Professional Documents
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MANAGING INNOVATION Tidd 194 200
MANAGING INNOVATION Tidd 194 200
strategy are the development and operation of complex information processing systems,
and the development of related and often radically new services.
Specialized supplier firms are generally small, and provide high-performance inputs
into complex systems of production, of information processing and of product devel-
opment, in the form of machinery, components, instruments and (increasingly) soft-
ware. Technological accumulation takes place through the design, building and
operational use of these specialized inputs. Specialized supplier firms benefit from the
operating experience of advanced users, in the form of information, skills and the
identification of possible modifications and improvements. Specialized supplier firms
accumulate the skills to match advances in technology with user requirements, which
– given the cost, complexity and interdependence of production processes – put a
premium on reliability and performance, rather than on price. The main tasks of inno-
vation strategy are keeping up with users’ needs, learning from advanced users and
matching new technologies to users’ needs.
Knowledge of these major technological trajectories can improve analysis of particu-
lar companies’ technological strategies, by helping answer the following questions:
• Where do the company’s technologies come from?
• How do they contribute to competitive advantage?
• What are the major tasks of innovation strategy?
• Where are the likely opportunities and threats, and how can they be dealt with?
Although the above taxonomy has held up reasonably well to subsequent empirical
tests,12 it inevitably simplifies.13 For example, we can find ‘supplier-dominated’ firms
in electronics and chemicals, but they are unlikely to be technological pacesetters. In
addition, firms can belong in more than one trajectory. In particular, large firms in all
sectors have capacities in scale-intensive (mainly mechanical and instrumentation) tech-
nologies, in order to ensure efficient production. Software technology is beginning to
play a similarly pervasive role across all sectors.
BOX 5.1
POST-WAR DEVELOPMENTS IN BIOTECHNOLOGY
‘Biotechnology has been defined many times . . . The OECD definition “the appli-
cation of scientific and engineering principles to the processing of materials by bio-
logical agents” has been widely adopted and encompasses the use and application
of a series of skills drawn from biology, biochemistry, genetics, microbiology, bio-
chemical engineering and separations processing.
The development of biotechnology over the past forty years has been a contin-
uous process. The discovery of the structure of DNA, the genetic material, in the
1950s, the detailed analysis of protein synthesis in the 1960s, and the study of
bacteriophage genetics in the basis of antibiotic resistance in the 1970s, laid the
foundations for the scientific breakthrough of recombinant DNA (rDNA) in the
1970s. For the first time, a gene sequence could be cut and a foreign DNA sequence
from another organism inserted and expressed . . .
. . . Since then the science underpinning developments in biotechnology has
progressed very rapidly. Gene therapy, antisense technology, automated gene
sequencing and gene discovery now present new technological opportunities to
develop and apply technology. Moreover, genome analysis or genomics in par-
ticular has placed new emphasis and value on information which can be widely
exploited by industry . . . biotechnology can now be regarded as an expanding
series of enabling technologies . . .
. . . To date, the greatest impact of these technologies has been on the R&D pro-
grammes of companies in the pharmaceutical and agro-food sectors, where it has
led to major investments by existing companies and the foundation of specialist
biotechnology companies. Biotechnology is expected to continue to be of critical
importance to these sectors, despite the fact that it has not yet delivered the short
cuts to profitability hoped for by the pharmaceutical sector. In addition, biotech-
nology is currently widely used to improve the efficiency of key production
processes, particularly in food processing, drinks and detergents . . .
(m)ajor new applications will emerge in industries such as textiles, leather,
paper and pulp, oil refining, metals and mining, printing, environmental services
and speciality chemicals . . .
Creating value through biotechnology depends upon the effective functioning
of an “innovation system”. This has three main components: . . . (t)he science base
. . . specialist biotech companies . . . user industries.’
that the number of the world’s largest firms with competencies in these fields has
increased greatly since then.14
Third-generation biotechnology has not yet had such widespread effects, but is
beginning to change methods of product development in drugs and agricultural prod-
ucts (see Box 5.1). Materials technology has been advancing steadily with a strength-
ening science base (see Box 5.2).
However, it is information technology that has had, so far, the most revolutionary
effects, and is likely to continue to do so in the foreseeable future. As in the midst of
all revolutions, the signals are incomplete, confusing and sometimes misleading, so that
information and experience must be interpreted with particular care. In the 1970s, the
so-called microelectronics revolution was associated with the spectacular achievements in
semiconductor technology: in particular, the microprocessor and the capacity to store
and manipulate vast quantities of information on a small and increasingly cheap elec-
tronic chip. Thereafter, the phrase IT revolution has come into increasing use, reflecting
similar advances in the capacity to transmit information, culminating in the Internet.
Perhaps even more important, we have seen the spectacular advance in software tech-
nology (i.e. techniques for manipulating information), which had previously been
developed and closely controlled by manufacturers of computer hardware. The steep
reduction in hardware costs and the emergence of cheap standard products (such as
personal computers) have resulted in the emergence of two other major sources of
software technology: independent software suppliers (e.g. Microsoft) and operators of
large-scale systems (e.g. banks, retail chains, airlines). As a result, the technological
trajectories of firms and countries in the development of software have progressively
become decoupled from their trajectories in computer hardware.
Table 5.2 compares and contrasts the characteristics of the two trajectories, which
can be summarized as follows:
• The microelectronics revolution is about designing and producing electronic chips,
and the IT revolution about producing software.
• The former (microelectronics) is located firmly in manufacturing, and principally
involves the highly sophisticated and demanding design and manufacturing of hard-
ware. It opens up technological opportunities mainly for firms in – or close to – the
electronics industry.
• The latter (software) involves not only the design and manufacturing function, but
also the administration, co-ordination and distribution functions. It opens up tech-
nological opportunities in all sectors in both manufacturing and services.
• This reflects major differences in the size of the barriers to entry into the two tech-
nologies. In chip manufacture, they are massive, with major investments required
in difficult and demanding design and manufacturing activities. The development
of chip technology is in fact one of the most concentrated in the world. In software,
PAT H S 177
BOX 5.2
THE IMPROVING SCIENCE BASE OF MATERIALS TECHNOLOGY
continues overleaf
178 M A N A G I N G I N N O VAT I O N
. . . Now, as more becomes known about how processing can modify a ma-
terial’s structure, and thus its properties and ultimately its performance, scientists
are becoming more interested in processing and are having more impact on it.
Their findings have been translated into improved processes in areas ranging from
steel manufacture to the production of pure glass fibres. A striking example of sci-
entific input is the development of ways to grow the very large single crystals of
the semiconductor silicon from which integrated circuit chips are made.’
Liedl, G. (1986) ‘The science of materials’, Scientific American, 255 (4),
104–112.
they are much lower, with software skills and access to a workstation being all that
is required for specialized applications.
• Since chip manufacture is a large-scale activity undertaken by well-established
manufacturing firms, it is clearly visible in a whole range of published statistics. Soft-
ware development, on the other hand, is often hidden away either in small and
specialized firms in the service sector, or embedded in large organizations in sectors
like retailing and finance, and is therefore hardly visible in established statistics.
Perhaps the most important comprehensive statistic so far is buried in the periodic
US reports Science and Engineering Indicators (National Science Foundation, Wash-
ington) and shows that the number of qualified scientists and engineers employed
in US manufacturing was overtaken by the number employed in services in 1989,
and that in finance and retailing a high proportion are software specialists.
PAT H S 179
We shall nonetheless risk identifying three features of the IT revolution that we think
will be increasingly important for innovation strategies in future:
This has led to much confusion about the characteristics and implications of the ‘new’
or ‘knowledge’ economy. The more traditional notion of the knowledge economy
included the broad opportunities created by developments in science and technology,
and the role of intellectual capital and innovation for competitive advantage. The more
recent and more narrow perspective focuses exclusively on the potential of information
and communications technologies. However, these two views are based on contradic-
tory assumptions and suggest different implications.19 The latter ICT perspective
180 M A N A G I N G I N N O VAT I O N
emphasizes the low marginal costs of reproduction and near instantaneous trans-
mission of such technologies, but too often assumes that the exchange and transfer of
knowledge is almost effortless and unrestricted. The former, broader view, highlights
the difficulties of capturing and transferring knowledge due to its tacit nature and
context-specificity.
Roger Miller and his team at MINE (Managing Innovation in the Networked
Economy) have attempted to develop a taxonomy to better characterize different busi-
ness environments and the most appropriate way to manage innovation in each context.
They identify four factors in the environment that influence the most effective innova-
tion strategy and management: velocity, which refers to the pace of change of the rele-
vant science, technology and markets; institution, which refers to the role of government,
regulation and other stakeholders; challenge, which captures how demanding customers
are in terms of product performance, customization or problem-solving; and uncer-
tainty, which captures the unsolvable uncertainty and unpredictability of technology
and markets. They argue that each of these four factors are higher in the new economy
businesses. Table 5.3 describes some of the key findings. According to this study, in
the new economy firms R&D is more closely integrated with top management and strat-
egy formulation, but also they devote more resources to exploration, particularly involv-
ing external organizations, and cooperate more with suppliers and lead users to generate
value. However, contrary to expectations, the new economy firms did not relay any
more than old economy firms on innovation networks.
Source: Derived from S. Floricel and R. Miller (2003) ‘An exploratory comparison of the management
of innovation in the New and Old economies’, R&D Management, 33 (5), 501–525.