Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy
Innovating firms often fail to obtain significant returns on their investment, giving up the profits to customers, imitators, or other industry participants. “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy”, analyzes why this occurs, and gives recommendations as to how an innovator should proceed and strategize. Three building blocks that comprise the equation for success are explained, specifically regime of appropriability, dominant design paradigm, and complementary assets. Decision tables and a flowchart are presented for complementary asset integration versus contract.
QUESTIONS
What are the three basic building blocks of innovation? How do they affect the distribution of profits between innovator and follower?
Is tight appropriability the exception rather than the rule? What must innovators do to keep imitators at bay?
What two factors affect the probability that an innovator will enter the paradigmatic phase possessing the dominant design?
Why are petrochemical innovations easy to protect, but not petrochemical product innovations?
READINGS
1st
Appropriability comprises of environmental factors after excluding market and firms structure. Two most important dimensions of appropriability are:
Nature of technology: It includes product, process, codified and tacit.
Legal Instruments: It deals with the legal mechanism to give firms advantage over competitors and increase its effectiveness. It comprises of patients, copyrights and trade secrets.
In the pre-paradigmatic phase, complementary assets do not loom large because of the pre-paradigmatic stage :
volumes of production are low,
rivals focus on designs that are supposed to be dominant,
even after deploying specialized assets the desired amount cannot be gained,
Price does not act as a principal competitive factor,
All these factors result in making complementary assets as a critical factor, and therefore, they do not appear significant during a pre-paradigmatic phase.
Complementary assets of firms are utilized for creating value for the business in the process of commercialization. These assets of the firms compliment the innovations developed by the firms. As distribution network serves the similar purpose of generating value and commending change by distributing it through its system, it is considered as complementary assets.
In the given scenario, if the time required to position yourself (relative to the competitor) is short, and the investment required is minor than being an innovator, I will proceed by preparing the strategy that will determine the path to position our product in lesser time. First, by scanning regime of appropriability and accordingly moving towards dominant design paradigm and then by utilization of complementary assets I will prepare the strategy to be followed for success.
RC Cola, the innovator fail, losing the market to Pepsi and Coca-Cola because of its competitor's technological advancements. Competitors just copied the formula developed by the innovator RC Cola and saved the cost incurred in the development of the method.
Last
The possible advantage of a smaller less integrated company making a contract with an established company is that a clear strategic direction will be available which helps the firm in accomplishing the objectives. Depending on the terms of the contract, the firm can take advantage of the available resources or funds from the established company to innovate as well as take care of routine operations. The firm also gets the technological as well as intellectual support when needed.
Innovators create something new which has never been tried and tested before. Hence, investing in an entirely new idea or product requires a detailed business plan which includes the research and development, technical/functional understanding, financial feasibility, etc. to ensure the investor or venture capitalist is confident. In addition to these, there should be a pilot testing done to prove the product's success to prove the worth of the idea.
Opportunistic abuse on the part of the innovator is when the innovator misuses the funds provided by the venture capitalist and doesn't give any substantial outcome.
Opportunistic abuse on the part of a venture capitalist is when they put a lot of pressure on the innovator without giving them much time just by funds they offered to get the product out in the market and get the business running. Also, a venture capitalist might create new clauses depending on the possible success of the product/service.
Strategic partnering is ideal for innovator when -
-It is supported financially and technologically by the partner
-It is provided the required space and time to innovate without putting too much pressure
-The original product intellectual property rights remain the assets of the innovator as per the contract
-The firm helps the innovator in marketing efforts.