TWC  Notes  –  Ng  Shi  Yuan    Chapter  1:  Introduction  to  Inventions    Definitions  • Invention:  A  scientific  discovery  and/or  breakthrough  of  an  idea,  process  or  object.  • Innovation:  Successful  commercialization  of  inventions.    • Commercialization  (Exploitation):  Process  of  introducing  an  invention  into  the  market  for  profit.    Function  of  Business  Model  • Innovation  à  Business  Model  à  Value  Capture/Value  Creation  • Value  creation:  To  value-­‐add  the  product,  increase  desire  and  interest  of  customers  • Value  capture:  To  collect  profit  from  the  sales  of  the  innovation,  and  also  from  the  rise  in  stock  prices.  • Types  of  business  model:  

- Current  business:  Develop  the  product  within  current  business.  - Licensing:  Authorize  other  company  to  produce  the  product  for  you.  - New  venture:  Setup  a  new  business  to  sell  the  product  

 Degrees  of  Innovation                                1. New  Product  Line  

- Example:  Pizza  hut  selling  pastas  on  top  of  their  current  menu  of  pizzas.  2. Improvement  to  Existing  Products  

- Example:  New  and  improve  shampoo  formula  for  Dove.  3. Cost  Reductions  

- Example:  Company  cutting  manufacturing  cost  to  make  product  cheaper.  4. Line  Extensions  

- Example:  Fruit  Tree  selling  more  flavors  of  fruit  juice.  5. Product  Repositioning  

- Example:  Toyota  created  Lexus,  a  subsidiary  car  brand  to  compete  in  the  luxury  car  market.  6. Completely  New  Products  

- Example:  Sony  creating  the  very  first  Walkman  player.    Inventors  1. Individual  (Heroic/Technical  innovators)  

- Reasons  for  innovating:  For  profit,  fame,  and/or  to  improve  lives.  - Example:  Alexander  Graham  Bell,  Thomas  Edison.  

2. Corporate  (Closed)  - Reasons  for  innovating:  For  profit,  military  purpose(s)  - Example:    Apple’s  IPhone.  

3. Open  

Newness  to  

company  

New  Product    Lines  

Improvements  to  existing  products  

Cost  reductions  

Line  extensions   Product  repositioning  

Completely  new  products  

Newness  to  market  

- Reasons  for  innovating:  Sharing  purpose  and/or  development  purpose.  - Example:  Linux  OS.  

 Model  of  Diffusion  

   Reasons  for  failure  of  innovations  1. Failed  Marketing  

- Change  in  the  market  trend,  failure  to  understand  the  market  well  - Example:  Changes  in  consumer  and/or  safety  demands.  

2. Old  Technology  - Technology  was  new  during  invention  but  innovation  time  was  too  long,  hence  become  outdated  

and  no  longer  needed  by  the  customers  3. Limited  Product  Distribution  

- Sale  of  the  product  did  not  do  very  well,  incur  losses,  company  is  unable  to  recoup  their  costs.    Chapter  2:  Types  of  Innovation    Forms  of  Innovation  1. Product  Innovation  (Physical,  tangible  object)  

- Attracting  customers  with  product  novelty  and  technology,  benefit  them  with  product  functionality  o Using  a  new  technology  (e.g.  Dyson’s  dual  cyclone  vacuum)  o Re-­‐configuring  a  technology  (e.g.  Sony  Walkman)  o Better  at  meeting  consumer  needs  (e.g.  Workmate  workbench)  o Meeting  new  consumer  needs  (e.g.  JCB  excavator)  

2. Service  Innovation  (Provision  of  new  or  significantly  improved  service  to  consumers)  - New  service  may  be  result  of  new  technology,  improved  service  makes  an  existing  service  more  

extensive  and  efficient  o Using  a  new  technology  (e.g.  Amazon.com,  First  Direct)  o Better  at  meeting  consumer  needs  (e.g.  EasyJet,  Paypal)  o Meeting  new  consumer  needs  (e.g.  Facebook)  

3. Process  Innovation  (New  manufacturing  process)  - Leads  to  great  reduction  in  costs,  increased  productivity  and  promotes  efficient  allocation  of  

resources.  o New  technologies  (E.g.  Pilkington’s  ‘float  glass’  process)  o New  methods/organization  (E.g.  F.W.Taylor’s  ‘scientific  management’,  Ford’s  moving  

assembly  line,  Toyota’s  Just-­‐in-­‐Time  production)    Types  of  Innovations     Components   System  Incremental   Improved   No  change  Modular   New   No  change  Architectural   Improved   New  configuration/  architecture  Radical   New   New  configuration/  architecture  • Low  Novelty  (Incremental)  -­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐>  High  Novelty  (Radical)  

 1. Incremental  

- “A  change  that  builds  on  a  firm’s  expertise  in  component  technology  within  established  product  architecture.”  

- Example:  DSLRs,  iPhone  2. Modular  

- “An  innovation  that  changes  a  core  design  concept  without  changing  the  product’s  architecture.”  - Example:  iPod  (Spinning  disk  to  flash  memory),  clockwork  radio  

3. Architectural  - “leaves  the  core  technological  concepts  of  components  intact  but  changes  the  way  they  are  

designed  to  work  together.”  - Example:  Dyson  Contra-­‐rotator  ™  washing  machine  (2  drums  instead  of  1)  

4. Radical  - “Radical  innovation  establishes  a  new  dominant  design,  and  hence  a  new  set  of  core  design  

concepts  embodied  in  components  that  are  linked  together  in  a  new  architecture.”  - Example:  Personal  computer,  digital  cameras  (from  film  cameras)  

 Type  of  Knowledge  • Component:  Knowledge  of  how  each  component  works  • System  or  “Architectural”:  Knowledge  of  how  the  whole  system  are  linked  to  work  together    Value  of  Typology  • Shows  that  innovations  are  not  homogenous  • Shows  the  influences  of  technology  and  technological  change  • Predict  effects  of  innovations    Limitations  of  Typology  • Method  of  judgment  where  they  may  be  overlaps  • Product-­‐oriented:  Not  universally  applicable  for  all  products  • Technology-­‐oriented:  Does  not  reflect  impacts  of  the  innovations      Chapter  3:  Technological  Paradigm      Introduction  • Technological  advancement  à  Technological  changes  à  Innovations  • Technology:  “Technology  is  the  human  activity  which  is  devoted  to  the  production  of  technics  

[material  products  of  human  making  or  fabrication]  –  or  technic-­‐related  intellectual  products    -­‐  whose  root  function  is  to  expand  the  realm  of  practical    human  possibility.”  

• “Science  is  that  form  of  human  activity  which  is  devoted  to  the  production  of  theory-­‐related  knowledge  of  material  phenomena  whose  root  function  is  to  attain  an  enhanced  understanding  of  nature.”  

 Long  Wave  Cycle  Date   Kondratiev  wave/Cycle   Technologies  1780-­‐1830   First   Cotton,  iron,  water  power  1830-­‐1880   Second   Railways,  steam  power,  steamship  1880-­‐1930   Third   Electricity,  chemicals,  steel  1930-­‐1980   Fourth   Cars,  electronics,  oil,  aerospace  1980-­‐??   Fifth   Computers,  telecommunications,  and  the  Internet    Phases  of  Long  Wave  Cycle  

   1. Recovery  Phase  

- New  opportunities  for  investment,  growth  and  employment  - High  degree  of  uncertainty  - Innovations  offer  high  novelty  value  (and  a  high  price  for  it)  

2. Prosperity  phase  - Innovations  and  their  new  technologies  diffuse  to  reach  a  wider  market  - Imitations  appear  due  to  the  ‘bandwagon  effect’.  - A  large  number  of  imitators    

3. Recession  Phase  - Technological  advancement  peaks  and  is  evident  in  this  phase  - Price  competition  becomes  intense  - Focus  of  innovation  shifts,  technology  now  used  to  create  new  production  processes  - Transformative  capacity  of  the  new  technology  is  at  its  greatest,  dramatic  improvements  in  

productivity  4. Depression  Phase  

- Market  saturation  leading  to  greater  price  competitions  and  declining  profits    - “Shake  out  phase”,  technological  advance  reaches  its  limits,  pursuit  for  greater  efficiency  - Discoveries,  breakthroughs  and  inventions  begin  to  take  place  

• Cycle  repeats    Implications  of  Long  Wave  Cycle  1. Rate  of  technological  changes  does  not  simply  accelerate  over  time    

- Hesitant  start  followed  by  a  fast  growth,  subsequent  saturation,  then  finally  decline  and  stagnation.    

2. Diffusion  of  innovations  is  inherently  uneven  - Recovery  phase:  only  a  few  firms  or  individuals  will  be  far-­‐sighted  enough  to  bring  forward  

innovations  - Prosperity  phase:  many  firms  will  follow  these  successful  pioneers,  hoping  to  imitate  their  

successes  - Recession  phase:  diffusion  shifts  from  products  themselves  to  process  innovations  instead  

3. Reinforces  the  notions  of  different  types  of  innovations  - Radical  innovations:  more  likely  to  occur  in  early  phases  - Incremental  innovations:  more  prevalent  in  later  phases  

4. Different  technologies  bring  about  different  degrees  of  impacts  - Steam  power,  electricity,  oil  and  the  Internet:  examples  where  innovations  cause  many  changes  in  

the  economic  and  social  system  - Shows  that  some  technologies  are  not  merely  important  themselves,  but  also  because  of  impacts  

they  have  on  wide  range  of  industries.  

Responds  to  consumers  

Detects  consumers  behavior  

5. Technologies  are  associated  to  institutional  changes  - Education,  training,  industrial  relations,  corporate  structures,  systems  of  management,  capital  

markets  and  legal  framework:  linked  to  technological  changes,  improve  lives  of  human  and  induce  growth  in  industries  

6. Highlights  the  impacts  of  transforming  technologies  and  costs    Technological  Paradigm  

         

New  Technological  Paradigm  emerges  /  A  shift  in  technological  

paradigm  

Impacts  on  different  parties  (Firms,  consumers,  government,  etc.)  

Impact  on  Consumers  • Change  in  taste  and  preferences  • Change  in  consumption  patterns  

Impact  on  Firms  (Situation  2)  • Detection  of  paradigm  shifts  • Change  in  production  

patterns  • Change  in  R&D,  marketing,  

skills,  product  support,  etc.  in  firms  

• Survives  in  new  technological  paradigm  

Impact  on  firms  (Situation  1)  • Failure  to  detect  shift  in  

paradigm  • Eventually  lose  out  in  

competition  in  new  technological  paradigm  

Impact  on  Firms  (Situation  3)  • Detection  of  paradigm  shifts  • Production  firmly  wedded  to  

existing  technology  • Unable  to  use  current  new  

technology  • Failure  to  accommodate  in  

new  technological  paradigm  • Eventually  lose  out  in  

competition  in  new  technological  paradigm  

•  

Chapter  4:  Theories  of  Innovation    Theories  1. Technology  S  Curve                                          • Example:  Manual  type  writer  à  IBM  “electric  type-­‐writer”  à  Word  processor  à  Microsoft  Word  • Application  

- By  understanding  where  your  company  falls  on  the  cycle,  you  can  work  with  these  patterns  and  avoid  obsolescence  and  leverage  them  to  your  strategic  advantages  

- Two  ways  to  sustain  profit:    o Incremental  innovation  (by  adding  minor  features  and  functionality  to  create  greater  

variations  and  options)  o Bold,  old  and  less  predictable,  disruptive  innovation  (Creating  new  business  altogether,  

jumping  to  a  new  S-­‐curve)    2. Punctuated  Equilibrium  

 • Technological  discontinuities/breakthroughs  in  technology  occur  from  time-­‐to-­‐time  (New  technology,  radical  innovations  etc)  • They  trigger  periods  of  ferment  (New  competing  designs  or  configurations)  • Eventually  one  design  or  configuration  becomes  dominant  &  leads  to  stability  and  incremental  change  • Period  of  stability:  Only  incremental  innovations  • In  time  another  discontinuity/breakthrough  occurs  and  cycle  is  repeated      

Preference  of  Incremental  over  Radical  • Technological  breakthroughs    

- New  skills,  abilities  and  knowledge  needed.    - “Competence  destroying”  since  existing  firms  are  unable  to  use  their  current  knowledge  and  

experience  which  can  only  be  used  to  make  incremental  changes  • Sunk  costs  

- Heavy  investments  in  old  technology  that  are  non-­‐transferrable  • Internal  political  constraints  

- Committed  to  old  technology  • Traditions  

- Hard  to  change  old  working  practices    3. Dominant  Design    

   4. Absorptive  Capacity    

   • Includes  both  the  external  dimensions  of  innovation  and  internal  dimensions  of  innovation.    • Absorptive  capacity:  Ability  of  an  organization  to  recognize  the  value  of  new,  external  information,  

assimilate  it,  and  apply  it  to  commercial  ends.    Factors  Affecting  Firm’s  Ability  to  Absorb  and  Assimilate  • Exposure  to  relevant  knowledge  

• Presence  of  prior  related  knowledge  • Diversity  of  experience    Contributions  provided  by  the  theories  • Descriptive:  An  accurate  account  of  the  innovation  is  produced  • Analytical:  Can  analyze  why  some  innovations  have  succeeded  or  have  failed.  • Predictive:  Increases  the  chances  of  success  for  innovators    Chapter  5:  Sources  of  Innovation  • Insights:  Point  where  a  mental  act  goes  beyond  the  skill  normally  expected  of  someone  trained  in  the  

field,  normally  identified  as  “the  starting  point  of  innovation”    Types  of  Insights  • Association  

- Bringing  together  two  unconnected  ideas  • Adaptation  

- Taking  an  existing  solution  and  adapting  it  to  another  use  • Analogy  

- Where  a  principle  used  in  one  context  is  used  for  a  different  purpose  • Serendipity  

- Chance,  where  random  occurrences  give  rise  to  new  insights    Source  of  Innovation  • Individuals  

- Why  still  going  strong?  o Growth  of  small  firm  sector  o New  organisational  arrangements  e.g.  strategic  alliance  o Availability  of  financial  support  e.g.  business  angels  o Role  models  

• Corporations  • Users  • Employees  • Outsiders  

- A  good  source  because:  - Provide  a  different  perspective  

o Lateral  thinking,  not  step-­‐by-­‐step  basis  - Not  held  back  by  inhibitions  or  ‘conventional  wisdom’  

o E.g.  Photocopier  (electrical  method  instead  of  chemical  method)  - More  willing  to  challenge  existing  assumptions  

o E.g.  Dyson  and  the  manufacturers  who  liked  making  bags  for  vacuum  cleaners  - More  likely  to  have  broad  range  of  external  contacts  

o E.g.  Carbon  fibre,  Aerospace  contacts  when  Mclaren  made  first  composite  F1  car  - BUT  ‘Not-­‐invented–here’  syndrome  in  corporations  (may  resist  using)  

o E.g.  Apple’s  single  button  mouse  • Process  needs  

- Demands  of  a  manufacturing  process  acts  as  stimulus  - Where  a  bottleneck  occurs,  intense  pressure  builds  to  ‘cure’  the  bottleneck  

o E.g  Henry  Ford’s  assembly  line,  improvements  made  the  manufacturing  process  of  Pilkington’s  “float  glass”  

• Spill-­‐overs  - Where  research  by  one  firm  ends  up  benefitting  others  

o E.g.  VisiCalc  spreadsheet  - Likely  to  occur  imitated  and  produced  is  problematic  - May  be  associated  with  a  region  

o E.g.  Silicon  Valley  

- Often  linked  to  staff  mobility  o The  so-­‐called  staff  churn  and  associated  knowledge  mobility  

 Chapter  6:  Process  of  Innovation    Innovations  Arising  • From  big  research  companies:  E.g.  Bell  Labs  • From  individuals:  E.g.  Mosaic    Models  • 2-­‐D  models:  give  the  producers  an  idea  of  how  the  product  design  will  look  like  

- Examples:  o Concept  Sketching  o Drawings  o Artist’s  Impressions  o Layouts  

• 3-­‐D  models:  checks  compatibility  of  products  before  they  are  built,  prevent  problems  such  as  lack  of  space  or  incompatibility.  - Examples:  

o Mock-­‐ups  o White  Models  o Simulations  o CAD  Models  

 Functions  of  Prototypes  • Evaluation  and  testing  • Integration  of  components  &  systems  • Learning  • Risk  Reduction    Design  • Shape  of  the  product  • Tolerances  of  manufacturing  • Materials  for  manufacturing  • Process  of  manufacturing  • Factors  contributing  to  design:  

- Appeal  to  customers  (but  still  operating  effectively)  - Production  cost  (affect  the  profits  of  the  producers  and  not  too  expensive  for  consumers)  - Other  demands  from  other  functional  areas  of  the  company  (Marketing,  finance  dept)  

 How  to:  Value  Creation    • Realizing  the  benefits  the  products  can  bring  to  customers    

- E.g.  Desktop  printers:  Were  appreciated  for  its  compactness  and  personalized  benefits      • Identify  future  customers  and  markets  that  the  product  can  be  sold  in    • Availability  of  after  sales  services    

- E.g.  AppleCare      How  to:  Value  Capture    • Outright  sale    • Leasing    

- E.g.  Xerox  printers:  Consumers  were  charged  for  the  rent  of  the  printers  and  monthly  usage  • Razor  and  Razor  Blades  Model    

- Earning  revenue  from  the  sale  of  consumables    

- E.g.  Amazon  Kindle  Fire  Tablet  e-­‐Books  which  were  charged  at  a  higher  price  instead  of  the  tablet  itself    

**  Companies  need  to  apply  the  suitable  mechanism  according  to  the  nature  of  the  product.      Production  Engineering  • Considerations  to  keep  costs  down:  

- Reducing  the  parts  count  - Using  standardised  components  - Using  self-­‐aligning  parts  - Using  assembly  operations  that  require  a  single,  linear  motion  

 Market/Pilot  Testing  • Mechanical  Testing:  To  ensure  that  the  system  is  working  efficiently  • Commercial  Testing:  Sales  forecast,  predict  competitor  reaction  • Physical  Testing:  Consumer’s  reaction  to  the  product  and  receiving  constructive  feedback    • Safety  Statutory  Testing:  Ensure  food  is  safe  for  consumption    Activities  involved  in  Market  Launch  • Ensuring  that  retail  outlets  have  appropriate  stocks  • Booking  advertising  space    • Designing  and  producing  advertisements  • Booking  exhibition  space  • Ensuring  that  literature  about  the  product  has  been  designed,  written  and  printed  • Informing  the  press  and  ensuring  that  they’ve  had  time  to  familiarise  themselves  with  the  product    Rothwell’s  5  Models  of  Innovation  Process  1. Technology  Push  

 • Sequential  and  linear:  Next  stage  commences  only  after  the  completion  of  previous  stage    • Assumes  that  the  marketplace  is  passive,  adopts  whatever  technology  is  available    • Example:  Pharmaceutical  industry      2. Demand  Pull  

 • Focuses  on  the  role  of  market,  reflects  complex  nature  of  consumers’  requirements    • Sequential  and  linear      3. Coupling  model  • Consists  of  feedback  loops  • Linked  to  the  marketplace  and  state  of  technology  

   4. Integrated  model  

 • Different  function  groups  (project  teams)  work  concurrently  à  Overlapping  of  work    • Non-­‐linear  and  non-­‐sequential  process    5. Network  model  (Open  Innovation)  • Facilitating  factors:  

- Improved  communication  - Developments  in  ICT  e.g.  CAD  and  CAM  - Growth  of  strategic  alliances  and  joint  ventures  

• Examples  - Biotechnology  - ‘Benetton’  clothing  - Medical  instruments  

 Factors  Favouring  Open  Innovation  • The  growing  mobility  of  highly  experienced  and  skilled  people  (i.e.  can’t  keep  knowledge  inside)  • Increased  time  people  spend  in  university  training  (i.e.  Knowledge  spills  over  to  lots  of  firms)    • Increased  availability  of  private  Venture  Capital  (i.e.  easier  for  researchers  to  launch  own  start-­‐up  

firm)    

   Chapter  7:  Process  of  Innovation    Intellectual  Property:  Protected  Knowledge  • Novel  • Useful  • Reduced  to  practice  in  a  tangible  form  and    • Managed  according  to  law    Refer  to  notes    Chapter  8:  Innovation  Strategy    Hierarchy  of  Strategies    

   External  Routes  to  Innovation  1. Licensing  • It  is  normal  for  licensing  agreement  to  encompass    

- A  royalty  payment  that  is  a  percentage  of  the  purchase  price  of  the  product,  ranging  between  3  to  10  percent,  and    

- Also  a  minimum  level  of  royalty  that  is  not  a  function  of  sales,  so  that  the  investor  is  at  least  guaranteed  some  returns  

2. Spin-­‐offs  - Forms  of  Spin-­‐offs  

iPod(Apple)

1.8 inchHard Disk Drive

(Toshiba)

Planar LithiumBattery(Sony)

Digital-to-Analog

Converter(Wolfson)

CPU(PortalPlayer)

PowerManagement

System(Linear

TechnologiesInc)

InterfaceController

(TexasInstruments)

o Company  flotation  via  an  initial  public  offering  (IPO)  o Management  buy-­‐out  (MBO)  where  the  company  is  sold  to  its  managers  o Sale  to  venture  capitalist  (VC)  organisation,  who  will  invest  in  expectation  of  later  harvest  o Sale  to  another  company  

 Factors  Leading  to  External  Routes  • Lack  of  resources  • Lack  of  knowledge  • Poor  fit  with  company  strategy  • Lack  of  reach    Internal  Routes  to  Innovation  When:  First-­‐movers  &  Follower  Where:  Side-­‐entrance  &  Derivative    1. First-­‐Movers  

- E.g.  Sony’s  Walkman  2. Follower  (Latecomers)  3. Side-­‐entrance  

- E.g.  JCB’s  hydraulic  excavators  4. Derivative  

- E.g.  LCD  TV    

Chapter  9:  Technical  Entrepreneurs    Entrepreneur:  “a  person  who  attempts  to  profit  by  risk  and  initiative”    Perspective  of  Entrepreneurship  • Economic  • Psychological  • Behavioural/Processual    Typology  of  Innovator    • Application  Innovator  

- Uses  existing  technology  to  produce  complementary  products  • Market  Innovator  

- Develop  new  markets  with  existing  technologies  • Technology  Innovators  

- New  technologies  used  in  new  products  sold  in  established  markets  • Paradigm  Innovators  

- New  technologies,  new  products  and  new  markets      Features  of  Technical  Entrepreneurs  • The  founders  of  the  company  have  been  affiliated  with  the  source  of  technology  before  establishing  

the  company  • The  business  idea  of  the  company  is  essentially  based  on  exploiting  advanced  technological  

knowledge  developed  or  acquired  in  a  source  of  technology  • The  company  is  independent  • The  company  is  entrepreneurial,  that  is,  it  is  controlled  and  managed  by  an  entrepreneur  or  group  of  

entrepreneurs  • Secondary  Features:  Create  extensive  networks  (alliances,  partnerships  and  agreements),  has  ability  

to  apply  and  access  tacit  knowledge  to  the  creation  of  new  products  and  services.  Occupational  Background  • Producer  technical  entrepreneurs  (Industrial  background)  

• Opportunist  technical  entrepreneurs  (Technology-­‐based  background,  little  technical  background)  • User  technical  entrepreneurs  (Background  in  marketing/sales  or  product  support,  have  direct  

contact  with  consumers  due  to  their  background  in  marketing/sales  or  product  support)  • Research  technical  entrepreneurs  (Scientific  or  technical  with  no  commercial  experiences)    Factors  Affecting  New  Venture  Formation  

 

Antecedent factors

Parental experience Environmental factors

Personality•High achiever•Independent•Control oriented

Home context•Spouse support•Few children

Background•Highly educated•Prof. parent•Middle class

Work environment•Frustration•Redundancy•Experience

InstitutionalSupport•Parent’s help•Venture capital•Government aid

Technology•Discoveries•New materials•New technology•Patents

Markets•New products•New uses•New consumers

NewVenture