Wharton 11: Appropriating Gains from Innovaitons

While innovation is a critical element of success for a company, they don’t guarantee success. In fact even a very useful and sought after innovation may provide no benefit to the inventor if an appropriate strategy for appropriating the gains from the innovation is not developed along with the innovation. There are a number of elements that can be used to help assist innovators in appropriating the gains from the innovation. The four key strategies are patents and related legal protection, secrecy, control of complementary assets, and lead time.

While patents and related legal protection are often the first thing that comes to mind when one thinks about protecting gains from innovation, this strategy is often not the best course for ensuring appropriation of gains. While patents can offer strong legal protection in certain industries in others there are a number of weaknesses. First are the legal costs associated with patents. These legal costs are high both because the need to separate patents into small manageable parts, often resulting in a large number of patents for a single product innovation, with each patent costing a large amount of money to obtain, and the need to enforce patents through the use of litigation which is always very expensive and can require a tremendous amount of time on the part of the inventor. Another major problem with patents is that it puts the details of the innovation into the public eye where all can see exactly what the innovation does and how it works. Patents not only allow inventing around, but because of this disclosure, often make it easier. Inventing around is the process of developing a competing process or product containing many of the benefits of the original product, but without utilizing the patented aspects of the product.

Secrecy is an excellent tool for the protection and appropriation of gains from innovations. Perhaps the greatest advantage to secrecy is that it greatly reduces the risk of inventing around or competition to the original innovation. Secrecy has this strength due to the inherent nature of very few people having access or knowledge of the innovation. Perhaps the greatest use of innovation is to increase the lead time that a company can have before an innovation has a large degree of competition. Perhaps the greatest weakness to secrecy is that it is very difficult or impossible to keep product (and to a lesser extent process) innovations secret after the product is released to the market, this is due to the ease of competition getting access to the product either through existing customers or by pretending to be a customer and acquiring the product.

Control of complementary assets includes resources such as access to distribution, service capability, customer relationships, supplier relationships, and complementary products.

...More to come soon...

Wharton Chapter 10: Scenario Planning for Disruptive Technologies

Edmund Burke once wrote, “You can never plan the future by the past.” This personifies the intent of this chapter. Schoemaker et. al. explain that the uncertainty of the future requires one to, rather than plan for a single possible future, create a portfolio of scenarios that may occur in the future. It is through the creation and planning for these multiple scenarios that we are able to properly prepare for the uncertainties of emerging technologies. The key to this chapter is the idea of scenario planning, which is much like the risk assessment and contingency planning processes of project management. The creation of scenarios is a complex process that requires the identification of a number of variables that allow a great deal of insight into the potential outcomes. First is the identification of stakeholders, external market forces, trends, and key uncertainties. Key uncertainties are a vital aspect of these steps as they are the forces that act on the scenario and issues that have a high level of uncertainty. The primary process for identifying these is through the survey of experts, managers, and stakeholders. The development of the scenario continues with selection and expansion of the most important key uncertainties, analysis of potential internal learning, additional research, and reassessment/revision of the scenario. Constant vigilance and reassessment of the scenarios is necessary on an ongoing basis to prepare for the potential futures that may occur. The tools provided for scenario planning can be helpful guides; however, understanding how the organization and its managers will respond in the moment of crisis occurs can be a great tool to aid in the success of the organization. As such the use of “surrogate crises” can help prepare managers for such eventualities and for upper managers to be better prepared for the responses of lower level employees.

E.T. Project Progress Report

I’ve had a great deal of difficulty finding information about search engines that I find either useful or interesting. My initial analysis of the fact that search really hasn’t changed is fairly accurate. The only information that I have really found indicating any noticeable improvement in the concept of search was the development of Google’s page ranking system which is related to their search algorithm patent. While this development was significant, and to a large extent the reason that Google began to gain significant dominance over Yahoo!, who was the early leader in internet search, it seems that this would make for both a rather dry, and dated analysis of an emerging technology. From the search marketing perspective, my findings have been relatively benign with the context of technology. While there is certainly an abundance of articles relating to search and keyword advertising, the vast majority of this focuses on the ROI/planning side of marketing, with little respect for the technologies related.

This has left me in a bit of a quandary as to the best way to proceed with my project. I have found several interesting and valuable articles related to contextual/location related advertising and search; however, almost everything I have found comes from media sources, such as news and magazine articles, rather than academic sources. Much like the search dilemma this leaves the majority of my available information lacking much in the way of technological detail; however, the background of the technology, I believe, is sufficient to work with.
Additionally, I have been considering a bit of a shift in focus from search marketing to viral/social marketing and the concepts of market mavens and social networking analysis. I know that early on you mentioned this as an area that I might consider, my concern at that time was that I had worked on a similar project for my internet marketing class with Prof. MacDonald, and I wasn’t certain that I would be able to approach those ideas in a sufficiently different manner to justify a new project entirely.

I welcome any thoughts or ideas regarding my direction here.

Chapter 7: Technology Strategy In Lumpy Markets

The key to this chapter is the concept of lumpy markets. MacMilliam & McGrath describe lumpy markets as those that are, rather than having an even distribution of consumers, are divided by the features that consumers want and are distributed heavily around these features with fewer people at the overlaps resulting in what appears to be a series of lumps when graphed. These lumpy markets are important as they can help guide the selection of technological development on products and can show how to target different markets.

The key to understanding strategy in lumpy markets is understanding the options of how to approach technological development. The authors give three options for development:

1. Single niche domination
2. Niche fusion
3. Creating a new technology envelope

Each of these approaches has advantages and disadvantages associated with it and can be a viable strategy.

Single niche domination is the selection of a specific market with a dedicated focus to the features and attributes that they most desire. This is a powerful selection as it allows the company to have a concentrated focus and most closely meet the needs and desires of the chosen market. However, the disadvantage is the same as the advantage. Since the focus is so fully set on one market the resulting product is often unsuitable or undesirable for the other markets, and a minor change in the needs of a market or the offering of competitors can have a significant impact on current market demand.

Niche fusion is the strategic decision to focus on more than one distinct market, fusing the needs of the markets together and allowing a broader appeal. The advantage to this is that the resultant technology has a broader appeal and is therefore more resilient regarding changes in the market. On the downside this approach takes away much of the focus that a niche player has and resultantly reduces the ability to satisfy the consumers’ needs and demands.

Creating a new technology envelope is perhaps the greatest solution for longer term success, as it ignores the current constraints of the technology and the consumer base and creates a new paradigm of focus that offers a product that can meet the needs of the largest audience and satisfy them very thoroughly. On the downside this approach is very difficult to accomplish and requires a significant departure from current technology, as a result the costs and risks can be enormous. This approach results in what is often considered to be a disruptive technology, which can result in the failure of the incumbent firms and the tremendous success of the new firm that has developed the new approach.

Assessing Future Markets for New Technologies

In this chapter Day reviews several keys to assessing future markets for new and emerging technologies. This is a key element in managing an emerging technology; no matter how significant an improvement or how amazing the perceived potential of a new technology, without a market for the technology all investment and time spent developing the technology is for naught. Day’s review covers three primary activities in assessing markets for emerging technology: diffusion and adoption, exploration & learning and triangulation for insights. Exploration & learning is described as a process of “probe and learn” where the company uses a trial and error process to explore markets through interaction with perspective customers and development of prototypes and betas and the introduction of these to the perspective customers. Triangulation for insights is the process of learning from lead users, learning about latent needs, and anticipating inflections. Through the process of triangulation, assessing the interaction of these three items, one can direct the development of the product and identify the potential market for the product.

While both of the previous aspects are vitally important to successfully identifying markets the method that caught my attention the most was diffusion and adoption. Perhaps the primary reason that I was intrigued by this was the similarities that this concept has to the concept of “crossing the chasm.” It seems to me that the mistakes mentioned in this section are dominant mistakes that cause new technologies to fail. Of particular interest is the idea that thinking of the model of user adoption can lead to failure as one intuitively expects to make a progression through the ranks of adoptors. As Day mentions this is a common mistake that people make, assuming that this is a progression without considering the different needs and values of each set of users. Often times managers expect that each new group will follow the prior group in adoption of a new technology, when the new group, while they may share similar needs, has different views of the world, which often need to be addressed specifically to provide a viable product. The use of triangulation is an excellent tool to help prevent this mistake.

Wharton Chapter 5

Understanding the political and legal environment that will impact a new technology is a vitally important part of assessing the potential value that a technology may have for your company. Through a review of the internet from the early days, through today, and into the future (at least as of the time of the writing of the book), the authors analyze the impact that governments can have on the development of an emerging technology. Ten lessons are presented that provide management insight into the potentials for this impact to occur.

One of the most common forms of government intervention is the creation of laws, regulations, and standards. These interventions are common and occur across a large number of industries, for example the FDA’s regulation of drug development and the FCC’s regulation of communication frequencies. These laws and regulations can offer significant advantages and disadvantages to companies. The FDA makes it very difficult to get new drugs approved, resulting in a major emphasis of pharmaceutical companies research on FDA approval. Likewise the FCC can provide tremendous advantages to companies that are able to create mini-monopolies by getting exclusive access to ranges of frequencies for their use (though at great cost to the company to purchase this range). While standards of often developed in the market governments can take an active role in encouraging or even developing the standards. Another major impact that governments can have on the development of emerging technologies is the funding of research and development of new technologies, either through educational support, defense research contracts, or other forms of grants and financial support. Certainly companies that are able to take advantage of these contracts and funds, have a major advantage over companies that don’t have this support; in fact in some industries companies live and die by the government contracts that do or don’t get. Governments can also greatly impact the growth of emerging technologies through direct support of companies and industries. Perhaps more now than at any other time in our nation’s history the government is taking a very active role in the support of companies. This brings forth the question of how will this new development affect the way business must assess technologies. With the new administrations push for alternative fuels, now may be an ideal time to get into the energy production business with a concept built around solar, wind, biofuels, or some other form of alternative fuel. There are a number of considerations that one must keep in mind while reviewing a new technology, and while it is often easy to overlook the impact that government may have, that would be a tremendous mistake, perhaps more so now than ever.

Wharton Chapter 3

Technology Speciation and the Path of Emerging Technologies

To compare technology’s progression with biological evolution seems like it should be a far-stretched analogy; however, the authors correlate that the same types of environmental adaptations that spur the speciation of animals can also be responsible for developing technologies. To explain their analogy, the authors point out that, like the biologists’ theory of “punctuated equilibrium” where there are bursts of evolutionary changes in animals that deviate from the gradual progression due to specific events such as the formation of geographical barriers separating populations, technology has, likewise, had bursts of new technologies that were stimulated by adapting a previous technology to a new environment with different resources and thus created a new technology. Through the many examples of wireless communication, the internet, radial tires, CAT scanning, automobiles, et cetera, the authors depict and define patterns of technological speciation.

While the analysis of how technologies have emerged is interesting, it is only relevant if we, as current and future businessmen, can apply--and manage—the strategic implications of this knowledge. To actively seek out and direct the stimuli needed to further technological improvements, rather than just allow them to happen gradually, is a purpose we should engage and aspire to. As further motivation, the authors give well-supported advice on selecting market contexts for products, understanding market diversity, and following the lead users of technology to exploit market opportunities and encourage the acceleration of evolution. I feel this information encourages us to look at the possibilities in our very own spheres of influence, rather than wait for a technology to develop in a lab somewhere.