Technology and Innovation Management - Integrazione Slides e Libro, Dispense di Information Technology Management

Scarica Technology and Innovation Management - Integrazione Slides e Libro e più Dispense in PDF di Information Technology Management solo su Docsity! TECHNOLOGY AND INNOVATION MANAGEMENT PART 1: INDUSTRY DYNAMICS OF TECHNOLOGICAL INNOVATION CHAPTER 1 – INTRODUCTION Central question Why persistent differences in economic performance between industries, and even between firms within the same industry, are generally observed Does innovation make a difference? To which extent does innovation make the difference in a company’s capability of creating value competitiveness? Innovation is also the object of a field that looks at why and how and if innovation explain differences in performance among countries (Economics of Innovation). Our focus is on organizations. Technological Innovation & competitive advantage (Technological) Innovation (i.e., the act of introducing a new device, method, or material for application to commercial or practical objectives) is 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  Product innovations help firms protect their margins by offering new, differentiated features. If companies want to preserve good margins within the market, they must keep innovating over time (driving competitiveness over time). If companies don’t innovate, the competitive advantage tends to fade away.  Process innovations help make manufacturing more efficient (lower costs) Importance of Technological Innovation & Strategy  Advances in information technology have enabled faster innovation (innovation is a boost for innovation) o CAD/CAM systems enable rapid design and shorter production runs  Importance of innovation and advances in information technology have led to: o Shorter product lifecycles (more rapid product obsolescence) o More rapid new product introductions o Greater market segmentation Impact on Society Innovation enables a wider range of goods and services to be delivered to people worldwide (when you increase efficiency, you are contributing to society)  More efficient food production, improved medical technologies, better transportation, etc.  Increases Gross Domestic Product (i.e., the total annual output of an economy as measured by its final purchase price) by making labor and capital more effective and efficient The historic rate of economic growth in GDP could not be accounted for entirely by growth in labor and capital inputs, and Economist Solow argued that this residual growth – the Solow Residual – represented technological change.  However, may result in negative externalities (i.e., costs that are borne by individuals other than those responsible for creating them; innovation is related to our anthropic activity, and it could lead to side effects). E.g., pollution, erosion, antibiotic-resistant bacteria Definition of innovation The first two definitions focus on the outcome. (1) “Innovation is the use of new knowledge to offer a new product or service that customers want” (2) “A new way of doing things (termed invention by some authors) that is commercialised. The process of innovation cannot be separated from a firm’s strategic and competitive context” (3) “New combinations” creating value (this is the difference; inventions are new combinations not retained) – This definition need to be put in a context (Evolutionary Economic Theory). Innovation is recombining, not creating something new. Innovation is not a product, but a process (in dynamic terms), in which there are always mechanisms of variation (the generation of new combinations), selection and retention. Innovation by Industry: The Importance of Strategy  Successful innovation requires carefully crafted strategies and implementation processes  Innovation funnel (with many potential new products going in the wide end, but very few making it through the development process), which is not a story of successes but a story of failures o Most innovative ideas do not become successful new products (many products do not result in feasible products and, of those that do, many fail to earn a commercial return) 🔍 Research Brief – How Long Does New Product Development Take? A large-scale administration survey (PDMA) examined the length of time it took firms to develop a new product from initial concept to market introduction. Incremental projects took only 33 weeks, more innovative projects took 57 weeks, and radical projects took 82 weeks. CHAPTER 2 – SOURCES OF INNOVATION The sources of innovation  Unexpected: success or failure  Mismatching: between reality and how it should be  Process developments need  Changes in the market and industry structures  Demographic evolution  Sociological changes  New scientific discoveries These “sources” are ordered on the basis of their reliability and predictability Models of innovation  Technology push (scientific discovery, applied research, development, product, market)  Market-pull (consumers’ needs trigger innovation)  Interactions market-tech (this is the rule, rather than the exception) Overview Source: Firm Linkages with Customers, Suppliers, Competitors, and Complementors  Most frequent collaborations are between firm and their customers, suppliers, and local universities (also with complementors, who are producers of complementary goods or services)  External versus Internal Sourcing of Innovation o External and internal sources are complements  Firms with in-house R&D are also heaviest users of external collaboration networks  In-house R&D may help firm build absorptive capacity (i.e., the ability of an organization to understand and use new information) that enables it to better use information obtained externally Networks and absorptive capacity  Absorptive capacity: a set of organizational routines and processes by which firms acquire, assimilate, transform, and exploit knowledge to produce a dynamic organizational capability  The organization needs prior related knowledge to assimilate and use new knowledge  Accumulated prior knowledge increases both the ability to put new knowledge into memory, to acquire knowledge, to recall and to use it  An organization’s absorptive capacities will depend on the absorptive capacities of its individual members  Not simply the sum of the absorptive capacities of its employees: o Absorptive capacity refers not only to the acquisition or assimilation of information by an organization by also to the organization’s ability to exploit it... It also depends on transfers of knowledge across and within subunits that may be quite removed from the original point of entry  At the level of the firm, absorptive capacity is generated: o as a by-product of a firm’s R&D investment o as a by-product of a firm’s manufacturing operations. Production experience provides the firm with the background necessary both to recognize the value of and implement methods to reorganize or automate particular manufacturing processes o Firms also invest in absorptive capacity directly by training Source: Universities and Government-Funded Research  Universities o Many universities encourage research that leads to useful innovations o Bayh-Dole Act of 1980 allows universities to collect royalties on inventions funded with taxpayer dollars  Led to rapid increase in establishment of technology-transfer offices (i.e., offices designed to facilitate the transfer of technology developed in a research environment where it can be commercially applied) o Revenues from university inventions are still very small, but universities also contribute to innovation through publication of research results  Governments-Funded Research o Governments invest in research through:  Their own laboratories  Science parks (i.e., regional districts to foster R&D collaboration between government, universities, and private firms; ex. Stanford Research Park) and incubators (i.e., institutions designed to nurture the development of new businesses that might otherwise lack access to adequate funding or advice)  Grants for other public or private research organizations Source: Private Nonprofit Organizations  Many nonprofit organizations do in-house R&D, fund R&D by others, or both.  The top nonprofit organizations that conduct a significant amount of R&D include organizations such as Telethon in Italy Innovation in Collaborative Networks  Collaborations include (but are not limited to): o Joint ventures (more structured) o Licensing and second-sourcing agreements (i.e., the right to use a technology) o Research associations o Government-sponsored joint research programs o Value-added networks for technical and scientific exchange o Informal networks  Collaborative research is especially important in high technology sectors where individual firms rarely possess all necessary resources and capabilities  As firms forge collaborative relationships, they weave a larger network that influences the diffusion of information and other resources  The size and structure of this network change over time due to changes in alliance activity  Technology Clusters are regional clusters of firms that have a connection to a common technology (ex. Silicon Valley; clusters can explain why an area is attractive) o May work with the same suppliers, customers, or complements o Agglomeration Economies (i.e., the benefits firms reap by locating in close geographical proximity to each other; economies deriving by the fact that companies share the same geographical location):  Proximity facilitates knowledge exchange (especially complex and tacit knowledge)  Cluster of firms can attract other firms to area  Supplier and distributor markets grow to service the cluster  Cluster of firms may make local labor pool more valuable by giving them experience  Cluster can lead to infrastructure improvements (e.g., better roads, utilities, schools, etc.) o Likelihood of innovation activities being geographically clustered depends on:  The nature of the technology (e.g., its underlying knowledge base or the degree to which it can be protected by patents or copyright, the degree to which its communication requires close and frequent interaction)  Industry characteristics (e.g., the degree of market concentration or stage of the industry lifecycle, transportation costs, availability of supplier and distributor markets)  The cultural context of the technology (e.g., population density of labor or customers, infrastructure development, national differences in how technology development is funded or protected) o Downsides of clustering  The reduction of firms’ pricing power  The likelihood of a firm’s competitors gaining access to the firm’s proprietary knowledge  Traffic congestion, high housing costs, and higher concentrations of pollution  Technological spillovers occur when the benefits from the research activities of one entity spill over to other entities (i.e., a positive externality from R&D resulting from the spread of knowledge across organizational or regional boundaries). Spillovers are very relevant in innovation networks (attached, there are also market failures). o Likelihood of spillovers is a function of:  Strength of protection mechanisms (e.g., patents, copyright, trade secrets)  Nature of underlying knowledge base (e.g., tacit, complex)  Mobility of the labor pool Belonging to a cluster is not a guarantee that a company is doing well, but catching opportunities depends on how the company governs the relationships within the cluster. 🔍 Research Brief – Knowledge Brokers Andrew Hargadon and Robert Sutton point out that some firms play a pivotal role in the innovation network: knowledge brokers (individuals or firms that transfer information from one domain to another in which it can be usefully applied).  In a network of firms, a knowledge broker may be a firm that connects clusters of firms that would otherwise share no connection (bridge). CHAPTER 3 – TYPES AND PATTERNS OF INNOVATION Overview  Several dimensions (types of innovations = product vs process, radical vs incremental, competence enhancing vs competence destroying, architectural vs component) are used to categorize innovations o These dimensions help clarify how different innovations offer different opportunities (and pose different demands) on producers, users, and regulators  The path a technology follows through time is termed its technology trajectory (i.e., which may refer to its rate of performance improvement, its rate of diffusion, or other change of interest) o Many consistent patterns have been observed in technology trajectories, helping us understand how technologies improve and are diffused A successful innovation…  …knocks down entry barriers Spotify destroyed both market capabilities and technical capabilities. You can listen to music without extra costs using your internet connection and not buy anything. Only strong artists could choose not to put their new music on Spotify (ex. Adele sells CDs first, then put her songs on the platform). Architectural vs. Component Innovation  A component innovation (or modular innovation) entails changes to one or more components of a product system without significantly affecting the overall design. E.g., adding gel-filled material to a bicycle seat  An architectural innovation entails changing the overall design of the system, or the way components interact. E.g., transition from high-wheel bicycle to safety bicycle. Most architectural innovations require changes in the underlying components also Henderson-Clark Model Component knowledge – How the components of a product/service are linked together in a coherent whole. Architectural knowledge – How each component is functioning (how the core design is implemented). Innovation Value-Added Chain  This model can explain both why an incumbent can outperform new entrants at radical innovation, and why it may also fail at incremental innovation  Focus is not only on the firm but also on its suppliers, customers, and complementary innovators Value added chain For example, an all-electric vehicle might seem like a radical innovation to a manufacturer of internal combustion engines, but to a customer who only has to change how they fuel/charge the vehicle, it might seem like an incremental and competence-enhancing innovation. The Teece Model  Why RC Cola introduced the first diet cola only to see Coca Cola and Pepsi collect most of the profit from it?  Two factors are instrumental to profiting from an innovation: the appropriability regime and complementary assets You can protect the innovation using a patent or the knowledge is tacit. Netflix is an inventor with bargaining power, but there are many platforms competing with Netflix now, so the profits are shrinking; Netflix cannot enjoy anymore the monopoly position. Netflix reduced the offer and started producing original content (vertical integration). What can Netflix leverage in the creation of content that other brands do not have? The brand, and mostly data (Netflix know customer preferences, in order to customize the offer). At the beginning, Pixar and Disney (50-50 joint venture) were in the same position as Netflix. The relative bargaining power change over time because of exogeneous factors (technology became a commodity). Limits of the models shown The previous representations are static in the logic (saying little about dynamic innovation). Bargaining powers change! Dynamic models are being introduced to show the regularity in innovation dynamics. The first representation is the S-Curve.  A major shortcoming of all the models we have examined so far is that they are static  For example, we say that the electric car will be a radical innovation for Ford in 1999 because in that year, the skills that Ford needs to exploit its existing electric car technology are very different from those it uses to exploit its internal combustion engine technology. But we do not look at what happens with the innovation following first adoption…  dynamic models Technology S-Curves The improvements in performance are usually very quick, but there are physical limits to the technology (the efforts made are producing less income over time). Not always a technology reaches its limits (ex. the hard disk drive technology never reaches the maximum level of performance, because there is a discontinuity represented by the flash memory). This is another reason why incumbents may prefer old technologies to new technologies, which are less performing.  Both the rate of a technology’s improvement, and its rate of diffusion to the market typically follow an s-shaped curve  S-curves in Technological Improvement (performance plotted against the amount of effort invested) Technology improves slowly at first because it is poorly understood; then, it accelerates as understanding increases; eventually, it tapers off as approaches limits SLOW INITIAL IMPROVEMENT  ACCELERATED IMPROVEMENT  DIMINISHING IMPROVEMENT Often a technology’s s-curve is plotted with performance against time, but this must be approached with care. (A) Effort not constant over time – The resulting s-curve can obscure the true relationship. (B) Effort constant over time – Plotting performance against time will result in the same curve as plotting performance against effort. (C) Effort decreased or increased over time – The resulting curve could appear to flatten more quickly, or not flatten at all o Technologies do not always get to reach their limits; they may be displaced by new, discontinuous technology  A discontinuous technology fulfills a similar market need by means of an entirely new knowledge base. E.g., switch from carbon copying to photocopying, or vinyl records to compact discs  Technological discontinuity may initially have lower performance than incumbent technology. E.g., first automobiles were much slower than horse-drawn carriages o Firms may be reluctant to adopt new technology because performance improvement is initially slow and costly, and they may have significant investment in incumbent technology  S-Curves in Technology Diffusion (the number of adopters plotted against time) o Adoption is initially slow because the technology is unfamiliar; then, it accelerates as technology becomes better understood; eventually, market is saturated and rate of new adoptions declines o Technology diffusion tends to take far longer than information diffusion  Technology may require acquiring complex knowledge or experience  Technology may require complementary resources to make it valuable (e.g., cameras not valuable without film)  S-Curves as a Prescriptive Tool (as a tool to decide when you want to invest in a new technology) o Managers can use data on investment and performance of their own technologies or data on overall industry investment and technology performance to map s-curve o While mapping the technology’s s-curve is useful for gaining a deeper understanding of its rate of improvement or limits, its use as a prescriptive tool is limited  True limits of technology may be unknown  Shape of s-curve can be influenced by changes in the market, component technologies, or complementary technologies  Firms that follow s-curve model too closely could end up switching technologies too soon or too late  S-curves of diffusion are in part a function of s-curves in technology improvement (as technologies are better developed, they become more useful to users, facilitating their adoption) o Learning curve leads to price drops, which accelerate diffusion (as a given technology diffuses, there is more competition and learning about the technology, bringing prices down) Dynamic Model of Innovation The Fluid phase (1) There is a lot of sperimentation in the industry, and customers do not even know about this phase.  In the fluid phase technology is in a state of flux, and firms have no clear idea whether, when, or where to invest in R&D  Custom designs are common. These are in some ways but experiments in the market place, and they change as producers learn more about market needs and customers understand more about the potential of the evolving technology  Process innovation accounts for very little. Input materials are largely off the shelf, and manufacturing equipment is mostly general purpose  The basis of competition is largely on products The transitional phase (2) A dominant design emerges (ex. touch screens), so the competition is based on product differentiation.  The evolution enters the transitional phase when, as producers learn more about how to meet customer needs through producer-customer interaction and through product experimentation, some standardization of components, market needs and design features take place, and a dominant design emerges (i.e., a product design that is adopted by the majority of producers, typically creating a stable architecture on which the industry can focus its efforts)  The rate of product innovations decreases, and emphasis shifts to process innovation  Competition is on the basis of differentiated products The specific phase (3) The competition is merely on cost.  In the specific phase products built around the dominant design proliferate, and there is more and more emphasis on process innovations, with product innovations being largely incremental  Materials and equipment become very specialised  The basis for competition becomes low cost Dominant Design & Industry Standards The concepts of dominant design and standard are different.  A dominant design can be a new technology, product or a set of key features incorporated from different distinct technological innovations introduced independently in prior product variants. A dominant design is the one that wins the adhesion of the marketplace  Industry standards are format, an interface or a system that allow interoperability (ex. USB-C). A standard can be public (or open) or private (proprietary). Dynamic Model of Innovation Implications: As technology evolves through the different phases, a firm needs different kinds of capabilities in order to profit from the technology Technology Life Cycle Model  To what extent can a firm influence the evolution of the innovation?  To what extent can a firm guide its design to an industry standard?  This depends on the amount of technology uncertainty which, in turns, depends on the complexity of the technology and the stage of evolution Complexity is a function of: 1. The innovation’s dimensions of merit – its attributes as perceived by its local environment 2. The number of interfaces between the innovation and complementary innovations 3. The number of components that make up the innovation and the linkages between them 4. The number of organisations in the innovation’s local environment that are impacted by it The more complex an innovation, the greater the role of non-technical factors such as complementary assets and organisations in the local environment during the innovation’s life cycle  A technology Life Cycle starts with technological discontinuities. These latter are unpredictable innovations which advance a relevant technological frontier by an order of magnitude and which involve fundamentally different product or processes design and that command a decisive cost, performance or quality advantage over prior product forms. Tushman-Rosenkopf Technology Life Cycle Model  Following the discontinuity is the era of ferment, when there is a significant amount of technological and market uncertainty  The emergence of a dominant design substantially reduces technological uncertainty and leads to the era of incremental change Dynamic Model of Innovation Technology Cycles  Anderson and Tushman also found that technological change proceeded cyclically (initial period of turbulence  rapid improvement  diminishing returns  new technological discontinuity) o Each discontinuity inaugurates a period of turbulence and uncertainty (era of ferment) until a dominant design is selected, ushering in an era of incremental change o A dominant design always rose to command the majority of market share unless the next discontinuity arrived too early o The dominant design was never in the same form as the original discontinuity, but was also not on the leading edge of technology. It bundled the features that would meet the needs of the majority of the market  During the era of incremental change, firms often cease to invest in learning about alternative designs and instead focus on developing competencies related to the dominant design o This explains in part why incumbent firms may have difficulty recognizing and reacting to a discontinuous technology CHAPTER 4 – STANDARDS BATTLES AND DESIGN DOMINANCE 📖 Reading – Blu-Ray versus HD-DVD: A Standards Battle in High-Definition Vide This is a winner-take-all market.  From 2003 to 2008, Sony and Toshiba waged a high-stakes war for control over the next generation video format.  Sony’s Blu-Ray technology was backed by a consortium that included Philips, Matsushita, Hitachi, and others.  Toshiba’s HD-DVD had the backing of the DVD Forum, making it the “official” successor to the DVD format.  Both companies lined up major movie studios and video game consoles to promote their standards (Sony’s Playstation 3 and Microsoft’s Xbox 360).  In January 2008, Time Warner’s announcement that it would support Blu-Ray instead of HD DVD triggered a chain reaction that collapsed the support for HD-DVD. Toshiba announced it would cease production of HD-DVD equipment in February of 2008. Overview  Many industries experience strong pressure to select a single (or few) dominant design(s), which is a single product or process architecture that dominates a product category, becoming a standard for the industry  There are multiple dimensions shaping which technology rises to the position of the dominant design  Firm strategies can influence several of these dimensions, enhancing the likelihood of their technologies rising to dominance Why Dominant Designs Appear 1. Learning effect (on the supply side) and collective lock-in (on the demand side) 2. Network externalities o Products where users are linked to a network o Availability of complementary products and services o Economizing on switching costs 3. Tipping: once a certain threshold is reached, cumulative forces become unstoppable  winner- takes-all market Why Dominant Designs Are Selected  The Learning Curve: as a technology is used, producers learn to make it more efficient and effective o The availability of complementary goods  A new technology that has significantly more stand-alone functionality than the incumbent technology may offer less overall value because it has a smaller installed base or poor availability of complementary goods. E.g., NeXT Computers were extremely advanced technologically, but could not compete with the installed base value and complementary good value of Windows- based personal computers  To successfully overthrow an existing dominant technology , new technology often must either offer: o Dramatic technological improvement (e.g., in videogame consoles, it has taken 3X performance of incumbent)  (b) New technology competes only on the value of its stand- alone utility o Compatibility with existing installed base and complements  (c)  When users are comparing the value of a new technology to an existing technology, they are weighing a combination of objective information, subjective information and expectation of the future – Subjective information (perceptions and expectations) can matter as much as objective information (actual numbers), and firms can take advantage of it Ex. Firms use “vaporware” – products that are not actually in the market but are advertised (rapid adoption of the product when it actually is available  Thus, each of the value components has a corresponding perceived or anticipated value components – The value attributed to each dimension may be disproportional  Competing for Design Dominance in Markets with Network Externalities  We can graph the value a technology offers in both stand-alone value and network externality value (examining whether network externalities create pressure for a single dominant design): EXPLANATION – When an industry has network externalities, as shown in the first graph, the value is likely to increase in an s-shape (initially, the benefits may increase slowly; however, beyond some threshold level, the network externality returns begin to increase rapidly, until at some point, most of the benefits have been obtained and the rate of return decreases). As shown in the second graph, a base level of technological utility has been added to the graph, which shifts the entire graph up  We can compare the graphs of two competing technologies, and identify cumulative market share levels (installed base) that determine which technology yields more value EXPLANATION – As shown in the first graph, when A has less than 50 percent market share, B will yield greater overall value, making B more attractive to customers (and vice versa). However, if both technologies earn similar network externality returns to market share, but one technology offers greater stand-alone utility, the indifference point will be shifted in its favor. As shown in the second graph, technology A must have greater than 60 percent market share for A to offer more overall value than B (and vice versa)  When customer requirements for network externality value are satiated at lower levels of market share, more than one dominant design may thrive EXPLANATION – The curves flatten out sooner (large indifference region, ex. video game console industry) Are Winner-Take-All Markets Good for Consumers?  Economics emphasizes the benefits of competition  However, network externalities suggest users sometimes get more value when one technology dominates  Should the government intervene when network externalities create a natural monopoly?  Network externality benefits to customers rise with cumulative market share  Potential for monopoly costs to customers (e.g., price gouging, restricted product variety, etc.) also rise with cumulative market share Curve shapes are different; network externality benefits likely to grow logistically (s-shape), while potential monopoly costs likely to grow exponentially. Where monopoly costs exceed network externality benefits, intervention may be warranted. Optimal market share is at point where lines cross Modularity and Platform Competition In some markets, industry players use modularity to create a platform ecosystem where many different firms contribute to the product system Modular systems are those that can be separated and recombined to change their configuration, scale, or functions  Standardized interfaces ensure that components are compatible  In some product systems modularity enables components from different producers to be recombined (for example, smartphones with different apps); in others only components from a single firm are recombined (for example, Ikea shelving systems) Modularity is more valuable when there are a) diverse technological options that can be recombined, and b) customers have heterogeneous preferences Platform Ecosystems In a platform ecosystem, some core part of a product (such as a video game console) mediates the relationship between a wide range of other components or complements (for example, video games, peripherals) and prospective end-users  A platform’s boundaries can be well-defined with a stable set of members or amorphous and changing  The success of all members of the ecosystem depends in part upon the success of other members  Members often invest in co-specialization or exclusivity agreements Platform ecosystems strike a balance between pure modularity and pure integration CHAPTER 5 – TIMING OF ENTRY Overview  Increasing returns to adoption suggests that timing of entry can be very important  If good is highly imitable, firms prefer to wait while others invest in developing the market  Firms were more likely to enter if they had specialized assets that would be useful in the new subfield or if their current products were threatened by the new subfield  Firms entered earlier when their core products were threatened and there were several potential rivals Strategies to Improve Timing Options  To have more choices in its timing of entry, a firm needs to be able to develop the innovation early or quickly  A firm with fast-cycle development processes can be both an early entrant, and can quickly refine its innovation in response to customer feedback  In essence, a firm with very fast-cycle development processes can reap both first- and second- mover advantages  The research on new product development cycle time indicates that development time can be greatly shortened by using strategic alliances, cross-functional new product development teams, and parallel development processes (i.e., when multiple stages of the new product development process occur simultaneously) PART TWO: FORMULATING TECHNOLOGICAL INNOVATION STRATEGY CHAPTER 6 – DEFINING THE ORGANIZATION'S STRATEGIC DIRECTION Overview  A coherent innovation strategy leverages the firm’s existing competitive position and provides direction for future development of the firm  Formulating this strategy requires: o Appraising the firm’s environment o Appraising the firm’s strengths, weaknesses, competitive advantages, and core competencies o Articulating an ambitious strategic intent Assessing the Firm’s Current Position  External Analysis Two common methods are Porter’s Five-Force Model and Stakeholder Analysis.  Porter’s Five-Force Model 1. Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers (i.e., costs or other commitments that make it difficult for firms to abandon an industry; e.g., large fixed-asset investments, emotional commitment to the industry, etc.). 2. Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (i.e., conditions that make it difficult or expensive for new firms to enter an industry; e.g., start-up costs, brand loyalty, regulation, etc.) 3. Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firm’s inputs obtained from a particular supplier, the portion of a supplier’s sales sold to a particular firm, switching costs (i.e., factors that make it difficult or expensive to change suppliers), and potential for vertical integration. 4. Bargaining power of buyers. Determined by number of buyers, the firm’s degree of differentiation, the portion of a firm’s inputs sold to a particular buyer, the portion of a buyer’s purchases bought from a particular firm, switching costs (i.e., factors that make it difficult or expensive to change buyers), and potential for vertical integration. 5. Threat of substitutes. Determined by number of potential substitutes (i.e., products or services that are not considered competitors, but fulfill a strategically equivalent role for the customer), their closeness in function and relative price. Recently Porter has acknowledged the role of complements (i.e., products that enhance the usefulness and desirability of a good). Must consider: a) how important complements are in the industry, b) whether complements are differentially available for the products of various rivals (impacting the attractiveness of their goods), and c) who captures the value offered by the complements.  Stakeholder Analysis (a strategic stakeholder analysis emphasizes the stakeholder management issues that are likely to impact the firm’s financial performance, while a normative stakeholder analysis emphasizes the stakeholder management issues the firm ought to attend to due to their ethical or moral implications) 1. Who are the stakeholders? 2. What does each stakeholder want? 3. What resources do they contribute to the organization? 4. What claims are they likely to make on the organization?  Internal Analysis  Identify the firm’s strengths and weaknesses. Helpful to consider each element of value chain: (1) primary activities, which include inbound logistics, operations, outbound logistics, marketing and sales, and service; (2) support activities, which include procurement, human resource management, technology development, and infrastructure  Assess which strengths have potential to be sustainable competitive advantage. To be a potential sustainable competitive advantage, resources must be: o Rare o Valuable o Durable Sustainable Competitive AdvantageCompetitive Advantage o Inimitable Resources are difficult (or impossible) to imitate when they are:  Tacit (i.e., they cannot be readily codified in written form)  Path dependent (i.e., they are dependent on a particular historical sequence of events)  Socially complex (i.e., they arise through the complex interaction of multiple people)  Causally ambiguous (i.e., it is unclear how the resource gives rise to value) Identifying Core Competencies and Capabilities Core Competencies: a set of integrated and harmonized abilities that distinguish the firm in the marketplace.  Competencies typically combine multiple kinds of abilities  Several core competencies may underlie a business unit  Several business units may draw from same competency  Core competencies should: o Be a significant source of competitive differentiation o Cover a range of businesses o Be hard for competitors to imitate Prahalad and Hamel compare core competencies to roots, from which grow core products; core products, in turn, give rise to business units, whose fruits are the various end products of the company Risk of Core Rigidities When firms excel at an activity, they can become over committed to it and rigid  Incentives and culture may reward current competencies while thwarting development of new competencies  Dynamic capabilities are competencies that enable the firm to quickly respond to change o For example, firm may develop a set of abilities that enable it to rapidly deploy new product development teams for a new opportunity; firm may develop competency in working with alliance partners to gain needed resources quickly 🔍 Research Brief – Blue Ocean Strategy Cutthroat competition turns the ocean bloody (“red ocean”). Blue oceans refer to untapped market space that firms create by redefining the dimensions of competition, and these strategies are fundamentally about differentiation through innovation. of knowledge across and within subunits that may be quite removed from the original point of entry  At the level of the firm, absorptive capacity is generated: o as a by-product of a firm’s R&D investment o as a by-product of a firm’s manufacturing operations. Production experience provides the firm with the background necessary both to recognize the value of and implement methods to reorganize or automate particular manufacturing processes o Firms also invest in absorptive capacity directly by training Types of Collaborative Arrangements There are numerous types of collaborative arrangements, each with its own advantages or costs  Strategic Alliances: formal or informal agreements between two or more organizations (or other entities) to cooperate in some way; a firms alliance strategy might emphasize: o combining complementary capabilities (capability complementation) or transferring capabilities (capability transfer) o individual alliances or a network of alliances Managers should think carefully about competitive effects, complementing effects, and network structure effects. Downsides – Potential for opportunism and self-interest due to limited levels of mutual commitment  Joint Ventures: a particular type of strategic alliance that entails significant equity investment and often establishes a new separate legal entity  Licensing: a contractual arrangement that gives an organization (or individual) the rights to use another’s intellectual property, typically in exchange for royalties. Downsides – Less control over the technology (for the licensee), loss of monopoly rents on the technology (for the licensor)  Outsourcing: when an organization (or individual) procures services or products from another rather than producing them in-house; one common form of outsourcing is contract manufacturing  Allowing firms to meet the scale of market demand without committing to long-term capital investments or an increase in the labor force, thus giving the firm greater flexibility and the possibility to specialize in those activities central to their competitive advantages. Downsides – Loss of important learning opportunities, and significant transaction costs  Collective Research Organizations: organizations formed to facilitate collaboration among a group of firms (for example, trade associations, university-based centers, or private research corporations) Choosing a Mode of Collaboration Firms should match the trade-offs of a collaboration mode to their needs. Choosing and Monitoring Partners Gaining access to another firm’s skills or resources through collaboration is not without risks (it may be difficult to determine if the resources provided by the partner are a good fit; it is also possible that a collaboration partner will exploit the relationship; furthermore, the firm’s effectiveness at managing its collaborations will decline with the number of collaborations to which it is committed) These risks can be minimized if the company limits the number of collaborations in which it engages, chooses its partners very carefully, and establishes appropriate monitoring and governance mechanisms to limit opportunism  Partner Selection – The success of collaborations will depend in large part on the partners chosen o Resource fit (i.e., the degree to which potential partners have resources that can be effectively integrated into a strategy that creates value): How well does the potential partner fit the resource needs of the project? Are resources complementary or supplementary? o Strategic fit (i.e., the degree to which partners have compatible objectives and styles): Does the potential partner have compatible objectives and styles? o Impact on Opportunities and Threats: How would collaboration impact bargaining power of customers and suppliers, degree of rivalry, threat of entry or substitutes? o Impact on Internal Strengths and Weaknesses: Would collaboration enhance firm’s strengths? Overcome its weaknesses? Create a competitive advantage? o Impact on Strategic Direction: Would the collaboration help the firm achieve its strategic intent?  Partner Monitoring and Governance – Successful collaborations require clear yet flexible monitoring and governance mechanisms o May utilize legally binding contractual arrangements (alliance contracts)  Helps ensure partners are aware of rights and obligations  Provides legal remedies for violations  Contracts often include: 1. What each partner is obligated to contribute 2. How much control each partner has in arrangement 3. When and how proceeds of collaboration will be distributed 4. Review and reporting requirements 5. Provisions for terminating relationship o May also use shared equity ownership (i.e., each partner contributes capital and owns a share of equity in the alliance)  Helps to align the incentives of the partners  Provides a sense of ownership and commitment to the project o May rely on relational governance (self-enforcing governance based on the goodwill, trust, and reputation of partners)  Built over time  Can facilitate more extensive cooperation, sharing, and learning by partners 🔍 Research Brief – Strategic Positions in Collaborative Networks Degree centrality is the number of links an organization has in a network. In general, the degree centrality of an organization tends to be strongly related to its size and prominence; only large organizations typically have the resources necessary to manage a large number of alliances. An organization does not, however, have to be large or prominent to occupy a key brokerage position. Brokerage refers to how crucial an organization is to the transmission of information or other resources through the network. It is often measured with “betweenness centrality”, which is the number of times an organization lies on the shortest path between other pairs of organizations. There is still considerable debate about the relative benefits of centrality and brokerage. There generally is consensus, however, that it is less desirable to be isolated (i.e., not connected to the network) or in a “pendulum” position (i.e., have only one link). CHAPTER 9 – PROTECTING INNOVATION The Digital Music Distribution Revolution  In 1991, Fraunhofer IIS of Germany invents the MP3 format; by late 1990’s the format is wildly popular  In 1999, Shawn Fanning releases Napster, a free software program that allows users to easily share MP3 files (“peer-to-peer”)  The RIAA starts to worry about illegal trade of copyrighted music. In 2001 it gets a court ruling against Napster, taking it offline  However, new peer-to-peer music services began to sprout up to meet the demand of the large population of “music pirates”  In 2003, Apple opens its iTunes Music Store – a one-stop-shop for music files from the five major record labels. Now record industry is earning significant revenues from MP3s  In 2006, France pushes Apple to loosen its restrictions on iTunes music and iPods. Should Apple use a more “open” model?  By 2011, sales of digital music surpassed the sale of physical music for the first time. However, some analysts anticipated a move away from music ownership altogether, with users instead just listening to music streamed from services such as Pandora and Spotify Overview  Firms must decide whether and how to protect their technological innovations  Protecting innovation helps a firm retain control over it and appropriate the rents from it  However, sometimes not protecting a technology is to the firm’s advantage – it may encourage others to support the technology and increase its likelihood of becoming dominant Appropriability Appropriability: the degree to which a firm is able to capture the rents from its innovation  Trademark Protection around the World o Two treaties simplify registration of trademarks in multiple countries: Madrid Agreement Concerning the International Registration of Marks, and the Madrid Protocol (= Madrid Union, 85 members)  Copyright  Copyright: a form of protection granted to works of authorship o Copyright prohibits others from:  Reproducing the work in copies or phonorecords  Preparing derivative works based on the work  Distributing copies or phonorecords for sale, rental, or lease  Performing the work publicly  Displaying the work publicly o Work that is not fixed in tangible form is not eligible o Copyright is established in first legitimate use o However, “doctrine of fair use” stipulates that others can typically use copyrighted material for purposes such as criticism, new reporting, teaching research, etc.  Process –No publication or registration with the Copyright Office is necessary to establish this copyright, though registering the copyright establishes a public record of the copyright claim and is required before filing an infringement suit in court. It took about 3-10 months to receive a certificate of registration.  Protection – Copyright for works created after 1978 have protection for author’s life plus 70 years (revision of the U.S. copyright law)  Costs – Basic online registration of copyright with the U.S. Copyright Office cost $35  Copyright Protection Around the World o Copyright law varies from country to country o However, the Berne Union for the Protection of Literary and Artistic Property (“Berne Convention”) specifies a minimum level of protection for member countries o Berne convention also eliminates differential rights to citizens versus foreign nationals Trade Secrets Trade Secret: information that belongs to a business that is generally unknown to others  Firm can protect proprietary product or process as trade secret without disclosing detailed information that would be required in patent  Enables broad class of assets and activities to be protectable  To qualify as a trade secret (under the Uniform Trade Secret Act): o Information must not be generally known or ascertainable o Information must offer a distinctive advantage to the firm that is contingent upon its secrecy o Trade secret holder must exercise reasonable measures to protect its secrecy  In most U.S. states, if owners of a trade secret believe that another party has stolen or improperly disclosed their trade secret, they can ask a court to issue an injunction against further use of the secrets, and they may also be able to collect damages for any economic harm The Effectiveness and Use of Protection Mechanisms  In some industries, legal protection mechanisms are more effective than others. E.g., in pharmaceutical patents are powerful; in electronics they might be easily invented around  It is notoriously difficult to protect manufacturing processes and techniques  In some situations, diffusing a technology may be more valuable than protecting it (for example, in industries characterized by increasing returns  firms sometimes choose to liberally diffuse their technologies to increase their likelihood of rising to the position of dominant design)  However, once control is relinquished it is difficult to reclaim; the solution is adopting a strategy of partial protection for innovations 🔍 Theory in Action – IBM and the Attack of the Clones  In 1980, IBM was in a hurry to introduce a personal computer (PC). It used off-the-shelf components such as Intel microprocessors and an operating system from Microsoft, MS DOS  It believed that its proprietary basic input/output system (BIOS) would protect the computer from being copied  However, Compaq reverse engineered the BIOS in a matter of months without violating the copyright, and quickly introduced a computer that behaved like an IBM computer in every way. Compaq sold a record-breaking 47,000 IBM-compatible computers in its first year, and other clones were quick to follow The Effectiveness and Use of Protection Mechanisms  Wholly Proprietary Systems vs. Wholly Open Systems o Wholly proprietary systems may be legally produced or augmented only by their developers (i.e., goods based on technology that is owned and vigorously protected through patents, copyrights, secrecy, or other mechanisms) o Wholly open systems may be freely accessed, augmented and distributed by anyone (i.e., goods based on technology that is not protected by secrecy or patents) o Many technologies lie somewhere between these extremes, and many technologies that were once wholly proprietary or partially open become wholly open once their patents or copyrights expire  Advantages of Protection o Proprietary systems offer greater rent appropriability o Rents can be used to invest in further development, promotion, and distribution o Gives the firm (architectural) control over the evolution of the technology and complements (i.e., the ability of a firm to determine the structure, operation, compatibility, and development of a technology)  Advantages of Diffusion o May accrue more rapid adoptions (by customers and complementary good providers) if produced and promoted by multiple firms o Technology might be improved by other firms (though external development poses its own risks, such as lack of coordination) 🔍 Theory in Action – Sun Microsystems and Java  In 1995, Sun developed a software programming language called Java that enabled programs to be run on any operating system (e.g., Windows, Macintosh). This would lessen pressure for one operating system to be dominant  Members of the software community felt that Sun should make Java completely “open” – they argued that “Java is bigger than any one company”  However, Sun was afraid that if Java were completely open, companies would begin to customize it in ways that would fragment it as a standard  Sun decided to distribute Java under a “community source” program: no license fees, but all modifications to Java required compatibility tests performed by Java’s own standards body The Effectiveness and Use of Protection Mechanisms  Firms must carefully consider the following factors in deciding whether, and to what degree, it should protect its innovation (factors influencing benefits of protection vs. diffusion) o Production Capabilities, Marketing Capabilities, and Capital (Can firm produce the technology at sufficient volume or quality levels? Are complements important? Are they available in sufficient range and quality? Can the firm afford to develop and produce them itself?) – If the firm is unable to produce the technology at sufficient volume or quality levels, then protecting the technology may hinder its adoption. If a firm lacks the production capability or expertise to produce a sufficient range of complementary goods, or the capital to acquire such capabilities quickly, it should encourage collective production of complements through a more open technology strategy and utilize forms of sponsorship o Industry Opposition against Sole-Source Technology (Is there industry opposition against sole source technology?) – If the industry is able to pose significant opposition, the firm may need to consider a more open technology strategy to improve the technology’s likelihood of being chosen as a dominant design o Resources for Internal Development (Can the firm improve the technology well enough and fast enough to compete with others?) – If a firm does not have significant resources to invest in the technology’s functionality, it can be valuable to tap the external development efforts of other firms through utilizing a more open technology strategy o Control over Fragmentation (How important is it to prevent the technology from being altered in ways that fragment it as a standard?) – The developer of any technology that requires standardization and compatibility should retain some degree of control over the technology o Incentives for Architectural Control (How valuable is architectural control to the firm? Does it have a major stake in complements for the technology?) – Architectural control over the evolution of a technology becomes particularly valuable if a firm is a significant producer of complements to the technology in question; a firm with architectural control can typically design the technology to be compatible with its own complements and incompatible with those of competitors CHAPTER 10 – ORGANIZING FOR INNOVATION Overview  A firm’s size and structure will impact its rate and likelihood of innovation  Some structures may foster creativity and experimentation; others may enhance efficiency and coherence across the firm’s development activities  There may also be structures that enable both simultaneously  Some structural issues are even more significant for the multinational firm Size and Structural Dimensions of the Firm  Size: Is Bigger Better? o In a loosely coupled organization, activities are not slightly integrated; they achieve coordination through adherence to shared objectives and standards o Less need for integration enables firms to pursue more flexible configurations; may specialize in a few activities and outsource others o Results in a network of loosely connected firms or divisions of firms o May not be good when very close coordination is needed, or when there is high potential for conflict 🔍 Theory in Action – The Loosely-Coupled Production of Boeing’s 787 Dreamliner  The Dreamliner was a super-efficient long-range mid-sized airliner manufactured primarily from carbon fiber composites that make it lighter and more fuel efficient  The aircraft itself was designed as large individual modules that could be quickly snapped together  The production process was also more loosely coupled: dozens of partners from around the world built and preassembled large pieces of the plane which were then delivered to Boeing for final assembly  The dramatic increase in outsourcing helped to spread the risks of development, contain costs, and facilitate foreign sales  On the other hand, the large number of suppliers made coordination more complex and lead to several delays (Boeing’s management was considering bringing more of the work back in-house) Managing Innovation Across Borders  Centralization versus decentralization is a particularly important issue for multinational firms o Foreign markets offer diverse resources, and have diverse needs o Innovation tailored to local markets might not be leveraged into other markets  Customization might make them poor fit for other markets  Divisions may be reluctant to share their innovations  Other divisions may have “not invented here” syndrome  Bartlett and Ghoshal identify four strategies of multinational innovation o Center-for-global: all R&D activities centralized a single hub  Tight coordination, economies of scale, avoids redundancy, develops core competencies, standardizes and implements innovations throughout firm o Local-for-local: each division does own R&D for local market  Accesses diverse resources, customizes products for local needs o Locally leveraged: each division does own R&D, but firm attempts to leverage most creative ideas across company (R&D decentralized and linked to each other, but working on all development activities relevant to the region in which they operate)  Accesses diverse resources, customizes products for local needs, improve diffusion of innovation throughout firm and markets o Globally linked: decentralized R&D labs but each plays a different role in firm’s strategy and are coordinated centrally (R&D decentralized and linked to each other, but specializing in a particular development activity)  Accesses diverse resources, improve diffusion of innovation throughout firm and markets, may help develop core competencies o Bartlett and Ghoshal encourage transnational approach: resources and skills anywhere in firm can be leveraged to exploit opportunities in any geographic market. Requires: 1. Reciprocal interdependence among divisions 2. Strong integrating mechanisms such as personnel rotation, division-spanning teams, etc. 3. Balance in organizational identity between national brands and global image CHAPTER 11 – MANAGING THE NEW PRODUCT DEVELOPMENT PROCESS Overview  Despite the intense attention paid to innovation, failure rates are still very high  More than 95% of new product development projects fail to earn an economic return  How to make new product development more effective and efficient? Objectives of the New Product Development Process For new product development to be successful, it must simultaneously achieve three sometimes-conflicting goals: (1) Maximizing the product’s fit with customer requirements – For a new product to be successful in the marketplace, it must offer more compelling features, greater quality, or more attractive pricing than competing products (2) Minimizing the development cycle time (i.e., the time elapsed from project initiation to product launch) – Despite some risks, most studies have found a strong positive relationship between speed and the commercial success of new products. First, many development costs increase as the development cycle lengthens; second, a company that is slow to market with a particular generation of technology is unlikely to be able to fully amortize the fixed costs of development before that generation becomes obsolete; finally, a company with a short development cycle can quickly revise/upgrade its offering (3) Controlling development costs – Sometimes it is impossible to recoup the development expenses even if the product is enthusiastically received by the market (development efforts must be not only effective, but also efficient) Sequential versus Parallel Development Processes  Before mid-1990s, most US companies used sequential NPD process (from one development stage to another in a sequential fashion); now many use partly parallel process (i.e., a development process in which some of the development activities at least partially overlap ; that is, if activity A would precede activity B in a partly parallel development process, activity B might commence before activity A is completed)  Partly parallel process shortens overall development time, and enables closer coordination between stages  In some situations, however, a parallel development process can increase risks (especially in markets characterized by rapid change and uncertainty) Project Champions  68% of North American firms, 58% of European firms, and 48% of Japanese firms report using senior executives to champion their NPD projects  Benefits of Championing o Senior execs have power to fight for project o They can gain access to resources o They can communicate with multiple areas of firm  Risks of Championing o Role as champion may cloud judgment about project o May suffer from escalating commitment o Others may fear challenging senior executive  May benefit firm to develop “antichampions” and encourage expression of dissenting opinion 🔍 Theory in Action – The Development of Zantac  In the 1970s, David Jack of Glaxo Holdings began working on an ulcer drug. Unfortunately, SmithKline Beecham beat Glaxo to market, introducing Tagamet in 1977  Jack decided to introduce an improved product, and implemented the first parallel process in pharmaceuticals to beat Merck and Eli Lilly to market. The compressed development process would shorten development time, but was also expensive and risky  Fortunately, Paul Girolami, Glaxo’s director of finance, chose to champion the project, and encouraged Jack to develop improvements to the product which would differentiate it  By 1987, Glaxo’s Zantac was outselling Tagamet. Jack and Girolami were knighted, and Girolami became Glaxo’s chairman 🔍 Research Brief – Five Myths About Product Champions Markham and Aiman-Smith argue that a number of myths have become widely accepted about champions  Myth 1: Projects with champions are more likely to be successful in the market (many factors determining market success are typically beyond champion’s control)  Myth 2: Champions get involved because they are excited about project rather than from self- interest (results suggest that champions more likely to support projects that benefit their own departments)  Myth 3: Champions are more likely to be involved with radical innovation projects (equally likely to be involved with incremental projects)  Myth 4: Champions are more likely to be from high (low) levels in firm (either is equally likely)  Myth 5: Champions are more likely to be from marketing (15% from R&D, 14% from marketing, rest were from other functions or were users) Involving Customers and Suppliers in the Development Process  Involving Customers o Customer is often best able to identify the maximum performance capabilities and minimum service requirements of new product o Customers may be involved on NPD team o Firms may also use beta testing to get customer input early in the development process (a “beta version” of a product is an early working prototype of a product released to users for testing and feedback) o Some studies suggest that it is more valuable to use “lead users” than a random sample of customers  Lead users: customers who face the same general needs of marketplace but experience them earlier than rest of market and benefit disproportionately from solutions  Firms reported using lead user method for 38% of the projects they undertook, on average o Crowdsourcing  The stage-gate process can be modified to better fit a firm’s particular development needs o E.g., Exxon Research and Engineering’s stage-gate system, with two basic research stages (A and B), plus five applied research and development stages (1-5) o Nearly 60% of firms use some type of stage-gate process to manage their NPD process  Quality Function Deployment (QFD) – The House of Quality  QFD improves communication and coordination between engineering, marketing, and manufacturing; the organizing framework for QFD is the “house of quality”, which is a matrix that maps customer requirements against product attributes  Steps for QFD 1. Team identifies customer requirements 2. Team weights requirements in terms of relative importance 3. Team identifies engineering attributes that drive performance 4. Team enters correlations between different engineering attributes 5. Team indicates relationship between engineering attributes and customer requirements 6. Team multiplies customer importance rating by relationship to engineering attribute and then sums for each attribute 7. Team evaluates competition 8. Using relative importance ratings for engineering attributes and scores for competing products, team determines design targets 9. Team evaluates the new design based on the design targets  Design for Manufacturing Design for Manufacturing often involves a set of design rules that reduce costs and development time, while boosting quality and increasing the product’s fit with customer requirements (considering manufacturing at an early stage of the design process)  Failure Modes and Effects Analysis FMEA is a method by which firms identify potential failures in a system, classify them according to their severity, and create a plan to prevent them  Potential failure modes are evaluated on three criteria of risk: severity, likelihood, and inability of controls to detect the failure  Each criteria is given a score (1-lowest, 5-highest)  Composite score is used to prioritize development efforts  Computer-Aided Design/Computer-Aided Manufacturing  Computer-Aided Design (CAD) is the use of computers to build and test designs o Enables rapid and inexpensive prototyping (reducing cycle time and lowering costs)  Computer-Aided Manufacturing (CAM) is the use of machine-controlled processes in manufacturing o Increases flexibility by enabling faster changes in production set ups; more product variations can be offered at a reasonable cost o Three-dimensional printing (or additive manufacturing) is a method whereby a design is printed by laying down thin horizontal strips of material until the model is complete 🔍 Theory in Action – Computer-Aided Design of an America’s Cup Yacht  Normally designing America’s Cup yachts required several months to develop smaller-scale models at a cost of $50,000 per prototype  Using computer-aided design, Team New Zealand was able to consider many design specifications in a matter of hours at little cost, enabling more insight into design trade-offs  Computer-aided design also avoided inaccurate results from using scaled-down prototypes CHAPTER 12 – MANAGING NEW PRODUCT DEVELOPMENT TEAMS Overview  Many organizations now use cross-functional teams to lead and manage the NPD process  There is considerable variation in how these teams are formed and managed  Key variables: size, composition, structure, administration, and leadership of teams Type of Projects  Advanced R&D Projects: develop cutting-edge technologies; often no immediate commercial application  Breakthrough Projects: incorporate revolutionary new technologies into a commercial application  Platform Projects: not revolutionary, but offer fundamental improvements over preceding generations of products  Derivative Projects: incremental improvements and variety in design features Constructing New Product Development Teams  Team Size o May range from a few members to hundreds o Bigger is not always better ; large teams create more administrative costs and communication problems, leading to costly delays o Large teams have higher potential for social loafing (i.e., when an individual in a team does not exert the expected amount of effort and relies instead on the work of other team members)  Team Composition o Including members from multiple functions of firm ensures greater coordination between functions o Firms around the world rely heavily on cross-functional teams for their new product development efforts o Diversity in functional backgrounds increases breadth of knowledge base of team o Other types of diversity (e.g., organizational tenure, cultural, gender, age, etc.) can be beneficial as well  Provides broader base of contacts within and beyond firm  Ensures multiple perspectives are considered o However, diversity can also raise coordination and communication costs  Individuals prefer to interact with those they perceive as similar (“homophily”)  May be more difficult to reach shared understanding  May be lower group cohesion o Extended contact and incentives can overcome some of these challenges 🔍 Research Brief – Boundary-Spanning Activities in NPD Teams  Ancona and Caldwell studied 45 NPD teams to identify the roles team members engage in to collect information and resources within and beyond the firm. Found three primary types of boundary-spanning activities: o Ambassador activities: representing team to others and protecting team from interference o Task coordination activities: coordinating team’s activities with other groups o Scouting activities: scanning for ideas and information that might be useful to the team  Scouting and ambassador activities more beneficial early in development cycle; task coordination activities beneficial throughout life of team. Structure of New Product Development Teams  One well-known typology of team structure classifies teams into four types: o Functional o Lightweight o Heavyweight o Autonomous