Profiting from technological innovation

Profiting from technological innovation

1. Structure

   • Objectives
     • explain why innovating firms often fail to obtain significant economic returns from an innovation
       • while customers, imitators and other industry participants benefit
       • Important factor: business strategy
         • particularly as it relates to the firm's decision to integrate and collaborate
     • The aim of this article is to explain why a fast second or even a slow third might outperform the innovator
   • Research Problems
     • when imitation is easy, markets don't work well, and the profits from innovation may accrue to the owners of certain complementary assets, rather than to the developers of the intellectual property
     • innovators with new products and processes which provide value to consumers may sometimes be so ill positioned in the market that they necessarily will fail
   • Main findings
     • Innovating firms without the requisite manufacturing and related capacities may die
       • even though they are the best at innovation
     • If there are innovators who lose there must be followers/imitators who win
     • However, as the terms of competition begin to change, and prices become increasingly unimportant, access to complementary assets becomes absolutely critical.
   • Contributions
     • framework
       • - identifies the factors which determine who wins from innovation: the firm which is first to market, follower firms, or firms that have related capabilities that the innovator needs. - explaining the share of the profits from innovation accruing to the innovator compared to its followers and suppliers
   • Questions adressed
     • What determines the share of profits captured by the innovator?.

2. Concepts

   • Types os firms
     • first firm to market
     • follower firms
       • - may or may not be imitators in the narrow sense of the term, although they sometimes are.
     • firms that have releated capabilities that the inovator needs
   • three fundamental building blocks
     • appropriability regime
       • environmental factors, excluding firm and market structure, that govern an innovator's ability to capture the profits generated by an innovation.
     • complementary assets
       • In almost all cases, the successful commercialization of an innovation requires that the know-how in question be utilized in conjunction with other capabilities or assets. Services such as marketing, competitive manufacturing, and after-sales support are almost always needed.
       • generic
       • specialized
       • cospecialized
     • dominant design paradigm
       • The emergence of a dominant paradigm signals scientific maturity and the acceptance of agreed upon "standards" by which what has been referred to as "normal" scientific research can proceed.
       • preparadigmatic stage of an industry
         • Competition amongst firms manifests itself in competition amongst designs, which are markedly different from each other
       • examples
         • The Model T Ford, the IBM 360, and the Douglas DC-3 are examples of dominant designs in the automobile, computer, and aircraft industry respectively
   • Implications for profitability
     • Tight appropriability regimes
     • Weak appropriability
       • Preparadigmatic phase
         • the innovator must be careful to let the basic design "float" until sufficient evidence has accumulated that a design has been delivered which is likely to become the industry standard.
       • Paradigmatic stage
         • In the preparadigmatic phase, complementary assets do not loom large. Rivalry is focused on trying to identify the design which will be dominant. Production volumes are low, and there is little to be gained in deploying specialized assets, as scale economies are unavailable, and price is not a principal competitive factor
   • Channel Strategy Issues
     • Contactual Modes
     • Integration Modes
       • Integration, which by definition involves ownership, is distinguished from pure contractual modes in that it typically facilitates incentive alignment and control.