Module 1: A look at Competition and Product Strategy

“Business has only two basic functions – marketing and innovation. “ (Peter Drucker)

Introduction:

In commerce, as in life, the primary and basic objective is to survive. In a volatile and turbulent
environment survival will only be achieved by the fittest and most flexible organizations able to
adapt to the changes confronting them. To survive one must compete, and the purpose of this
course is to show why product strategy is fundamental to a firm’s competitiveness and how
product strategy and management can achieve this.

Objectives:
 Understand the forces which have given rise to intense, global competition;
 Explain why marketing is an important source of competitive success;
 Appreciate and be able to account for the process of evolutionary change and the life cycle
phenomenon;
 Define the forces that drive competition; and
 Know how the innovation process has evolved

THE EMERGENCE OF GLOBAL COMPETITION

Competition is the process by which the “invisible hand” of the market seeks to solve the basic
economic problem of maximizing satisfaction from the consumption of scarce resources. Since
the beginning of time the greatest challenge facing humanity has been the management of
scarcity – the ability to exercise a degree of control over an often hostile environment and so
secure physical survival. Through organizational innovation (task specialization and division of
labor), social innovation (the establishment of markets and exchange) and technological
innovation (the harnessing of energy, creation of tools, etc.) history is an almost continuous
record of progress to the achievement of this ultimate goal – the elimination of want.

The first manifestation of the problems which accompany excess supply (or lack of demand)
was the world-wide depression of the 1920s and 1930s. Then, as now, numerous solutions,
fiscal and economic were proposed to alleviate the problem but, in retrospect it was
rearmament and the outbreak of war which solved the problem of unemployment and under-
utilized manufacturing capacity. Following the war, reconstruction and the satisfaction of
deferred consumer demand was sufficient to keep the major industrial economies fully
occupied, at least until 1950s when supply began to exceed demand, yet again.

WHAT LINKS COMPETITIVENESS, MARKETING AND PRODUCT STRATEGY

The essence or concept of marketing is concerned with mutually satisfying exchange

relationships’ – the idea that two parties can enter freely into an exchange of objects (services)
of commercial value in such a way that it will enhance the value for both of them. Indeed, if this
were not the case the exchange would not occur as there would be no purpose or logic to it.
But, while the mutual satisfaction is the ultimate objective, the interests of one party must
determine the courses of action open to another.

Man has unlimited wants and needs and this is brought about by the fact that human wants
and needs changes overtime. For producers this means that they must continuously develop
new products and processes, because otherwise any competitive advantage they possess will
be eroded by other organizations which seek new and improved ways of satisfying the
customer’s wants and needs.

MARKETING AND COMPETITIVE SUCCESS

Environmental Factors
Factors Influencing Competitive Success
e.g. *rate of
technological change
*nature of
Organizational competition Strategic Factors
Factors * intensity of e.g. *long term
e.g. *size competition objectives
*structure *strategic time
* culture
Marketing Factors horizon
e.g. **use
manufacturing
of market * product
Managerial Factors
capability
research market strategy
e.g. *communication
*customer *attitude
service * leadership
* product style
quality
BUSINESS
PERFORMANCE

At a strategic level, the factors that seem to distinguish between above and below average
companies: a long term approach, specific strategic objectives, linking strategic plans closely
w/ changes in markets, and a continuous commitment to new product development are all n
At the tactical level, market research, market segmentation and certain promotional
techniques are more common in successful companies.
In order to sustain and improve the competitive edge managers seek information and advice on
best practice and try to incorporate it in their planning and execution. Ultimately, it is clear that
it is the quality of implementation that differentiates most between more or less successful
competitors. But is important to emphasize that the quality of implementation will become
determinant only provided that the initial analysis and planning is of equivalent quality. It is
only when one has taken full advantage of the analytical procedures and techniques described
in the managerial literature that the quality of implementation will become important.
Otherwise, an excellent plan executed by an average management will always out-perform a
below-average or nonexistent plan executed by above-average managers.

ENVIRONMENTAL CHANGE

While it has become almost a cliché to speak of turbulence in the environment, accelerating
technological change and global competition, many observers “throw away” these phrases w/o
offering any evidence to support their claim, nor any explanation of what underlies these
changes.

Some says that the underlying assumptions to environmental changes are that demand will
increase exponentially while supply will not grow as fast or, if we are dealing with a non-
renewable resource, will not grow at all. The reality is almost opposite. All demand is ultimately
driven by population, and in the past, population has tendered to grow exponentially – until it
catches up with or overtakes the available supply. In less developed countries the absence of
population control frequently results in Malthusian checks coming about. Elsewhere, social and
political influence has broken the exponential growth cycle and population growth has slowed
or stabilized.

By contrast the creation of supply through technological innovation is an exponential growth

process, and we appear currently to be on an upward swing so that the acceleration implicit in
such processes has become easily discernible. Every advance in computer hardware and
software greatly increases our ability to innovate in other areas, especially in manufacturing
industry on which we depend on physical products and the greater part of our service
infrastructure – buildings, transport, and communication.

Industrial Era Information Era

Standardization Customization
Centralization Decentralization
Dependence Self-help
Transportation Communication
Autocracy Participation
Hierarchy Network
Information Scarcity Information overload
Domain of Marketing
Past Future
Demographics Psychographics
Individualism Community
Status Objects Status Activities
Consumer Co-Author
Message Dialogue
Corporation Cooperation
Transaction Transformation
Brand Image Brand Culture
Segmentation Integration
Destination Journey

LIFE CYCLE ANALYSIS

Historical analysis lends considerable support the view that human progress has proceeded in a
series of evolutionary cycles. Each or these cycles appears to have initiated by some kind of
social or technological innovation which gave impetus to a significant step forward in people’s
control over their environment and general standard of living.

In and of itself, however, each successful innovation appears to share some common
characteristics whose existence has prompted the analogy with the biological life cycle. At birth
an innovation’s prospects of survival are slim (many if not most new products fail) and the
progress or growth of the innovation is hardly perceptible. If, however, the innovation survives
infancy then it is likely to experience a period of rapid growth until it approaches its full
potential. As this occurs growth slows down and a period of maturity sets in. Inevitably,
maturity will move into decline, slowly at first but then with gathering momentum until the
innovation “dies” or ceases to exist in any meaningful way. If we plot these phases then a curve
similar to that in Figure 1 will be seen – a skewed version of the normal distribution.

Figure 1: Product Life Cycle

 Sales and
Profits ($)

Profits

Product Introduction Growth Maturity

Develop-
ment

Losses/
Investments ($)

The value of the life cycle concept is the insight it offers into the process of evolutionary
change. It also offers an insight into the fact that competition from something new or an
apparent limit to growth does not automatically lead to decline. As a phenomenon (new
product, new species) approaches a limit to growth it begins to exhibit what has been described
as hunting behavior as it seeks to find a way round the barrier. This hunting behavior creates
turbulence – a familiar word in the description of competition. Three possible outcomes are
possible:

1. The phenomenon cannot find a way round the barrier and goes into decline.
2. The phenomenon adjust to the barrier and establishes an equilibrium (extended
maturity) .
3. The phenomenon finds a way forward and initiates a new growth phase.

MANAGING COMPETITION: PRODUCT STRATEGY IS CENTRAL

The Nature of Competition

Michael Porter distinguishes five basic forces which govern competition in an industry – the
threat of new entrants, the threat of substitution, the bargaining power of suppliers, the
bargaining power of customers, and rivalry between current competitors – and depicts their
interaction as in Figure 3. Porter describes the key features of these five forces along the
following lines.
Figure 3: Porter’s Five Forces Analysis

The Threat of New Entrants

Freedom of entry to an industry is widely regarded as a key indicator of an industry’s

competitiveness such that, in the case of monopoly, by definition no other firm can enter, while
in the case of perfect competition there are no barriers to entry. From the firm’s viewpoint the
greater the barriers to entry the less the threat from new competitors and the more secure its
own position.

7 Major Barriers to Entry

a. Economies of Scale
b. Product Differentiation
c. Capital Requirements
d. Switching Costs b
e. Access to distribution channels
f. Cost disadvantages independent of scale
g. Government Policy

The Threat of Substitution

As Porter notes: “Identifying substitute products is a matter of searching for other products that
can perform the same function as the product of the industry”, a point which underlies our
assertion that if your product is sufficiently differentiated to be perceived as unique by a
sufficient number of users to comprise an economically viable market then the threat of
competition is latent rather than active. Given such a position the danger lies in complacency,
for a change is inevitable, if only because the act of consumption will change the consumers
and so make them susceptible to improved products.

The Bargaining Power of Suppliers

According to Porter a supplier group is powerful if the following apply:

 It is dominated by a few companies and is more concentrated than the industry it sells
to.
 It is not obligated to contend with other substitute products for sale to the industry.
 The industry is not an important customer of the supplier group.
 The supplier’s product is an important input to the buyer’s business.
 The supplier group’s products are differentiated or it has built up switching costs.
 The supplier group poses a credible threat of forward integration.

Porter also makes the important point that “labor must be recognized as a supplier as well, and
one that exerts great power in many industries”.

The Bargaining Power of Customers

Many of the factors which apply here are corollaries of those cited as applying to the power of
suppliers. Eight specific conditions are proposed by Porter where a buying group will exercise
power:

 The buyer is group is concentrated or purchases large volumes relative to seller sales,
eg. The multiple grocery chains like Wal-Mart, SM, Target
 The product it purchases from the industry represents a significant fraction of the
buyer’s costs or purchases.
 The products it purchases from the industry are standard or undifferentiated, eg. Basic
chemicals, steel, aluminum
 It faces few switching costs.
 It earns low profits, i.e. it will be active in seeking cost reductions in bought-in supplies.
 Buyers pose a credible threat of backward integration.
 The industry’s product is unimportant to the quality of the buyers’ products or services,
eg. Most packaging materials
 The buyer has full information.

Rivalry between current competitors

‘Jockeying for position’ is the phrase which Porter uses to describe the tactical moves employed
by firms to seek an advantage over their competitors. Clearly, the greater the degree of
skirmishing between the rivals the more active and volatile is the competitive state. The
intensity of this rivalry is a function of numerous factors, of which Porter distinguishes eight:

 Numerous or equally balanced competitors (a basic condition for a state of perfect

competition).
 Slow industry growth, eg. Retail food sales.
 High fixed or storage costs. On this point Porter makes the important observation that
‘the significant characteristics of costs is fixed costs relative to value added [emphasis
ours], and not fixed costs as a proportion of total costs’.
 Lack of differentiation or switching costs.
 Capacity augmented in large increments, eg. Steel, shipbuilding.
 Diverse competitors – particularly international rivals.
 High strategic stakes.
 High exit barriers, eg. Specialized assets w/ low liquidation values, redundancy costs,
social implications, etc.

Porter Comments:
When exit barriers are high, excess capacity does not leave the industry, and companies that
lose the competitive battle do not give up. Rather, they grimly hang on and, because of their
weakness, have to resort to extreme tactics. The profitability of the entire industry can be
persistently low as a result, eg. the world of automobile and steel industries.

From this brief summary of the forces w/c influence competition, it is clear that differentiation
is a major source of competitive advantage. Indeed, for the vast majority of all firms in all
industries it is the only basis for survival in the long run.

Strategic Options

Growth Vector Matrix

Igor Ansoff introduced the idea of the growth vector matrix as shown in Figure 4, to help firms
to analyze their strategic options to stay in their industries competitively. As can be seen from
this diagram, the vertical axis is labeled Mission and the horizontal axis Product, and only two
states – Present and New – are recognized for each dimension or axis. From this simple 2 x 2
matrix four possible strategies are identified.
1. Market Penetration: the company seeks increased sales for its present products in its
present markets through more aggressive promotion and distribution.
2. Market development: the company seeks to increased sales by taking its present products
into new markets.
3. Product development: the company seeks increased sales by developing improved
products for its present markets.
4. Diversification: the company seeks increased sales by developing new products for new
markets.

Clearly, the latter two strategies depend directly on product innovation and the former
two on marketing (or process) innovation. The growth vectors are determined by the two basic
forces of supply and demand, or technology and customers.
One of the features which distinguished more successful from less successful firms was
that fact that rather than regarding these alternative strategies as being mutually exclusive the
successful companies were pursuing strategies of penetration, market and product
development simultaneously. Further, as a consequence of developing both new products and
markets, the successful firms were also diversifying. Irrespective of what strategy or strategies a
firm is pursuing, its basic aim is the same – to create and maintain a sustainable differential or
competitive advantage.

Marketing Mix Strategies

As a competitive advantage is a benefit perceived by a customer there is an infinite variety of

sources. However, for the purposes of analysis it is useful to regard competitive advantage as
arising from one or other of two basic sources – cost leadership and differentiation.

Table 1. Marketing Mix Strategies

Strategy Product Price Distribution Promotion

 (Place)
Undifferentiated Standardized Low Intensive Mass
(Cost Leadership)
Differentiated Different for each What the market Extensive Targeted by
market segment will bear segment
Concentrated Customized Premium Highly selective Direct
(Focus)

Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given level of
quality. The firm sells its products either at average industry prices to earn a profit higher than
that of rivals, or below the average industry prices to gain market share. In the event of a price
war, the firm can maintain some profitability while the competition suffers losses. Even without
a price war, as the industry matures and prices decline, the firms that can produce more
cheaply will remain profitable for a longer period of time. The cost leadership strategy usually
targets a broad market.

Some of the ways that firms acquire cost advantages are by improving process efficiencies,
gaining unique access to a large source of lower cost materials, making optimal outsourcing and
vertical integration decisions, or avoiding some costs altogether. If competing firms are unable
to lower their costs by a similar amount, the firm may be able to sustain a competitive
advantage based on cost leadership.

Firms that succeed in cost leadership often have the following internal strengths:

 Access to the capital required making a significant investment in production assets; this
investment represents a barrier to entry that many firms may not overcome.
 Skill in designing products for efficient manufacturing, for example, having a small
component count to shorten the assembly process.
 High level of expertise in manufacturing process engineering.
 Efficient distribution channels.

Each generic strategy has its risks, including the low-cost strategy. For example, other firms may
be able to lower their costs as well. As technology improves, the competition may be able to
leapfrog the production capabilities, thus eliminating the competitive advantage. Additionally,
several firms following a focus strategy and targeting various narrow markets may be able to
achieve an even lower cost within their segments and as a group gain significant market share.

Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers unique
attributes that are valued by customers and that customers perceive to be better than or
different from the products of the competition. The value added by the uniqueness of the
product may allow the firm to charge a premium price for it. The firm hopes that the higher
price will more than cover the extra costs incurred in offering the unique product. Because of
the product's unique attributes, if suppliers increase their prices the firm may be able to pass
along the costs to its customers who cannot find substitute products easily.

Firms that succeed in a differentiation strategy often have the following internal strengths:

 Access to leading scientific research.

 Highly skilled and creative product development team.
 Strong sales team with the ability to successfully communicate the perceived strengths
of the product.
 Corporate reputation for quality and innovation.

The risks associated with a differentiation strategy include imitation by competitors and
changes in customer tastes. Additionally, various firms pursuing focus strategies may be able to
achieve even greater differentiation in their market segments.

Focus Strategy

The focus strategy concentrates on a narrow segment and within that segment attempts to
achieve either a cost advantage or differentiation. The premise is that the needs of the group
can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a
high degree of customer loyalty, and this entrenched loyalty discourages other firms from
competing directly.

Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and
therefore less bargaining power with their suppliers. However, firms pursuing a differentiation-
focused strategy may be able to pass higher costs on to customers since close substitute
products do not exist.

Firms that succeed in a focus strategy are able to tailor a broad range of product development
strengths to a relatively narrow market segment that they know very well.

Some risks of focus strategies include imitation and changes in the target segments.
Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order
to compete directly. Finally, other focusers may be able to carve out sub-segments that they
can serve even better.

A Combination of Generic Strategies - Stuck in the Middle?

These generic strategies are not necessarily compatible with one another. If a firm attempts to
achieve an advantage on all fronts, in this attempt it may achieve no advantage at all. For
example, if a firm differentiates itself by supplying very high quality products, it risks
undermining that quality if it seeks to become a cost leader. Even if the quality did not suffer,
the firm would risk projecting a confusing image. For this reason, Michael Porter argued that to
be successful over the long-term, a firm must select only one of these three generic strategies.
Otherwise, with more than one single generic strategy the firm will be "stuck in the middle" and
will not achieve a competitive advantage.

Porter argued that firms that are able to succeed at multiple strategies often do so by creating
separate business units for each strategy. By separating the strategies into different units
having different policies and even different cultures, a corporation is less likely to become
"stuck in the middle."

However, there exists a viewpoint that a single generic strategy is not always best because
within the same product customers often seek multi-dimensional satisfactions such as a
combination of quality, style, convenience, and price. There have been cases in which high
quality producers faithfully followed a single strategy and then suffered greatly when another
firm entered the market with a lower-quality product that better met the overall needs of the
customers.

PRODUCT STRATEGY AND MANAGEMENT

Product diversification is currently the center of widespread executive interest as a means of

market adjustment. Product development and innovation have always been major facets of
competitive rivalry, but the present dynamic quality of the economy is particularly
characterized by an expanding frontier of new products, acquisitions, and mergers.

Management today must be unusually alert in finding effective strategy and

adjustments to keep pace with fluctuations in the business cycle, changes in demand, and an
ever-increasing rate of technological development. These conditions have been manifested in
an accelerated rate of product displacement and less resistance to change on the part of
consumers and industrial purchasers. Product diversification has consequently been called
upon successfully by many executives to meet the challenge of a changing industrial
environment.

Reasons for Product Diversification

a. Survival
b. Stability
c. Productive utilization of resources
d. Adaptation to changing customer needs
e. Growth

Having identified a need to do product diversification, firms must adopt an organized

and systematic approach to product development. The basic elements of a sound program for
product diversification consist of five steps:
 1. A clear definition of objectives.
2. An analysis of the diversification situation in the light of present operations.
3. An audit of the tangible and intangible corporate resources for diversification.
4. Establishment of specific criteria for new products in line with the three preceding
points.
5. A comprehensive search for products and their evaluation against the criteria.

It must be noted that in product diversification, companies must start from inside the
organization and work outwards. The clue to successful formulation of objectives is to think in
terms of what the company can accomplish through the use of its resources rather than in
terms of what products it may happen to find.

5 Basic Strategies for Competing through Products

1. Competing through product proliferation is the name of the game for Rubbermaid in
plastic housewares, Casio and Hewlett Packard in pocket calculators, Honda in
motorcycles, and Sony in portable audio equipment. This high-risk, high-reward strategy
lets these companies offer customers the broadest choice, deliberately choking
competitors out of the market through an avalanche of new products. They have
learned how to blanket the market with products tailored to serve the needs of each
customer group or application within it. Just as importantly, they know how to do it
economically – in other words, without letting their product diversity grow out of
control, beyond the capacity of their resources to support it.
2. Competing through value typifies Toyota, particularly with its Lexus luxury division;
Maytag in domestic appliances; and Ikea, the Swedish home furnishings enterprise, in
furniture. These companies are outperforming their competitors by offering superior
quality at affordable prices.
3. Competing through design makes companions of Harley-Davidson in motorcycles, Sony
in consumer electronics, and Braun in small domestic appliances. They have built their
images and price premiums by delighting their trendy, lifestyle-conscious customers
with eye-pleasing design.
4. Competing through innovation characterizes 3M in adhesive- and film-based products
and Sony and Philips in consumer electronics. They all fuel their growth by introducing
one new product concept after another.
5. Competing through service is the winning strategy for elevator companies such as Otis
and Schindler. Service is actually so important for them as a source of revenues and for
their customers that they have developed proprietary service management systems to
protect their bases of installed elevators from the intrusion of service pirates,“ i.e.,
companies trying to service other manufacturers’ elevators.

THE PROCESS OF INNOVATION

Innovation is widely recognized by industry and academics as an essential competitive enabler

for any enterprise that wants to remain competitive and survive and grow.
The dominance of mankind over all other species is largely attributable to our ability to
innovate and develop new, more efficient and more effective ways of doing things. 90% of all
economic growth was attributable to innovation and no one has challenged its importance as
the main driver of human progress. However, in the 1960s innovation was seen essentially as
the consequence of technology push and it is only in the past forty years or so that the other
approached has evolved.

Technology push (1G)

Figure 4: First Generation Innovation Process

From 1950 to the mid-1960’s, fast economic growth allowed for a strong ‘technology push’ and
industrial expansion in the Western world and in Japan. Companies focused predominantly on
scientific breakthroughs, or a “more R&D in, more new products out” approach. Science and
technology were seen to have the potential for solving society’66s greatest ills. Research &
Development was considered as corporate overhead and relegated to an ivory tower position
with little or no interaction with the rest of the company.

Technology push views the innovation process as simple linear and sequential with emphasis on
R&D. The market is seen as a receptacle of the results of R&D activity. Or in other words, this is
a supply side approach of the innovation process.

This 1G model, however, incorporates market information very late in the process, so that
commercial applications are often merely technical inventions and therefore often not adopted
to the market.

Market pull (2G)

Figure 5: Second Generation Innovation Process

The mid 1960’s to early 1970 were characterized by a ‘market shares battle’ with increased
competition that induced companies to shift their development focus to a ‘need pull’. During
this period of intensifying competition, investment emphasis began to switch from new product
and related expansionary technological change towards rationalization technological change
(see e.g. Mensch et al., 1980). The central focus became responding to the market’s needs.
Cost-benefit analyses were made for individual research projects including systematic allocation
and management of resources. Stronger connections were initiated between R&D and
operating units by including product engineers in scientist run research teams in order to
decrease time to market.

Market pull views innovation, again, as simple, linear and sequential, but now with emphasis on
the market. The market is the source of ideas to direct R&D which plays a reactive role.
Demand side factors replace the supply side approach of the 1G model.

A major disadvantage of the 2G models is that there is too much emphasis on market-driven
improvements of existing products (optimization), resulting in a large variety of short-term
projects.

Coupling of R&D and marketing (3G)

From the mid-1970 to the mid-1980, rationalization is necessary under the pressure of inflation
and stagflation. The strategic focus was on corporate consolidation and resulted in product
portfolios. Companies moved away from individual R&D projects. Marketing and R&D became
more tightly coupled through structured innovation processes. Operational cost reduction was
a central driver behind this ‘coupling model’.

Technological innovation comes from the coupling of markets needs and technological
opportunities. It is understood that innovation is rarely the result of pure technology push or
market pull forces, but rather the result of the matching and combination of the two. The
process is still sequential but with feedback loops. R&D and marketing play a balanced role. The
emphasis is given to the interface between the two.

According to Berkhout (2006), third-generation models can be seen as ‘open R&D models’,
emphasizing product and process innovation (technical), and neglecting organizational and
market innovations (non-technical). This means that 3G innovation models tend to focus on the
company’s new technological capabilities rather than including solutions for institutional
barriers and societal needs.

Figure 6: Third Generation Innovation Process

Integrated business processes (4G)

When the Western economy recovered from the early 1980’s to the mid-90, the central theme
became a ‘time-based struggle’ as product life cycles shortened. The focus was on integrated
processes and products to develop ‘total concepts’. The innovation process moved from
sequential shifting from function to function, to innovation as a parallel process of
development, together with integration within the company, upstream with key suppliers and
downstream with leading customers.

There is more emphasis on the role of feedback and the non-sequential, messy character of the
innovation process. Innovation is also by definition, cross functional, and R&D is just one of the
functions involved in the innovation process. The fourth generation integrated model
emphasizes on the concurrent learning with customers and suppliers.

Figure 7: Fourth Generation Innovation Process

This representation of fourth generation focuses essentially on the two primary internal
features of the process, i.e. its parallel and integrated nature. Around this in practice is the web
of external interactions represented in the third generation process (see representation 3G
model).

System integration and networking (5G)

Figure 8: Fifth Generation Innovation Process

Finally, from the 1990’s onwards, resource constraints became central. As a result, the focus
was on systems integration and networking in order to guarantee flexibility and speed of
development. Business processes were automated through enterprise resource planning and
manufacturing information systems. Advanced strategic partnerships were setup as well as
collaborative marketing and research arrangements such as ‘open innovation’.
The fifth-generation process resembles networking processes similar to those of the fourth-
generation IP, with one major addition − the time/cost tradeoff. Being a “fast innovator” is seen
increasingly as an important factor determining a company’s competitiveness, especially in
areas where rates of technological change are high and product cycles are short. Accelerated
innovation however increases the development cost (see Rothwell, 1994 for more details)

The 5G model emphasizes also the vertical linkages with suppliers and customers along the
whole innovation process (e.g. suppliers are involved in the co-development of new products,
and/or share the technical systems used for it), and the horizontal linkages take place in a
variety of forms (joint ventures, consortia, alliances, etc.). As Rothwell (1994) states, “many of
the features of 5G are already in place in innovators that have mastered the 4G process;
parallel and integrated operations, flatter structures, early and effective supplier linkages,
involvement with leading customers and horizontal alliances. The most radical feature of 5G is
the use of a powerful electronic toolkit to enhance the efficiency of these operations. While
electronic measuring and computational devices and analytical equipment have for many years
been important aspects of industrial innovation, 5G represents a more comprehensive process
of the electronification of innovation across the whole innovation system.”

Unlike the earlier generations, the latter two generations (4G and 5G) emphasize that
technological innovation is not sequential, but cross-functional by nature and often multi-actor.