1. Profiting from technological innovation:
Implications for integration, collaboration, licensing and public policy
David J. Teece
Yali Chai
Siru Liesola
Ella Leppänen
Susanna Mikkola
Johanna Rauhala

2. Assignment Discuss the relevance of the article in 2016
What has changed in the last 30 years that has had an effect on the thoughts put forward in the article?
What points in the article are still valid or may be even more relevant now than when the article was published?

3. First-to-market won’t automatically win
Key issues
Factors to consider
Implications for profitability
Appropriability Regime
(environmental factors excluding firm & market structure)
Nature of technology
Legal instruments
patents, trade secrets, copyrights
Degree of tacit/codified knowledge
Tight appropriability: Profits easier to realize & more time to clarify the right design and to access assets
Weak appropriability: Must utilize business strategy to secure position and evade imitators
Dominant Design Paradigm
Preparadigmatic
Many fluid designs and concepts
Loose manuf. processes
Paradigmatic
Few standard ways to act → dominant design
Competition shifts to price
Until dominant design has emerged:
Economies of scale unavailable
Design is the main competitive factor
Little to be gained through compl. assets
Complementary Assets
Marketing, competitive manufacturing, after-sales support, distribution channels
Level of specialization
generic, specialized, cospecialized
Channel strategy
contractual and integration modes
After dominant design has emerged:
Access to complementary assets critical
Specialized assets increase protection and secure long-term profit

4. WHAT HAS CHANGED DURING THE PAST 30 YEARS?
1986
2016

5. Production globalization
DIGITIZATION
Market globalization
Production globalization
Access to knowledge → speed of technology improvement
Industrial Internet - Optimized Solutions Machine-Machine communication
Company perspective
Consumer perspective
Access to bigger markets
Rise of the service economy and monetization of user data
Increased competition
Cloud services
Global partnerships - outsourcing, open innovation
Digital Marketing - Less resources needed to access consumers
Social networking & Sharing economy
Consumers have increased access to the internet, while companies have access to more data from their customers changing the way companies and consumers interact globally. Due to the reduced costs it is easier for smaller companies to build ecosystems and reach large amounts of consumers. Digitization has changed the complementary assets companies posses eg. marketing channels, distribution networks and manufacturing.

6. CONSIDER THIS: the world’s largest taxi company, has no vehicles
the world’s most popular media company, creates no content
the world’s most valuable retailer, owns no inventory
the world’s largest accommodation provider, owns no real estate
Companies are largely focusing on their business models rather than a superior patented product/ process. The way companies do business has changed completely and the way companies can achieve profits from an innovation has changed.

7. Product & Process Innovations
Tight appropriability regimes with high tacit knowledge and extensive intellectual property protection.
Success is realized through an innovative product and/or process and the complementary assets around it.
Success is realized through business model innovation → more weak appropriability regimes and less tacit knowledge.
Advantageous appropriability regimes are not always characterized by strong intellectual property protections → legal instruments are not always applicable.
Appropriability regime
(environmental factors excluding firm & market structure)
Key Concepts
Dominant Design
Clear dominant design
Preparadigmatic stage: focus on the product innovation, competition amongst design.
Paradigmatic stage: focus on the process innovation, competition amongst prices
Preparadigmatic phase: Dynamic markets and evolving consumer needs & wants change the dominant design often.
Paradigmatic phase: success emerges not from prices but from the user base and the ecosystem around the service which increase the switching costs for users.
Specialized complementary assets were within the firm/ and or gained from partnerships that helped to profit from innovation.
Building the complementary asset network required resources → bigger companies had an advantage over smaller companies.
Complementary assets with less resources → sharing economy allows consumers to take part, emphasizing the importance of building your network→ smaller companies can also profit.
The importance of intangible assets that are not easily copied eg. brand name, value and user base has increased.
Complementary Assets
During the 1980’s innovation was largely focused on product and process innovations with tight appropriability regimes and high tacit knowledge. Intellectual property protection was strong. A dominant design emerged after which economies of scale could be utilized and price became a determining factor. During the 2000’s the focus has also shifted to competition on the most innovative business models, which are not really analyzed in the article. This includes more weak appropriability regimes and less tacit knowledge. Different legal instruments protecting these innovations might not be applicable. The company does not need to own the complementary assets internally, digital and global economy allows the companies to reach them with less resources which helps smaller companies to also emerge and profit( startups eg. Spotify, Uber). Also extensive resources are not needed for intellectual property protection as the value comes from changing your business model to fit consumer needs. With the service economy, service software (SaaS) etc. the market changes so quickly and new competitors enter that protecting your technology with extensive amounts of patents can be too costly and a waste of resources since the technology might be irrelevant in a short period of time. Hence there is not much to protect (unless the business model is protected) as success comes from the business model rather than the superior product with complicated technology. In this sense the company that is able to find the right business model the fastest is in an advantage.
Even though the dominant designs change frequently due to dynamic markets and changing consumer needs, dominant design can be protected through having a strong user base which increases switching costs. Hence for example LinkedIn does not have a superior algorithm or a business model that would not be easily imitated, however it has created a large user base around its service and people want to be where others are as well. Also seeing the success of Airbnb, FlipKey (by TripAdvisor) also entered with a similar pay-per-booking option to try to get in on the action. FlipKey has a great user interface and strong financial backing, but they continue to struggle to gain new members.
1986
2016
Product & Process Innovations
Service economy & Business Model innovations

8. WHAT IS STILL RELEVANT?
1986
2016

9. Appropriability regime
“The appropriability regime (Teece 1986) the innovating service firms face is generally weaker than what firms in manufacturing sectors face.”
Appropriability regime
(environmental factors excluding firm & market structure)
The Coca-Cola formula has been a closely kept trade secret for over a century. In general, innovations around processes are easier to be secured because the processes themselves take place behind the closed doors of a firm’s factories.
Dominant Design
Key Concepts
QWERTY keyboard: specifically designed to overcome operative limitations (mechanical typewriter). Universally preferred over other keyboard designs.
Spotify found a gap in the market, and what users really wanted (any artist, any song for free), and an appropriate pricing model. Spotify beat other competitors and became the market leader. Now in 2016, instead of lowering unit costs, it is more about finding right pricing model.
Even though RC Cola was the first firm to commercialize both diet cola and cola in a can, rivals Coca Cola and Pepsi soon imitated the concept and kicked RC Cola out of the market based on their marketing capabilities and brand name recognition, i.e. their complementary assets.
Complementary Assets
As an early entrant Netflix was able to build a vast database of movies. Over time Netflix has however lost some of its complementary assets and become rather a substitute than a complementary good to traditional content providers.
Spotify wasn’t the first on the market. There was already other music streaming providers such as Rhapsody and Pandora.
Product & Process Innovations
Service economy & Business Model Innovations

10. WHAT IS MORE RELEVANT?
1986
2016

11. What is more relevant? Partnerships Emerged ecosystems [1]
Alliances between established companies and small innovators are even more likely to be formed resulting in capturing more value from the complementary assets.
Furthermore, high-tech start-up companies that require access to complementary assets have more accessible opportunities through forming alliances with larger enterprises. These alliances will take place both in the R&D and marketing ends of the value chain, and have today become more common.
Emerged ecosystems [1]
Companies have increased interest towards studying engagement experiences of their customers as the foundation of value co-creation.
Google, Amazon, Microsoft.
Industry Convergence [2]
Loss of incumbents’ leading positions
“Blurred” boundaries between industries
[1] ( :59)
[2] ( :15)

12. Appropriability regime
What is more relevant?
Appropriability regime
Legal environment
Nature of innovation
Traditional manufacturing countries like China and India are constantly moving up in value chain
Countries are investing in innovations and striving to turn their complementary assets into co-specialized assets
Intellectual Property rights
Tesla patent release
Creates a common rapidly-evolving technology platform which other companies in electric car business and the world would all benefit from
Moving up the value chain is allowed by technological knowledge spillover
Technologically more backward regions (China) can profit from spillovers from technologically more advanced regions (US)

13. Concluding summary The relevance of the article
The key concepts are still relevant for traditional industries, however, new forms of value creation have emerged
Product/process innovation vs. business model innovation
A framework for designing a different business model for existing products
Karan Girotra and Serguei Netessine

14. Thank you! Questions?

15. References
Risk-driven business model:
Globalization: definition-impact-effects.html
What is more relevant:
Tesla: