Group 1
Growth through Innovation

Weekly vocabulary

Keys to innovation

what drives a firm's ability to appropriate value?

Real Option Analysis

Members

104212033 Jason

104212044 Pauline

104212018 Martin

104212080 Amy

104212014 Diane

105245914 Ace

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Basic Question

Complementary assets

TMT (Top Management Team)

Intellectual Property

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WHY

Drives much of economic growth

Schumpeterian Rent

Dynamic capability view

Innovation Matters

Value _ Price_Cost

Opportunity

Given the ever-unfolding process of creative destruction
"no strategic position is sustainable"

WHO

Demand Pull VS Technology Push

Users VS Producers

Entrepreneur VS Large incumbents

Explorers VS Exploiters

Breadth VS Depth of expertise

WHAT

the development of new ways to create value

WHEN❓

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Control of important complementary assets

Some examples

Integrate diverse knowledge

Components or supporting technology.

Definition

Role of complementary assets depend on

Create cross functional teams

Create broad vision and shared values

Establish effective line of communication

Manage expectation

Those assets necessary to translate an innovation into commercial returns.

Support services

How tightly held is it?

How important is it?

Motivation

Establish high powered upside incentives

Give greater ownership to managers

Invest in creative search

Encourage risk taking by sharing responsibility

If the dependence of the assets on the innovation is high while dependence of the innovation on the asset is low...

Freely available

Tightly held

VRIN

May be purchased on factor market

Easy to build or develop

Increases knowledge flow between those teams

Multiple projects

ways to build this absorptive capacity

Keep the firm in the loop

Reward and to allow publication

Encourage diversitty

Invest in basic or leading edge research

Intellectual Property

⭐ Protection

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HOW❓

WHAT ❓

When is ability to protect IP strong

There's value in having optionality

✅Legal protection is strong

✅First-mover advantages are substantial

✅Diffusion among customers is fast

Capital budgeting decision

Decision Tree

✅Imitation by competitors is difficult

Strategies & Capability of Innovation

Why is IP often difficult to protect

⚠ Legal protection can be difficult to acquire and enforce

Asset unilaterally depends on the innovation

⚠ Secrecy is hard to maintain

⚠Value maybe created by a collection of advances

⚠ Even tacit knowledge gets diffused eventually

Organizing for innovation

Sequential

Concurrent

Chaotic

Overlapping

If they both high...

bilaterally dependence

generate idea then act

project passed from one function to the next

all functions work together for the entire project

allow interaction between functions by overlapping


❓ could be faster or slower
✅ for startups, it may be the easiest
✅more creative solutions
✅ best for "breakthrough" products
❌ difficult to control
❌ too much conflict can be bad

✅ ensures that each step will be executed
✅ good when high uncertainty about project
✅ good when lots of time is available
✅ good when market environment is stable
❌bad for speed and responsiveness
❌ bad for accumulated learning

Innovation Strategies

Innovation Capability

Innovative capability

✅ motivate team
✅ limits hand-off problems
❌ large amount of effort to implement

✅ learning improves within team and firm
✅ much faster than sequential processes
✅ best for evolving "incremental" products
❌ big time commitment from team
❌ front-loaded resource intensity
❌ not a "home run" strategy

the ability to appropriate the gains from innovation

Effective development processes

Create an environment to generate and pursue novel ideas

Encourage free flows of information within the organization

💥Tolerance & incentives to accept failure

Selecting ideas for development

Explain clear product ideas

An era of open innovation

Coordinate with other partners outside our organization

Network outside your organization

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Absorptive capacity

Expertise in other fields

Bring back into your organization

Two ways

Which strategy is better?

Innovator or first-mover strategy

Follower or second-mover strategy

Capture market position and defend the position from rivals with your capabilities

Continually innovate to capture temporary economic profits

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All- in investment

Staged

Avoid costs and risks of being the innovator

Leverage complimentary capabilities to out-compete rivals

Whether a firm has innovative capabilities

Whether a firm adapts to the gains from innovation

Combination of innovation and appropriability