8 Class_8_types_of_innovation_Presentation

8 Class_8_types_of_innovation_Presentation - Types of...

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Unformatted text preview: Types of innovation and the industry life cycle the Case: Early auto industry Types of innovation Types Product vs process vs service innovation Radical vs. incremental innovation Competence-enhancing vs –destroying innovation Competence-enhancing Whose competencies? Architectural vs. component innovation Technological discontinuities; disruptive Technological innovations innovations 3G wireless telephony? (Ericsson) MP3 player? (Apple; music industry) Your example here? How do types of innovation matter? matter? Effects on firms, industries Radical Competence-destroying Architectural Necessitate reconfiguration of the Necessitate organization itself, relationships with suppliers, customers, (R&D) partners suppliers, Technical improvement cycle Technical Performance C DIS O TY NUI NTI Cumulative investment/effort Technology diffusion and the Industry Life Cycle Industry Output a) Competition b) Innovation a) # firms & designs b) Scale of operation c) Equipment & employees a) Features b) Product c) Many and different d) Small e) General & skilled time a) Cost b) Process c) Few and similar d) Large e) Specialized eqpt, automation low skill workers Industry Life Cycle example: The early US auto industry early Distinct features: 1. Rapid entry, then Rapid drastic concentration; “shakeout” “shakeout” 1. Geographic Geographic concentration in Detroit concentration 1771 crash of Nicolas Joseph Cugnot's steam­powered car into a stone wall. (French; max speed of 2.5mph) 1. Entry, exit and number of firms in the US auto industry the 300 250 200 150 100 50 0 1880 Firms Entrants Exits 1900 1920 1940 1960 1980 Source: Steven Klepper “The Evolution of the U.S. Automobile Industry The and Detroit as its Capital” (supplementary reading, available online) and (supplementary US auto makers US Early innovations by French & German inventors Early (Daimler, Benz etc) (Daimler, Buick (1903) + Cadillac (1902) + Olds Motor Buick Works (1901) General Motors (1908) Ford Motor Company (1903) 1911: Ford + GM = 38% of industry’s output 1920: over 60% Benz’s “Velo,” 1894 Ford’s first design, 1896 Maxwell Motor Corp (1904) + Chalmers Motor Co Maxwell (1906) + Dodge (1914) Chrysler (1924) 1930: Big 3 = over 80% of output Maxwell Mascotte Touring, 1911 Why shakeout? Why 1. Revelation of customer Revelation preferences (reduction of demand uncertainty) demand Product experimentation slows Product down down Process innovation Economies to scale in mass Economies production production Economies to scale in R&D Economies Learning/knowledge accumulation Ford Model T, 1927 Ford plant (1914), Highland Park, Michigan. 2. Increasing returns to scale: Early learning pays off: Survival of entry cohorts 5 100% 4.5 4 50% 20% 10% , M c ell/G a s rd ick dill axw oe d Ol Fo Bu Ca M risc B Cohort 1 Cohort 2 Cohort 3 3.5 3 2.5 2 1 0.5 0 31 11 16 21 26 36 41 46 51 56 61 Firm age 5% 1.5 1 6 Experience from other auto firms or Experience related industries pays off related Inexperienced firms all died; related Inexperienced or industry experience increased probability of survival significantly: probability What kind of experience? Maxwell had worked for Olds Briscoe started as a sheet-metal maker; helped finance Buick’s first car helped Durant manufactured horse-drawn vehicles. Joined Buick 1904, formed GM in 1908, ran Chevrolet spin off, and returned to GM in 1916 Leland (Cadillac, Lincoln) made engines Leland for Olds, then worked for Ford for Buick started an engine company in 1899 Dodge brothers supplied parts & Dodge assemblies to Olds, Ford assemblies Olds racing with the Pirate, 1896 EXPERIENCED ENTREPRENEURS 5 4 3 2 1 0 1 6 11 16 21 26 31 36 41 46 51 56 61 EXPERIENCED FIRMS 5 4 3 2 1 0 1 6 11 16 21 26 31 36 41 46 51 56 61 SPINOFFS 5 4 3 2 1 0 1 6 11 16 21 26 31 36 41 46 51 56 61 5 4 3 2 1 0 INEXPERIENCED FIRMS 1 6 11 16 21 26 31 36 41 46 51 56 61 Parts of Detroit genealogy acquisition General Motors Buick spinoff Chevrolet Lincoln Cadillac Maxwell-Briscoe Chalmers Chrysler Ford Olds Dodge REO Speed Wagon (1917) – the first pick-up truck by Ransom E. Olds Olds 2. Detroit emerges as the capital of car manufacturing car % Detroit Firms 70 60 50 40 30 20 10 0 1890 1900 1910 1920 1930 1940 1950 Firms with the Most Spinoffs Firm Number of Total # of Spinoffs descendants Number of Descendants Among Production Leaders 5 2 Year of Entry Rank Among Production Leaders w/in 5 Years of Entry #2 1901-02 #1 1903-05 #9 1905 #8 1906 #2 1907 #3 1903 #2 1904-06 #2 1903 #4 1904-05 #1 1906-07 #8 1905 #5 1906 #4 1907-08 Leader & Prior Background Olds Buick/GM 7 7 1 3* 9 1901 1903 Ransom Olds, head, engine firm William Durant, head, carriage firm Henry Leland, head, engine firm Henry Ford, auto founder Jonathan Maxwell, auto employee & founder Cadillac Ford 4 4 5** 9 3** 1 1902 1903 MaxwellBriscoe (spinoff of Olds) 4 5 0 1904 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 1 DETROIT SPINOFFS 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 NON-DETROIT SPINOFFS 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 1 5 9 17 21 37 41 53 57 61 13 25 29 33 45 49 65 65 How to survive over the life cycle? cycle? Early accumulation of knowledge “Inheritance” of knowledge from early Inheritance” industry leaders Management, know-how Mode of competition over the cycle 1. Management of technological, demand Management uncertainty uncertainty 2. Incremental innovation; efficiency through scale 3. Preparation for the next cycle Spinoffs in the auto industry life cycle life Spinoffs of successful (Detroit) firms were Spinoffs successful more likely to survive more Agglomerations may promote spinoffs Spinoffs are socially beneficial? How to support by policy? Entrants lead by experienced Entrants experienced entrepreneurs more likely to survive entrepreneurs More successful firms shed more spinoffs! Early mover advantage Management of innovation over the life cycle over Combination of technical and organizational Combination innovations (e.g. assembly line, spinoffs) can lead to (e.g. phenomenal successes phenomenal Surviving shakeout is tough Inherited or accumulated knowledge helps Spinoff process may be more important in Spinoff industry evolution than has been thought How to exploit it in the management of How innovation? innovation? ...
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This note was uploaded on 02/19/2009 for the course AEM 4370 taught by Professor Leiponen,a. during the Spring '08 term at Cornell University (Engineering School).

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