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MIST 626 STRATEGIC MANAGEMENT OF TECHNOLOGY AND INNOVATION, Dr Geoffrey Kamau 1
MIST 626 STRATEGIC MANAGEMENT OF TECHNOLOGY AND INNOVATION
MIST 626 STRATEGIC MANAGEMENT OF TECHNOLOGY AND INNOVATION, Dr Geoffrey Kamau 2
TABLE OF CONTENT
1. Course outline ................................................................................................................................. 3
2. Introduction .................................................................................................................................... 3
2.1. Fundamentals of Technology and innovations ......................................................................... 3
2.2. Impact of innovation on a firm ................................................................................................. 3
2.3. Schumpeter and disruptive innovations .................................................................................... 3
2.4. Novelty of an innovation........................................................................................................... 4
3. Understanding innovations ........................................................................................................... 4
3.1. Sources of innovation................................................................................................................ 4
3.2. Types of innovations ................................................................................................................. 4
3.2.1. Disruptive ........................................................................................................................... 4
3.2.2. Incremental......................................................................................................................... 5
3.3. Dimensions of innovations........................................................................................................ 5
3.4. Drivers of innovation ................................................................................................................ 5
4. Innovation activities in the firm .................................................................................................... 5
4.1. Innovation activities for product and process innovations ........................................................ 5
4.2. Innovation activities for marketing and organisational innovations ......................................... 6
4.3. Classifying firms by degree of innovativeness ......................................................................... 6
4.4. Sources of transfer of knowledge and technology .................................................................... 7
4.5. Innovation & R&D surveys ...................................................................................................... 7
4.6. Data collection: The survey approach ....................................................................................... 7
5. Industry Context Adoption of Innovation ................................................................................... 8
5.1. Kinds of innovation activities ................................................................................................... 8
5.2. Factors influencing innovation.................................................................................................. 8
5.3. Objectives and effects of innovation ......................................................................................... 8
5.4. Impacts and outcomes ............................................................................................................... 9
5.5. Factors hampering innovation activities ................................................................................... 9
5.6. Expenditures.............................................................................................................................. 9
5.7. Linkages .................................................................................................................................. 10
6. Adoption of Innovations and Technology .................................................................................. 10
6.1. Diffusion of innovations ......................................................................................................... 10
6.2. Technology life-cycle ............................................................................................................. 11
6.3. Factors that influence adoption of innovation ......................................................................... 12
6.4. Technology s-curve innovations ............................................................................................. 13
6.5. New Product Development ..................................................................................................... 14
6.6. Internal Corporate Venturing .................................................................................................. 15
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1. Course outline
2. Introduction
2.1. Fundamentals of Technology and innovations
Technology: new developments from basic science or applied engineering that deliver significant
benefits by improving effectiveness or efficiency in a system, process or product as measured by
factors such as cycle time or time response, service or quality level, capacity or productivity, and/or
cost.
Innovation: is the implementation of a new or significantly improved product (good or service), or
process, a new marketing method, or a new organisational method in business practices, workplace
organization or external relations. The creative destruction of the past, the planned abandonment of
the familiar way of doing things to embrace a new direction that strives to increase economic
growth. Innovation can create without technology or apply technology to a market requirement by
providing customers with a new way of achieving their needs whether implicitly or explicitly stated.
Comparing innovation and technology:
• You can have innovation without new technology (i.e., innovation does not require new
technology).
• You cannot have a new technology without also having innovation (i.e., new technology
requires innovation – innovation is a necessary, but not a sufficient condition for new technology).
Strategy: the persistence of a vision – a strategy will articulate the ways that a firm creates
opportunities and exploits its capabilities to achieve its desired objectives. Strategy is a defining
statement that will describe both intent and direction of an organization by delineating the plans and
actions required to achieve its long-range objectives along with a set of measurable milestones to
evaluate its progress.
Innovation management: the set of choices that an organization makes to develop unique
solutions to its critical business challenges and to capitalize upon the opportunities presented by
discontinuities in market or technology conditions.
Integration: linkage and alignment of organization-wide resources and innovation efforts,
technological progress, and new business development to achieve strategic goals of an organization
and deliver long-term business strength.
Innovative technology differentiates an organization only when it does something with that
technology that inspires customers and markets and that technology is integrated into its business –
not developed for a research silo. Technology generates its full power only when the effectiveness
of a company’s product technology capability is matched by the effectiveness of its business
leadership capability – both technology innovation and management innovation must develop
simultaneously for organizations to achieve enduring success.
2.2. Impact of innovation on a firm
• Key source of competitive success
• Enhances a firm’s strategic competitiveness and financial performance.
• Firms competing in global industries that invest more in innovation also achieve the highest
returns.
2.3. Schumpeter and disruptive innovations
Product innovation: introduction of a good or service that is new or significantly improved with
respect to its characteristics or intended uses. This includes significant improvements in technical
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specifications, components and materials, incorporated software, user friendliness or other
functional characteristics.
Process innovation: implementation of a new or significantly improved production or delivery
method. This includes significant changes in techniques, equipment and/or software.
Marketing innovation: implementation of a new marketing method involving significant changes in
product design or packaging, product placement, product promotion or pricing.
Organisational innovation: implementation of a new organisational method in the firm’s business
practices, workplace organisation or external relations.
2.4. Novelty of an innovation
How novel an innovation is can be measured by the extent of its diffusion, the extent that it creates
a new to the firm, new market, a new world, and how disruptive the innovation is:
1. Diffusion is the way in which innovations spread, through market or non-market channels,
from their first worldwide implementation to different consumers, countries, regions, sectors,
markets, and firms. Without diffusion, an innovation will have no economic impact. The minimum
entry for a change in a firm’s products or functions to be considered as an innovation is that it must
be new (or significantly improved) to the firm.
2. New to the firm: A product, process, marketing method, or organisational method can
already have been implemented by other firms, but if it is new to the firm (or in case of products
and processes: significantly improved), then it is an innovation for that firm.
3. New to the market: the firm is the first to introduce the innovation onto its market.
4. The market is defined as the firm and its competitors. The geographical scope is subject to
the firm’s own view of its operating market and thus can include both domestic and international
firms.
5. New to the world: the firm is the first to introduce the innovation for all markets and
industries, domestic and international.
6. implies a qualitatively greater degree of novelty than new to the market.
7. Disruptive innovations: an innovation that has a significant impact on a market and on the
economic activity of firms in that market. It focuses on the impact of innovations as opposed to
their novelty. These impacts can, for example, change the structure of the market, create new
markets, or render existing products obsolete. However, it might not be apparent whether an
innovation is disruptive until long after the innovation has been introduced.
3. Understanding innovations
3.1. Sources of innovation
Drucker identified 4 sources of innovation within a company or an industry:
• Unexpected occurrences
• Incongruities
• Process needs
• Industry and market changes
3.2. Types of innovations
3.2.1. Disruptive
Disruptive innovation: It involves change in value proposition and fundamental changes in
marketplace. Inventions usually result in disruptive innovations.
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3.2.2. Incremental
Incremental innovation involve steady improvements based on sustained technologies favourable to
cultural routines and norms that create immediate gains and develops customer loyalty.
Incremental innovations include:
• Extension
• Duplication
• Synthesis
3.3. Dimensions of innovations
This refers to the characteristics of innovation on:
• Extent of change (radical—incremental)
• Modality of change (product—process)
• Complexity of change (component—architecture)
• Materiality of change (physical—intangible)
• Capabilities and change (enhances or destroys market/technological capabilties)
• Relatedness of change (replaces a firm’s existing product or extends it)
• Appropriability/Imitability (difficult or hard to hang on to)
• Cycle of innovation (time between discontinuities)
3.4. Drivers of innovation
• Financial pressures to reduce costs, increase efficiency, do more with less, etc
• Increased competition
• Shorter product life cycles
• Value migration
• Stricter regulation
• Industry and community needs for sustainable development
• Increased demend for accountability
• Demographic, social and maket changes
• Rising customer expectations regarding service and quality
• Changing economy
• Greater availability of potentially useful technologies coupled with a need to exceed the
competition in these technologies
•
4. Innovation activities in the firm
4.1. Innovation activities for product and process innovations
Innovation activities_are all scientific, technological, organisational, financial and commercial steps
which actually, or are intended to, lead to the implementation of innovations. Some innovation
activities are themselves innovative, others are not novel activities but are necessary for the
implementation of innovations. Innovation activities also include R&D that is not directly related to
the development of a specific innovation.
1. Intramural (in-house) R&D: This comprises all R&D conducted by the enterprise, including
basic research.
2. Acquisition of R&D (extramural R&D): R&D purchased from public or private research
organisations or from other enterprises (including other enterprises within the group).
3. Acquisition of other external knowledge: Acquisition of rights to use patents and non-
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patented inventions, trademarks, know-how and other types of knowledge from other enterprises
and institutions such as universities and government research institutions, other than R&D.
4. Acquisition of machinery, equipment and other capital goods: Acquisitions of advanced
machinery, equipment, computer hardware or software, and land and buildings (including major
improvements, modifications and repairs), that are required to implement product or process
innovations.
5. Other preparations for product and process innovations: Other activities related to the
development and implementation of product and process innovations, such as design, planning and
testing for new products (goods and services), production processes, and delivery methods that are
not already included in R&D.
6. Market preparations for product innovations: Activities aimed at the market introduction of
new or significantly improved goods or services.
7. Training: Training (including external training) linked to the development of product or process
innovations and their implementation.
4.2. Innovation activities for marketing and organisational innovations
1. Preparations for marketing innovations: Activities related to the development and
implementation of new marketing methods. Includes acquisitions of other external knowledge and
other capital goods that are specifically related to marketing innovations.
2. Preparations for organisational innovations: Activities undertaken for the planning and
implementation of new organisation methods. Includes acquisitions of other external knowledge
and other capital goods that are specifically related to organisational innovations.
4.3. Classifying firms by degree of innovativeness
1. The innovative firm is one that has introduced an innovation during the period under review.
The innovations need not have been a commercial success – many innovations fail.
2. An innovation active firm is one that has had innovation activities during the period under
review, including those with ongoing and abandoned activities. In other words, firms that have had
innovation activities during the period under review, regardless of whether the activity resulted in
the implementation of an innovation, are innovation active.
3. A potentially innovative firm is one type of “innovation active firm”, that has made innovation
efforts but not achieved results. This is a key element in innovation policies: to help them
overcome the obstacles that prevent them from being innovative (converting efforts into
innovations) – Annex for developing countries.
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4.4. Sources of transfer of knowledge and technology
4.5. Innovation & R&D surveys
1. R&D and innovation are related phenomena which can lead some countries to consider the
combination of R&D and innovation surveys. There are a number of points for and against:
• Overall response burden of the reporting units will be reduced.
• Length of questionnaire could lead to a decline in response rates.
• Possibility of analysing the relations between R&D and innovation activities at the unit
level.
• Units not familiar with the concepts of R&D and innovation can confuse them.
• Efficient method of increasing the frequency of innovation surveys.
• The frames for the two surveys will generally be different. For example, the frame
population for innovation surveys may cover industrial classifications (and small units) that are not
included in R&D surveys. Combining them might involve sending questions about R&D to a large
number of non-R&D performers that are included in the frame population for the innovation survey,
and this would increase the cost of the joint survey.
2. In principle, other business surveys can also be merged with innovation surveys, including
surveys on the diffusion of ICTs, and on the adoption of knowledge management practices.
4.6. Data collection: The survey approach
• The “subject” based approach starts from the innovative behaviour and activities of the firm
as a whole. The idea is to explore the factors influencing the innovative behaviour of the firm
(strategies, incentives and barriers to innovation) and the scope of various innovation activities, and
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above all to examine the outputs and effects of innovation. These surveys are designed to be
representative of all industries so the results can be grossed up and comparisons made between
industries.
• The “object” approach involves the collection of data about specific innovations (usually a
‘significant innovation’ of some kind, or the main innovation of a firm). The approach involves
collecting some descriptive, quantitative and qualitative data about the particular innovation at
the same time as data is sought about the firm.
5. Industry Context Adoption of Innovation
5.1. Kinds of innovation activities
1. Successful in having resulted in the implementation of a new innovation (though they need
not have been commercially successful).
2. Ongoing, work in progress, which has not yet resulted in the implementation of an
innovation.
3. Abandoned before the implementation of an innovation.
5.2. Factors influencing innovation
1. Objectives: Identifying enterprises’ motives for innovating and measuring their importance
2. Hampering factors: reasons for not starting innovation activities at all, or factors that slow
innovation activity or have a negative effect on expected results. These include economic
factors, such as high costs or lack of demand, enterprise factors such as lack of skilled personnel
or knowledge, and legal factors such as regulations or tax rules. The ability of enterprises to
appropriate the gains from their innovation activities is also a factor affecting innovation.
5.3. Objectives and effects of innovation
Competition, demand and markets
• Replace products being phased out
• Increase range of goods and services
• Develop environment-friendly products
• Increase or maintain market share
• Enter new markets
• Increase visibility or exposure for products
• Reduced time to respond to customer needs
Production and delivery
• Improve quality of goods and services
• Improve flexibility of production or service provision
• Increase capacity of production or service provision
• Reduce unit labour costs
• Reduce consumption of materials and energy
• Reduce product design costs
• Achieve industry technical standards
• Reduce production lead times
• Reduce operating costs for service provision
• Increase efficiency or speed of supplying and/or delivering goods or services
• Improve IT capabilities
Workplace organisation
• Improve communication and interaction among different business activities
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• Increase sharing or transferring of knowledge with other organisations
• Increase the ability to adapt to different client demands
• Develop stronger relationships with customers
• Improve working conditions
Other
• Reduce environmental impacts or improve health and safety
• Meet regulatory requirements
5.4. Impacts and outcomes
• Impacts of innovations on firm performance range from effects on sales and market share to
changes in productivity and efficiency. Important impacts at industry and national levels are
changes in international competitiveness and in total factor productivity, knowledge spillovers of
firm-level innovations, and an increase in the amount of knowledge flowing through networks.
• The outcomes of product innovations can be measured by the percentage of sales derived from
new or improved products.
5.5. Factors hampering innovation activities
Knowledge factors:
• Innovation potential (R&D, design, etc.) insufficient
• Lack of qualified personnel: Within the enterprise / In the labour market
• Lack of information on technology / markets
• Deficiencies in the availability of external services
• Difficulty in finding co-operation partners for: Product or process development / Marketing
partnerships
• Organisational rigidities within the enterprise: Attitude of personnel/ managers towards
change, Managerial structure of enterprise
• Inability to devote staff to innovation activity due to production requirements
Institutional factors:
• Lack of infrastructure
• Weakness of property rights
• Legislation, regulations, standards, taxation
Cost factors:
• Excessive perceived risks
• Cost too high
• Lack of funds within the enterprise
• Lack of finance from sources outside the enterprise: Venture capital / Public sources of
funding
Market factors:
• Uncertain demand for innovative goods or services
• Potential market dominated by established enterprises
Other reasons for not innovating:
• No need to innovate due to earlier innovations
• No need because of lack of demand for innovations
5.6. Expenditures
Total expenditure for innovation activities comprises current and capital expenditure incurred for
the innovation activities defined above. Current innovation expenditures are composed of labour
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costs and other current costs. Capital expenditures for innovations are composed of gross
expenditures on land and buildings, on instruments and equipment and on computer software.
Capital expenditures that are part of R&D are included in intramural R&D, while non-R&D capital
expenditures linked to product and process innovations are included in acquisition of machinery,
equipment and other capital goods. Non-R&D capital expenditures specifically linked to marketing
or organisational innovations are included in preparations for marketing innovations and
preparations for organisational innovations, respectively. The remaining categories of innovation
activity consist solely of current expenditure.
5.7. Linkages
The innovative activities of a firm partly depend on the variety and structure of its links to sources
of information, knowledge, technologies, practices, and human and financial resources. Each
linkage connects the innovating firm to other actors in the innovation system: government
laboratories, universities, policy departments, regulators, competitors, suppliers, and customers.
Innovation surveys can obtain information on the prevalence and importance of different types of
linkages, plus the factors that influence the use of specific linkages.
Types of external linkages:
• Open information sources provide openly available information that does not require the
purchase of technology or intellectual property rights, or interaction with the source.
• Acquisition of knowledge and technology are purchases of external knowledge and capital
goods (machinery, equipment, software) and services embodied with new knowledge or technology
that do not involve interaction with the source.
• Innovation co-operation is active co-operation with other firms or public research
institutions for innovation activities (which may include purchases of knowledge and technology).
•
6. Adoption of Innovations and Technology
6.1. Diffusion of innovations
Diffusion is the process by which an innovation is communicated through certain channels over
time among the members of a social system (5). Given that decisions are not authoritative or
collective, each member of the social system faces his/her own innovation-decision that follows a 5-
step process:
1) Knowledge – person becomes aware of an innovation and has some idea of how it
functions,
2) Persuasion – person forms a favorable or unfavorable attitude toward the innovation,
3) Decision – person engages in activities that lead to a choice to adopt or reject the
innovation,
4) Implementation – person puts an innovation into use,
5) Confirmation – person evaluates the results of an innovation-decision already made.
Diffusion scholars divide this bell-shaped curve to characterize five categories of system member
innovativeness, where innovativeness is defined as the degree to which an individual is relatively
earlier in adopting new ideas than other members of a system. These groups are: 1) innovators, 2)
early adopters, 3) early majority, 4) late majority, and 5) laggards.
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Innovators are venturesome types that enjoy being on the cutting edge. The innovation’s possible
benefits make it exciting; the innovators imagine the possibilities and are eager to give it a try. The
implementation and confirmation stages of the innovators’ innovation-decisions are of particular
value to the subsequent decisions of potential adopters.
Early adopters use the data provided by the innovators’ implementation and confirmation of the
innovation to make their own adoption decisions. If the opinion leaders observe that the innovation
has been effective for the innovators, then they will be encouraged to adopt. This group earns
respect for its judicious, well-informed decision-making, and hence this group is where most
opinion leaders in a social system reside. Much of the social system does not have the inclination
or capability to remain abreast of the most recent information about innovations, so they instead
trust the decisions made by opinion leaders. Additionally, much of the social system merely wants
to stay in step with the rest. Since opinion leader adoption is a good indicator that an innovation is
going to be adopted by many others, these conformity-loving members are encouraged to adopt.
So a large subsection of the social system follows suit with the trusted opinion leaders. This is the
fabled tipping point, where the rate of adoption rapidly increases. The domino effect continues as,
even for those who are cautious or have particular qualms with the innovation, adoption becomes a
necessity as the implementation of the innovation-decisions of earlier adopters result in social
and/or economic benefit. Those who have not adopted lose status or economic viability, and this
contextual pressure motivates adoption.
The last adopters, laggards, can either be very traditional or be isolates in their social system. If
they are traditional, they are suspicious of innovations and often interact with others who also have
traditional values. If they are isolates, their lack of social interaction decreases their awareness of
an innovation’s demonstrated benefits. It takes much longer than average for laggards to adopt
innovations.
So we have seen potential adopters’ uncertainty about an innovation is assuaged through a stepwise
social process. The tipping point is marked by opinion leader adoption. Well-informed opinion
leaders communicate their approval or disapproval of an innovation, based on the innovators’
experiences, to the rest of the social system. The majority responds by rapidly adopting. This
analysis suggests that the spread of an innovation hinges on a surprisingly small point: namely,
whether or not opinion leaders vouch for it.
6.2. Technology life-cycle
The TLC may be seen as composed of four phases:
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The research and development (R&D) phase (sometimes called the "bleeding edge") when
incomes from inputs are negative and where the prospects of failure are high
The ascent phase when out-of-pocket costs have been recovered and the technology begins to
gather strength by going beyond some Point A on the TLC (sometimes called the "leading edge")
The maturity phase when gain is high and stable, the region, going into saturation, marked by M,
and
The decline (or decay phase), after a Point D, of reducing fortunes and utility of the technology.
6.3. Factors that influence adoption of innovation
The result was a set of five factors identified as essential influencers in our decision to adopt or
reject new ideas: relative advantage, compatibility, complexity, trialability, and observability.
1. Relative Advantage is the degree to which an idea or product is perceived as better than the
existing standard. Just how much of an improvement is it over the previous generation? The higher
the Relative Advantage, the greater the chance of adoption. Relative Advantage is what most people
think of when they visualize something being “innovative.”
2. Compatibility. How easily can I use my past experience to understand how this new product
functions or what this new work means? The higher the similarity with existing norms, the better
the chances of adoption. Ideas and people that miss the Compatibility factor are often described as
“ahead of their time.” The higher the similarity with existing norms, the better the chances of
adoption.
3. Complexity (or simplicity) is how easy it is for people to understand the new idea or use the
new product. Is this idea a simple extension of logic? Is it an easy-to-use product? If the work or
product is seen as highly complex or difficult to grasp, people will shy away from engaging with the
product or adopting the idea.
.4. Trialability. How effortless it is for the target audience to interact with the new concepts or
experiment with the product? How easily can they try it out? The more potential users or patrons
can test the product or view the work, the more likely individuals will adopt it.
5. Observability is the noticeable results of trying or consuming the idea. When new products are
highly visible, it drives more people to share it and increases the likelihood of mass adoption.
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6.4. Technology s-curve innovations
The shape of the technology lifecycle is often referred to as S-curve. S-curves visually depict how
a product, service, technology or business progresses and evolves over time. S-curves can be
viewed on an incremental level to map product evolutions and opportunities, or on a macro scale to
describe the evolution of businesses and industries. On a product, service, or technology level, S-
curves are usually connected to “market adoption” since the beginning of a curve relates to the birth
of a new market opportunity, while the end of the curve represents the death, or obsolescence of the
product, service, or technology in the market. Usually the end of one S-curve marks the emergence
of a new S-curve – the one that displaces it (e.g., video cassette tapes versus DVDs, word
processors versus computers, etc.). Some industries and technologies move along S-curves faster
than others. High tech S-curves tend to cycle more quickly while certain consumer products move
more slowly.
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6.5. New Product Development
• Idea Generation and Screening
• Concept Development and Testing
• Marketing Strategy
• Business Analysis
• Product Development
• Test Marketing
• Commercialization
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Idea funnel
6.6. Internal Corporate Venturing
Innovation is necessary but not sufficient condition to competitive success
Need processes and structures in place so that the firm can successfully implement the outcomes of
internal corporate ventures is as crucial as the actual innovations themselves
Two types
• Autonomous Strategic Behavior
• Induced Strategic Behavior