via
development of complementary innovations).
Digital tech is always part of a complex architecture:
Layered: CONTENTS (sounds, pictures, texts, robotics) - SERVICE (apps such as search, social
media, e-commerce) - NETWORK (physical (→ info packages (0 and 1 FEX) need to be physically
transported from one place to another, there it needs to be recoded again), logical (→ the
dictionary to understand the transformed info) (TCP/IS)) - DEVICE (physical, logical (OS)).
Modular: aircrafts are really modular, because parts can be replaced/adjusted without the entire
aircraft being changed → the exact modules are not pre-specified → firms create modules
without knowing how they will be used exactly → components in layered digital architectures
are not just modular but product agnostic (don’t care how they will be used in the future) (FEX.
Google Maps) rather than product-specific (aircraft engine) → this sets principle of modularity in
digital innovation apart from same principle in traditional innovation → a physical device like the
iPhone is both a traditional modular product and a digital platform offering other firms to
, develop complementary devices, apps and content using Software Development Kits (SDKs) and
Application Programming Interfaces (APIs) → modular
capability is similar to reproducability.
Product-specific vs product agnostic: in
product-specific all parts end up to one product that
is pre-specified (aircraft) → product agnostic means
that digital tech uses different modules (Uber).
Power: in traditional industries, firms higher up in the
product hierarchy are generally larger and have more
power (Airbus, Volkswagen, Siemens, etc.) → as
supplier you don’t make a lot of money → in digital
industries, firms in each layer can function
independently → power resides in platform firms, which can be located in the device layer
(Windows, iOS, Android, Tencent) or service layer (Facebook, Amazon, Alibaba) → lots of content
companies have lost much of their power.
DI blurs product and industry boundaries → prepare for disruption: choose your position in a
layered, modular architecture, few companies can fulfil the platform role → what to develop
yourself, what to use from the shelf, and what to have developed by partners (section 4.2 about
corporate IT is optional reading, not on exam!).
Ecosystem logic = ecosystem metaphor → digital services are typically co-produced by several
organizations that jointly create value to the end consumers → main advantage; every
organization can focus on its core competence → main disadvantage; quality is no longer
controlled by a single firm (“offering a Ferrari in a world without gasoline or highways”).
→ co-producers have to jointly create value → have to make sure all components improve so
consumers can benefit from the innovation → ecosystem differs from pipeline productions.
EXAMPLE: traditional car rental companies owning cars, garages, desks, cleaning facilities →
labour-intensive, because everything under one roof and implementing this → new car sharing
companies only owning cars, but partnering with municipality parking, smart locks producers,
gasoline cards, traffic police, national railways and consumers → saving on labour.
3 types of risks:
1. Standard: initiative risks — the familiar uncertainties of innovation (resources, demand,
supply, competition, IPR).
2. Ecosystem: interdependence risks — the uncertainties of coordinating with
complementary innovators → the more partners involved, the more value can be created
→ however, for innovation to succeed, more partners means more risks → probability of
ecosystem success does not depend on average of probability component success but its
product → FEX. four components and chance of success 90 percent: chance of
ecosystem success is 0.9 x 0.9 x 0.9 x 0.9 = 0.66 → if one partner is a weak link (0.2),
project is bound to fail despite quality of other partners: chance of ecosystem success is
0.2 x 0.9 x 0.9 x 0.9 = 0.15.
→ if a partner fails/is delayed, other partners can decide to support (exclusive license, financial),
look for other partners (even from competitors) or take up the task themselves.
→ Beta testing may reveal that some components are not so critical, or components are
overlooked; therefore, it may make sense to start with a minimal (free) version that is easily
extendable with modules.
