Chapter 3 – Schilling (2019)
Sometimes technological innovation results in negative externalities. Costs (or benefits) that
are borne (or reaped) by individuals other than those responsible for creating them. Production
technologies may create pollution that is harmful to the surrounding communities
While government plays a significant role in innovation, industry provides the majority of
R&D funds that are ultimately applied to technological innovation.
Innovation: The practical implementation of an idea into a new device or process.
Individual’s creative ability is a function of:
• intellectual abilities
o primary process thinking: ability to engage in a visual mental activity
▪ remote associations or divergent thinking
• knowledge
• personality
o Openness to experience
• Motivation (intrinsic)
• Environment (tolerance for unorthodox ideas)
Research and development
• Basic research is effort directed at increasing understanding of a topic or field
without a specific immediate commercial application in mind. This research advances
scientific knowledge, which may (or may not) turn out to have long-run commercial implications.
• Applied research is directed at increasing understanding of a topic to meet a specific
need. In industry, this research typically has specific commercial objectives.
• Development refers to activities that apply knowledge to produce useful devices,
materials, or processes.
,Most current research suggests that firms that are successful innovators utilize multiple
sources of information and ideas, including:
• In-house research and development, including basic research.
• Linkages to customers or other potential users of innovations.
• Linkages to an external network of firms that may include competitors,
complementors, and suppliers.
o Complementors produce complementary goods e.g. bulbs for lamps
• Linkages to other external sources of scientific and technical information, such as
universities and government laboratories
o technology transfer offices: Offices designed to facilitate the transfer of
technology developed in a research environment to an environment
where it can be commercially applied.
External versus Internal Sourcing of Innovation
External sources of information are more likely to be complements to rather than
substitutes for in-house R&D. Doing in-house R&D helps to build the firm’s absorptive
capacity, enabling it to better assimilate and utilize information obtained externally
Absorptive capacity: The ability of an organization to recognize, assimilate, and utilize
new knowledge
Government-Funded Research
science parks: Regional districts, typically set up by government, to foster R&D
collaboration between government, universities, and private firms.
Innovation in Collaborative Networks
• joint ventures
• licensing
• second-sourcing agreements
• research associations
• government-sponsored joint research programs
• value-added networks for technical and scientific interchange
• informal networks
Size and density of the collaboration network influences the amount of information
available to organizations that are connected via the network.
Technology clusters: Regional clusters of firms that have a connection to a common
technology, and may engage in buyer, supplier, and complementor relationships, as well
as research collaboration.
Proximity and interaction can directly influence firms’ ability and willingness to
exchange knowledge. First, knowledge that is complex or tacit may require frequent and
close interaction to be meaningfully exchanged. Second, closeness and frequency of
interaction can influence a firm’s willingness to exchange knowledge.
, • Complex knowledge: Knowledge that has many underlying components, or
many interdependencies between those components, or both.
• Tacit knowledge: Knowledge that cannot be readily codified (documented in
written form).
Agglomeration economies: The benefits firms reap by locating in close geographical
proximity to each other.
- can lead to competition
- increase likelihood competitors gaining proprietary knowledge technology spillovers
- traffic congestion, housing costs, pollution
Knowledge brokers are individuals or firms that transfer information from one domain to
another in which it can be usefully applied. In a network of firms, a knowledge broker may be a firm
that connects clusters of firms that would otherwise share no connection.
Technological spillovers occur when the benefits from the research activities of one firm (or
nation or other entity) spill over to other firms (or nations or other entities). It is a
→ positive externality of R&D efforts
Probably the most significant source of innovation does not come from individual organizations or people,
but from the collaborative networks that leverage resources and capabilities across multiple organizations
or individuals. Collaborative networks are particularly important in high-technology sectors.
Chapter 3 – Schilling (2019)
technology trajectory: The path a technology takes through its lifetime. This path may refer
to its rate of performance improvement, its rate of diffusion, or other change of interest.
Four of the dimensions to categorize innovations:
1. product versus process innovation
2. radical versus incremental
3. competence enhancing versus competence destroying
4. architectural versus component
Product innovations are embodied in the outputs of an organization (goods or services).
→ Snapchat’s filters are product innovations
Process innovations are innovations in the way an organization conducts its business, such
as in the techniques of producing or marketing goods or services.
→ automation of the production process for the Model 3 with giant robots
Process innovations are often oriented toward improving the effectiveness or efficiency of production by,
for example, reducing defect rates or increasing the quantity that may be produced in a given time.
A radical innovation is very new and different from prior solutions. The introduction of wireless
telecommunication products aptly illustrates this—it embodied significantly new technologies that
required new manufacturing and service processes.
, An incremental innovation is one that makes a relatively minor change from (or adjustment
to) existing practices. E.g. changing the screen of a cell phone to make it more crack resistant or
offering a new service plan with better international texting rates
A competence enhancing innovation builds on existing knowledge and skills whereas a
competence destroying innovation renders existing knowledge and skills obsolete. Whether
an innovation is competence enhancing or competence destroying depends on whose perspective is being
taken. An innovation can be competence enhancing to one firm, while competence destroying for another.
component (or modular) innovation: An innovation to one or more components that does
not significantly affect the overall configuration of the system. E.g. an innovation in bicycle seat
technology
architectural innovation: An innovation that changes the overall design of a system or the
way its components interact with each other. E.g. the transition from the high-wheel bicycle to the
safety bicycle.
S-Curves in Technological Improvement
Many technologies exhibit an s-curve in their performance improvement over their
lifetimes.
1. Performance improvement in the early stages of a technology is slow Because:
• fundamentals of the technology are poorly understood.
• Great effort is spent exploring different paths of improvement
• there may be no evaluation routines that enable to assess progress/potential.
• may be difficult to attract other researchers to participate in its development.
2. Performance begins to accelerate as the technology becomes better understood
3. Diminishing returns set in as the technology approaches its inherent limits.
Technology performance over
cumulative effort invested
discontinuous technology: A technology that fulfills a similar market need by building on an
entirely new knowledge base. E.g. from audio on compact discs to MP3 is a technological
discontinuity.
S-Curves in Technology Diffusion
technology diffusion: The spread of a technology through a population.
