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Flashcards in Innovation Deck (83):


The degree to which a firm is able to capture the rents from its innovation
- usually determined by how quickly competitors can imitate the innovation
- both a function of the nature of the technology and the strength of the mechanisms to protect it


Tacit Knowledge

knowledge that cannot be readily codified or transferred in written form
- difficult to duplicate


Socially Complex Knowledge

knowledge that arises from the interaction of multiple individuals
- difficult to duplicate



- protects an invention
- a property right protecting a process, machine, manufactured item (or design) or variety of plant
- must be useful, novel, not be obvious
- software is now patentable (e.g. 1-click by Amazon)



- protects an original artistic or literary work
- property right protecting works of authorship



- protects words or symbols intended to distinguish the source of a good (e.g. Nike swoosh)
- an indicator used to distinguish the source of a good
- also includes service marks - distinguishes the provider of the service versus the product
- can be perceived through any of the five senses
- does not require registration but doing so offers advantages (e.g. the ability to sue)
- takes 10-16 months
- lasts forever but registration must be renewed


Three Types of Patents

1. Utility - new useful process, machine or manufactured item (most popular)
2. Design - ornamental design for a manufactured item
3. Plant


Applying for a Patent

inventor must:
1. explain how to make and use the item
2. make claims about what it does that makes it new
3. provide drawings

- Reviewed by patent examiner
- Able to be challenged
- entire process can take 2-5 years
- costs money - determined by fee schedule
- each country has its own laws and a patent in one doesn't guarantee protection in another


Paris Convention for the Protection of Industrial Property

international property treaty adhered to by 174 countries as of Dec. 2011
- someone in one of the countries may patent an invention and have it protected in the other countries


Patent Cooperation Treaty (PCT)

treaty that facilitates the application for the patent in multiple countries
- applying buys the inventor the option to apply to multiple nations later without committing the inventor to expense those of multiple applications
- can simultaneously apply on single date for many and delay the fees
- makes applications more uniform



- protects an original artistic or literary work
- property right protecting works of authorship
- protected by legitimate use of the work and no need to be registered
- others can use the material for criticism, comment, news reporting, teaching, research, etc.
- work that's not fixed in tangible form cannot be protected (e.g. choreographed dance)
- lasts authors life plus 70 years (before 1978, was only 28 years total)


World Intellectual Property Organization

administers a system of international registration of marks and the Madrid protocol
- as of April 2012, there were 85 countries in the Madrid Union
- can register and be protected under them all


Berne Union for the Protection of Literary and Artistic Property

Berne Convention - specifies minimum level of copyright protection for all member countries


Trade Secret

information about a company that is held private (e.g. marketing strategy, manufacturing process, etc.)
only a trade secret if:
1. must not be generally known or readily ascertainable through legitimate means
2. the information must have economic importance that is contingent upon its secrecy
3. reasonable measures must be taken to attempt to protect it


Open Source Software

software whose code is made freely available to other for use, augmentation and resale (aka liberal diffusion)
- improves the technology's chance of rising to a position of dominant design
- but relinquishes the chance of monopoly over the design and the "standard" might split into many non-standard designs


Factors in Deciding Whether to Protect Innovation (versus diffusion) - 5 Factors

1. Production & Marketing Capabilities and Capital - if firm unable to produce or market technology, protecting might hinder adoption
2. Industry Opposition against Sole-Source Technology - if an industry is going to face opposition from being the sole technology, they should consider being more open
3. Resources for Internal Development - if a firm doesn't have sufficient resources to invest in technology's functionality, might consider being more open
4. Control over Fragmentation - for technologies in which standardization and compatibility are important, maintaining the integrity of the core product is essential and being open may compromise that
5. Incentives for Architectural Control - is particularly valuable if the firm is a significant producer of complements. Maintaining control reaps more benefits.


Wholly Proprietary Systems versus Wholly Open Systems

Wholly Proprietary = goods based on technology that is owned and vigorously protected through patents, copyrights, secrecy and other mechanisms (may be legally produced and augmented only by their developers). Other firms unable to produce components so though the company has sole right, might not be able to distribute and be adopted as readily.

Wholly Open = goods based on technology that is not protected and that is freely available for production or augmentation by other producers. Usually quickly commoditized but unable to reap benefits as much for original producers.

The above are two ends of the spectrum and goods can be in the middle (limited licensing, moderate licensing, liberal licensing)


Original Equipment Manufacturers (OEMs)

firms that assemble goods using components made by other manufacturers. also called Value-Added Resellers (VARs)
e.g. software applications developers may produce and distribute value-added applications for use with Windows as long as the applications do not affect the functionality of the Windows program itself


Advantages of Protection

- Protection allows control and reaps financial benefits
- A firm may be willing to lose money in the short term to promote it as a standard (but is highly risky because the long-term distribution of the payoffs is uncertain)
- Gives the firm Architectural Control


Architectural Control

the ability of a firm (or group of firms) to determine the structure, operation, compatibility and development of the technology (i.e. direct the future development path of the technology)
- through selective compatibility, it can influence which other firms do well and which do not and it can ensure that it has a number of different avenues from which to profit from the platform
- Windows is the embodiment of this strategy


Advantages of Diffusion

- main advantage is open technologies may accrue more rapid adoptions, stimulate growth or product and complimentary goods via lower prices and more producers, etc.
- also allows external development, collective development efforts by those outside the firm (risk are lack of coordination, diverse objectives, redundancy,


Advantages of Large Firms re: Innovation

1. Capital Markets are imperfect and large firms are better able to obtain financing for R&D projects
2. Firms with larger sales volumes over which to spread fixed costs of R&D would experience higher returns
3. Large firms have better developed complementary activities (e.g. marketing)
4. Large firms tend to have greater global reach to obtain information or other resources
5. Scale and learning effects
6. Can take on riskier projects


Disadvantages of Large Firms re: Innovation

1. As firms grow, R&D efficiency might decrease because of loss of managerial control (i.e. can't effectively monitor and motivate employees)
2. As firm grows, increasingly difficult for individual scientists or engineers to appropriate the returns of their efforts (i.e. incentives diminish and the effectiveness of its governance system may diminish)
3. Size can make a firm less nimble and responsive to change (i.e. more bureaucracy and layers of authority hindering progress)
4. High numbers of employees, large fixed-asset bases, etc. can also be sources of inertia, making it difficult to change course (e.g. Icarus Paradox)
5. Small firms spend R&D money more carefully and efficiently (larger number of patents per $)



When something is separated into its constituent parts.

Large firms are often disaggregated into networks of smaller, more specialized divisions or independent firms to avoid the disadvantages of large firm in terms of innovation



the degree to which the firm utilizes rules, procedures, and written documentation to structure the behavior of individuals or groups within the organization.

Formalization can replace to some degree managerial oversight to help large companies run more smoothly with fewer managers.

High degrees might make a firm rigid.



the degree to which activities are performed in a unified manner

Standardization ensures quality levels are met and customers and suppliers are responded to consistently and equitably.

High degrees might make a firm rigid and stifle innovation.


Centralization and Decentralization

Centralization = degree to which decision-making authority is kept at top levels of the firm

Decentralization = degree to which decision-making authority is pushed down to lower levels of the firm


Decentralization re: R and D

Decentralizing R and D activities to the divisions of the firm enables those divisions to develop new products or processes that closely meet their particular division's needs

There is risk of reinventing the wheel with decentralized R and D and you might miss out on learning effects and economies of scale

The degree varies by type of firm and industry e.g. research-intensive firms more decentralized, consumer product firms are decentralized tailoring products to certain markets while electronics centralize


Mechanistic Structure

an organization structure characterized by a high degree of formalization and standardization, causing operations to be almost automatic or mechanical
- associated with greater operational efficiency particularly in large-volume settings (i.e. a well-oiled machine)
- may be unsuitable for fostering innovation


Organic Structures

an organization structure characterized by a low degree of formalization and standardization. Employees may not have well-defined job responsibilities and operations may be characterized by a high degree of variation
- better for innovation and dynamic environments despite possible detriment to efficiency


Size versus Structure

Large firms make greater use of formalization and standardization in place of management oversight. To overcome rigidity by decentralizing making divisions able to act like small companies - able to access the large firm's resources but able to benefit from a smaller organization's flexibility.


Ambidextrous Organization

ability of an organization to behave almost as two different kinds of companies at once. Different divisions of the firm may have different structures and control systems, enabling them to have different cultures and patterns of operations
- both short-term efficiency and long-term innovation
- some divisions might need more organic while others need more mechanic (e.g. USA Today's online division versus their print division)
- firms may alternate between different structures over time


Skunk Works

new product development teams that operate nearly autonomously from the parent organization, with considerable decentralization of authority and little bureaucracy
- separating teams from the demands of the rest of the organization permits them to explore new alternatives



- a way for firms to be efficient and flexible by adopting a standardized manufacturing platform or components that can be mixed and matched in a modular production system
- standardization advantages at the component level while achieving variety and flexibility at the end product level
- also achieves economies of scale
e.g. IKEA
e.g. adding more memory to your PC without buying a new one


Loosely Coupled Organizational Structures

- a way that organizations can be modular
- in a loosely coupled structure, development and production activities are not tightly integrated but rather achieve coordination through their adherences to shared objectives and common standards
- if each development group agrees to a development plan and standardized interfaces for the components to interact effectively, there's no need for much coordination between the groups
- technology has made it more common
- might be more difficult to resolve disputes


Managing Innovation Across Boarders

- many of the issues facing firms in terms of centralizing or decentralizing are amplified in the multi-national firm
- many firms consider decentralizing R and D to take advantage of local information and tailor innovation activities to the local market
- however, causes problems such as the products might never be diffused to other divisions



when all innovation activities are conducted at a central hub and innovations are then diffused throughout the company
- allows firms to tightly coordinate R and D
- achieve greater economies of scale
- develop and protect core competencies
- ensure standardization throughout company


Local-for-Local Strategy

when each division or subsidiary of the firm conducts its own R and D activities tailored for the needs of the local market (opposite of center-for-global strategy)
- likely to choose when divisions are very autonomous and when markets are highly differentiated
- can result in redundancy and lack of scale


Locally Leveraged Strategy

when each division or subsidiary of the firm conducts its own R and D activities but the firm attempts to leverage resulting innovations throughout the company
- sometimes use an international brand custodian


Globally Linked Strategy

innovation activities are decentralized but also centrally coordinated for the global needs of the corporation
- while innovation is decentralized to take advantage of resources and talent pools offered in different geographic markets, it is also globally coordinated to meet companywide objectives


Transnational Approach

resources and capabilities that exist anywhere within the firm can be leverages and deployed to exploit any opportunity that arises in any geographic market
- balancing national brands and its global image


Objectives of the New Development Process (3)

1. Maximizing the Product's Fit with Customer Requirements
2. Minimizing the Development Cycle Time
3. Controlling Development Costs


New Development: Maximizing Product's Fit with Customer Requirements

- for a product to be successful, it must offer more compelling features, greater quality or more attractive pricing
- why firms fail: don't have a clear understanding of features desired, overestimate customers willingness to pay, difficulty resolving heterogeneity in customer demands (compromising among different demands making it not attractive to either)


New Development: Minimizing the Development Cycle Time

- dev. cycle time is the time elapsed from project initiation to product launch (usually measured in months or years)
- even good products fail if they take too long to bring to market
- costs relate directly to time
- slow to market with technology means they might already be obsolete (esp. true in electronics)
- can be a first-mover and also a second-mover by updating the first version and re-launching


New Development: Controlling Development Costs

development efforts should not only be effective but also efficient


Partly Parallel Development Process

a development process in which some (or all) of the development activities at least partially overlap
- if activity A would precede activity B in a partially parallel development process, activity B might commence before A is complete
- avoids cost of back and forth from going one after the other without interaction between the two activities (such as in a sequential development process)
- in some cases, parallel dev. process can increase risks or costs


Project Champions

- senior member of the company assigned to champion a new product
- they facilitate the allocation of human resources and capital as well as stimulate communication and cooperation between functional groups
- risks: may cloud judgment about true value of a project - therefore, some firms developing "anti-champions" who are devil's advocates


Five Myths about Product Champions

1. Projects with Champions are more likely to be successful in the market
2. Champions are more likely to be involved because they are excited about the project, rather than from self interest
3. Champions are more likely to be involved with radical innovation projects
4. Champions are more likely to be from high (or low) levels in the organization
5. Champions are more likely to be from marketing


Involving Customers in the Development Process

- many firms use beta testing to get customer input early in the development process (using a "beta version" of the product for testing)


Lead User

customers who face the same general needs of the marketplace but are likely to experience them months or years earlier than the rest of the market and stand to benefit disproportionately from solutions to those needs


Involving Suppliers in the Development Process

- by tapping into the knowledge of a supplier, a firm expands its information resources
- e.g. Chrysler introduced SCORE (supplier cost reduction effort) that encouraged suppliers to make cost saving suggestions



a distributed problem-solving model whereby a design problem or production task is presented to a group who voluntarily contribute their ideas and effort in exchange for compensation, intrinsic rewards, or a combination thereof.
e.g. kickstarter


Stage-Gate Components (3)

1. Deliverables - results of the previous stage and inputs for gate review
2. Criteria - questions or metrics used to make go/kill decision
3. Outputs - results of the gate review process and may include a decision


Stage-Gate Process (5 Stages)

-implementing go/kill decision points to accurately assess if a project should move forward
- at each stage, a cross-functional team gathers vital technical, market, and financial information to use in the division to move forward with a project (go) or to abandon it (kill), hold or recycle the project
1. Scoping - brief scoping of the project
2. Build the Business Case
3. Development
4. Testing and Validation
5. Launch
- costs increase at each stage


Quality Function Deployment (QFD)

- a comprehensive process for improving the communication and coordination among engineering, marketing and manufacturing personnel by taking managers through a problem-solving process in a very structured fashion
- organizing framework is "house of quality"


House of Quality (9 Steps)

- the organizing framework for QFD
1. identify customer requirements
2. teams weights requirements in terms of relative importance (usually in % so add up to 100)
3. identify the engineering attributes that drive the performance of the product
4. team enters the correlations between diff. attributes to assess the degree to which one characteristic may positively/negatively affect another
5. team fills in the body of the matrix - each cell indicates the relationship between an engineering attribute and a customer requirement
6. team multiplies the customer importance rating by its relationship to an engineering attribute. the numbers are summed for each column
7. evaluate competition
8. using relative importance ratings and the scores for competing products, determine target values for each of the design requirements
9. product design is then created based on #8


Design for Manufacturing Methods (DFM)

- way of structuring the new product development process by articulating a series of design rules
- each rule is to reduce cost and boost quality by ensuring product designs are easy to manufacture
- e.g. minimize number of parts/part numbers, eliminate adjustments/fasteners/jigs and fixtures


Failure Modes and Effects Analysis

- method by which firms identify potential failures in a system, classify them according to their a) severity b)likelihood of occurrence and c) inability of controls to detect it (each given a score which = risk priority number)
- then, put a plan into place to prevent the failures from happening


Computer-Aided Design (CAD) and CAM (Computer-Aided Manufacturing

CAD = use of computers to build and test new products
CAM = implementation of machine-controlled process in manufacturing

Three-dimensional printing = method whereby a design developed in a computer aided design program is printed in three dimensions by laying down thin strips of material until the model is complete


Tools for Measuring New Product Development Performance

- performance assessment provides feedback and helps improve a firms innovation strategy and development process (e.g. post-mortems)
- multiple measures of success are important because any measure used alone might not hit the overall performance
- industry must be considered


New Product Development Process Metrics (4 Questions)

1. what was the average cycle time?
2. what % of the development projects undertaken within the past five years met deadlines/stayed within budget/resulted in a completed project?


Overall Innovation Performance (4 questions)

1. return on innovation?
2. what percentage of projects achieved sales goals?
3. what percentage of revenues are generated by products developed within the past five years?
4. What is the firms ratio of successful projects to total project portfolio?


Development Team Size

- team size may range from a few members to hundreds
- more people combines expertise and increases problem-solving abilities
- bigger is not necessarily better as they incur more administrative costs and communication problems
- social loafing = when an individual in a team does not exert the expected amount of effort and relies instead on the work of other team members


Cross-Functional Teams

- teams whose members are drawn from multiple functional areas in the firm such as R and D, marketing manufacturing, distribution, etc.
- provide several advantages: increases cross-fertilization of ideas, draw on a wider mix of information sources, broader knowledge base, etc.


Diversity on Teams

Homophily = the tendency for individuals to like other people whom they perceive as being similar to themselves. When others are different, may be less willing to interact, trust, etc.
- want diversity better problem-solving, increased innovative outcomes


Four Types of Team Structure

1. Functional - no cross-functional integration; employees remain within functional departments (periodically discuss project)
2. Lightweight - employees remain within functional departments but project manager provides cross-functional integration (up to 25% of time on projects)
3. Heavyweight - project manager provides cross-functional integration; team members are collocated but still report to functional managers also (core group significantly dedicated to project)
4. Autonomous - project manager provides cross-functional integration; team members are collocated and report only to project manager (people removed permanently from dept. for project - permitted to create own policies, etc. separate from the organization)


Team Leadership

- team leader responsible for directing the team's activities, maintaining the team's alignment with project goals, serves as a communicator btw team and senior management
- in heavyweight and autonomous might also give promotions, evaluations, etc.
- different teams have different leadership needs (lightweight may be a junior management while heavyweight needs a more heavy hitter)


Team Administration

- to ensure team members have a clear focus and commitment to the development project, many organizations now have heavyweight or autonomous develop a project charter and contract book
- project charter = encapsulates the project's mission and articulates exact and measureable goals for the project (e.g. budget, timeline, etc.
- contract book = defines in detail the basic plan to achieve the goal laid out in the project charter (e.g. resources required, etc.)


Virtual Teams

- teams in which members may be a great distance from each other but are still able to collaborate intensively via advanced information technologies such as videoconferencing, groupware, and email or internet chat programs
- pose distinct management challenges
- important to choose team members with strong interpersonal skills, be able to work independently and have a strong work ethic


Deployment Strategies

- innovation is not only about what the technology can do but also the degree to which people understand it, access it and integrate it within their lives
- deployment strategy can influence the receptivity of customers, distributors and complementary goods providers
- done effectively, it can reduce uncertainty, lower resistance to switching, accelerate adoption, etc.


Five Key Elements of the Deployment Process

1. Strategic Launch Timing
2. Licensing and Compatibility
3. Pricing
4. Distribution
5. Marketing


Deployment Process: Strategic Launch Timing

- firms can launch timing to take advantage of business cycle or seasonal effects (e.g. before Xmas) and to ensure production capacity and complementary goods are in place (e.g. games for the console are available)
- if introduced too late, company can lose image of technological leader
- optimize cash flow while avoiding Cannibalization - when a firm's sales of one product diminish the sales of another product


Deployment Process: Licensing and Compatibility

- opening technology might make quicker adoption but also opens up a firm to risks
- firm must decide how compatible/incompatible to make its own technology with others already out there...can leverage the installed base but wants to protect its own installed base
- decide if new goods should be Backward Compatible = when products of a technological generation can work with products of a previous generation


Deployment Process: Pricing

- pricing is crucial for a firms deployment strategy as it simultaneously influences the product's positioning in the market, rate of adoption and firm's cash flow
- Price strategy can be
a) survival - cover variable and fixed costs
b) maximize current profits - max ROI given estimated cost and demand
c) maximum market skimming - initially setting prices high
d) maximum market share - use penetration pricing = price set very low hoping to rapidly attract customers and gain on volume or complementary goods


Pricing in terms of timing

- enables customers to delay paying the purchase price by offering a free trial for a fixed time or pay as they go
- "freemium" = pricing model where a base product or service is offered for free but a premium is charged for additional features or services (e.g. dropbox free but more for additional storage)
- can alleviate uncertainty


Original Equipment Manufacturer (OEM)

- also called value-added resellers (VARs)
- a company that buys products from other manufacturers and assembles them or customizes them into a product that is then sold under the OEMs name (e.g. Dell Computers)



when the number of intermediaries in a supply channel is reduced; for example, when manufacturers bypass wholesalers and/or retailers to sell directly to end users (e.g. etrade caused it in terms of brokers)


Questions to Determine whether to use Intermediaries (3)

1. How does the new product fit with the distro requirements of the firm's existing product lines?
2. How numerous and dispersed are customers and how much product education or service will customers require?
3. How are competing products or substitutes sold?


Strategies for Accelerating Distribution (4)

1. Alliances with Distributors - by providing a stake in the success, distributor might promote, etc.
2. Building Relationships - bundling with another product already in use (piggyback on that success)
3. Contracts and Sponsorship - set up contracts in exchange for special services (e.g. medical equipment donating machines so they are likely to purchase more)
4. Guarantees and Consignment - e.g. promise to buy back unsold stock or agreeing to sell it on consignment


Deployment Process: Distribution

- firms must decide if they want to sell direct or through an intermediary such as manufacturer's rep (independent agents), wholesalers (firms buy goods in bulk and re-sell to retailers) or retailers (companies selling goods to public)
- selling direct = more control and collecting more information but can be expensive or impractical
- intermediaries provide important services - can sell wider range of goods in small quantities to customers while the company can sell in bulk to them, also transportation services


Deployment Process: Marketing

- must consider the nature of the target market and the nature of the innovation
Major Marketing Methods:
1. Advertising
2. Promotions
3. Publicity and PR - viral marketing = sending information directly to targeted individuals to stimulate word-of-mouth advertising. Typically chosen on the basis of their position or role in particular social networks.


Tailoring a Marketing Plan to Intended Adopters

Characteristics of the following groups make them responsive to different marketing strategies:
1. early adopters - looking for advance technologies, willing to take risks
2. early majority - communicate the product's completeness, ease of use, etc.
3. late majority - focus on cost, reliability, simplicity
4. laggards - focus on cost, reliability, simplicity


Using Marketing to Shape Perceptions and Expectations (3 ways)

1. Preannouncements and Press Releases - generate excitement about a product before its release
2. Reputation - signal likelihood of success
3. Credible Commitments - major fixed capital investments and guarantees to convince stakeholders that the firm has what it takes