Technology-Based Industries and the Management of Innovation Chapter 6 Technology-Based Industries and the Management of Innovation

Learning objectives By the time you have completed this topic you will be able to: analyse how technology affects industry structure and competition; identify the factors that determine the returns to innovation and evaluate the potential for an innovation to establish competitive advantage; formulate strategies for exploiting innovation and managing technology, focusing in particular on: the relative advantages of being a leader or follower in innovation, identifying and evaluating strategic options for exploiting innovation, how to win standards battles, how to manage risk; design the organizational conditions needed to implement such strategies successfully. Wiley Canada

Structure of the session competitive advantage in technology- intensive industries strategies to exploit innovation competing for standards creating conditions for innovation 3 Wiley Canada

Tesla Motors Founded in 2003. Aim is to design, develop, manufacture, and sell high performance electric vehicles. Long term plan is to build a full line of eco-friendly automobiles. Wiley Canada

Charging Stations Home charger or charging station can provide a ½ charge in 20 minutes. Coverage: North America 151 stations 98% of U.S. population and parts of Canada Europe 123 stations Asia Pacific 61 stations http://www.teslamotors.com/supercharger Wiley Canada

Retail distribution strategy No dealerships, rather malls and shopping streets No commission sales force Test drives booked through company website Wiley Canada

Tesla Finance In 2010 the IPO share price was $17 By 2013 the share price was $185.83 By 2014 the share price had been as high as $291 http://www.nasdaq.com/symbol/tsla Wiley Canada

The development of technology From knowledge creation to diffusion: There is no consistent evidence that either R&D intensity or frequency of new product introductions are positively associated with profitability. Wiley Canada

Appropriation of value Who gets the benefits from innovation? The extent to which innovators appropriate the value of their innovation depends upon: the strength of their property rights in the innovation, the tacitness and complexity of the technology embodied in the innovation, the lead-time they have over followers, the extent to which they possess the complementary resources needed to commercialise the innovation. Wiley Canada

Complementary resources The success of electric vehicles depends on investments in: a new range of cars, recharging facilities, and service and repair facilities. Wiley Canada

Alternative strategies for exploiting innovation Wiley Canada

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Factors that determine the relative success of leaders and followers Can the innovation be protected by intellectual property rights or lead-time advantages? If so, advantages in leadership Followers cab avoid investing in complementary resources due to better-established industry infrastructure Firms possessing complementary resources have the luxury of waiting How important are complementary resources? Is there potential to establish an industry standard? If so, advantage in being a leader Wiley Canada

MANAGING RISK IN TECHNOLOGY-BASED INDUSTRIES Technological Uncertainty: emergence of new technologies and outcomes of technological rivalries are difficult to predict Sources of uncertainty Market Uncertainty: customer acceptance and adoption of innovations notoriously difficult to predict Cooperating with Lead Users Limiting Risk Exposure: Avoid major capital commitments (e.g. lease don’t buy) Outsource Alliances to access other firms’ resources and capabilities Keep debt low Strategies for managing risk Flexibility: Keep options open Use speed of response to adapt quickly to new information Learn from mistakes Wiley Canada 14

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WINNING STANDARDS WARS Assemble allies—enlist partners (customers, complementors, competitors) to build a bandwagon. Determine the potential for a standard to emerge—analyze network externalities. Pre-empt the market—build user base quickly: enter early, attract key customers, adopt penetration pricing. Manage expectations—use launch and pre-launch publicity and promotion to convince the market that you will be the winner. Key resources needed to win a standards war: control over an installed base of customers, owning intellectual property rights in the new technology, the ability to innovate to extend the initial technological advance, first-mover advantage, strength in complements, reputation and brand name. Wiley Canada 5

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