Science and technology from a business and economics perspective

1. Science and technology from a business and economics perspective Lecture 1 2007-10-22 Emelie Stenborg

2. Teaching week 1 • Monday 10-12: Creative destruction and industrial innovation Schumpeter + Fagerberg (125-135, 141 f) Utterback (4, 2, 7, 10) • Wednesday 10-12: Innovation in firms Tidd et al (1, 2, 12) • Friday 10-12: Seminar with presentations

3. Information Week 1 – Emelie Stenborg Week 2 – Astrid Szogs Week 3 – Lars Coenen Week 4 – Home exam

4. The plan is then • To start with the greatest influencer in evolutionary economics and see how he is relevant today • Explain industrial dynamics in industries • See how firms can manage innovation  Hopefully we will be able to see both why innovation is important and how it can be managed in firms!

5. Schumpeter – Creative destruction

6. Schumpeter • First half of the 20th century • Ideas resurfaced in the 1980s • Influenced evolutionary economics and capitalist dynamics • Was early in objecting to classical models (influenced by Marx) • Still important as the ”holistic” view still today often is not used

7. Schumpeter’s opinions (1) • Argues against ideas of ”perfect competition”  • Even under mono- or oligopolistic competition great advances are made • Effects the standard of life for people • Includes quality and marketing in the competitive advantage of firms

8. Schumpeter’s opinions (2) • Also wants to move on from equillibrium models  • Sees them as nice ideal models • Equillibrium would be destroyed by innovation • New products, processes, organizations, markets poses the greatest threat • Innovation only gives an initial advantage

9. Schumpeter’s opinions (3) • Defies the static view of economics  • Firms are shaped by the past and by the future • Have to see the context to understand the firm • Firms are organic in their structure • Uncertainty is a genuine concern – constrains innovation

10. Schumpeter’s opinions (4) • New way of looking at how innovation is produced  New combinations of existing things – not only technological The role of institutions Has to do with the non-technological issues From new entrants The role/characteristics of the entrepreneur

11. Creative destruction • Replacive new technology – creating a new industry, destroying an old • Creates new proffesions • Big firms are innovative but under constant threat by young firms • Comes as business cycles • Is a societal reality and concern • Key factor; cheap, universally available input, rapidly falling cost, used in many sectors  pervasive!

12. Now, some discussions! Two and two, give example of creative destruction and (if you know) what happened to the old players and how has the industry changed?

13. About organizational innovation Discuss fordism and post-fordism in terms of • efficiency • culture • how to make it work

14. Utterback – Mastering the dynamics of innovation Chapter 4, 2, 7, 10

15. This model tries to… • Link innovation, market and industry • The level of product and process innovation can be related to the stage of the industry • Handels both incremental and radical innovation • Explanatory, general model • Academically very influental (together with Abernathy)

16. Innovation and Industrial Evolution • Assembled products • Not universal • Links the following to the industry life cycle • Product innovation • Process innovation • Organizational change • Market • Competition

17. Innovation in an assembly sector http://www.zanthus.com/databank/innovation/docs/abernathy_utterback.ppt

18. Keywords of different phases

19. What happens after the specific phase? • New vawes of innovation • Next generation • Skip a generation • Organisational innovation • Japanese style • Corporate ventures • Networking organisation • Mass customization

20. Dominant design • The design that wins the competition… • Not based on technological superiority but instead on a mixture of market and organizational factors • Creates • What defines the product • What is required by the product • Meets the need of most customers • New proffesions

21. How does it come about? • Interplay between market and technology • Important non-technological factors • Collateral (Complementary) assets • Policy • Firm strategy • Communication

22. Effects of dominant design • Competition • Shifts the basis from product to process • Less and less firms • Slower introduction of change (maybe less true these days…) • Implication  Organisational change is necessary!

23. Organizational implications • Leadership or followership • Sets the boundaries for change (I thought about plastic waterbottles the other day…) • Constraints, users, habits, complementary assets… • Can we spot it? At least three variables • Chance • Technology • Social process • Disruptive change comes from outside of the industry (More on Wednesday)

24. Radical innovation • In industries times of stability are disrupted by times of discontinuity • Example of generations of the ice industry in the USA – manually harvested  mechanical ice-making  refrigerators • In this context we talk about replacive products

25. Performance of old and new technology Product performance t1 t2 t3 Time Utterback, Mastering the Dynamics of Innovation

26. Dynamics of radical innovation • First inferior to old ones – but with potential • Early, demanding users – but has to have mass market potential • Timing – decline of improvements of old technology, rapid improvement of new • ”Sailing ship” – old technology fights back

27. Old vs New firms • Existing customers • Existing products • Resources (investments) • Other stakeholders (shares, staff, funders…) • Existing organisational structure • Bureaucracy • Mindset – emotionally comitted • More?

28. So, how to be an innovative firm?(According to Utterback) (1) • Technology, markets and organisation 1) Support radical developments • Wide experimentation • Learning organisation • External vision • Developed and balanced core competences • Strategies • Alliances • Accept change – it will happen!

29. So, how to be an innovative firm?(According to Utterback) (2) 2)The importance of incremental innovation! • Improve and extend existing lines • Parallell innovation • Right structure • Develop complementary assets

30. Summary • Utterback • Innovation, market and industry • Industry life cycle • Fluid, transitional and specific phases • Dominant design • Radical innovation • Schumpeter • ”Imperfect competition” • Innovation is the driver of the economy • Dynamic economics • Innovation and non-technological aspects • Creatve destruction

31. Wednesday • We will continue with how firm’s have to relate themselves to the management of innovation to stay in the business.

32. Seminar assignment Work in groups of 2 to 3 people. Choose a firm (possibly a technology of a firm) and relate it to concepts introduced today and on Wednesday: • Creative destruction • Industrial dynamics • Management of innovation Presentation (10-15 minutes) on Friday!