Technology, Structure, Strategy & Innovation Salvatore Sciascia 16/05/2003

Technology, Structure, Strategy & Innovation

Salvatore Sciascia

16/05/2003

Section 1: Technology

Defining “TECHNOLOGY”

– … we are referring either to a practical application of science to address a particular product or manufacturing need, or to an area of specialized expertise … the practical application of science. (A.D. Little)

– … it´s a specific process that produces a specific product … a manufacturing process … as a way a company does business or attempts a task. (McKinsey)

WHAT IS TECHNOLOGY?

COMPANY

(Robbins, 1990)

WHERE IS TECHNOLOGY?

INBOUND LOGISTIC OPERATIONS

OUTBOUNDLOGISTIC

MARKETING& SALES SERVICES

PROCUREMENT

TECNOLOGY DEVELOPMENT

HRM

INFRASTRUCTURE

MA

RG

IN

MA

RG

IN

SUPPORT

PRIMARY

Technology and Organizational Structure

Organizational Structure

• The tasks that each of the unit composing the organization must carry out (roles)

• The liasons established between such units (hierarchies and coordination mechanisms)

TECHNOLOGY INFLUENCES ORGANIZATIONAL STRUCTURE

WHAT ELSE DOES INFLUENCE ORGANIZATIONAL STRUCTURE?

WOODWARD (60s)

Hypothesis: There is a best organizational/technology fit that leads to optimal efficiency!

WOODWARD

PERROW’S TECHNOLOGY CLASSIFICATION

Problem

Craft

Nonroutine

Routine

Engineering

Ill defined and

unanalyzable

Well definedand

analyzable

FewExceptions

ManyExceptions

Analyzability

Task Variability

PERROW’S TECHNOLOGY-STRUCTURE PREDICTIONS

THOMPSON’S TECHNOLOGY CLASSIFICATION

a b c d

Client aTrans-

formation Process

Client b

Resources a b c d

Trans- formation Process

OutputInput

Inputs

Output

Feedback

Sequential interdependence

Pooled interdependence

Reciprocal interdependence

THOMPSON’S types of technology coordination mechanisms

• A: Long-Linked Technology: moderate complexity and formalization (planning and scheduling)

• B: Mediating Technology: low complexity and high level of formalization (rules and procedures)

• C: Intensive Technology: high complexity and low level of formalization (mutual adjustment)

a b c d OutputInput

Resources a b c d

Trans- formation Process

Inputs

Output

Feedback

client clientT.P.

Common elements

• Routineness as common denominator– Complexity (-)– Formalization (+)– Centralization (+/-)

• Conflicting empirical results, since companies adopts several technologies at the same time. SMEs as fertile field of research!

INDUSTRY-TECHNOLOGY-SIZE-STRUCTURE IMPERATIVE

Technology and Strategy

STRATEGY, TECHNOLOGY and CORPORATE MISSION

To whom?

What

How?

Supported by whom?

Today’s business /future business

Technology

Strategy

3 theoretical perspectives on the relationship S-T

T as input to S (Resource Based Strategy)

S influences the T choices

T is a vital part of the S planning process

Technological Learning

Accumulated Production (~ time)

Average Unit Cost

The technological choice

1. Selection

2. Acquisition

3. Exploitation

(Dussauge 1992)

1. Selection: the Familiarity matrix

New & unfamiliar

New but familiar

Current

Markets

Technologies

Current New but fam. New and unfam.

1. Success Rate of Innovations

30% 10%

40%

90% 30%

New & unfamiliar

New but familiar

Current

Markets

Technologies

Current New but fam. New and unfam.

1. Selection: the Risk matrix

High

Medium

Low

Business Exposure

Technical Uncertainty

Low Medium High (A.D.Little, 1981)

1. Selection: the Impact/Success matrix

Potential competitive

impact

Probability of Success

2. Acquisition: means (1)

Time

Strategic Autonomy

Licences

Joint Venture

Acquisition

Internal development

External R&D contracts

2. Acquisition: means (2)

Joint VentureInternal Vent.

Educational Acquisition

Spin offSell

I.DAcquisition

I.DLicensing

Acquisition

Educational Acquisition

Internal development

I.DLicensing

Acquisition

Joint VentureInternal Vent.

New & unfamiliar

New but familiar

Current

Markets

Technologies

Current New but fam. New and unfam.

(Roberts and Berry, 1985)

3. Exploitation

Internal or External

• External exploitation in case of:– protection (patent)– barriers to entry / exchange of technologies– imposition of it as a standard

Formulating a

technological strategyBusiness growth potential

Market position

Technological capabilities

If mkt posistion and technology converge…

The BCG matrix

$

STAR ? QUESTION MARK

CASH COW !

Market Share (relative)

High LowHigh

Low

Business Growth

DOG

Maintain the position

Invest heavily or abandon

AbandonExploit (deploy, licence…)

If mkt position and technology diverge, in high growth context…

Compensate to your weaknesses through “alliances”

G

MT

G

MT

If mkt posistion and technology diverge, in low growth context…

Minimize investments in order to generate the largest possible CF

Abandon the business redeploying your capabilities

G

MT

G

MT

Technology and Industry

Industries and Investments in Technology

PHISICAL CAPITAL

CUTOMER driven

(households durables, food…)

KNOWLEDGE driven

(software, electrical equipment…)

CAPACITY driven

(textile, metals, basic chemicals, paper…)

CUSTOMER RELATIONSHIP

R&D

The concept of dominant design

• The design that wins the allegians of the marketplace, the one that competitors must adere to if they hope to command significant market following.

• It arises as result of an interplay between technical, market and cultural choices.

Utterback (1994)

Empirical evidence (1)

Number of Firms

Time

Ex. Studies: Car and Type writing industries

Empirical evidence (2)

Number of Firms

Time

Fall of Unit Price

Raise of Entry Cost

Empirical evidence (3)

Number of Firms

Time

Focus on Process Innovation

Lower Innovation paceFocus on Product Innovation

Higher Innovation pace

Empirical evidence (4)

Number of Firms

Time

USA JAP

How does it occur?

• Collateral assets (mkt channels, brand image, customer swithcing costs) (IBM)

• Industry regulation (RCA)

• Strategic maneuvering (JVC)

• Communication

Section 2: Innovation

Introduction to Innovation

Long-term winners “have beaten their competitors through [focused] innovation and

dynamism”

Michael Porter

The role of Innovation

Time

Performance

Resource Investments

A definition

Innovation is the creation and transformation of knowledge into

new products, processes, or services that meet market needs

Il processo di innovazione

Knowledge

Invention

Innovation

Diffusion

Creativity

The innovation process

Practises

Il processo di innovazione

Knowledge

Invention

Innovation

Diffusion

Creativity

The innovation process

Practises

COMPANIES

MARKET

UNIVERSITIES & RES. CENTERS

The Discipline of Innovation

• “Innovation is work rather then genius”

• “Innovation rarely springs from a flash of inspiration. It arises from a cold-eyed analysis of the sources of opportunities”

• “Effective innovation is simple and starts small”.

» (Drucker, 1985)

Sources of Opportunities (1)

• Process needs (modern advertising - NYT)

• Industry changes (deregulation)

• Market changes, in morphology or perception (health, robotics)

• New knowledge (PC)

Sources of Opportunities (2)• Unexpected occurences (IBM

accounting machine, IKEA)

Intended Strategy Realized Strategy

Emergent Strategy

Unrealized Strategy

Types of Innovation

Incremental InnovationRefining exixting products or processes (Microsoft)

Radical InnovationIntroducing totally new product concepts

Critical Activities: radical Vs Incremental Innovations (1)

Radical• Commercialization +• Strategic Planning +• Tech. Dev. +• Screening• Testing• Business & Market

opport. Analysis -

Incremental• Business & Market

opport. analysis +• Commercialization +• Tech. Dev. +• Screening• Testing• Strategic Planning -

Best Practices Song et al. (1998)

Critical Activities: radical Vs Incremental Innovations (2)

Radical• Tech. Dev. • Business & Market

opport. Analysis • Commercialization• Screening• Strategic Planning• Testing

Incremental• Tech. Dev. • Strategic Planning• Commercialization • Screening• Business & Market

opport. analysis• Testing

Current Practices

Innovation & R&D

• R&D does not automatically translate into innovation (300 ideas 1 new product)

• Innovation does not always begin in R&D: It May begin in marketing, manufacturing, or engineering through recognition of an opportunity or customer need.

• R&D usually becomes involved, but other requirements are money, good people, effective management practices, and luck.

R&D and Innovation

R&D Investment by Industry, 1990-2000, USA

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

20019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Bill

ions

of

Cur

rent

$

TOP 10 INDUSTRIAL R&D INVESTORS (1999)

• Ford $ 7.1 billion (+ 13%)

• General Motors 6.8 billion (+ 8%)

• Lucent Technologies 4.8 billion (- 6%)

• IBM 4.6 billion (+ 2%)

• DuPont 3.9 billion (+ 41%)

• Motorola 3.5 billion (+ 21%)

• Intel 3.5 billion (+ 31%)

• Microsoft 3.0 billion (+ 19%)

• Pfizer 2.8 billion (+ 22%)

• Johnson & Johnson 2.6 billion (+ 7%)

$42.6 billion

“R&D” or “R Vs D”RESEARCH

• Guided by search for knowledge

• Driven by curiosity

• Pulled by scientists

• Long term oriented

• Questions rather than answers

• Scientifically oriented

• Process focused

“R&D” or “R Vs D”DEVELOPMENT

• Based on existing knowledge

• Driven by profit

• Pushed by market

• Short term oriented

• Answers/Solutions rather than questions

• Investment oriented

• Goal focused

R&D and MKTG: their role in innovation processes

• Technology push innovations: – 20%– 80% success rate

• Market pull innovations: – 80%– 20% success rate

68 % of innovation pjts fail!

R&D and MKTG: barriers to comunication

Timeorientation

Short Long

Ambiguitytolerance

High Low

Bureaucraticorientation

High Low

Language Qualitative Quantitative

Projectspreferred

Incremental Advanced

Mktg R&D

Griffin et al. (1996)

R&D and MKTG: means for integration

• Relocation and phisical facilities

• Personnel Movement

• Informal social networks

• Integrated reward systems• Organizational Structure… (see next slide)

R&D and MKTG: organizing for integration

• Permanent coordinating groups

• Matrix organization

• Project teams

Success and failure of innovation processes

Management factors– Cost Management– Information management– Decision making– Time management

Resistance factors– Lack of Leadership– Political Struggles– Resistance to Innovation per se

Cozijnsen (2000)

Innovation and Governance

• Proportion of long-term pay mix for TM

• Separation of CEO and Chairman

• Number and age (-) of TM

• Number of Directors

• Complemetary skills and backgrounds in TMT and BoD

Markman et al. (2001)

Coping with Inertial factors to Innovation

The not innovative attitudes (1)

• Many strands must be interwoven to create a compelling new product concept; but companies often RESPOND rather than INITIATE!

Technology

Company capabilities

Market demand Chase the latest sales request

Stick to what we know

The not innovative attitudes (2)

Follow the leader

Incremental developmentsRelying on suppliers

Replacing old products

Competitive environment

“There is nothing as difficult as changing the order of things […] because the

reformer has enemies among all those who benefit from the exixting order, and

only lukewarm support among those who might benefit from a new order”

Machiavelli, The Prince

A) Why should we change? (1)

Profits

Time

Goal level

Profits

Time

Goal level

New Goal level

A) Why should we change? (B)

A) Why should we change? (C)

• Forecasting Profits (customer satisfaction, industry dynamics, etc)

• Creating positive crises– fixing and communicating new goals– making them achievable – using rational, emotional and monetary

levers

B) Change into what? (1)

Challenge the current strategy

WHO

HOW

WHAT

B) Change into what? (2)

Institutionalize a Questioning Attitude– Changing the CEO (“new blood to the

head”)– Unauthorized projects (3M: 15% of time)– Specific Departments (“DODGI” at the

Body Shop)– CEO Time devoted to employees (Lan &

Spar Bank: 50%)

C) Will it be a winner?

• Innovation is also gambling… Luck really exists!!

• Innovation stems from a variety of attempts, selected by the market: mistakes are the core of innovation (3M).

D) How to organize?

• Convince everyone of the need and usefulness of the new idea

• Make the old and the new co-exist harmoniously

• Manage the transition gradually

When is virtual virtuous?

Go Virtual

Types of Innovation

Autonomous SystemicExist outside

Capabilities

Must be created

Bring in House

Ally with

caution

Ally or bring in house

GM

IBM

SUN

Chesbrough and Teece (1996)

The right degree of decentralization

Virtual company

Integrated Corporation

Alliance Joint Venture

Corp. with autonomous divisions

Incentive to take risks Ability to settle

conflicts and coordinate activities

Conclusions

How to foster innovation (1)

• Integrate Technology into Strategy

• Invest in R&D

• Integrate R&D and Mktg

• Evaluate the nature of innovation

• Analize the sources of opportunity

• Adopt adequate Governance mechanisms

How to foster innovation (2)

• Anticipate the crises

• Question your strategy

• Don’t be afraid to make mistakes

• Balance the old and the new

• Don’t follow the trends blindly