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Instructor’s Manual
Strategic Management of Technological Innovation, 5e
Instructor’s Manual
CHAPTER 1
The Importance of Technological Innovation
SYNOPSIS OF CHAPTER
The purpose of this chapter is to set the stage for the course by establishing the importance of
managing technological innovation strategically.
First the chapter overviews the importance of technological innovation for a firm’s competitive
success and the advancement of society in general. The chapter points out that 1) many firms are
relying on products developed in the previous three to five years for large portions of their sales
and profits; 2) globalization has increased competition putting more pressure on firms to
compete through innovation; 3) advances in information technology have enabled both process
improvements and the efficient generation of product variants which facilitates the execution of a
differentiation strategy at a reasonable cost; and that 3) the residual growth in the GDP can be
attributed to technological change. Both the positive and negative effects of technological
innovation are described. Advances in food production are an example of the first and pollution
is an example of the latter. Next the innovation funnel is introduced to show students that on
average 3,000 raw ideas must enter the funnel in order to arrive at 1 successful new product
launch.
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Instructor’s Manual
Second, the chapter discusses the risks and cost of innovation. On average, many more
innovation projects fail than succeed. Firms are much more likely to be successful if they have a
well-crafted strategy for technological innovation. The book is organized to follow the
chronological sequence of developing and deploying a rigorous technological innovation
strategy, leading the students through each of the primary aspects that should be considered. The
final section of the chapter outlines the layout of the book, reviewing the contribution each
chapter makes to our understanding of the innovation process.
TEACHING OBJECTIVES
1. Introduce students to the role technological innovation plays in the competitive dynamics
of industries and how technological innovation affects society both positively and
negatively.
2. Identify the drivers of technological innovation.
3. Discover the attributes of successful innovation strategies including an in-depth
understanding of the dynamics of innovation, a well-crafted innovation strategy, and a
well-developed process for implementing the innovation strategy.
LECTURE OUTLINE
I) Overview
a) In many industries technological innovation is now the single most important driver of
competitive success and because the pace of innovation has increased many firms now rely
on products developed within the prior five years for a large portion of their sales and
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Instructor’s Manual
profits. This period is reduced to three years for firms in fast-paced industries such as
computers, software and telecommunications.
b) Innovation is also a very powerful driver of increased effectiveness and efficiency in
producing goods and bringing them to market; firms that do not constantly innovate to make
their development, production, and distribution processes more effective and efficient are
likely to fall behind their competitors.
c) The globalization of markets has played a significant role in increasing the importance
of innovation as a competitive strategy by increasing competitive pressure.
d) Advances in information technology have also played a role in driving up the pace of
innovation. These technologies also help firms to develop and produce more product variants
enabling them to out-focus their competitors.
i) For example, Toyota produces 21 different passenger vehicle lines, each with
several different models and Samsung introduced 52 unique smartphones in 2014.
e) Adoption of these new technologies has triggered industry-wide shifts to shortened
development cycles and more rapid new product introductions.
f) The proportion of funds for technological innovation provided by firms relative to
government funding has been increasing but governments do play a significant role in the
innovation process.
II) The Impact Of Technological Innovation On Society
a. Technological innovation increases the range of goods and services available to a
society, and the efficiency of providing them. For example, innovation has increased the
development of new medical treatments and the efficiency of food production.
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Instructor’s Manual
i. The Solow residual is the GDP growth represented by technological change.
Average world GDP per capita has risen steadily since 1971 and cannot be attributed
solely to the growth of labor and capital inputs.
Show Figure 1.2
b. The story is not all positive, however. Sometimes technological innovation results in
negative externalities such as pollution and medical technologies can have unanticipated
consequences.
III) Innovation By Industry: The Importance Of Strategy
a. Successful innovators have clearly defined innovation strategies and management
processes that result in a greater percentage of successful products and shorter development
cycles.
b. How Long Does New Product Development Take? Cycle time varies with the
“innovativeness” of the project. Incremental improvements take less time than next
generation improvements while new-to-the-world products or technologies take the
longest.
c. The Innovation Funnel depicts the new product development process as beginning with
many new product ideas going in the wide end and ending with very few projects making it
through the development process (the bottom of the funnel).
Show Figure 1.3
IV) The Strategic Management of Technological Innovation
a. A firm’s innovation projects should align with its resources and objectives,
leverage its core competencies and should help the firm achieve its strategic intent.
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Instructor’s Manual
b. A firm’s organizational structure and control systems should encourage the
generation and efficient implementation of innovative ideas and a firm’s new product
development processes should maximize the technical and commercial success of each
project.
c. To achieve these goals, a firm needs
i. An in-depth understanding of the dynamics of innovation,
ii. A well-crafted innovation strategy,
iii. A well-designed processes for implementing the innovation strategy.
V) Course Overview
Show Figure 1.4
a. Part I focuses on how and why innovation occurs in an industry and why some
innovations rise to dominate others.
i. Chapter 2 focuses on the sources of innovation. The questions addressed include:
Where do great ideas come from? How can firms harness the power of individual
creativity? What role do customers, government organizations, universities, and
alliance networks play in creating innovation?
ii. Chapter 3 considers the types and patterns of innovation. The questions
addressed include: Why are some innovations much harder to create and implement
than others? Why do innovations often diffuse slowly even when they appear to
offer a great advantage? What factors influence the rate at which a technology tends
to improve over time?
iii. Chapter 4 focuses on industries characterized by increasing returns. The
questions addressed include: Why do some industries choose a single dominant
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Instructor’s Manual
standard rather than enabling multiple standards to coexist? What makes one
technological innovation rise to dominate all others, even when other seemingly
superior technologies are on offer? How can a firm avoid being locked out? Is there
anything a firm can do to influence the likelihood of having its technology chosen
as the dominant design?
iv. Chapter 5 highlights the importance of entry timing. The questions addressed
include: What are the advantages and disadvantages of being first to market,
early-but-not-first, and late? What determines the optimal timing of entry for a new
innovation?
b. Part II focuses on the formulation of technological innovation strategy.
i. Chapter 6 reviews the basics of how a firm can assess its current position
and define its strategic direction. The questions addressed include: What are the
firm’s sources of sustainable competitive advantage? Where in the firm’s value
chain do its strengths and weaknesses lie? What are the firm’s core competencies,
and how should it leverage and build upon them? What is the firm’s strategic intent
-- that is, where do we want to be ten years from now?
ii. Chapter 7 examines a variety of methods for choosing among innovation
projects including both quantitative and qualitative methods.
iii. Chapter 8 focuses on the important role collaboration can play in the
development of new products and processes. The questions addressed include:
Should the firm partner on a particular project or go solo? How does the firm
decide which activities to do in house and which to access through collaborative
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arrangements? If the firm chooses to work with a partner, how should the
partnership be structured? How does the firm choose and monitor partners?
iv. Chapter 9 provides an overview of the options a firm has for appropriating
the returns to its innovation efforts. The questions addressed include: Are there
ever times when it would benefit the firm to not protect its technological
innovation so vigorously? How does a firm decide between a wholly proprietary,
wholly open, or partially open strategy for protecting its innovation? When will
“open” strategies have advantages over wholly proprietary strategies?
c. Part III focuses on implementation.
i. Chapter 10 examines how an organization’s size and structure influences
its overall rate of innovativeness. The questions addressed include: Do bigger firms
outperform smaller firms at innovation? How do formalization, standardization, and
centralization impact the likelihood of generating innovative ideas, and the
organization’s ability to implement those ideas quickly and efficiently? Is it possible
to achieve creativity and flexibility at the same time as efficiency and reliability?
How do multinational firms decide where to perform their development activities?
How do multinational firms coordinate their development activities towards a
common goal when they take place in multiple countries?
ii. Chapter 11 highlights a series of “best practices” that have been identified in
managing the new product development process. The questions addressed include:
Should new product development processes be performed sequentially or in
parallel? What are the advantages and disadvantages of using project champions?
What are the benefits and risks of involving customers and/or suppliers in the
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Instructor’s Manual
development process? What tools can the firm use to improve the effectiveness and
efficiency of its new product development processes? How does the firm assess
whether its new product development process is successful?
iii. Chapter 12 builds on the previous chapter by illuminating how team
composition and structure will influence project outcomes. The questions
addressed include: How big should teams be? What are the advantages and
disadvantages of choosing highly diverse team members? Do teams need to be
collocated? When should teams be full-time and/or permanent? What type of team
leader and management practices should be used for the team?
iv. Chapter 13 reviews innovation deployment options. The questions
addressed include: How do we accelerate the adoption of the technological
innovation? How do we decide whether to use licensing or OEM agreements? Does
it make more sense to use penetration pricing or a market-skimming price? What
strategies can the firm use to encourage distributors and complementary goods
providers to support the innovation?
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