Innovation in High-Tech Industries - 1

1
Innovation in High-Tech Industries - 1

• Prasada Reddy
• Lund University, Sweden

2
Literature Used

• McGahan, A. (2004) How Industries Change,
  Harvard Business Review, pp. 86-94.
• Bower, J.L. And Christensen, C.M. (1995)
  Disruptive Technologies Catching the wave,
  Harvard Business Review, January.
• Tushman, M. And Smith, W. (2002) Organizational
  Technology Technological Change, Ambidextrous
  Organizations and Organizational Evolution, in
  J. Baum (ed) Companion to Organizations,
  Cambridge, MA Blackwell Publishers.

3
Changes in High-Tech Industries 1

• In order to make intelligent investments in a
  company, one needs to understand how the whole
  industry is changing.
• High-tech industries have some common features
  (e.g. Science-base).
• All firms/industries in high-tech sectors will
  not have the same strategic options.

4
Changes in High-Tech Industries 3

• Mc Ghahans typology
• 1) Core Activities - recurring actions that
  attract and retain suppliers and buyers.
• 2) Core Assets - durable resources, including
  intangibles that contribute to efficiency in core
  activities.

5
(No Transcript)
6
Changes in High-Tech Industries 4

• Firms facing radical change have two options
  with risks
• 1) abandon established positions and move into
  emerging lines of business
• Or 2) reinvest in the established industry.
• Firms facing intermediating change must find
  unconventional ways to extract value from their
  core resources by reconfiguring them by
• a) entering new business or even a new industry
  or
• b) selling of assets to former competitors.

7
Disruptive Technologies 1

• Bower and Christensen.
• Companies tend to closely link up with their
  customers.
• The processes and incentives that companies use
  to focus on main customers work well and
  companies become blind to new technologies that
  are creating emerging markets.

8
Disruptive Technologies 2

• Technologies that damage established companies
  are not radically new or complex, but
• 1) they present a different package of
  performance attributes that are nor valued by
  existing customers.
• 2) the performance attributes that are not
  valued, improve at such a rapid rate the the new
  technology can later invade the established
  markets.

9
Disruptive Technologies 3

• Performance Trajectories - the rate at which the
  performance of a product has improved and is
  expected to improve in the future.
• Every industry has a critical performance
  trajectory (e.g. Photocopiers - no. of copies per
  minute).
• S - Curves (product performance - vertical axis
  time/effort - horizontal axis).

10
Disruptive Technologies 4

• Draw a line showing the level of performance and
  the trajectory of performance improvement that
  the customers have historically enjoyed and are
  likely to expect in the future.
• Then locate the estimated initial performance
  level of the new technology.
• If the technology is disruptive, the point will
  lie far below the performance demanded by current
  customers.

11
Disruptive Technologies 5

• Determine whether the technology is disruptive or
  sustaining
• Who supports it and who does not? (conflict
  among marketing and finance vs. Technical staff
  indicates a disruptive technology).
• Identify its strategic significance
• Ask the right questions (about functionality
  demand) to the right people (not current main
  customers).
• Locate initial markets for new technology - not
  through market research, but through low-cost
  experimentation with products and markets.

12
Disruptive Technologies 6

• Responsibility for building a disruptive
  technology business should be in an independent
  organization
• a) low-cost structure (low profit margins viable)
• b) serves unique needs of a new category of
  customers.
• When success is achieved, the merger of the
  independent organization with the parent
  organizations can be problematic.

13
Organizational Evolution 1

• Tushman and Smith
• Survival depends on how firms develop their
  dynamic capabilities (that derive stream of
  innovations) over time.
• An ambidextrous firm can resolve the
  innovators dilemma between exploration and
  exploitation.

14
Organizational Evolution 2

• Technology cycles are composed of technological
  discontinuities that trigger periods of
  technological and commercial ferment (variation).
• These cycles are punctuated by the emergence of
  (selection retention) dominant designs,
  followed by periods of incremental and
  architectural innovations.

15
Organizational Evolution 3

• Eventually, a new substitute product representing
  another technological discontinuity appears,
  bringing about the next wave of variation,
  selection and retention.
• For established firms these new discontinuities
  may be either competence-enhancing, or
  competence-destroying.

16
Organizational Evolution 4

• Eras of Ferment - discontinuous product variants.
• Dominant Designs - basic process innovations.
• Eras of Incremental Change - product
  modularization, architectural, continuous and
  market innovations.

17
Organizational Evolution 5

• Ambidextrous organizations have the ability to
  drive innovation stream by
• Combining contrasting and inconsistent
  organizational architectures in a single business
  unit.
• Balancing contrasting and inconsistent learning
  modes through simultaneous exploration and
  exploitation.
• Bridging cultural, structural and demographic
  contradictions - and regulating the resulting
  conflicts.