Technology Innovation

José Ramón Álvarez Bada

Module 5. Technology innovation from the business perspective

INTRODUCTION

It has already been seen that innovation, in its different forms, has an impact on the lives of people
and their communities that transcends the economic and social aspects. All in all, it is a fact that these
two aspects are those in which one usually thinks when pondering the effects of innovation. The
fundamental objectives of a private company are to survive and stay profitable. If it does not remain
profitable, it will hardly last for a long time: the owners or the employees will prefer to dedicate
themselves to more alluring activities, if they can. And to be profitable, there must be markets that
are willing to buy the company’s products or services at prices that allow them to compensate costs
(i.e., pay the bills) and generate dividends.

For many companies, technology represents the opportunity to produce new and better goods or
services at a lower cost, allowing the using organization to generate economic benefits and increase
market share. Public-sector companies and non-profit, non-governmental organizations can also
benefit from the appropriate use of technology, even if they do not face a competitive environment.
If technologically-savvy organizations become more efficient, they can achieve their objectives or
comply with their missions with fewer resources and in less time. In the specific case of for-profit
companies, there is even a certain urgency to remain at the forefront of technology in their expertise
areas as market competition gets tougher. Moreover, existing products become obsolete as the
product life-cycles shorten, which leads to significant changes in the competitive landscape. The
survival of many companies depends on the proper use they make of technology to produce goods
and services that their customers prefer over those by their rivals.

In short, the business strategy (that is, the decision-making process that determines those actions that
the company must carry out to remain competitive) should incorporate aspects related to innovation
in general and technological innovation in particular. Doing it the right way is not easy, as shown by
the large number of companies that, after being leaders in their respective markets, entered a process
of decline eventually leading to bankruptcy, disappearance or absorption by more dynamic
competitors. It is thus convenient to know the main concepts and theories related to the management
of technological innovation and the reasons why some companies lose technological competitiveness
while others remain as leaders of their respective industries for long spans of time.

UNIVERSIDAD ANÁHUAC MÉXICO

School of Engineering
January – May 2018
 Technology Innovation
José Ramón Álvarez Bada

5.1 INNOVATION AND BUSINESS COMPETITIVENESS

When one scrutinizes the history of large corporations, one discovers that, despite their considerable
economic power, many of them are surprisingly fragile: their prominence usually lasts for a short while.
Some companies that have achieved huge revenues and profitability suddenly break down for
unforeseen financial problems. Other companies gradually decline, languishing for years before going
bankrupt or being bought by some rival. Consider some representative companies of the Dow-Jones
Industrial Average (DJIA) index, most of them traded at the New York Stock Exchange:

Year 1928 Year 1976 Year 2017

1 Allied Chemical 3M 3M
2 American Can Allied Chemical American Express
3 American Smelting Aluminium Company Apple
4 American Sugar American Can Boeing
5 American Tobacco B AT&T Caterpillar
6 Atlantic Refining American Tobacco B Chevron
7 Bethlehem Steel Bethlehem Steel Cisco Systems
8 Chrysler Chrysler Coca Cola
9 General Electric Du Pont DowDuPont
10 General Motors Eastman Kodak ExxonMobil
11 General Railway Signal Esmark General Electric
12 Goodrich Exxon/Standard Oil Goldman Sachs
13 International Harvester General Electric The Home Depot
14 International Nickel General Foods IBM
15 Mack Truck General Motors Intel
16 Nash Motors Goodyear Johnson & Johnson
17 North American Inco/International Nickel JPMorgan Chase
18 Paramount Publix International Harvester McDonald's
19 Postum Incorporated International Paper Co. Merck
20 Radio Corporation Johns-Manville Microsoft
21 Sears Roebuck Owens-Illinois Glass Nike
22 Standard Oil Procter & Gamble Pfizer
23 Texas Company Sears Reobuck Procter & Gamble
24 Texas Gulf Sulphur Standard Oil of California Travelers
25 Union Carbide Texaco UnitedHealth Group
26 U.S. Steel Union Carbide United Technologies Corp.
27 Victor Talking Machine United Technologies Corp. Verizon Communications
28 Westinghouse Electric U.S. Steel Visa
29 Woolworth Westinghouse Electric Walmart
30 Wright Aeronautical Woolworth Walt Disney Co.

UNIVERSIDAD ANÁHUAC MÉXICO

School of Engineering
January – May 2018
 Technology Innovation
José Ramón Álvarez Bada

Notice that, of the 30 companies in the 1928 DJIA index, the only one still remaining in full form in the
year 2017 was General Electric, although Standard Oil also participated through Chevron and
ExxonMobil, its “daughter” companies1.

The Dow-Jones Industrial Average, often called the Dow-Jones index, is one of several
indicators that are used to estimate the situation of a group of companies or industries;
in this case, large American companies. Other indices, also used to estimate economic
trends based on the profitability (or rather, stock value) of particular companies, are
NASDAQ (technology companies), DAX (companies listed on the Frankfurt Stock
Exchange, in Germany) and the IPC (companies listed in the Mexican stock market).

The Boston Consulting Group, an American consultancy, applied a survey in 2005 to 940 directors from
940 companies in 68 countries to ask them which was, in their opinion, the most innovative company
in the world. The following results were obtained:

Company % of responses
Apple 24.84
3M 11.77
Microsoft 8.53
GE 8.53
Sony 5.94
Dell 5.62
IBM 5.29
Google 5.18
P&G 4.21
Nokia 4.21
Virgin 4.00
Samsung 3.89
Wal-Mart 3.24
Toyota 3.02
Ebay 2.92
Intel 2.70
Amazon 2.70
Ideo 2.16
Starbucks 2.05
BMW 1.73

1
The antecedents of Chevron and ExxonMobil were subsidiary companies of Standard Oil, the huge oil producing
and refining company founded by John D. Rockefeller in 1870. Under the Sherman Antitrust Act, the American
government prosecuted Standard Oil on charges of monopolistic practices. In 1911, the Supreme Court of the
United States ruled that Standard Oil should be split into several smaller companies. Some of those smaller
companies eventually reconfigured into Chevron, Esso and Mobil. The last two eventually merged in 1999 to
form ExxonMobil.
UNIVERSIDAD ANÁHUAC MÉXICO
School of Engineering
January – May 2018
 Technology Innovation
José Ramón Álvarez Bada

How much will these figures have changed in the intervening years? Why do some companies grow
and then decay? Several studies on corporate resiliency have permitted the formation of some
preliminary answers, based on organization theories developed during the last few decades. The next
sections discuss some of the findings behind these theories.

5.2 THE ORGANIZATIONAL CONTEXT OF TECHNOLOGY INNOVATION

When a company decides to participate in a certain industry, there are several strategic factors to take
into account, as different industries offer different profitability levels. Michael E. Porter, a
management professor at the Harvard Business School, developed a useful model to analyze the forces
affecting available strategic choices for a company at a certain industry. As it turns out, the company’s
rivals or competitors are only one of five factors that determine how profitable the company can be in
such an industry. The bargaining power of suppliers and customers puts a limit on the possible profit
margins. Moreover, the likelihood of new competitors entering this industry also reduces profit
margins, as companies will not want to lure these competitors into a very profitable area. Even the
possibility that some customers may stop purchasing this product to acquire a different product that
gives similar satisfaction (say, chocolate buyers who suddenly switch to vanilla ice cream) may limit
how high a price a company may charge for its product (in this case, chocolate).

UNIVERSIDAD ANÁHUAC MÉXICO

School of Engineering
January – May 2018
 Technology Innovation
José Ramón Álvarez Bada

5.3 INNOVATION AND UNCERTAINTY

Is it worth to invest money, time and other resources in order to bring a new innovation to market?
This is not an easy question. One of the important factors to ponder regards how risky or convenient
it is to be the first who brings an innovation to the market.

Advantages and disadvantages of being the first to reach the market

Advantages:

 Leadership reputation
 Market positioning
 Early access to distribution channels
 Greater influence in the definition of industrial standards and technological platforms
 More time to yield dividends before competitors appear
 Bargaining power with key suppliers
 Barriers to imitation (patents, intellectual property)
 Difficulties for clients or users that may later want to switch to a competing vendor

Being the first to arrive, on the other hand, also has its disadvantages:
 Development costs that also benefit followers and competitors
 Risk of technological discontinuities that displace the current innovation
 Changing needs of customers and users
 Greater uncertainty in predicting demand
 Greater financial risk from capital investments
 Low-cost imitators

5.4 DEVELOPMENT OF INNOVATIVE CAPABILITIES AT ORGANIZATIONS

Most commercial products require, for their production, the collaboration of specialists in various
areas, which should have adequate training to carry out their work. Most manufacturing companies
have suppliers that provide the raw materials and semi-finished products that are needed to
manufacture finished or semi-finished goods. Nevertheless, each company must have the capacity to
make its own contribution to the value chain. This capacity is determined by the talents of its
employees, as well as by the capital assets available to it, and is described in terms of core
competencies.

Core competencies of the organization

The core competencies of a company (cfr. C.K. Prahalad and G. Hamel, “The Core Competence of the
Corporation”, Harvard Business Review, May-June 1990, pp. 79-91) are the differentiating skills, assets,
knowledge and routines that allow a company to maintain a sustainable competitive advantage. There
are three distinctive criteria to know if a corporation’s competence is of the core type or not:
(1) It must provide potential access to one or more markets.

UNIVERSIDAD ANÁHUAC MÉXICO

School of Engineering
January – May 2018
 Technology Innovation
José Ramón Álvarez Bada

(2) It must significantly contribute to the value or benefit perceived by the user of the product
or service.
(3) It must be difficult to imitate by competitors.

5.5 IMPLEMENTATION AND MANAGEMENT OF TECHNOLOGY INNOVATION STRATEGIES

Elements of a plan for the commercialization of technological products

A company that is trying to bring a new product to market should take into account the series of stages
originally proposed by Shreefal S. Mehta in the context of the biomedical and biotechnological
industries (Mehta, 2008). The sequence is yet useful for products and services in other industries as
well. In order to easily remember the stages of the commercialization process, a useful mnemonic
(always beginning with the letter P) is used to describe each stage, followed by a brief explanation and
related aspects:

1) Plan (industrial context): this refers to technological strategy and value chain issues.
2) Position (market research): needs, size and market segmentation; product characteristics
3) Patent (intellectual property rights): intellectual property management; market protection;
technology licensing strategies.
4) Product (new product development): testing, project management, budgeting.
5) Pass (regulatory plan): product approval by the responsible entities (COFEPRIS, DGN, FCC, FDA,
etc.); regulatory strategy.
6) Production (manufacture): production planning.
7) Profits (reinbursement): distribution, sales planning, recovery of investment, coverage,
payments.

5.6 INTELLECTUAL PROPERTY MANAGEMENT

When an innovator develops a new device, or a new process for manufacturing a product or providing
a service, he expects some benefits to compensate for the work, intelligence and investments that
permitted the innovation. The expected gains typically include both profit and public recognition, but
may also include other tangible or nontangible factors.

If the government of a certain country or region wants to promote investment, it is reasonable for it
to protect the property rights of investors. To the extent that innovation is an investment, the property
rights of innovators is also worth protecting, at least in most advanced societies. These rights are
usually described in terms of intellectual property rights.

Industrial property and copyright

Mexico’s Industrial Property Law considers the following forms of industrial property:
 Patents
 Utility models
UNIVERSIDAD ANÁHUAC MÉXICO
School of Engineering
January – May 2018
 Technology Innovation
José Ramón Álvarez Bada

 Industrial design
 Industrial and technological secrets
 Layout drawings of integrated circuits

Mexican law also protects distinctive signs, such as:

 Brands
 Commercial phrases (i.e., advertising slogans)
 Trade names
 Protected denominations of origin (in Spanish, Denominaciones de Origen)

Copyright is another form of intellectual property protection, typically used to protect, among others:
 Literary works
 Music
 Architectonic, sculptural and/or plastic works

Patents

A patent is a set of exclusive rights, of a non-permanent nature, that a government grants an inventor
so that, for a fixed period of time, he or she can exercise exclusive rights over a certain invention, in
the sense that (cfr., e.g., the Spanish Office of Patents and Brands):
 can monopolistically exploit the invention,
 has exclusive rights to license the use of this invention to other people or organizations, or
 may prevent others from manufacturing, selling or using the invention.

The right granted by a patent is granted in exchange for the inventor publicly revealing the nature of
the invention. After the fixed time period granted by the patent, the invention enters the public
domain and can be used freely by other people besides the inventor.

Industrial secrets

Every organization has information that, for justifiable reasons, does not want to turn into public
knowledge and thus represent corporate secrets. For many companies, customer lists, production
processes, and other forms of implicit or explicit knowledge are sources of competitive advantage that
it is permissible to keep out of the public domain. A particular case of corporate secret is the industrial
secret, which Mexico’s Industrial Protection Law defines as "any industrial or commercial application
of a confidential nature kept by a physical or moral person which means obtaining or maintaining a
competitive or economic advantage with respect to third parties in the realization of economic
activities and for which it has adopted the sufficient means or systems to preserve its confidentiality
and restricted access".

When a new invention or process is developed, is it preferable to patent it or keep it as an industrial

secret? The answer depends on several factors. First of all, there are several arguments to keep the
secret, instead of patenting:

UNIVERSIDAD ANÁHUAC MÉXICO

School of Engineering
January – May 2018
 Technology Innovation
José Ramón Álvarez Bada

 The life of an industrial secret is not limited to the 20 years that a patent typically lasts (or less,
if one takes into account the administrative process for the patent to be granted, and one
considers those products that must also have the required permits to comply with specific
regulations, such as medicines and medical devices).
 Ideas that are not patentable, but that can be kept secret, may be a source of value and
competitive advantage for the company
 The costs of preserving a secret are small compared to the costs of obtaining a patent.

On the other hand, the great risk of not patenting an invention is that, if another company
independently develops the same or a similar invention, or simply discovers the secret in question, all
the advantages of industrial secrecy are lost. Moreover, if the other company patents first, the original
developer may lose the right to profit from the invention.

Utility models

The utility model is a right over intellectual property that "protects inventions with less inventive range
than those protected by patents, such as, for example, giving an object a configuration or structure
from which some utility or practical advantage is derived" (Spanish Office of Patents and Brands).
Unlike industrial design, which emphasizes the aesthetics of its outcomes, utility models emphasize
the practical nature of the products.

Mexican governmental provisions regarding intellectual protection are considered in the next chapter,
including the Industrial Protection Law and the Copyright Law. The Mexican Industrial Property
Institute (in Spanish, Instituto Mexicano de la Propiedad Industrial, or IMPI) will also be considered.

UNIVERSIDAD ANÁHUAC MÉXICO

School of Engineering
January – May 2018