2024-02-02

ME2067 Industrial Transformation

and Technical Changes (ITTEC)
February 1, 2024
Niklas Arvidsson

Niklas Arvidsson

• A Swede
• Published in several journals with a focus on innovation and knowledge management,
project-based organizations, cashless societies and innovation in the payment system.
• Teaching for 28 years in diverse settings but mainly focusing on strategic management,
organization, innovation and leadership
• Professor and doing research on innovation dynamics in the payment system at INDEK (KTH)
since 2012.
• Associate Professor and doing research on financial infrastructure and banks at the Centre for
Banking and Finance (KTH) 2007 – 2011
• Researcher on project organization and networks at the National Institute for Working Life
(ALI) during 2 years
• Consultant full-time for 5 years (Service Management Group, by myself, NormannPartners)
• Ph.D. from Stockholm School of Economics (Institute of International Business) with focus on
knowledge management and organizational learning (1999)
• MBA from Stockholm School of Economics (major in financial economics) (1991)

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Innovation Management
• This part of the course ME2067 introduces basic
concepts and models connected to innovation
management

• Other courses will continue on this track and build a

deeper understanding of challenges related to
innovation management

Innovation management
• Innovation Management part 1
– Professor Niklas Arvidsson
– February 1, 10-12
– Chapters 1-2 in Tidd & Bessant (2013) and Dosi (1982)
• Dosi, G., 1982. Technological paradigms and technological trajectories: a suggested
interpretation of the determinants and directions of technical change. Research
policy, 11(3), pp.147-162.

• Innovation Management part 2

– Professor Niklas Arvidsson
– February 7, 10-12
– Chapters 3-4 in Tidd & Bessant (2013) and Stabell. & Fjeldstad (1998)
• Stabell, C.B. and Fjeldstad, Ø.D., 1998. Configuring value for competitive advantage:
on chains, shops, and networks. Strategic management journal, 19(5), pp.413-437.

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Today we focus on chapters 1 and 2

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Three Key Questions in Innovation

Management
• How do organizations structure the innovation process
appropriately?

• How do organizations develop effective behavioral patterns

(routines), which define how it operates on a day-to-day
basis?

• How do organizations adapt or develop parallel routines to

deal with the different challenges of ‘steady state’ and
discontinuous innovation?

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WHAT IS INNOVATION
MANAGEMENT?

Innovation management
• Have any of you worked with innovation (as a
manager and/or as an entrepreneur)?

• Any experiences or thoughts you would like to

share? What did you do? How was it?

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How to manage for collective creativity

• What's the secret to unlocking the creativity hidden inside your daily work, and
giving every great idea a chance? Harvard professor Linda Hill, co-author of
"Collective Genius," has studied some of the world's most creative companies to
come up with a set of tools and tactics to keep great ideas flowing -- from
everyone in the company, not just the designated "creatives."
• Linda Hill: How to manage for collective creativity | TED Talk

How to manage for collective creativity

Being able to create a
market place of ideas
through debate and
discussion. Heated and
Being able to constructive
test and argumentation
refine the advancing the portfolio
portfolio of of ideas via diversity
ideas through and conflict
quick pursuit,
reflection and
adjustment. Integrated
Discovery- decision-making
driven that can combine
learning even opposing
through a ideas to
series of reconfigure them
experiments. in new
combinations to
produce a
solution that is
new and useful.
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How to manage for collective creativity

Being able to create a
market place of ideas
through debate and
discussion. Heated and
Being able to constructive
test and argumentation
refine the advancing the portfolio
portfolio of of ideas via diversity
Leadership is then about creating the
ideas through and conflict
quick pursuit,
space where talented people are
reflection and
adjustment. Integrated
willing and able to share and combine
Discovery- decision-making
driven that can combine
their talents and passion. even opposing
learning
through a ideas to
series of reconfigure them
experiments. in new
combinations to
produce a
solution that is
new and useful.
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CHAPTER 1. INNOVATION – WHAT

IT IS AND WHY IT MATTERS

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Innovation and Performance

Innovation has to be actively managed:
“Innovation is the specific tool of entrepreneurs, the
means by which they exploit change as an
opportunity for a different business or service. It is
capable of being presented as a discipline, capable of
being learned, capable of being practiced”
- Peter Drucker

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Innovation and Performance

• Relationships between R&D, patents, new products
and performance are strongest at the industry level,
weakest at the firm level
• Returns from process innovation are typically four
times those from product innovation
• R&D expenditure stronger than patents in predicting
performance
• At firm level, R&D and new products both associated
with higher value-added and market to book values

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Innovation and Performance

relation depends on …
• Highest variability in performance is at firm level
• Scale – of technological inputs – critical mass; and market
value of commercial outputs – ‘complementary assets’
• Opportunity – ‘spill-overs’ within sectors and between firms
• Management – differences in cognition, co-ordination and
control
– Senior management typically accounts for 15-50% of variance
• Returns from use of new technology higher than from its
generation

Sources: J. Bessant & J. Tidd (2007) Innovation and Entrepreneurship (Wiley); J. Tidd (2006) From Knowledge
Management to Strategic Competence (Imperial College Press, 2nd edition); J. Tidd, J. Bessant & K. Pavitt (2005)
Managing Innovation: Integrating technological, market & organizational change (Wiley, 3rd edition); S. Isaksen & J. Tidd
(2006) Meeting the Innovation Challenge: Leadership for Transformation and Growth (Wiley, 2006). 15

Creating and Capturing Value

“lack of technological knowledge is rarely the
cause of innovation failures…the main
problems arise in organization and, more
specifically, in co-ordination and control… four
mechanisms identified by earlier analysts of
the innovating firms: competition, cognition,
co-ordination and control”

- Keith Pavitt
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Innovation and invention

“The definition of innovation, as distinct from invention, will follow the suggestions of
Schmookler [23] and Marquis [15, pp. 26-33].
According to this definition, an invention is an original solution resulting from the
synthesis of information about a need or want and information about the technical
means with which the need or want may be met. An invention must be followed by
entreprenurial action before it has significance in economic terms.
Thus, innovation will be defined to refer to an invention which has reached market
Introduction in the case of a new product, or first use in a production process, in the
case of a process innovation. The key idea here, first use, does not preclude
consideration of adopted Ideas which are new in a particular market or application,
nor does it provide a measure of the economic significance of an innovation. It simply
requires that an idea has been carried far enough to begin to have an economic
impact”. (Utterback, 1971)

So: invention is creating something new and innovation is about exploiting something
new by putting it into practice.

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Innovation definitions
• Incremental innovation reinforces the capabilities of established
organizations, while radical innovation forces them to ask a new set of
questions, to draw on new technical and commercial skills, and to employ
new problem-solving approaches
– Radical innovation - is based on a different set of engineering and scientific
principles and often opens up whole new markets and potential applications.
…Doing something differently / doing something different
• Discontinuous innovation and change
– Incremental innovation - introduces relatively minor changes to the existing
product, exploits the potential of the established design, and often reinforces
the dominance of established firms. …”doing what we do but better”
• Steady-state innovation and change
• Processes (or routines) for radical innovation versus incremental
innovation are different from each other. Both are important but for
different reasons.
Henderson, R.M. & K.B. Clark. 1990. Architectural Innovation: The Reconfiguration of Existing Product Technologies 18
and the Failure of Established Firms. ASQ, 35(1): 9-30.

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Two types of innovation processes:

Exploration and exploitation
(James March, 1991)

Exploration (leading towards Exploitation (leading towards

radical innovation) incremental innovation)
Search, variation, risk taking, Refinement, choice,
experimentation, play, production, efficiency,
flexibility, discovery, selection, implementation,
innovation execution

Link to technological paradigms

•”Continuous changes are often related to progress along
a technological trajectory defined by a technological
paradigm, while discontinuities are associated with the
emergence of a new paradigm.”

•”One-directional explanations of the innovative process,

and in particular those assuming ’the market’ as the
prime mover, are inadequate to explain the emergence
of new technological paradigms.”

Källa: Giovanni Dosi. 1982. Technological paradigms and technological trajectories – a suggested interpretation of the determinants and directions of
technical change. Research Policy, 11: 147-162.

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Technological paradigms
• ”We will define a technological trajectory as the pattern of
’normal’ problem solving activity (i.e. of ’progress’) on the
ground of a technological paradigm.”
– A path that is selected and established shows a momentum of its own (natural trajectories of
technical progress (Nelson & Winter))
– This has a powerful ’exclusion effect’ – ”the efforts and the technological imagination of
engineers and of the organizations they are in are focused in rather precise directions while
they are, so to speak, ’blind’ with respect to other technological possibilities.”
– ”…a technological trajectory is a cluster of possible technological directions whose outer
boundaries are defined by the nature of the paradigm itself”
• This tend to limit radical innovation and may provide a lock-in
effect that stimulate incremental innovation
Källa: Giovanni Dosi. 1982. Technological paradigms and technological trajectories – a suggested interpretation of the determinants and directions of
technical change. Research Policy, 11: 147-162.

Trajectories limit radical innovation

1. Trajectories may be more or less powerful
2. There are generally complementaries among trajectories
(knowledge, skills, experience, etc.)
3. One trajectory is often defined as the ”technological frontier”
4. Progress along a trajectory has cumulative features
5. When trajectories are powerful it may become very difficult
to switch from one trajectory to an alternative one
6. It is generally not possible to – a priori – compare and assess
the superiority of one technological trajectory over another

Källa: Giovanni Dosi. 1982. Technological paradigms and technological trajectories – a suggested interpretation of the determinants and directions of
technical change. Research Policy, 11: 147-162.

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Models and Modes of Innovation

Dimensions of ‘innovation space’:
• product – changes in the things (products/services)
which an organization offers,
• process – changes in the ways in which they are
created and delivered
• position – changes in the context in which the
products/services are introduced
• paradigm – changes in the underlying mental &
business models which frame what the organization
does

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Creating and Capturing Value

Advantages of innovation in position or paradigm:
• Reputation as a pioneer
• Early learning curve benefits
• Establish barriers to entry e.g. Design, patents,
standards
• Dominate new supply & distribution networks
• Earn 'monopoly' profits
• But, beware regulatory & demand uncertainty, e.g.
burden of educating users

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CHAPTER 2. INNOVATION AS A
CORE BUSINESS PROCESS

Innovation Process
Key issues:

• Dangers of an ad hoc approach

• Routines & innovation
• A generic process for innovation
• Influence of context & contingency

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Systems Innovation
How innovation happens?

Process Success (?)

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Systems Innovation
How managers
How would like innovation
innovation happens? to happen…

Process Success (?)

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Systems Innovation
How it really happens …..

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Routines & Innovation

What are organizational routines (Nelson & Winter,
1982)?
• Regular & predictable
• Collective, social & tacit
• Guide cognition, behaviour & performance
• Promise to bridge (economic & cognition) theory
& (management & organizational) practices
• “the way we do things around here”
• Can promote or prohibit innovation
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Routines & Innovation

Research on routines (Becker, 2005):
• enable co-ordination
• provide a degree of stability in behaviour
• enable tasks to be executed sub-consciously,
economizing on limited cognitive resources
• binding knowledge, including tacit knowledge.
• But, difficult to operationalize, research or
manage
• Need to focus on cognition & practice

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Innovation Process
Generic phases of the innovation process:
• Searching & scanning the internal & external
environments
• Filtering & selecting potential opportunities,
acquiring the technical, financial & market
resources
• Implementing development & commercialisation
• Reviewing & learning from experience

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SUMMARY

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Summary
• Innovation is a collective process
• Invention is about new ideas while innovation is about creating value – economic, social or
environmental – from ideas
• Radical vs. Incremental innovation focuses on the organizations and effects of innovation
processes (for instance in terms of capabilities), and differs in terms of innovation height or
degree of novelty
• Innovation can be manifested in four complementary dimensions: products, processes,
position and paradigm
• Sustaining and disruptive innovation focus on the offering (= a combination of products and
services) and the value for the customer
• Processes behind innovation are linked to the degree of novelty
• Exploration – Radical innovation
• Exploitation – Incremental innovation
• But innovation processes are also characterized by trial-and-error tendencies

• Technological paradigms tend to steer innovation and technological progression in specific

trajectories or patterns that may be difficult to change

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Three Key Questions in Innovation

Management
• How do organizations structure the innovation process
appropriately?

• How do organizations develop effective behavioral patterns

(routines), which define how it operates on a day-to-day
basis?

• How do organizations adapt or develop parallel routines to

deal with the different challenges of ‘steady state’ and
discontinuous innovation?

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