Competitive Advantage in Technology-intensive industries The principal link between technology and competitive advantage is innovation: this is responsible for new industries coning into being and for some firms dominate their industries. The innovation process: while invention is the creation of new products or processes through the development of new knowledge or a combination of existing ones, innovation refers to the commercialization of a single or of many inventions.
Not all inventions lead to innovations, because sometimes they are not commercially viable. Sometimes innovation is introduced in absence of new technologies, rather simply with changes in design. The profitability of Innovation: the profitability of innovation to the innovator depends on the value created by the innovation and the share of that value that the innovator is able to appropriate. The value is typically shared by innovators with customers, suppliers, imitators/followers.
The regime of appropriability describes the conditions that influence the distribution of returns to innovation. In a strong regime, the innovator captures substantial shares of the value, in a weak regime, the value is kept mostly by the others. Property Rights in Innovation: appropriating value depends greatly on the ability to establish property rights; they include Patents, Copyrights, Trademarks, Trade secrets The disadvantage of establishing property rights is that they make information public, hence companies may prefer secrecy to patents.
Tacitness and Complexity of the Technology: the extent to which innovation can be imitated depends by the ease with which the technology can be comprehended and replicated. This depends by: •The level of codifiable knowledge (that can be “written down”); the highest information is codified, the easiest is copying it; •Complexity of the technology: the simplest the technology, the easiest is to copy it. Lead Time: after introducing an innovation, the innovator has a temporary competitive advantage over the others; the time it will take followers to catch up is called innovator’s Lead Time.
Complementary Resources: to make of an invention an innovation, several resources are needed: Competitive manufacturing, Distribution, Service, Finance, Marketing, Complementary Technologies, etc. These are called Complementary Resources; when these resources are supplied by different firms, the division of the value among them depends by their relative power. A key determinant of this is whether the complementary resources are specialized or unspecialized: when complementary resources are generalized, the innovator is in a much stronger position to capture value.
Which mechanisms are effective at protecting innovation? Patent protection is of limited effectiveness as compared with lead-time, secrecy and complementary resources; although patents are effective in increasing the lead time before competitors are able to imitate, these gains are likely to be small. Anyways, some patents are pursued to block potential innovation coming from competitors or to gain a bargaining power with other companies to access their proprietary technologies. Strategies to Exploit Innovation: How and When to Enter
Alternative Strategies to Exploit Innovation LicensingOutsourcing functionsStrategic allianceJoint ventureInternal commercialization Risk and returnLittle investment risk and returns. Risk that licensee lacks motivation or steals the innovationLimits capital investment but may create dependence on suppliers/partnersBenefits of flexibility. Risks of informal structureShares investment and risks. Risk of partner disagreement and culture clashBiggest investment requirement and corresponding risks.
Benefits of control Resource requirementsFewPermits external resources and capabilities to be accessedPermits pooling of the resources and capabilities of more than one firmSubstantial requirements in terms of finance, production capability, distribution, etc. ExamplesEriccson’s bluethoot wireless technologyMicrosoft’s Xbox (designed and manufactured by others)Ballard’s strategic alliance with DaimlerChrysler to develop fuel cellsSymbian (created by Psion, joint venture with Ericcson, Nokia and Motorola)Google (developed and marketed internally)
