TTMG 5001 Principles of Management for Engineers Section T Session 7: October 26 Fall Michael Weiss

2 Session 7 objectives Upon completion of the session, you will know about another perspective that can help us make decisions on how to commercialize new products and new technology the perspective’s constructs and how constructs are assembled application of the perspective to open source strategies and you will be able to identify objectives, deliverables, contribution and relevance of commercialization research recognize how knowledge produced by one or two authors evolves over time identify constructs and and how constructs are assembled

3 Agenda 1.Presentations of assignment 1 1.Questions about Two TTMG 5001 assignments Gate 0 for TIM 1.Professor’s summary of assigned readings 1.Questions to which we want answers and comments

Presentations of assignment 1 Assignment 1 presentations will take place during Session 8, Nov 2 in room 4359 ME Make available slides to be presented before 5 p.m. on Nov 1; professor will post slides by 6 p.m. Topics have been posted on TTMG 5001 web site Nov 2 presentations will not be graded, but Nov 23 presentations of assignment 1 will be graded Each presentation is restricted to 10 minutes max, how time is used is up to the group Stick to the template provided We will prepare a list of what needs to be done so quality of presentations is 2X better next time

Questions TTMG 5001 Assignments Literature review Gate 0 Objectives Deliverables Relevance Literature review Contributions Theoretical framework Research method Data acquisition Data analysis References

Summary Session 7 assigned articles Objectives Deliverables, contribution and relevance Lessons learned

7 Session 7 assigned articles Teece, D. J Capturing value from technological innovation: integration, strategic partnering, and licensing decisions. Interfaces, 18(3): Teece, D. J., Pisano, G. & Shuen, A Dynamic capabilities and strategic management. Strategic Management Journal, 18(7): Pisano, G., & Teece, D. J How to capture value from innovation: shaping intellectual property and industry architecture. California Management Review, 50(1): West, J Value Capture and Value Networks in Open Source Vendor Strategies. Hawaii International Conference on System Sciences (HICSS), IEEE,

8 About the articles Provide one perspective on commercialization of products and technology Three papers by the same group of authors, and one paper that applies their perspective Identify perspective, its constructs, and the way constructs are assembled

9 About the articles (continued)

10 Objectives Examines how firms can capture value by shaping appropriability regime and industry architecture Examines how firms create and capture value in environments of rapid change Examines why innovators fail to profit from their innovations while customers, imitators and suppliers do benefit West (2007) Examines business models used by OS vendors given its limited appropriability Pisano & Teece (2007)Teece et al. (1997)Teece (1988)

11 Deliverables Framework for managing the business environment Outline for a dynamic capability approach that can explain how companies create and capture wealth Framework to decide whether to buy or build Framework to explain under what conditions the innovator, imitator and supplier profits West (2007) Identify modes for OS business models Show role of complementary assets Pisano & Teece (2007)Teece et al. (1997)Teece (1988)

12 Contribution Show how appropriability regime and industry architecture can be shaped to help innovators capture value from innovation (previously both were considered beyond the control of innovators) Pisano & Teece (2007) Identify that wealth creation and capture depend on ways of coordinating and combining the firm’s positions on difficult-to- trade assets and complementary assets, and the evolutionary path it pursues (previously a framework for explaining value creation and capture was not known) Teece et al. (1997) Identifies the three constructs that decide who wins because of the introduction of an innovation: complementary assets, ability to protect technology, and stage relative to the dominant design (previously it was not clear why innovators failed to appropriate value from innovations) Teece (1988)

13 Contribution (continued) Shows how firms create value and network effects through an inherent openness that attracts complementors, users and rivals to their value network (previously we did not know how to use complementary assets in mature industries) West (2007)

14 Relevant to researchers and students because* West (2007) Provide interesting suggestions for future research Pisano & Teece (2007) Teece et al. (1997) Teece (1988) Provide good example of how frameworks are applied Provide good examples of how frameworks are built * Otherwise, the observations from the last session apply.

15 Lessons learned – General You can contribute to the literature in various ways: describe frameworks (Teece, 1988; Teece et al., 1997; Pisano & Teece, 2007), identify links not previously made (Teece, 1988; West, 2007); and show how a framework can be applied to answer questions (West, 2007)

16 Lessons learned – Teece (1988) Three factors determine who captures value from innovation: _____________, ______________, and stage relative to ________________ There is a recipe to decide whether to build or buy Firm boundaries are an important determinant of innovation (how so?) Ownership of _____________ assets improves the likelihood of capturing value Strong appropriability regimes are rare, and when they exist they do increase the likelihood of capturing value

17 Lessons learned – Teece (1997) According to the resource based perspective, the entry approach is: i) identify your company’s unique resources, (ii) decide in which markets those resources can earn the highest returns, (iii) decide whether the returns from those assets are most effectively utilized According to the dynamic capabilities perspective, a company’s ability to appropriate value depends on (i) the way the company coordinates and combines, (ii) the company’s positions on difficult-to-trade assets and complementary assets, and (iii) the path the company has decided to evolve A company’s ability to appropriate value decreases when (i) the market for the innovation is _________ (dynamic!), (ii) the innovation is _________ to imitate, or (iii) knowledge from one setting to the next is __________ to replicate

18 Lessons learned – Pisano & Teece (2007) Appropriability regime and industry architecture are strategic choices for managers Weakening of appropriability regimes can be beneficial to companies with strong downstream asset positions (eg IBM in case of Linux) Firms can shape industry architecture by creating alliances (coalitions) to invest in common platforms, if they are not strong enough individually The more complex and high-value the final product becomes, the more important is ___________

19 Lessons learned – West (2007) Open source firms face inherent limits on their ability to ________ returns from technological innovation Identifies two basic modes for open source business models: ____________ and ___________, where firm controls (does not control) the source code There are three types of complements: adding to the stack by _________, _________, or _________ An open source license is a __________________ that attracts investment by the value network

20 Vertical and horizontal complements Above Sold Below Sold OSS Core Complement OSS Sold VerticalHorizontal

21 Commoditizing up the stack Proprietary Commodity Hardware OS Middleware Application Microsoft Hardware OS Middleware Application Oracle Hardware OS Middleware Application IBM Hardware OS Middleware Application Services Amazon

22 Value network

Questions to which we want answers How can open source projects be valued? How to create a successful coalition? When should product companies move into service businesses, and how can they?

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