Technology and Innovation

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Technology and Innovation

• Henry C. Co
• Technology and Operations Management,
• California Polytechnic and State University

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Businessmen go down with their businesses because
they like the old way so well they cannot bring
themselves to change.
Henry Ford, My Life and
Times, 1922
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Technology and Innovation

• Technology
• Knowledge of how to do things.
• The system by which a society satisfies its
  needs and desires.
• Capability that a firm needs to provide its
  customers the good and/or services the firm
  proposes to offer, now and in the future.
• Innovation
• A business process which brought inventions to
  commercial use.
• Commercial Use.

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Commercial Use
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Who invented the vacuum cleaner?

• J. Murray Spengler invented the vacuum cleaner
  originally called an electric suction sweeper.
  But it was W. H. Hoover who had a good idea of
  how to market and sell the product.

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Who invented the sewing machine?

• Elias Howe produced the worlds first sewing
  machine but it was Isaac Singer who stole the
  patent and built a successful business from it
  (Singer later was forced to pay Howe a royalty on
  all machines made).

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Who invented the telegraph?

• In 1830, Joseph Henry demonstrated the potential
  of a William Sturgeon device for long distance
  communication by sending an electronic current
  over one mile of wire to activate an
  electromagnet which caused a bell to strike. Thus
  the electric telegraph was born, however, other
  inventors made a commercial success of that
  invention.
• Samuel Morse only invented the telegraph code,
  all the other inventions came from others. Morse
  combined marketing and political skills to secure
  state funding for development work, and to spread
  the concept of communication over vast distances
  on the continent of America.

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Management of Innovation v.Management of
Technology
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• Idea Generation Problem-Solving ? Invention.
• Invention Implementation ? Innovation.
• 12-20 of inventions results in successful
  innovation.
• Innovation Diffusion ? Economic Value.

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• Management of Innovation is the creation and
  development of new ideas.
• Management of Technology is the acquisition and
  application of existing innovations (diffusion).
• Links engineering, science, and management
  disciplines to plan, develop, and implement
  technological capabilities to shape and
  accomplish the strategic and operational
  objectives of an organization.

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Definitions

• Science is the discovery and explanation of
  natural phenomena for the sake of knowledge
  understanding
• Technology is the knowledge and technique of the
  transformation of natural phenomena for human
  purpose
• Engineering is the understanding and application
  of the scientific principles underlying
  technology and its transformation for human
  purpose bridges the gap between S T
• Basic Research is exploring the domain of science
  for the fundamental principles and basic
  understanding of nature
• Applied Research is taking scientific discoveries
  and generating technical inventions which may
  have potential for satisfying human purpose.

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• Developmental Research - that research necessary
  to develop the invention to level of functional
  capability desired
• Invention - first documentation of an idea for a
  new device or process with features thought
  useful for human purpose
• Innovation - the process whereby an invention is
  further researched, designed and engineered into
  a form suitable for the commercial marketplace or
  public-sector use
• Incremental Innovation - modifications or
  extensions of existing products/services for
  improved performance at (usually) lower cost
• Radical Innovation - achieving a brand-new
  functional capability that separates this
  product/service from its predecessors opens the
  possibility of totally new industries

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Major Stages in the Innovation Process

• Invention (Creation of Knowledge) Acquisition
  of new knowledge
• Innovation (Transformation of Knowledge)
  Application of new knowledge
• Diffusion (Utilization of Knowledge) Acceptance
  and adoption of new knowledge

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Patterns of Innovation
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Trajectory of Tech Innovation
Physical limit of technology
Performance
Effort (funds)
Technological performance often follows an
S-shaped curve
Foster, Innovation The Attackers Advantage,
Summit Books, 1986
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Successive Tech Innovations
Performance
Physical limit of technology
Effort (funds)
Foster, Innovation The Attackers Advantage,
Summit Books, 1986
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Product v. Process Innovation
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The Model T

• For 4 years, Ford developed, produced, and sold
  five different engines (2-6 cylinders) in a
  factory of trade craftsmen working with GP
  machines.
• Out of this experience came a dominant design,
  the Model T.
• Within 15 years, 2 million engines of this single
  design were produced each year in a
  mass-production facility. During that period,
  there were incremental (no fundamental)
  innovation in product.

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Product v. Process Innovation

• The fluid-pattern stage
• During the early stages of the products life
  cycle, the level of prototype innovation is high.
  This is because firms modify, change, and update
  the product in an effort to establish a dominant
  design.
• The transitional-pattern stage
• Once a dominant design is established, emphasis
  shifts to process innovations in order to provide
  the capability to mass-produce the product. This
  typically requires a shift from GP to specialized
  equipment. During this period, the level of
  product innovation falls dramatically.
• The specific-pattern stage
• At this stage, incremental process innovations
  further specialize the production process to
  reduce cost, enhance quality, and make further
  improvements. This leaves firms with a rigid
  process and an aging product (highly inflexible,
  difficult to adapt to environmental changes).

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Innovation and Development
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Windows of Opportunity
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Life Span of the Computer

• First generations (1950s) of IBM computers had a
  useful market life of more than a decade.
• IBM 360 (mid 1960s), IBM maintained its dominant
  market position until the arrival of
  minicomputers. Then companies like Digital, Data
  General, etc., started challenging IBM from the
  low end of the business.
• Useful market life of computers shrank from 10
  years to 8 years, then only 5 years, then 3, and
  2.
• Desktop PCs and laptops useful market life
  dropped to less than a year.

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The Classic Product Cash Flow

• Window of opportunity the period in which the
  new product faces no or low competition in the
  market place.
• The window of opportunity for market exploitation
  is constantly shrinking as the competition brings
  new products more and more frequently.

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The High-Tech Product Cash Flow

• Project A, which was introduced before the
  competition came up with an equivalent or better
  product, has been able to generate a positive
  cumulative cash flow, with a good return on
  investment during the RD cycle.
• Project B was introduced at a time when some
  competition already existed, results in a
  negative cumulative cash flow.

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Case Studies

• The Case of the PowerPC
• Somerset, a joint venture by IBM, Apple, and
  Motorola in 1991 to develop the PowerPC.
• Time May Have Passed the PowerPC (Business
  Week, 4, March 1996), Ira Sager wrote
• As it is, Somerset hasnt even come close to its
  goal of posing a serious challenge to Intel
  Corp.s dominance in microprocessors Somerset
  fell behind schedule on more powerful versions of
  the PowerPC chip Three years ago, they had it
  in their hands, says Jon Rubinstein, president
  of Firepower Systems Inc., one of the few
  companies outside the Somerset trio to use the
  PowerPC But technical difficulties, internal
  bickering, and management upheavals delayed
  successor chips by 18 months. Says Sun CEO Scott
  G. McNealy The PowerPC is on really shaky
  ground.
• The case of the vanishing need
• Stacker to double the hard disk space.

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Knowledge Needs

• How to integrate technology in the overall
  strategic objectives of the firm?
• The allocation of resources to and within RD,
  engineering, and operations
• Planning for technology development or
  acquisition, and
• Other strategic questions.
• How to get into and out of technologies faster
  and more efficiently?
• The selection of new technologies
• Prioritization
• Timing of introduction
• Discontinuation.

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• How to assess/evaluate technology more
  effectively?
• Evaluating current and future competitiveness of
  a companys technology
• The relative risk of in-house development v.
  acquisition,
• The pace of future changes in technology and
  potential markets.
• Potential returns on investment.
• How best to accomplish technology transfer?
• Transferring RD results to design and
  manufacturing,
• Assimilating externally developed technology into
  the companys internal RD activities.

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• How to reduce new product development time? How
  can the links among design, engineering, and
  manufacturing be improved?
• Greater coordination of these functions
• Parallel efforts will reduce the lag between RD
  and market delivery.
• How to manage large, complex, and
  interdisciplinary/inter-organizational projects?
• Key is recognizing the interrelationship of
  functions in the total system and managing the
  organization as a system to meet budget,
  schedule, and performance goals.

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• How to manage the organizations internal use of
  technology?
• Introduction and management of operations
  technologies.
• How to leverage the effectiveness of technical
  professionals?
• Motivation, measurement, training, supervision,
  obsolescence,
• Integration of technical and non-technical issues
  and individuals.

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Knowledge Needs

• How to integrate technology in the overall
  strategic objectives of the firm?
• The allocation of resources to and within RD,
  engineering, and operations
• Planning for technology development or
  acquisition, and
• Other strategic questions.
• How to get into and out of technologies faster
  and more efficiently?
• The selection of new technologies
• Prioritization
• Timing of introduction
• Discontinuation.

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• How to assess/evaluate technology more
  effectively?
• Evaluating current and future competitiveness of
  a companys technology
• The relative risk of in-house development v.
  acquisition,
• The pace of future changes in technology and
  potential markets.
• Potential returns on investment.
• How best to accomplish technology transfer?
• Transferring RD results to design and
  manufacturing,
• Assimilating externally developed technology into
  the companys internal RD activities.

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• How to reduce new product development time? How
  can the links among design, engineering, and
  manufacturing be improved?
• Greater coordination of these functions
• Parallel efforts will reduce the lag between RD
  and market delivery.
• How to manage large, complex, and
  interdisciplinary/inter-organizational projects?
• Key is recognizing the interrelationship of
  functions in the total system and managing the
  organization as a system to meet budget,
  schedule, and performance goals.

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• How to manage the organizations internal use of
  technology?
• Introduction and management of operations
  technologies.
• How to leverage the effectiveness of technical
  professionals?
• Motivation, measurement, training, supervision,
  obsolescence,
• Integration of technical and non-technical issues
  and individuals.

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Disruptive Technology v. Sustaining Technology
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Up-Market Impetus

• Intersecting trajectories of customer need and
  technological trajectories.
• Note that the slope of technological trajectory
  is steeper than the slope of the trajectories of
  customer need.
• Product technologies that under-perform what key
  customer demand today may improve to squarely
  address what those same customers demand tomorrow.

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Clayton Christensens Theory of Disruptive
Innovation

• A disruptive innovation reaches the point where
  it can satisfy the least demanding customers
  least demanding customers drop the established,
  higher performing option on the basis of other
  factors (cost, convenience, etc.).
• The established product exceeds the needs of the
  most demanding customers sustaining innovations
  now fuel performance oversupply.
• The disruptive innovation meets the level of
  performance required by the most demanding
  customers those customers drop the established
  option on the basis of other factors.

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Trajectories of Customer Needs

• Customers capacity to absorb technological
  improvement depends on
• How much time customers have to learn how to use
  new products with new features.
• How rapidly their work and lifestyles can change
  to utilize those capabilities,
• Regulatory factors (e.g. speed limit).
• Performance constraints created by insufficient
  complementary products or services.

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Technology Trajectories

• Technology trajectories are driven by managers
  efforts to address the need of the higher-end
  market (higher profit margin).
• Toyota and Honda entered the North American
  market in its bottom tiers, with their Corona and
  CVCC models. Each moved aggressively up-market,
  that by 1998 their Lexus and Acura nameplate
  products had become major engine of profit.
• In the 1990s, Compaq and Dell shifted from
  desktop PC to higher-end engineering workstations
  and network servers.
• Nucor began as a maker of low-end concrete
  reinforcing bar. It has sequentially attacked
  higher-value markets for structural and then
  sheet steel, while de-emphasizing the original
  low-end products.

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Sustaining Innovations

• Maintain a trajectory of performance improvement
  that has been established in a market i.e., they
  give customers more and better in the attributes
  they already value.
• Example Set of improvements in technologies to
  make conductor lines of ever finer width on the
  surface of silicon wafers, to help IC process
  more information at higher speed.

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Disruptive Innovations

• Introduce a very different package of attributes
  than the ones that mainstream customers value.
• Often under-perform along traditional metrics of
  functionality initially Mainstream customers are
  unwilling and unable to use disruptive products
  in applications they know or understand.
• Tend to be cheaper, simpler and more convenient
  to use, thus opening new markets.
• Once disruptive innovators have secured a
  foothold in a low-end or emerging market,
  up-market impetus push the disruptive innovators
  to shift to the large mainstream market.

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Disruptive Technology

• A quantum change, not an incremental step, that
  finally affects mainstream operations
• A technology that under performs established
  products at first
• A technology that a fringe (new/young) customer
  values highly
• Most companies do not realize the impact of this
  technology until it is too late and others have
  taken over their field/product
• Characteristics
• Markets that do not exist cannot be analyzed.
• Products are cheaper, faster, simpler, more
  convenient to use.

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Case Studies by Christensen

• Computer disk drives.
• Intel microprocessor speed increases about 20
  per year.
• Eli Lily Purity of insulin improved from 50,000
  ppm in 1925 to 10 ppm in 1980 (by about 14 per
  year).
• Manufacturers of hydraulic excavators increased
  by 15 per year the amount of earth their machine
  could heft in a single scoop from 0.25 cubic
  yard in 1948 to 10 cubic yards by 1974.

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Performance v. Market Needs
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Other Examples

• Transistor Pocket Radios
• Sonys early transistor pocket radios were a
  disruptive innovation relative to the Hi-Fi
  tabletop radios built with vacuum tubes.
• Sonys innovation sacrificed sound fidelity but
  created a new market application in which its
  lower-performing product was valued for its
  small size, light weight, and portability.
• Intel, Bloomberg Financial Markets, Honda,
  Charles Schwab, Wal-Mart, Intuit, Sony, Nucor,
  Sun, Cisco, JJ Lifescan, Staples, U.S. Surgical,
  and McDonalds are few examples of prominent
  firms that originally entered their industries as
  disruptive technologies.
• More.

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Revolutionary v. Evolutionary Innovation
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Revolutionary Innovation

• Major product/process breakthroughs which create
  or change an industry or creative symbiosis of
  previously unrelated technologies (e.g., CIM).
• Typically, originate outside the firms in an
  industry by small, entrepreneurial individuals or
  organization (Exceptions IBM- system 360,
  RCA-color TV, TI-integrated circuits.)
• Relatively rare.

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Evolutionary Innovation

• Incremental product/process improvements that
  occur within the firm.
• Maintain competitive position within an
  industry.
• Typically, originate within the firms in an
  industry.
• Relatively common.
• Improve operations of established firms.

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Creation v. Application
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• Creation of knowledge Efforts at creating new
  capability may be focused on better satisfying
  the needs already being addressed or on
  responding to new needs (creating new business).
• Includes basic research, applied research, and
  development.
• Application of knowledge (Doing) Applying newly
  acquired capability or creative application of
  already available capability.
• Includes product (design engineering), process
  (manufacturing engineering, quality control,
  fabrication, computer-integrated manufacturing),
  and market (application engineering, physical
  distribution, and product service).