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