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

2. 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.
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3. Structure of the session
competitive advantage in technology- intensive industries
strategies to exploit innovation
competing for standards
creating conditions for innovation 3
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4. 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.
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5. 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
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6. Retail distribution strategy
No dealerships, rather malls and shopping streets
No commission sales force
Test drives booked through company website
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7. 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
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8. 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.
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9. 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.
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10. Complementary resources
The success of electric vehicles depends on investments in: a new range
of cars, recharging facilities, and service and repair facilities.
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11. Alternative strategies for exploiting innovation
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13. 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
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14. 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
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16. 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.
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18. CopyRIGHT
Copyright © 2015 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.