capabilities, innovation and industry dynamics: technological...
TRANSCRIPT
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Capabilities, Innovation and Industry Dynamics: Technological discontinuities and incumbents!
Fredrik Tell KITE Research Group
Department of Management and Engineering Linköping University [email protected]
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KITE Research Group!
For more information, please visit our website: http://www.liu.se/kite/!!
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Three research themes:!
1. Knowledge Integration and Project Organization!
2. Knowledge Integration and Outsourcing!3. Innovation and the Integration of External
Knowledge!!
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Innovation, industrial dynamics and technological capabilities: Late shakeouts?!
• Dynamics of complex capital goods industries!• Relationship between firm capabilities,
innovation and performance!• Impact of firm capabilities on responses to
(endogeneous) technical change!• Specific dynamics of mature phases in
oligopolistic competition!!
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What is an industry?!
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Product/Industry life cycles!
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Industry life cycles: Early shakeout patterns!
• Innovation, entry and exit!• Competing explanations!
– Exogenuous technology shocks (Jovanovic & MacDonald, 1994)!
– Dominant designs (Abernathy & Utterback, 1975; Tushman & Anderson, 1986)!
– R&D capabilities (Klepper, 1996; 1997; Klepper & Simons, 2002)!
=> Favors early entrants (old and large firms)!
(Klepper, 1997; Klepper & Simons, 2005)
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Exogenuous technological innovation!
• Industries are created by initial inventions and shakeouts are triggered by subsequent refinement inventions (Jovanovic & MacDonald, 1994; Olleros, 1986)!
• Basic invention => new product => entry => competitive equilibrium => entry ceases (shakeout)!
• Refinement invention => new entry => incumbent firms at advantage in refining => expand output => fall in prices => non-innovators exit (shakeout)!
• Favors early entrants (incumbents)!• No prediction on process innovations!
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Dominant designs!• A dominant design is a collection of enduring product
standards to which the bulk of industry output eventually conforms (e.g. automobiles) (Abernathy & Utterback, 1978)!
• Product architecture (Henderson & Clark, 1990)!• Initial uncertainty concerning designs – many designs
introduced => experimentation (product innovation)!• Network externalities and increasing returns to
adoption induce convergence to a dominant design (Utterback & Suàrez, 1993, cf. David, 1985)!
• Adopters (may) survive, non-adopters exit (shakeout)!• Processs innovations on dominant design lead to
further concentration (shakeout) through returns to process innovations!
• Favors early entrants (economies of scale)!
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Capabilities and increasing returns to R&D!
• Scale advantages to R&D (Schumpeter, 1950)!• Firms conduct both product and process R&D!• Increasing returns to process R&D (Klepper, 1996)!
– Product R&D returns independent upon pre-innovation level of output!
– Process R&D returns favors firms with high output (proportional reduction of cost)!
• Early entrants (and large entrants with related capabilities) are at favor and will survive continuous (no new equilibrium) shakeout driven by returns to R&D!
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Examples!
(Klepper & Simons, 2005)
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Some observed empirical regularities!
• Early concentration of entrants!• Prolonged shakeouts!• Early entrants came to dominate industries!
!(Ford/GM; Goodrich/Goodyear/Firestone; RCA/Zenith/GE; Lilly/Wyeth/Squibb/Bristol/Pfizer) (Klepper and Simons, 1997; Klepper & Simons, 2005)!
• Industry leaders dominated product and process innovation!
• Pre-entry capabilities matter (Klepper & Simons, 2000; Helfat & Lieberman, 2002)!! ! ! ! !!
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From the making of a oligopoly to the dynamics of oligopolies: Late shakeouts?!
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Technological capabilities and industrial dynamics in mature industries!
• Technological capabilities and late shakeouts in the advanced gas turbine industry (Bergek, Tell, Berggren and Watson, 2008; Bergek, Berggren & Tell, 2009)!
• Mature, but not a declining industry (cf Harrigan, 1980; Lieberman, 1985; Audretsch, 1995) – rather growing !
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The example of Combined Combustion Gas Turbines (CCGT)!
Bergek, A., F. Tell, C. Berggren and J. Watson, (2008), Technological capabilities and late shakeouts: Industrial dynamics in the advanced gas turbine industry, 1986-2002, Industrial and Corporate Change, 17(2): 335-392
Intake Air Power turbine Com- pressor Fuel Combustor ~
Generator Electricity
Steam Generator Steam turbine
Advanced Turbine System
~ Generator
Steam
Fuel gas in Exhaust gases
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Global trends in power generation!
0
50000
100000
150000
200000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Cap
acity
(MW
)
CCGT Orders Total Orders
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Market development 1970-2002
0
20 000
40 000
60 000
80 000
100 00019
70
1972
1974
1976
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
MW
(yea
rly)
050 000100 000150 000200 000250 000300 000350 000400 000450 000
MW
(cum
ulativ
e)
Market orders (yearly) Cumulative orders
CCGT market growth!
GE 7F
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Market share development!
!1987-1991!
1992-1994! 1995-1998! 1999-2002!
GE! 28 %! 26%! 22%! 54%!
GEC-Alsthom /Alstoma! 9%! 14%! 6%! 15%!
ABB! 18%! 12%! 17%!
Siemens! 19%! 24%! 21%! 22%!
Westinghouse! 5%! 7%! 13%!
Mitsubishi b! 13%! 8%! 12%! 8%!
Other! 8%! 9%! 9%! 1%!
a GE licensee in the first three phases. In the fourth phase, Alstom acquired ABB’s Power Generation Business.[i] b Westinghouse licensee in the first phases. [i] In 1989, the energy and transport businesses of Alsthom merged with GEC, forming GEC-Alsthom.
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Two extremes: ABB and General Electric!
Operating Profit Margins
0%
5%
10%
15%
20%
25%
1988
1990
1992
1994
1996
1998
ABB GE
Revenues
0
2 000
4 000
6 000
8 000
10 000
12 00019
88
1990
1992
1994
1996
1998
Million USD
ABB GE
Bergek, A., C. Berggren and F. Tell (2009), Do technology strategies matter? A comparison of two electrical engineering corporations, 1988-1998, Technology Analysis and Strategic Management, Vol. 21(4): 445-470
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Research questions!
• What were the characteristics of technological capabilities of the four major firms competing in CCGT?!
• How did technological capabilities affect rates of innovation and, eventually, chances for survival in this segment of the electrical engineering industry?!
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How to explain the CCGT case?!• Industry life cycles?!
– No exogeneous technology shock (Jovanovic and MacDonald, 1994)!
– No product/process innovation pattern, (Abernathy and Utterback, 1978), continuous product development!
– All firms were old and large (Klepper, 1996)!– Not a declining industry!
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Industry dynamics and product complexity!
• Complex Products and Systems (CoPS) industries may remain in fluid phase, due to the architectural character of the product (Davies, 1997; Bonaccorsi & Giuri, 2000)!
• Relatively stable firm structure, few exits and entries!• High entry barriers such as installed base, network
externalities, and technological interdependencies!• Process innovations not as important in CoPS!
• Specific technological capabilities (including intregration of new knowledge) pertaining to systems integrating (CoPS) firms (partly in line with Klepper)!
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CCGT as CoPS: Industry and firm characteristics!
Products! Markets! Manufacturing!
CoPS! Mass production! CoPS! Mass production! CoPS! Mass production!
Many components Systemic relationships Many alternative architectures Software/ control systems!
Few components Analyzable relationships Few alternative architectures No component coordination!
Oligopoly Monopsony/ politicized purchasing Government regulation User-producer interaction Sophisticated buyer/operators
Competition Multitude of individual buyers Free markets Arms-length Relationship Non-professional buyers!
High unit cost Customization Intensive technology Project-based organization Systems integration/ Breadth and depth !
Low unit cost Standardized Long-linked technology Functional organization Design-modularity/ Specialization!
(Magnusson, T., F. Tell & J. Watson (2005), From CoPS to Mass production? Capabilities and innovation in power generation equipment manufacturing, Industrial
and Corporate Change, 14(1): 1-26
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Technological capabilities: A simple conceptualization!
Technology Strategies
Technology Activities
Technological Capabilities
Performance
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Technological capabilities!
• Technology strategies!• Technology leadership !• Cost focus!• Broad scope!• Technology sourcing!
• Technology activities!• Product launching!• Patenting!• Problem-solving!
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Methodology!
• Multiple measures and sources of data!– Annual reports!– Product launches and Relative market shares!
• SPRU CCGT database on Power Plant orders!– Patents!
• USPTO database (Linköping): Industry experts!• Thomson Derwent databases: Keyword search +
manual code search!– Interviews and publicly available material (e.g.,
on sourcing and problem-solving)!
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”Strategy measurements”!
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Example: Broad technology scope!
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TECHNOLOGY LEADERSHIP GE SIEMENS ABB WESTINGHOUSE
1987 X - Not available 1988 X X X Not available
1989 X x X X 1990 X x - - 1991 X - X - 1992 X - X X 1993 X X X - 1994 X X X X 1995 X X X - 1996 X X X - 1997 X - X - 1998 X X X 1999 X - 2000 X - 2001 X - 2002 X -
Not available Not available
X = segment level statements; x = corporate level statements
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Broad technology scope
GE SIEMENS ABB WESTINGHOUSE 1987 - (4) X (8) Not available 1988 - (4) X (8) X (7) Not available
1989 - (4) - (6) X (7) - (6) 1990 - (4) - (7) X (7) - (6) 1991 - (3) X (4) X (7) X (6) 1992 - (3) - (6) X (8) - (5) 1993 - (3) X (8) - (8) X (4) 1994 - (4) - (6) X (8) - (4) 1995 - (4) - (6) X (8) - (3) 1996 - (5) - (5) X (8) - (4) 1997 X (4) - (5) X (7) - (4) 1998 X (4) X (7) - (9) 1999 X (2) - (6) 2000 - (5) X (5) 2001 - (3) X (5) 2002 - (4) - (3)
Not available Not available
Note: All statements refer to the power generation segment. Numbers refer to the number of technology categories mentioned of 13 in total (see Appendix C).
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COST FOCUS GE SIEMENS ABB WESTINGHOUSE
1987 X x Not available 1988 - - X Not available
1989 - - X - 1990 - - - - 1991 - - X X 1992 - x - - 1993 x X - - 1994 - x - X 1995 X - X - 1996 - - X - 1997 - x X - 1998 - - - 1999 - - 2000 - - 2001 - - 2002 - -
Not available Not available
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Technology sourcing!
• GE: In-house + GE Aircraft Division!• The rest: In-house + collaboration!
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Product launch and sales impact!
0
10000
20000
30000
40000
50000
60000
70000
1986 1990 1994 1998 2002
Ord
ers
(MW
)
GE GE licencees Siemens ABB Westinghouse MHI Other
GE Frame 7F
Siemens V94.3
ABB 13E2
ABBGT24
GE 7G, 9G, 9H(announced)
Siemens V84.3A
Phase IIPhase I Phase III Phase IV
W.house 501F
W.house/MHI 701FW.house/MHI 501G
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Generation F and responses!
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Next generation…!
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Total number of patents, all searches combined(per application date)
050100150200250300350
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
ABB GE Siemens Westinghouse
Total patenting!
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Patent search strategy!• First we used the search term “combined cycle” in the Thomson Derwent
database, in order to capture the architectural or systemic aspects of CCGT. This search resulted in 92 patent records. A scrutiny of these patents showed that they concerned relevant technological fields. !
• As a second step we identified the main USPTO patent classes that the patents from the first search were assigned to and searched our own database for patents in these classes. We identified four important sub-classes of USPTO class 60 (Power plants) (see Appendix A) and found 118 patents in these classes. !
• For the third search, we used the Derwent manual code “gas turbine engine”, which according to industry experts contained CCGT-relevant patents. This search resulted in 151 patent records. !
• Fourth, we identified the main USPTO patent classes related to the patents identified in step 3 (see Appendix A) and made a search in our database for patents in these classes, resulting in 1,938 patents. !
• Fifth, we searched our database for patents in a selection of classes that according to industry experts are related to gas turbines (see Appendix A). This search resulted in 1,745 patents.!
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Patent classes identified!
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Technological capabilities: selected patents!
GE! Siemens! ABB! Westing-house!
Combined cycleab ! 78 (5.2)!
35 (2.3)!
43 (2.9)!
15 (1.0)!
Gas turbine engine (incl. measuring and testing)bc!
865 (3.9)!
685 (3.0)!
220 (1.0)!
227 (1.0)!
Gas turbinesb! 1031 (5.1)!
293 (1.4)!
204 (1.0)!
217 (1.1)!
a Thomson keyword search, granted patents applied for 1987–2002. b USPTO patent class search,granted patents applied for 1987–2000. c Thomson manual code search, granted patents applied for 1987–2002.
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Technology scope: Distribution of patents!
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ABB GE
D2343141741641537631016513712211060
Entropy measure (E) = 0≤EABB≤2.1 and 0≤EGE≤1.7 (cf. Zander, 1999, 2002)
∑=
n
iii PP
1
)/1ln(
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Problems… and the ability to solve them!
• All manufacturers experienced serious problems in their installed plants, but they reacted quite differently:!
Public, Shipped home turbines, quick
Public, Long problem-solving process
Secrecy, continuing sales, slow, failure, Alstom
Not much known, Mitsubishi
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Technological capabilities – strategies and activities!
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Some conclusions and further questions!
• The importance of having a large and relevant capability base, built up by R&D activities, as a foundation for product development in complex technology fields. The study emphasizes the importance of integrating knowledge from several different technology fields in order to develop new architectural solutions on a sub-system level. How do firms access and integrate diverse technologies? !
• A focused technology strategy on the segment level seems to be positively related to performance. Companies that focused on a limited number of technologies on the segment level were more successful than companies having a broad technology scope. Where to find the corporate coherence of large multi-technological corporations?!
• The study shows that the development and launching of new products may not be as important as implicitly assumed in much of the capabilities literature, but rather solving after-launch problems proved more decisive for competitive outcomes. How do firms build problem-solving capabilities for emerging after-release problems?!
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Kowledge sourcing and integration!
• Bergek, Tell & Palmberg (2010) study 41 alliances in the advanced gas turbine industry and relate modes of knowledge sourcing (organizational interdepence) with product architecture.!
• Found that ”collaborative/open sourcing” primarily takes place at sub-system level (and materials) (cf. Takeichi, 2001; Novak & Eppinger, 2001)!
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Conglomerates and coherence?!
• Automation & Control • Information & Communications • Medical • Power Generation • Power Transmission • Rail Transportation • Services
• Appliances • Consumer electronics • Lighting • Media & Entertainment • Aviation • Power Generation • Transportation • Health care • Materials • Services
• Automation • Power Transmission • Services