Capabilities, Innovation and Industry Dynamics Fredrik Tell KITE Research Group Department of Management and Engineering Linköping University [email protected]
Capabilities, Innovation and Industry Dynamics
Fredrik TellKITE Research Group
Department of Management and EngineeringLinköping [email protected]
Research problem
• Dynamics in complex capital goods industries• Relationship between firm capabilities,
innovation and performance• Impact of firm capabilities on responses to
technical change
Technological capabilities and industrial dynamics in mature industries
• Technological capabilities and late shakeouts in the advanced gas turbine industry (Bergek, Tell, Berggren and Watson, 2008)
• Integrating knowledge – why established firms may shying away from entering distributed generation (Magnusson, Tell and Watson, 2005)
Technological capabilities and discontinuous innovation
• The example of CCGTs(Bergek, A., F. Tell, C. Berggren and J. Watson, (2008), Technological capabilities
and late shakeouts: Industrial dynamics in the advanced gas turbine industry, 1986-2002, Industrial and Corporate Change, 17(2): 335-392 )
Intake AirPowerturbine
Com-pressor
FuelCombustor ~
Generator
Electricity
Steam Generator Steamturbine
Advanced Turbine System
~Generator
Steam
Fuel gas inExhaust gases
Global trends in power generation
0
50000
100000
150000
200000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Cap
acity
(MW
)
CCGT Orders Total Orders
Market development 1970-2002
0
20 000
40 000
60 000
80 000
100 000
1970
1972
1974
1976
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
MW (y
early
)
050 000100 000150 000200 000250 000300 000350 000400 000450 000
MW (c
umula
tive)
Market orders (yearly) Cumulative orders
CCGT market growth
GE 7F
Pre GE ”Frame F” market shares
0
5000
10000
15000
20000
25000
30000
1970 1971 1972 1973 1974 1975 1976 1977 1979 1980 1981 1982 1983 1984 1985 1986
Cum
ulat
ive o
rder
s (MW
)
GE ABB Siemens Westinghouse Other
Market share development
1987-19911992-1994 1995-1998 1999-2002
GE 28 % 26% 22% 54%
GEC-Alsthom /Alstoma 9% 14% 6%
ABB 18% 12% 17%
Siemens 19% 24% 21%
Westinghouse 5% 7% 13%
Mitsubishi b 13% 8% 12% 8%
Other 8% 9% 9% 1%
22%
15%
a GE licensee in the first three phases. In the fourth phase, Alstom acquired ABB’s Power Generation Business.[i]b Westinghouse licensee in the first phases.[i] In 1989, the energy and transport businesses of Alsthom merged with GEC, forming GEC-Alsthom.
Research questions
• What were the characteristics of technological capabilities of the four major firms competing in CCGT?
• How did technological capabilities affect ratesof innovation and, eventually, chances for survival in this segment of the electricalengineering industry?
How to explain?
• Industry life cycles?– No exogeneous shock (Jovanovic and MacDonald, 1994)– No product/process innovation pattern, (Abernathy and
Utterback, 1978)– All firms were old and large (Klepper, 1996)
• Complex Products and Systems (CoPS) industriesmay remain in fluid phase, due to the architecturalcharacter of the product (Davies, 1997)
• Specific technological capabilities (includingintregration of new knowledge) pertaining to systems integrating (CoPS) firms (partly in line with Klepper)
Methodology
• Multiple measures and sources of data– Annual reports– Product launches and Relative market shares
• SPRU CCGT database on Power Plant orders– Patents
• USPTO database (Linköping): Industry experts• Thomson Derwent databases: Keyword search +
manual code search– Interviews and publicly available material (e.g.,
on sourcing and problem-solving)
Technological capabilities
• Technology strategies• Technology leadership • Cost focus• Broad scope• Technology sourcing
• Technology activities• Patenting• Problem-solving• Product launching
TECHNOLOGY LEADERSHIP GE SIEMENS ABB WESTINGHOUSE
1987 X - Not available1988 X X X Not available
1989 X x X X 1990 X x - - 1991 X - X - 1992 X - X X 1993 X X X - 1994 X X X X 1995 X X X - 1996 X X X - 1997 X - X - 1998 X X X 1999 X - 2000 X - 2001 X - 2002 X -
Not available Not available
X = segment level statements; x = corporate level statements
BROAD TECHNOLOGY SCOPE GE SIEMENS ABB WESTINGHOUSE
1987 - (4) X (8) Not available1988 - (4) X (8) X (7) Not available
1989 - (4) - (6) X (7) - (6) 1990 - (4) - (7) X (7) - (6) 1991 - (3) X (4) X (7) X (6) 1992 - (3) - (6) X (8) - (5) 1993 - (3) X (8) - (8) X (4) 1994 - (4) - (6) X (8) - (4) 1995 - (4) - (6) X (8) - (3) 1996 - (5) - (5) X (8) - (4) 1997 X (4) - (5) X (7) - (4) 1998 X (4) X (7) - (9) 1999 X (2) - (6) 2000 - (5) X (5) 2001 - (3) X (5) 2002 - (4) - (3)
Not available Not available
Note: All statements refer to the power generation segment. Numbers refer to the number of technology categories mentioned of 13 in total (see Appendix C).
COST FOCUS GE SIEMENS ABB WESTINGHOUSE
1987 X x Not available1988 - - X Not available
1989 - - X - 1990 - - - - 1991 - - X X 1992 - x - - 1993 x X - - 1994 - x - X 1995 X - X - 1996 - - X - 1997 - x X - 1998 - - - 1999 - - 2000 - - 2001 - - 2002 - -
Not available Not available
Product launch and sales impact
0
10000
20000
30000
40000
50000
60000
70000
1986 1990 1994 1998 2002
Ord
ers (
MW
)
GE GE licencees Siemens ABB Westinghouse MHI Other
GE Frame 7F
Siemens V94.3
ABB 13E2
ABBGT24
GE 7G, 9G, 9H(announced)
Siemens V84.3A
Phase IIPhase I Phase III Phase IV
W.house 501F
W.house/MHI 701FW.house/MHI 501G
Generation F and responses
CAPACITIES EFFICIENCIES KEY DATES COMPANY TURBINE MODEL GT CCGT GT CCGT Announced First order
GE Frame 7F 150 MW 230 MW. 34.2% 53% 1987 1987 Westinghouse 501F 150MW 230 MW 35.4% 54% 1989 1989 Siemens V94.3 200 MW 300 MW 35.7% 54% 1990 1992 ABB GT13E2 164 MW 250 MW 35.7% 54.7% 1992 1992 GT24 165 MW 250 MW 37.5% 57.5% 1993 1993
Next generation…
CAPACITIES EFFICIENCIES KEY DATES COMPANY TURBINE MODEL GT CCGT GT CCGT Announced First order
ABB GT24 165 MW 250 MW 37.5% 57.5% 1993 1993 Westinghouse 501G 230MW 345MW 38.5% 58% 1994 1997 Siemens V84.3A 170 MW 245 MW 38% 58% 1995 1995 GE Frame 7G 240 MW 350 MW 39.5% 58% 1995 none
Frame 7H n/a 400 MW n.a. 60% 1995 2004 Frame 9H n/a 480 MW n.a. 60% 1995 1998
Total number of patents, all searches combined(per application date)
050
100150200250300350
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
ABB GE Siemens Westinghouse
Total patenting
Technological capabilities: selected patents
GE Siemens ABB Westing-house
Combined cycleab 78(5.2)
35(2.3)
43(2.9)
15(1.0)
Gas turbine engine (incl. measuring and testing)bc
865(3.9)
685(3.0)
220(1.0)
227(1.0)
Gas turbinesb 1031(5.1)
293(1.4)
204(1.0)
217(1.1)
Numbers in brackets show the ratio of the number of patents of a particular firm in a certain category and the lowest number of patents of all firms in that category. For example, in the first category ABB’s ratio (2.9) equals 43 (the number of patents of ABB) over 15 (the number of patents of Westinghouse, which has the lowest number of patents in that category of all the firms).
Problems… and the ability to solve them
• All manufacturers experienced seriousproblems in their installed plants, but theyreacted quite differently.
Technological capabilities and knowledgeintegration – strategies and activities
GE SIEMENS ABB WESTINGHOUSE Technology leadership
Segment & technology level
Segment level Segment level -
Technology scope
Narrow Medium Broad Medium
Cost focus - Competitiveness(segment level)
Leadership - STRATEGIES
Technology sourcing
Internal (cross-divisional)
Internal External alliances
Internal (External alliances)
Internal External alliances
Patenting Strong Medium Weak Weak Product
launching Launched several
turbines Launched
several turbines Launched several
turbines Launched
several turbines ACTIVITIES Problem-solving
Quick Concentrated
efforts
Slow Extensive efforts
Slow Failed efforts
Slow Unclear efforts; lack of resources
Some findings
• The importance of having a large and relevant capability base, builtup by R&D activities, as a foundation for product development in complex technology fields. The study emphasizes the importance of integrating knowledge from several different technology fields in order to develop new architectural solutions on a sub-system level.
• A focused technology strategy on the segment level seems to be positively related to performance. Companies that focused on a limited number of technologies on the segment level were more successful than companies having a broad technology scope.
• The study shows that the development and launching of new products may not be as important as implicitly assumed in much of the capabilities literature, but rather solving after-launch problems proved more decisive for competitive outcomes.
Power generation again…
Fuel CellsMicroturbines
Internalcombustion
engines
…or one Combined CycleGas Turbine (CCGT) plant?
Thousands of…
Magnusson, T., F. Tell & J. Watson (2005), From CoPS to Mass production? Capabilities and innovation in power generation equipment manufacturing, Industrial and Corporate Change, 14(1): 1-26
From CoPS to mass-manufacturing
Products Markets Manufacturing
CoPS Mass production CoPS Mass production CoPS Mass production
Many components
Systemic relationships
Many alternative architectures
Software/ control systems
Few components
Analyzable relationships
Fewalternative architectures
No component coordination
Oligopoly
Monopsony/politicized purchasing
Government regulation
User-producer interaction
Sophisticated buyer/operators
Competition
Multitude of individual buyers
Free markets
Arms-lengthRelationship
Non-professional buyers
High unit cost
Customization
Intensive technology
Project-based organization
Systems integration/ Breadth and depth
Low unit cost
Standardized
Long-linked technology
Functional organization
Design-modularity/ Specialization
In which technologies were the establishedmanufacturers active?
• Internal combustion engines – none• Microturbines (the most similar technology) –
very few (ABB JV)• Fuel cells – Most of them
Why?
• Distributed generation is ”plug and play” –modularized and mass produced
• Traditional power technologies require systems integration and CoPS manufacturing
• Traditional manufacturers specialized in advanced systems integration – distributedgeneration is hence competence-destroying
• Fuel cells are in this respect the most similar, not microturbines