MNE3703 Chapters Summarized These are the notes that I’ve summarized for MNE3703. I’m writing this exam on the 27/5 and I hope these notes are sufficient to pass. Hope it helps others as well. Please note that I’ve not proof read the notes and there may be grammatical errors and inconsistent formatting. – Alvin Padayachee
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MNE3703 Chapters SummarizedThese are the notes that I’ve summarized for MNE3703. I’m writing this exam on the 27/5 and I hope these notes are sufficient to pass. Hope it helps others as well. Please note that I’ve not proof read the notes and there may be grammatical errors and inconsistent formatting. – Alvin Padayachee
CHAPTER 1: IntroductionThursday, May 01, 20142:45 PM Innovation definedIt is something new, novel and different. Innovation is the successful exploitation of ideas. Innovation is the first successful application or production of a new process or product. The scope of innovationThe degree of novelty can be modest. New to market means the product or service was not previously offered in the market. New to company may be less in scope because while the product is new to your company it may have be offered already by another company. Line extensions are based on existing products. The product is altered to give it new attributes. Innovation: invention – commercialization – diffusionInvention forms part of the process of innovation. Invention involves new ideas, dimensions, and breakthroughs. Newness mean incorporating so kind of inventive step. An invention must be produced successfully in volume before it is ready for the market. Commercialization includes R&D to ensure that the invention is able to work reliably and safely in the hands of the users. Commercialization also ensures that the product is producible in quantity. Diffusion refers to the rate at which the consumer adopts the innovation. Invention
This is the phase where ideas are turned into workable inventions. The phase is characterized by much experimentation. You use experimentation to prove the concept and arrive at something workable.
3 models that describe how invention is undertakenClassic model/ individualCorporate model/ closedOpen Commercialisation
This involves transforming the technological potential of an invention into economic value. Unlock the latent value of technology to generate real value. Commercialisation mechanisms are described as business models. A business model is an enabling device that allows the inventor to profit from ideas and innovations. Functions of the business modelValue creationValue capture Value creationThis is a series of activities that enables the user to understand what he/she can gain from the invention. Value captureThis involves making money from the invention. People may aim to copy the invention to profit themselves to IPR must be used to prevent this. Business models that allow firms to convert technological potential into economic valueIncorporate the technology into the current businessLicense the technology to a third partyLaunch the new venture to exploit the technology in the new business
Diffusion
This refers to the process which innovations are adopted and used by consumers. Describes the way innovations catch on and become popular. It follows the path of an S curve. Early stage there is reluctance on the part of the consumer so diffusion rate is slow and sales are modest. Then consumers learn about the product is becomes popular. The diffusion path becomes steep and diffusion is rapid. Then the market becomes saturated and sales slows down. Diffusion is complete. Social factors like word of mouth, peer pressure and social media affect the rate of diffusion.
CHAPTER 2: Types of innovationThursday, May 01, 20142:46 PM Forms of innovationProduct innovationService innovationProcess innovation Product innovation
This is the most obvious innovation application. The novelty of a new product persuades consumers to purchase. Service innovation
Involves the provision of a new or significantly improved service to the consumer. May be the result of new technology. Less popular than product innovation but has been driven in recent years because of the Internet. Process innovation
This involves improvements in the manufacturing process.
Can also include improved methods of working and improved systems.Does not get a lot of attention but has a great impact on the business and its consumers. Types of innovationRadical innovationIncremental innovationModular innovationArchitectural innovation Henderson and Clark point out that to make a product, service or process requires to distinct types of knowledge:Component knowledgeSystem knowledge Component knowledgeKnowledge of each component that performs a well defined function within the broader system that makes up the product. System knowledgeKnowledge about the way the components are integrated and linked together. Radical innovation
The result of major technological breakthrough or application of new technology. Non-linear and discontinuous involving a step change from what has been done before. It’s not improving a design – its creating a whole new design. Has a high degree of novelty and may even need a new business model. Radical innovations are rare.
Requires different organizational capabilities so these innovations are launched more by new entrants and not established players.Radical innovations are known as disruptive technologies because they cause significant changes in the industry and market and has a high degree of uncertainty. It also leads to increased competition with competing designs. Incremental innovation
Involves modest changes to existing products/ services/ processes to exploit the potential of an existing design. Typically improvements to components or use of new components.Novelty is low. Builds on existing component knowledge and architecture. It’s the most common type of innovation.Involves a linear process of continuous change. In terms of the market it reinforces the position of existing firms. This type of innovation favors existing players. Modular innovation
Uses existing architecture and configuration but employs new components with a different design. Architectural innovation
Components and associated design concepts remain unchanged. The system is reconfigured to link existing components in a new way. The value of an innovation topologyCategorization helps show that innovations are not homogeneous. Only analysis can determine where the nature of innovation lies. Categorizing innovation into types ranging from radical to incremental shows that the influence of technology and technological change can vary considerably.
Distinguishing four types of innovation helps to explain why responses of firms to innovation often vary. This topology can also help in understanding the evolutionary process associated with technological change. New technology leads to competing designs. Limitations of this topology
Very product oriented; services are not easily analyzed. Some products are not assembled from components so they don’t have an architecture. The topology is technologically oriented. Doesn’t differentiate in terms of the wider impact of innovation on society.
CHAPTER 3: Technological changeTuesday, April 22, 201410:57 PM The nature of technology Technology is the human activity which is devoted to the production of technics or technic related intellectual products who's root function is to expand the realm of practical human possibility. Science is that form of human activity which is devoted to the production of theory related knowledge of material phenomena who's root function is to attain an enhanced understanding of nature. The long wave cycle and technological changeShumpeter stated that each long wave represented the application of a new group of technologies which had a transforming effect on the economy. Over the space of 50 years the cycle has 4 phases…Recovery - Prosperity - Recession - Depression Recovery phaseDiscoveries are developed into new innovations. These new innovations create new opportunities for investment, growth and employment. There's a large number of competing products. Innovations command a price premium. Prosperity phaseInnovations are widely diffused and reach the broader market which brings about imitators.
Investors try to cash in on technological advances which typically ends with a financial crash. Recession phaseThere's surplus capacity and diminishing returns. The limits of technology is reached. Price competition becomes intense. Focus of innovation shifts to process optimization. Depression phaseMarket saturation leads to greater price competition with declining profitability. Mergers and acquisitions will take place to increase efficiency. Technology has advanced to its limit and new technologies will start to emerge for the next cycle. The implications of the long wave cycleTechnological change is cyclicalInnovation varies over time. It shifts from product innovation to process innovation. There are different types of innovation ranging from radical to incremental. Some technologies have a much bigger impact than others. Technologies go hand in hand with institutional changes. Technological paradigmsTechnological paradigms represent a general area or field of study. The technological paradigm is based on a set of principles. The principles confine the innovation process in terms of:Field of enquiry Problems solvedProcedures usedGeneric tasks to which it is appliedProperties it exploitsMaterials technology it uses
CHAPTER 4: Theories of innovationMonday, April 21, 201411:25 AM Features of innovationComplexityPopulismInterest in success/failure
Theories of innovationTechnology s-curvePunctuated equilibriumDominant designAbsorptive capacity Technology s-curveThe learning curve effect produces greater improvements in performance up to a point. Eventually increasing engineering efforts produces diminishing results. This is the natural limit. As technology matures performance improvements lessen to the point where radical innovation is required in order to improve. Technological maturity is also a matter of scale and complexity. Scale indicates that the product is getting impossibly large in the pursuit of greater performance. Complexity is a matter of adding more and more components. Predictive power of the technology s-curve is the point where its determined that the technology has reached maturity and is going to decline. The challenge at that point is to develop a successive technology. Punctuated equilibriumRadical innovation has the effect of disrupting stability incrementally. Technology evolves via a succession of stop starts. A key feature of technological discontinuity is that it requires new skills, abilities, knowledge to develop and manufacture a product. Innovations are competence destroying. Factors include….TraditionSunk costsInternal political constraintsCommitment to outmoded technology The high level of technological and market uncertainty offers opportunities to new entrants. Dominant designA dominant design is one that wins the allegiance of the marketplace. Both competitors and innovators must adhere to the design. The process of evolution comprises of two stages. The pre-paradigmatic phase and the paradigmatic phase. In the pre-paradigmatic phase no one idea holds sway. In the paradigmatic phase a single explanation or theory becomes accepted. At this point early designs shakeout and learning and scale come into play. Dominant designs tend to appear in mass markets where its justified to invest in specialized assets.
What gives rise to dominant designs?Consumer preferenceMarket power of dominant producerGovernment or industry body regulation The theory of dominant design contributes to our understanding of innovation in the following ways…Highlights importance of the user - usability is more important than technical featuresHighlights importance of standards - where compatibility is an issue for usersHighlights importance of business strategy within innovation Absorptive capacityDefined as a firm's ability to recognize the value of new external information and assimilate it and then apply it to commercial ends. Ideas have to absorbed throughout the organisation. This is known as knowledge diffusion. There is no place for silo mentality. Absorptive capacity is dependent on the firm's ability to learn. 3 factors are critical to this…Exposure to relevant knowledgePresence of prior related knowledgeDiversity of experience Three main contributions to innovation theoryDescriptiveAnalyticalPredictive Descriptive contributionIncludes identification of key events, description of the course of events, and how events are linked. This provides an accurate account on the process of innovation based on relevant evidence. Analytical contributionIt's about uncovering and explaining why the innovation came about. Have to identify patterns and points of commonality between innovations. Identify causal relationships so that success of failure of innovations is not seen as pure chance. Predictive elementUnderstand why innovations succeeded or failed so that action can be taken in order to enhance likelihood of success. Prediction offers the following benefits…Anticipate course of eventsPredict problems and difficulties in advance
Scope for planning so resources are used more effectivelyGreater likelihood of success
CHAPTER 5: Sources of innovationSunday, April 20, 20144:54 PM Patterns that form the basis of insight….AssociationAdaptationAnalogySerendipity/ chance AssociationMeans bringing together two unassociated ideas. Insights in one field provide solutions in another. AdaptationInvolves taking an existing solution and adapting it for another purpose in another field. AnalogyA principle in on situation is used for a different purpose in another. Serendipity/ chanceSupposedly random occurrences give rise to new insight. ********************************************************************************** Sources of innovation Sources include….IndividualsCorporationsUsersEmployeesOutsiders
SpilloversProcess needs IndividualsReferring to individuals that have ideas independent of any third party or corporation. Often described as the garage model of innovation. The resilience of individual inventors are linked to the following factors…..Growth in the small firm sectorOrganisational devices like strategic alliances have helped small firms partner with larger ones. Smaller firms have greater knowledge of applications.Increased popularity of spinoff firms. The corporate sector finds it difficult to adapt to disruptive new technologies. CorporationsRegarded as the chief source of innovation. Large corps have the resources to operate large industrial R&D. Open innovation has reduced the amount of innovation research conducted in-house. UsersThis involves users being involved in market research so it can be determined what kind of innovation they are looking for. Reasons for users becoming a factor in innovation…..Improvement in communications; Growth of media; Improved access to knowledgeImprovements in computingGreater levels of educationGrowth of open innovation EmployeesEmployees through their close involvement in the work can come up with innovative ideas. Bootlegging allows employees to spend a % of their work time working on personal projects. OutsidersOutsiders can be successful in innovation because they do not have conventional won't care about challenging accepted ideas. May be more willing to try unorthodox ideas. They may also be willing to try simple ideas. They have contacts in other industries that are unrelated by may be useful.
SpilloversHappens when one firm benefits from another firms work in R&D. Most likely when staff move around a lot - staff churn. Also when there is a lot of contact between staff and other companies. Process needsThe demands of the manufacturing process acts as a stimulus for innovation. Occurs mostly in mature industries where there is intense pressure for cost reduction so process innovation is required to make the production process even more efficient.
CHAPTER 6: The process of innovationSaturday, April 19, 20148:26 PM Steps in the innovation processInsight/researchDevelopmentDesignMarket evaluationProduction engineeringMarket/ pilot testingFull scale manufacturing & launch Insight/researchThe process begins with insight that gives rise to a new idea or discovery as a result of research. Ideas can come from…AssociationAdaptation of an existing productBy analogyBy chanceThrough extensive scientific research DevelopmentInvolves turning ideas and technologies into new products. The product created at this stage cannot be sold to consumers. It represents feasibility, but it's not yet proven to be produced in volumes or in terms of consumer reliability. Models are created to convey appearance, I.e. style and feel. Prototypes convey functionality. Functional prototypes form the basis of experimentation and testing. Prototypes also facilitate integration of components and subsystems.
Prototypes also facilitate learning. Prototypes also help with risk reduction. By the end of the development cycle a fully functional prototype should be in operation. DesignThe purpose of design is to determine the attributes and features of the final product. This involves specifying…
Shape of the product Manufacturing tolerances Materials to be used to manufacture Manufacturing process
Design brief. Incorporates the requirements of various stakeholders as well as constraints. The designer has to take the design brief and translate into a design that is….Able to operate effectivelyAble to manufactured at a cost that the consumer can affordWill be profitable for the firm Market evaluationThe value of technology is latent until it is commercialized in some way. Commercialization requires….Implementation of a business model
The business model allows for value capture and value creationValue creation is the actual value the product will bring to the consumer. This requires specifying the markets or market segments where the product will be sold. Value capture is figuring out how to make money from the innovation. Have to pick the best revenue generating mechanism. Production engineeringConcerned with how the product will be manufactured. Simplifying production through….Reducing parts countUsing standardized componentsUsing self-aligning partsUsing assembly operations that require a single, linear motion Market/ pilot testingMarket testing involves launching the product on a trial basis in a limit geographic area.This testing has mechanical and commercial objectives.
Mechanical testing ensures that the distribution system that delivers the product to customers is functioning effectively. Commercial testing is used to gather info to create sales forecasts, budgets and to see competitor reaction. Testing can also be statutory so that the product is certified as safe before its sold. Full scale manufacturing & launchBefore full scale manufacturing equipment that forms part of the manufacturing process must be commissioned. Commissioning means that the system is functioning as planned. Then people must be recruited and trained in order to use the commissioned equipment. Then production begins at a percentage of full capacity and gradually increases as the learning curve moves. Why use ramp up when starting manufacturing?Spot potential flaws early. Supply to preferential customers and gain marketing data. Gradually building up production allows for distributors to build up stock prior to product being formally launched. The market launch phase covers the following activities…Ensuring retail outlets have enough stockBooking advertising spaceDesigning and producing advertisementsBooking exhibition spaceEnsuring the product literature is designed, written and printedInforming the press so that they have time to familiarise themselves with the product ************************************************************************************************ Models of the innovation processTechnology pushDemand pullCouplingIntegratedNetwork Technology pushTechnology push process:Basic science -> design & engineering -> manufacturing -> marketing -> sales Driven by developments in science and technology
Assumes that more technology brought about by additional R&D will lead to innovationProcess is linear and sequentialThe model ignores the marketplace Demand pullDemand pull process: Market need -> development -> manufacturing -> sales The market forms the source of ideas for new innovations. Knowledge of consumer requirements is the driving force behind R&D. This model is suitable for mature technologies/industries where minor improvements better meet consumer requirements. CouplingUses feedback loops to carry two way communication between functions. Each phase of the model is linked to the marketplace and the state of technology. IntegratedDevelopments in technology have led to IT-based manufacturing systems and shortened product life cycles. Applies the idea of parallel development. Functions are brought into the product development from the start. Joint group meetings ensure that issues are considered early in the process. NetworkRegarded as a 5th generation innovation process. Organisations now draw on external resources for innovation. Achieved through alliances, agreements and contracts with 3rd party organisations. Companies take on the role of system integrator. They manage the innovation process and integrate development activities carried out by partners. ************************************************************************************************* Open innovationClosed models are where the firm uses its own resources to undertake innovation. These companies are vertically integrated. Open innovation requires external sources to carry out innovation. The open innovation model takes the network model a step further by…Taking internal ideas and using an external route to market. The external party develops the idea into a marketable product. By sourcing ideas from external sources. The firm then develops them internally.
What has changed in the environment that has made open innovation more viable?Greater mobility of knowledge. Universities have better research facilities now. Staff is more mobile and will not stay with one company for life. Greater mobility of capital. Key features of open innovation…No one business has all the best minds so its important to access external knowledge and skillsNetworking can provide the means to linking to external knowledge and expertise Recognises that first mover strategy is not the only effective strategyManagement of intellectual property is vitally important Open innovation has 2 forms…External sources like large companies, start-ups, universities and technology brokers. External routes like licensing, new venture creation through joint venture or spin-off.
CHAPTER 7: Intellectual propertyFriday, April 18, 20145:07 PM
Intellectual property and IPR Intellectual property is the product created through the application of knowledge and skills. IPR provides legal recognition of the ownership of products created through creative effort. This ensures that others do not copy the creation and profit from someone elses work. IPR through registrationPatentsRegistered designsTrademarks PatentsA patent is a 20 monopoly granted by the state to an inventor.
The function of a patent is to encourage innovation. The inventor needs to show that the invention is new by meeting the following 3 conditions: Novelty Inventive stepIndustrial application NoveltyThis means showing that the invention is new and not part of the state of the art - i.e. the invention was made public prior to the filing of the patent. Inventive stepThis means the invention must not be obvious to someone who is skilled in the art. Industrial applicationThe invention must be capable of being used in some kind of industry. What can't be patented?Scientific theoriesMathematical formulasAesthetic creationsComputer softwareBusiness models Obtaining a patentMake an application to the patent office. Once this is done the patent is filed. Search and publication. A search fee is paid and the office conducts a preliminary search to see if the request is new or has been filed before. If not then the patent is published. Full examination. Applicant pays further fee and a detailed examination of description takes place to see if it meets the relevant legal requirements. If so the patent is issued. No such thing as a worldwide patent. The patent must be filed in each country where it will be used. What does the patent provide?A patent won't stop copying of an invention but does allow legal action to be taken if this happens. Courts will provide the following…
An injunction Damages and account for profit An order A declaration
With an injunction the defendant is restrained from carrying out patent infringing activities. The defendant must compensate for damage caused such as losses. An order that the offending articles be destroyed. A declaration that the patent is valid and has been infringed. Registered designsThere is registered design and design rights. Registered design requires registration and design rights does not. Registered design covers appearance while design rights covers functionality. What is a registered design?It covers the outward appearance of an article. A design must be new to be registered. What do you gain from a registered design?gain exclusive right to make any product in which the design is applied. TrademarksUsed to cover commercial reputation. Distinguish one suppliers goods from another. Covers words, logos, pictures, music, slogans, colors, shapes, domain names. To register a trademark the following criteria must be met…Section 1 (1) of the Trademarks Act of 1994DistinctivenessNon-deceptivenessNo conflict with existing trademarks IPR that are inherentCopyrightDesign rightTrade secretsPassing off CopyrightIntangible, automatic right that comes into effect upon creation of work. Someone who does not own the work is not allowed to copy it or sell it without permission from the copyright owner. Design rightLike the copyright it is automatic. The design must not be commonplace. Covers shape and configuration of the article but does not cover 2 dimensional designs.
Does not provide exclusivity but does prevent copying. Lasts 10 years from when product is marketed. Trade secretsNot registered to maintain secrecy. Covered by law of breach of confidence. Trade secrets are confidential information comprising of specialist know how used in manufacture of products. There are no preconditions like with patents or copyrights. Employees sign non-disclosure agreements forbidding them from releasing confidential information to third parties. Passing offNo requirement for registration. Seller must not sell goods under the pretense that they are goods of another. This is considered misrepresentation. The legal owner of the goods experiences damage through loss of sales and even damage to reputation. LicensingThe holder of an invention legally established through a patent can allow someone else to produce the invention in return for a fee. This is known a licensing agreement. Benefit is the inventor doesn’t have to complete the final stages of innovation such as manufacturing and distribution. This is very beneficial for small companies lacking the resources to commercialise.
CHAPTER 8: Innovation strategySunday, April 13, 201411:38 AM The nature of strategyStrategic decisions have long term consequences and affect a lot of people. That’s why its left to senior managers although individuals lower down the chain can have influence. Hierarchy of strategyBusiness strategyFunctional strategyProduct strategy
Business strategy affects the whole business. Its main focus is how to achieve long term goals. Functional strategies are relevant to the specific function. They support the business strategy. The product strategy sets out the long term development of a product. A technology strategy is a functional strategyIt’s the development and use of technological competencies. It’s concerned with the technologies the company uses to deliver products to its customers. Core technologies form part of the firms competitive advantage. The breadth of technologies refers to the range of technologies. Narrow breadth means that technologies are highly specialized; broad breadth means there are a wide range of technologies deployed. Innovation strategyThe focus of this strategy is big decisions surrounding innovation. Strategic challenges of the firm:Whether to enter market?When to enter market?Where to enter market? Routes to enter:LicensingSpin-offs Innovation strategies:First moverFollowerSide entranceDerivative External routes to innovation Firstly - why a firm shouldn't enter…Lack of resourcesLack knowledgePoor fit with company strategyLack of reach Resources can refer to access to finance, staff and facilities all of which a small company does not have available. Scientist may be able to develop a new technology but commercial knowledge is required to exploit it. This involves knowledge on manufacturing, marketing and having distribution channels. Sometimes the technology is not able to fit with company strategy because the market is too small, too remote, or too specialized. Sometimes the company simply doesn't have the global reach necessary to sell the product.
LicensingWith patents in place one firm can grant another license to manufacture products using its technology. The company producing the product compensates the licensing company through a royalty fees. Why license?The licensee may have the following…Market knowledge derived from market presence. Production knowledge. Tacit knowledge that can't be transferred through conventional learning. Access to finance like cash, loan or equity capital. Motivation. Inventors of a technology may not have the commercial motivation to commercialise a new technology. Factors influencing the decision towards licensing as opposed to inhouse development…Complementary assets in production and marketingTransaction costs associated with acquiring complementary assetsCompetition in the final product market SpinoffsA firm creates a subsidiary to exploit innovation. This is preferred because the technology doesn't represent the core technologies used by the firm. Normally the staff along with the technology is sold off. Selling off can be achieved through the following methods…A company floatation via IPOManagement buyout (MBO)Sale to VCSale to another company Spinoffs create lump sum return rather and ongoing income. Internal routes to innovation: innovation strategies First mover/ pioneer strategyFollower/ latecomer strategySide entrance strategyDerivative strategy First mover/ pioneer strategyBeing first o market with a new product or service. Establish technological leadStarting first allows for a learning curve advantage over rivals which allows for cost savings that they don’t haveUsing patents and trade secrets to deter rivalsAbility to secure scarce resources
Can build customer base before competitors Follower/ latecomer strategyIt’s the wait and see approach. Latecomer enters the market once they see customer acceptance of the innovation or diminishing number of competing designs. Gain an advantage by capitalising on the pioneering efforts of others. This is the free-rider effect. Information spillover results in reduced R&D costs later. Learning effects where you learn from the mistakes of others. Better understanding customer requirements. Avoiding duds. Side entrance strategyGet into the market via a niche. The niche will consist of groups of consumers who's needs are not being met by the main market. Use the new attributes of radical innovation to appeal to the niche. Benefits…Avoid head to head competition with well-established market players. Targeting a niche helps in proving a new technology or application of a new technology. Scope for learning technology and enhancing it. Derivative strategyInvolves applying new technology to an existing product to create a new product. The original product already has market presence so the new product will capitalise on this. Not a strategy for new entrants. Greatly reduced development cost and time.
CHAPTER 9: Technical entrepreneursMonday, April 07, 20149:38 PM Entrepreneurship 3 perspectives that are broadly categorised:EconomicPsychologicalBehavioural/ processual
EconomicsAn entrepreneur is someone who brings together factors of production.
Factors of production could be land, labour and capital. He would do this to bring goods and services to market.
The entrepreneur is a risk taker. He takes a risk because he buys factor inputs at a known price but has to sell a product at a price that is unknown.
Shumpeter's view is that the entrepreneur is able to innovate. He would do this not only by creating something new but rather use existing knowledge that has simply not been used before products and services.
He believes that in a world resistant to change that the entrepreneur is a disruptive force who causes change.
Kirzner views an entrepreneur as someone who identifies and exploits opportunities for profit by capitalising on the imperfect distribution of knowledge. PsychologicalThe idea here is identifying an entrepreneur as having particular traits. Traits include:Need for achievementHigh internal locus of controlWillingness to take risksNeed for autonomy and independence Criticisms include the fact that personality does change over time and no consideration is given to learning. Also the environment in where the entrepreneur works is excluded. Behavioral/ ProcessualExploring the idea of business behavior and business context which include factors like ethnicity, gender, occupational background, culture, family structure which are all related to entrepreneurial activity. The nature of technical entrepreneurshipTechnical entrepreneurs are mainly found in small firms where they are able to better utilise their high level of technological knowledge and expertise. Some of these guys have worked for larger corporations where they have built up their knowledge base. Being in a small firm allows these guys to specialise and provide larger firms with specialist skills and services. Working in this kind of environment is conducive to innovation. Autio's 4 features that technical entrepreneurs possess…
The founders of the company are affiliated with the source of technology before establishing the company Their business is to exploit advanced technological knowledge developed or acquired in a source of technologyThe company is independent
The company is entrepreneurial because it is controlled by the entrepreneurs Technical entrepreneurs make use of networks as a source of knowledge and to find market opportunities. These networks may consist of individuals, universities, institutes… Occupational background of TE's…Research TEProducer TEUser TEOpportunist TE A research TE normally refers to those that have background experience from universities and research labs. Many retain links with their previous employer. Normally their business knowledge is sparce. Producer TE's normally have an industrial background. They would have been previously involved in the development and production of commercial products. They tend to have a strong mix of technical and managerial experience. This seems to be the most common TE. User TE most likely has experience in marketing/sales/product support. He would have direct contact with consumers so he would be familiar with user needs and requirements. The user TE's perspective gives him an advantage in diffusing generic technology and development of market niches. Opportunist TE's have little or no technical experience but they can identify technology based opportunities. Factors that influence new venture creation by TE's…Antecedent factorsParental experienceEnvironmental factors Antecedent factors refers to aspects of the TE's personal life. Parental experience refers to experience gained by the TE through working for an organisation. Environmental factors refers to the commercial and technical environments were the new venture is located. TE's tend to be industry specific - prevalent in some and absent in others, mostly influenced by barriers of entry. Types of TE's…
Application inventorMarket innovatorTechnology innovatorsParadigm innovators An application innovator will use established technology to create complementary products. He will do this by diffusion of generic technology into market niches. The market innovator will strive to develop new markets with existing technology. Here again technology will be generic but might be combined in a different way. Technology innovators will rely on new technologies often discovered through scientific breakthrough. These technologies will be sold in established markets. The paradigm innovator delivers a new product based on new technology to an undeveloped market. This TE is considered disruptive. New venture creationStartupsSpinoffs With a startup the TE owns the venture without any influence or assistance from the parent organisation. The idea for the venture is the TE's own. Spinoffs are new ventures that arise from the parent organisation. This venture is established for the purpose of commercializing its own products. The actual company is foundered by the TE but the parent organisation assists with regards to resources. Sometimes the parent company doesn't have enough resources so they create the spinoff in order to attract venture capital. Other times its because the product doesn't fit with the core business so it’s falls into scope of a market that the parent company doesn't want to enter. Drivers of technical entrepreneurship…Diffusion of knowledgeStaff churnImproved institutional supportAvailability of and access to venture capitalThe rise of open innovationThe nature of new technologiesRole models Thanks to the internet and more people studying at universities knowledge is now more widely diffused and is not confined to R&D labs. Technical employees are now much more mobile and are willing to take their knowledge and leave an established organisation. This leads to transfer of knowledge from one company to another. Universities now support entrepreneurial activities for students and staff. This may include courses as well as ventures. There is greater financial support from banks for TE's. Even the government supports TE ventures through grants.
Venture capitalists will invest in startups which have promise regarding future growth and profit. Venture capitalists provide specialist capital for growth and expansion. Business angels are very wealthy individuals who provide informal VC as well as provide business knowledge based on their own experiences .With open innovation TE's develop new technologies which large corporations can incorporate into their portfolio by providing complementary assets like marketing, distribution and product support capabilities. Businesses now exist in knowledge based economies. This has resulted in a reduction of barriers for TE's. The success of TE's are now widely publicized making the idea of profiting from innovation all the more lucrative.
CHAPTER 10: Funding innovationSaturday, April 19, 201410:47 AM
3 factors that make innovation expensive: Resources Timing Uncertainty
Innovation cashflow The cashflow gapIndividuals are able to fund invention from their own pockets however funding innovation requires much more funds. Initial R&D produces a large amount of cash outflow with no guarantee of future sales. Also if the innovation requires completely new technology the negative cash outflow could last for months or years. The inventor may initially use his own funds but will eventually need venture capital in order to produce the product on a large scale. Founder, family and friendsWhen starting initially the inventor will use his own funds either from savings, mortgage, inheritance or salary if still employed. He/she may also borrow money from family or friends. This money is used to build prototypes or proof of concept work. Financial bootstrappingBootstrapping involves looking for other means of financing aside from cash. This involves using personal facilities such as your own garage, facilities borrowed from parent organization, using second hand equipment, and getting people with skills to work in their free time for free. Government fundingSuch as the SMART scheme.
BanksVia loans or overdraft facilities. Venture capital
Business angels Venture capital firms Corporate venturing
Pg. 210 ************************************************************************************************ Business angelsDescribed as informal investors. They are divided as follows:Active and Passive Active business angels are:EntrepreneursWealth maximizingIncome seekingCorporate Passive business angels are :LatentVirgin Entrepreneurs want to contribute to the success of a venture and have a similar personality to the inventor. Income seeking BA are more interested in smaller investments and are looking for higher rates of return. They tend to invest in sectors which they are familiar with and are interested in income and not so much with the enjoyment. Wealth maximizing BA. Invest for financial gain and have minority stakes. Don’t have a entrepreneurial background and may have acquired money through inheritance. Corporate BA. Companies making investments in unquoted companies. Latent BA. Individuals that invested in the past but don’t have any current investments. Have not invested recently because of the lack of suitable business opportunities. Virgin BA. They want to invest but have not yet done so.
BA's contribute by bringing together innovator, capital and managerial experience. ************************************************************************************************ Pg. 213 Venture capital firms Small firms have a problem accessing long term risk capital. Venture capital firms manage pools of capital and are structured as limited partnerships. Their aim is to make a capital gain by the time they harvest their investment via a trade sale or IPO. As intermediaries their expertise lies in evaluating risks and growth potential of companies which they back with equity investments. Pg. 214 Corporate venturingA larger company has a financial stake in a smaller company. Invest in technologies that helps it fulfil its strategic objectives. Will help to develop specific technologies. Benefits to smaller organization include managerial experience, manufacturing and marketing resources. Benefits to larger organization includes access to new ideas and skills, assessment of new markets and good returns on new technologies. Pg. 215 IPO. Raise equity capital through listing publically on the stock exchange.
CHAPTER 11: Managing innovationSaturday, April 19, 201410:48 AM
Pg. 224 The functions of management 4 principle elements of management:
PlanningOrganisingLeading Controlling PlanningA decision making activity. Setting future goals to meet a desired outcome. Identify and select activities to achieve those goals. Choose resources necessary to perform activities. OrganisingA people-centered activity. Involves structuring relationships between individuals. Coordination of planned activities using a mix of skills. LeadershipInvolves conveying a sense of purpose to the whole organization and individuals. Provides a vision of where the organization is going. ControlMonitoring and evaluating the progress of activities to ensure that they are progressing according to plan. Pg. 225 Contextual factors:UncertaintyComplexityMessy/untidyDisruptiveCreative UncertaintyUnsure about how technology will perform; how consumers will react; uncertain about level of resources and time required to get product to market. ComplexityInvolvement of staff from various disciplines leads to complexity. Communication is difficult and ways of working differ. Sometimes outside expertise is required further complicating matters. Messy/untidyCreating something new always requires exploration and experimentation which is messy and untidy. DisruptiveDealing with a new way of doing things which can lead to significant changes in the organization. CreativeManagement promotes conditions in which creativity can flourish.
Pg. 226 Planning 2 planning techniques associated with innovationProject managementDevelopment funnel Project managementPM is a general purpose planning technique used for management of projects to ensure that they are completed on time and within budget. Definition of a project: Once off activity that is time constrained and has a specific goal. PM has 5 main steps:Determine the goal(s)Identify tasks/activities to be undertakenEstimate duration of tasks/activitiesDetermine completion sequence of tasks that must be completed and link them into model of overall projectDevelop a project plan that provides an overall schedule of the project 2 types of commonly used plans used in PMGantt/ bar chartNetwork diagram Pg. 227 Development funnelAlso called a cyclone. Represents a structures approach to get from an idea to a successful launch of a product. One begins with many ideas which are systematically filtered down to so only a small number will be developed and launched as commercial products. Reasons for filtering out ideasNot technically feasibleToo expensive to manufactureLacking commercial potential Pg. 228 Organizing
Refers to the arrangement or structure of the internal shape of the organization. Requires locating people in departments/teams and facilitating effective working. The internal structure of the organization needs to be conducive to innovation. Why is internal structure so important?It affects the following work activities:Communication channelsFlows of informationWorking relationshipsWorking practicesWork environmentCorporate culture Pg. 229 Innovation specific structures: Corporate venturingDefinition: attempts by a large organization to establish conditions conducive to innovation through a range of initiatives that take the form of internal structural devices that provide a focus on innovation. Types of structures:Direct integrationDedicated business unitNew venture departmentIndependent venture unit Direct integrationIndividuals from within organization are brought together in a team to develop a new product. The advantage is that it is quick to setup. Dedicated business unitA separate entity is created for innovations with a very short development phase or are close to launch. This entity is responsible for its own profitability. New venture departmentA secret department is created to handle innovations that a radical and do not form part of the existing portfolio. Staffed by people from within the organization. Independent business unitSeparate entity wholly owned by parent company or a joint ventureHigh degree of autonomy because it is a separate legal entity. Free from politics and corporate mindset.
Pg. 231 LeadingIt’s about setting a direction or vision for others to follow. Leadership rolesProject leaderProduct championGodfatherGatekeeper Project leaderAn individual is formally designated to hold this role. Take responsibility of the project and provide a sense of direction. Must have strong technical knowledge and experience to bring together various functions. Must not get bogged down with the details but rather focuses on the overall picture which is to launch a successful innovation. Product championIssues that plague innovations are lack of knowledge of the new technology and structural changes. The champion is responsible for promoting the innovation and ensuring is success. The champion will need political support from the organization. He/she must identify with the innovation and must be prepared to defend it at all times. GodfatherNot a formal role. A role that exists behind the scenes providing political support for innovation. Role will most likely be held by a senior manager who works at board level. Possibly remove obstacles, provide financial and facilities support, and resources. GatekeeperAwareness of knowledge is critical to innovation. The theory of absorptive capacity highlights the importance of external sources of knowledge. People taking on this role hold the key to accessing knowledge by doing the following:
Acting as a repository for knowledge Knowing who possesses knowledge
Exercising skill in making connections Acting as a go between for parts of the organization or between organizations
Pg. 235 Motivational schemes
Bootlegging Ideas programmes Research clubs
BootleggingMotivated individuals work in secret on development of new products based on their own ideas. These are mostly incremental innovations, with the occasional exception. Formal bootlegging allows for individuals to make effective use of their own knowledge which may be an underutilized resource. Ideas programmesThis is an employee based scheme used to encourage employees to come forward with ideas. The idea is evaluated and if adopted the employee is rewarded. These programmes commonly result in process innovation because of the individuals familiarity with regards to the existing process. Research clubsFacilitating innovation through collaboration. They aim to bring together companies with common interests in particular research areas. Pg. 237 Corporate cultureRefers to the shared values and beliefs both implicit and explicit that shape the behaviours and experiences of individuals working within an organization. Influences how things are done within the organization. Corporate cultures affects innovation by…The value it places on challenging existing ideas and practicesWillingness to take risksStigma attached to failure
Organisations with a strong record of innovation will have a corporate culture that values and promotes: Outward looking orientationFacilitating communicationOpenness to new ideasChallenging established ideasAcceptability of failurePromotion of evaluation and reflection Outward looking mean the organization has strong links with external parties and is responsive to signals and stimuli from them. Openness is the freedom that individuals have to experiment and try new things out. Accepting and tolerating failure is required to promote innovation so that it is not stifled in the organization due to fear. Reflection refers to individuals not being overly hasty but rather seeking evidence through careful analysis instead of making impulsive judgments. Pg. 239 Controlling Although excessive control will deter innovation it is required for effective management of innovation projects.Control is important because innovation is related to a high degree of uncertainty. The development funnel aids in planning and controlling and structuring the flow of ideas and new discoveries. Pg. 240 The stage-gate process of innovationThis technique provides a series of evaluation points during the course of an innovation project. Projects are broken down into well-defined phases. Each phase ends with an evaluation point. These are integrated into a systematic process that moves the project from idea to product launch. Its designed to filter out unsuccessful innovations early on before significant resources are allocated. Each gate has 3 possible outcomes : Go, Hold, Kill
There are 3 gates:
Initial screening Business/ financial analysis Pre-commercialization business analysis
Initial screeningDecision to commit resources Business/ financial analysisDecide whether to go full scale development Pre-commercialization business analysisDecide to move to full scale production and market launch
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