CPET 575 Management Of Technology Lecture on Reading II-1 Patterns of Industrial Innovation, William J. Abernathy and James M. Utterback Source: MIT Technology Review, 1978 Paul I-Hai Lin, Professor http://www.etcs.ipfw.edu/~lin M.S. Technology - IT and Advanced Computer Applications Purdue University Fort Wayne Campus 1 Patterns of Industrial Innovation Critical Questions A Spectrum of Innovators A Transition from Radical to Evolutionary Innovation Managing Technological Innovation Fostering Innovation by Understanding Transition Consistency of Management Action Conclusion 2 1
Patterns of Industrial Innovation: Critical Questions How does a company s innovation and its response to innovative ideas changes as company grows and mature? Are there circumstances in which a pattern generally associated with successful innovation is in fact more likely to be associated with failure? Under what circumstances will newly available technology, rather than the market, be the critical stimulus for change? 3 Patterns of Industrial Innovation: Critical Questions When is concentration on incremental innovation and productivity gains likely to be of maximum value to a firm? In what situations does this strategy instead cause instability and potential crisis in an organization? 4 2
A Spectrum of Innovators A product innovation (small firm) => process equipment adopted by a large firm to improve its high-volume production of a standard products Examples of high volume standard products Incandescent light bulbs, Paper, Steel, Standard chemicals, Internal-combustion engines Characteristics Markets well defined Profit margin low Production technology efficient Equipment highly integrated, intensive & specialized Competition price Incremental innovation: cost of change => very high 5 A Spectrum of Innovators (cont.) High-Volume Production Industries Industries with countless minor system engineering and product improvement Major incentive cost reduction Major system advances and innovations Lost flexibility, dependent on high-volume production to cover its fixed costs Vulnerable to changed demand and technical obsolescence Examples Rayon in plants of E. I. du Pont de Nemours, http://heritage.dupont.com/floater/fl_rayon/floater.shtml Petroleum refining processes Larger railroad cars and unit trains DRAM for Notebooks, workstations lost their demands to Smartphones & tablet 6 3
A Spectrum of Innovators (cont.) Major New Products Not consistent with this pattern incremental improvement Require reorientation of corporate goals Production facilities tend to originate outside organizations devoted to a specific production system Originate within a firm? => Rejected, disapproved New Product Innovation & Change Pattern Emerging needs A new way to meet an existing need Competitive advantage: superior performance Higher unit profit margin Performance criteria Initially very vague User may play a major role in suggesting ultimate form of the innovation 7 A Spectrum of Innovators (cont.) New Innovative Product from Small and Adaptable Firms Advantages Flexible technical approach Good external communication Historical evidence supports hypothesis : advantages John Tilton argues that new enterprises led in the application of semiconductor technology, often transferring into practice technology from more established firms and laboratories. Economies of scale not importance; production technology designed for a particular product is rapidly made obsolete 8 4
A Transition from Radical to Evolutionary Innovation Incremental improvement Incremental change => Rigid => Efficient production Did not prove to be an effective competitive stance Established firms (from 1950-1968) Divisions of General Electric, www.ge.com Philco, http://en.wikipedia.org/wiki/philco RCA, http://en.wikipedia.org/wiki/rca Radical innovation From 1950 1968: Fairchild Semiconductors, http://en.wikipedia.org/wiki/fairchild_semiconductor IBM, www.ibm.com Texas Instruments, www.ti.com 9 A Transition from Radical to Evolutionary Innovation (cont.) Product and Process Evolution Aircraft and Airline Industry: DC-3, http://en.wikipedia.org/wiki/douglas_dc-3 Electric Light Bulb Henry Ford Model T, http://www.hfmgv.org/exhibits/showroom/1908/model.t.html 4 years: developed, produced, and sold 15 years: dominant design: incremental change, no fundamental innovation Robert Buzzell and Robert Nourse, Product Innovation in Food Processing 1954-1964, Harvard University 10 5
A Transition from Radical to Evolutionary Innovation (cont.) Common thread - radical to evolutionary design Development of a dominant product design Accompanied by heightened price competition Increased emphasis on process innovation Consistent, predictable changes Innovation pattern Production process Scale and production capacity 11 Managing Technological Innovation If it is true that the nature and goals of an industrial unit s innovation change as that unit mature from pioneering to large-scale producer, what does this imply for the management of technology? 12 6
Managing Technological Innovation (cont.) The goals of of Innovation - as firm moves toward largescale production Change from ill-defines and uncertain targets to wellarticulated design objectives Issues on product performance requirements & design criteria Impacts of regulatory constraints Impacts of R&D efforts: Two sources of ambiguity: target uncertainty and technical uncertainty As the firm develops Reduced uncertainty about markets and targets Justified larger R&D investments 13 Fostering Innovation by Understanding Transition Assuming the validity of the model for the development of the innovative capacities of a productive unit, how can it be applied to further our capacity for new products and to improved our productivity? Exhibit 1 The Changing Character of Innovation and Its Changing Role in Corporate Advance Seeking to understand the variables that determine successful strategies for innovation Three stages in the evolution of a successful enterprise: Period of Flexibility, Intermediate years, Full maturity 14 7
Fostering Innovation by Understanding Transition: Exhibit 1 (cont.) Competitive emphasis Fluid pattern: Functional product performance Transitional pattern: Product variation Specific pattern: Cost reduction Innovation stimulated by Information on users, needs and users, technical inputs Opportunities created by expanding internal capability Pressure to reduce cost and improve quality Product line Diverse, often including custom designs Includes at least one product design stable enough to have significant production volume 15 Fostering Innovation by Understanding Transition: Exhibit 1 (cont.) Production process Flexible and inefficient; major changes easily accommodated Becoming more rigid, with changes occurring in major steps Efficient, capital-intensive, and rigid; cost of change high Equipment General-purpose, requiring highly skilled labor Some sub-processes automated, creating islands of automation Special-purpose, mostly automatic with labor tasks mainly monitoring and control 16 8
Fostering Innovation by Understanding Transition: Exhibit 1 (cont.) Materials Inputs limited to generally available materials Specialized materials perhaps demanded from some suppliers Specialized materials demanded; if not available, vertical integration extensive Plant Small-scale, located near user or source of technology General-purpose with specialized sections Large-scale, highly specific to particular products Organizational control is Informal and entrepreneurial Through liaison relationships, project and task group Through emphasis on structure, goals, and rules 17 Consistency of Management Action Unsuccessful innovation Reasons why? How to improve the chance of success? Managerial questions Can a firm increase the variety and diversity of its product line while simultaneously realizing the highest possible level of efficiency? Is a high rate of production innovation consistent with an effort to substantially reduce costs thorough extensive backward integration? Is government policy to maintain diversifies markets for technologically active industries consistent with a policy that seeks a high rate of effective product innovation? 18 9
Consistency of Management Action (cont.) Managerial questions Would a firm s action to restructure its work environment for employees so that tasks are more challenging and less repetitive be compatible with a policy of mechanization designed to reduce the need for labor? Can the government stimulate productivity by forcing a young industry to standardize its products before dominant design has been realized? 19 Conclusion 20 10