Strategic Management of

Technological Innovation
Melissa Schilling

INTRODUCTION

Importance of Technological
Innovation
Technological innovation now the single most
important driver of competitive success in
many industries
Many firms earn over one-third of sales on
products developed within last five years
Globalization has increased competitive
pressure
Product innovations help firms protect margins by
offering new, differentiated features.
Sony produces more than 75 models of its Walkman that
differ in size, color, music format and other features

Process innovations help make manufacturing

more efficient.
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Importance of Technological
Innovation
Advances in information technology have
enabled faster innovation
CAD/CAM systems enable rapid design and
shorter production runs

Importance of innovation and advances in

information technology have lead to:
Shorter product lifecycles (more rapid product
obsolescence)
More rapid new product introductions
Greater market segmentation

Why Innovation Is Becoming

More Important
Technology is changing fast, new products come from new
competitors
Fast changing environment, product lifetimes shorter,
need to replace products sooner
Products are increasingly difficult to differentiate
Customers are more sophisticated, segmented and
demanding, and expect more in terms of customization,
newness, quality and price
Customers have more choice
Apparently separate technologies come together
Markets forming and changing fast
With markets and technology changing fast, and good
ideas quickly copied, there is continual pressure to devise
new and better products, processes and services faster
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Innovation Is A Positive Message

Tell people you are going to cut headcount - and lose
their support
Tell people you are going to downsize - and lose their
support
Tell people you are going to reengineer - and 80%
won't cooperate
Tell people you are going to be innovative - and win
their enthusiastic support

Impact on Society
The aggregate impact of technological
innovation can be seen in GDP (gross domestic
product the total annual output of an
economy).
The average GDP per capita for the world has
risen steadily since 1971, particularly in the
developed economies
Economist Robert Solow showed that the growth
in GDP was not solely on growth in labor and
capital inputs but technological changes as well
(Nobel prize 1981)
GDP relates to improved quality of life and thus
technological innovation has a positive impact
on society
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Impact on Society
Innovation enables a wider range of goods
and services to be delivered to people
worldwide
More efficient food production, improved
medical technologies, better
transportation,etc.
Increases Gross Domestic Product by making
labor and capital more effective and efficient
However, may result in negative externalities,
E.g., pollution, erosion, antibiotic-resistant
bacteria
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Impact on Society

GDP per Capita, 1971-2003; National Science Board

Impact on Society
The majority of R&D funds spent in OECD countries
come from industry, and percentage has been
increasing.
The role of the government in supporting this
research has been declining

Innovation by Industry:
The Importance of Strategy
Successful innovation requires carefully crafted
strategies and implementation processes.
Innovation funnel
Most innovative ideas do not become successful
new products.
Pharmaceutical industry 1 out of 10,000 compounds
succeeds as a new drug, 12 years from discovery to
market at a cost of $350 million

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Research Brief
How long does new product development
take?
Study by Abbie Griffin of 116 firms developing B2B
innovations found:
Length of development cycle varies with
innovativeness of project
Incremental improvements took 8.6 months from
concept to market introduction
Next generation improvements took 22 months.
New-to-the-firm product lines took 36 months
New-to-the-world products took 53 months.
Half of the companies had reduced their cycle time by
an average of 33% over last five years.

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Discussion Questions
1. Why is innovation so important for firms to
compete in many industries?
2. What are some of the advantages of
technological innovation? Disadvantages?
3. Why do you think so many innovation
projects fail to generate an economic return?

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Part One: Industry Dynamics of

Technological Innovation
The sources from which innovation arises,
including the role of individuals, organizations,
government institutions, and networks,
Types of innovations, and common industry
patterns of technological evolution and
diffusion,
The factors that determine whether industries
experience pressure to select a dominant
design, and what drives which technologies
dominate others,
Effects of timing of entry, and how firms can
identify (and manage) their entry options.

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