Process Innovation & Service Innovation
Process innovation pertains to an improvement in a firm's value chain (which can be in its primary or supporting activities). For instance, automating one firm's outbound logistics by employing information technologies / systems constitutes a process innovation. This type of improvement can be used to develop a service innovation. For instance, business-model innovation, which is a type of service innovation and involves a substantial change in how a firm earns revenues and profit, can result directly from a firm automating (at least, partially) its outbound logistics by utilizing e-commerce solutions and partnering (or outsourcing) with a logistics firm such as UPS or FedEx.
Product Innovation & Service Innovation
Service is a form of product. Therefore, a product innovation can also be a source of service innovation. For instance, a firm that develops and manufactures a new, high-performance server (hardware) can also offer new services revolving around the product such as renting/selling processing time or computing power or other services (software) residing on the server to different customers.
Radical Service Innovations
The use of information technology has revolutionized both healthcare and education. It has enabled radical service innovations in both fields by allowing totally new ways of delivering services to totally new markets. Examples are virtual universities and remote surgical operations.
First Level vs Second Level Process Innovation
A first level process innovation pertains to easily found solutions to problems in existing processes yielding small improvements while a second level process innovation pertains to adoption of best practices to improve sub-processes. In other words, a second level innovation introduces a more substantial change.
Market-entry Timing Strategy
A market-entry timing strategy is a time-based strategy that dictates whether a firm will enter a market before or after its competitors (i.e. whether it wants to be the first-mover, an early or fast follower, or a late entrant) and what are the necessary steps and measures it needs to perform or enact due to its choice of entry timing. A market-entry timing strategy is just a subset of a firm's deployment strategy which needs to consider not only timing (i.e. when to deploy the product) but also pricing, licensing and marketing.
Deployment Strategy
An effective deployment strategy is required to capture the financial benefits of an innovation because it dictates not just when but how a particular product will be introduced and marketed and to which market. In other words, it considers important financial parameters such as price, target market, projected sales and its objective is precisely to determine the optimal time and price to deploy the product so as to gain the optimal financial results in the long-run and to avoid sub-optimal effects such as cannibalization.
Weak vs Tight Appropriability Regimes
A weak appropriability regime pertains to the condition where an innovator finds it difficult or almost impossible to protect his or her I.P. or technology while a tight appropriability regime pertains to the condition where an innovator funds it relatively easy to protect his I.P. or technology.
Dangers for a First Mover Firm
A first mover firm, with a radical innovation can become the loser in the market if it is unable to 1) protect technologies or I.P. behind its innovation and 2) to take advantage or realize first-mover advantages that will lead to rapid and wide-spread adoption of its innovation. That is, if it is unable to establish brand loyalty and technological leadership, control scarce assets and establish switching costs and "cross the chasm" (i.e. encourage adoption by early majority).
The Curse of Innovation
The "curse of innovation" pertains to the observed (and somewhat perplexing) reluctance of consumers to adopt highly innovative products. This arises because of 1) the difference in reference points between the consumers and producers of innovations and also 2) innovations typically require a behavior change in the consumers (which they resist). Because of their differing reference points, consumers tend to undervalue gains and overvalue loses due to the innovation (in terms of performance or usability) while producers tend to do the opposite. This leads to consumer "irrationality" rejecting innovations that would have made them better off and to developers being unable to anticipate this rejection which in turn increases the probability of market failures.
Ideally, therefore, developers must address both 1) and 2) (of the previous paragraph) by 1) minimizing the degree of behavioral change required and 2) maximizing performance or other gains derived from the innovation (though it is also possible to focus on one like accepting resistance but delivering extreme improvement). Moore's chasm theory provides a consumer-related explanation for market failure of a radical innovation by considering the difference in characteristics among market segments and in particular, between early adopters and early majority (and the difference in how they perceive value and decide to buy). In concrete terms, the early majority are pragmatist and will adopt innovations only after it has proven itself useful for productivity improvement. They want a complete (100%) product that is widely supported (i.e. 3rd party support) and has a large-consumer base (i.e. a de facto standard). While early adopters want uniqueness and elegance (i.e. new functionality, fastest, etc.) in an innovation. It is therefore easy to see why radical innovations are more readily accepted by early adopters but not by the early majority which wants something proven rather than simply being new.
National Innovation System: Narrow vs Broad Definitions
Narrow NIS includes only organizations and institutions directly involved in searching, exploring, generating and using innovations. These includes R&D departments, technological institutes and universities. Broad NIS includes all parts and aspects of the society that affects the searching, exploring, generating and using (as well as learning) of innovations. In other words, it consists of the narrow NIS plus all economic, political and other social institutions such as a nation's financial system, manufacturing system and regulatory institution.
National Innovation System: Actors vs Institutions
In the context of NIS, players or actors pertain to organizations such as firms, universities, technology organizations, venture capital organizations and public agencies while institutions refer to the sets of common habits, norms, routines, established practices, laws that govern the relations and interactions between the players (i.e. the rules of the game.)
An example of a player in the Philippine NIS is the University of the Philippines. An example of an institution in the Philippine NIS is the new I.P. law concerning technology acquisition patterned after a similar U.S. law. Another example of an institution is the law establishing, defining and governing the operation of the P.S.H.S. system.
Disruptive Innovation
Relative to gasoline / diesel car, the electric car can be considered a disruptive innovation because it threatens to overturn the existing dominant technology (i.e. piston-type gasoline car technologies) and disturb the current market status quo. Moreover, it is not a continuation of the existing dominant technology but a departure or a "quantum leap". It also exhibits other characteristics of disruptive technologies like its current / near-term underperformance compared to the mainstream technology and its confinement to a niche / emerging market (i.e. young, tech-savvy, environmental conscious early adopters).
Examples of Incremental Innovation, Architectural Innovation & Modular Innovation
An example of incremental innovation to piston-type gasoline / diesel car would be the introduction of more fuel efficient piston-type gasoline / diesel engines. An example of architectural innovation would be the introduction of new models that significantly alter the current configuration of existing components in a gasoline / diesel car by applying principles from say aerospace technologies (e.g. Volkswagen). An example of modular innovation would be the use of hybrid engines (wherein the characteristics and underlying technology if a component is significantly altered).
Experimental Development vs New Product Development
Experimental development pertains to the process of establishing the technical and market feasibility of an innovation including the development of a prototype. In other words, at this point the design (specifically, the configuration of components and the form) of the product is still being worked-out and finalized. While the process of new product development encompasses all activities that lead to the development of a new product from idea generation up to commercialization and monitoring. In other words, it includes both experimental development (as explained earlier) and the actual product development where in the final design of the product has already been established and turned over to engineering / manufacturing for initial production and to marketing for formulation of a marketing strategy and later the execution of test marketing.
Product Platform, Product Line & Product Mix
A product platform pertains to the common technological base, encompassing design and components, that is shared by a set of products. A product line pertains to a set of closely related products build on a product platform and released over a period of time. Each product (in the product line) has some characteristics that varies from other products in the product line (e.g. performance, price, etc.) while maintaining other characteristics. A product mix is the set of products of a given firm at a given time which may or may not be from the same product line. Products in a product line can be thought of as having vertical relation while in a product mix, they can be thought of as having a horizontal relationship.
Patenting vs Collaborating
Patenting an invention is not always the best way to protect it because:
- Patents are expensive to obtain and offer weak protection
- Forces early disclosure and has a limited period
- Provides no control on timing of disclosure and cannot be utilized to suit market opportunities
- Difficult to prove that an end product infringes on a patent
Collaborating with competitors can be a good way of protecting one's profit from an innovation because:
- Costs and risks are shared
- Reducing amount or magnitude of assets that need to be committed
- Skills and resources are also shared
- Chance to learn from partner
- Possibility of creating a common standard based on the innovation thereby increasing and prolonging its value
- Possibility of diffusion may lead to the innovation becoming the dominant design
Appropriability pertains to the extent or degree to which a firm can appropriate the returns from commercialization of its technology as determined by how easily or quickly can the firm's competitors imitate the technology. This is a factor of both the nature of the technology (simple vs complex) and the strength of the firm's technology protection.
Innovation Diffusion vs Protection
Diffusing an innovation can be more advantageous than protecting it as it may increase the rate of adoption of the innovation and increase the possibility that it would become the dominant design (especially if adopted and promoted by multiple firms). Furthermore, the technology might be improved by other firms making it more valuable.
Net Present Value: Benefits & Shortcomings
The main benefit of NPV is that it allows the comparison of different R&D projects with different durations (i.e. short vs long-term) by considering the time value of money (by using discount rates). Another advantage of NPV is its relative simplicity compared to other quantitative methods of evaluating R&D projects making it a suitable tool for eliminating (those with negative NPVs) inferior projects. Furthermore, it does not only enable comparison among R&D projects but also against other investment opportunities. The main shortcomings of NPV is it requires the stream of revenues and expenditures to be known in advance (for a certain time period) which may or may not be possible at the early stages of the project and that it assumes a constant discount rate over time which may not be the case. Furthermore, it evaluates projects purely on an economic basis and may miss to take into account the value of relationships that a project has with other potential projects in the future or current / existing projects (i.e. synergy).
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