Innovation Management and

New Product Development

7th edition
Part 2: TURNING TECHNOLOGY INTO BUSINESS

Chapter 7

Managing organisational
knowledge
Learning Objectives
When you have completed this chapter you will be able to:

✓ explain the significance of technology trajectories for firms investing in

technology;
✓ recognise the importance of firm-specific competencies in generating long-
term profits;
✓ provide an understanding of the role of an organisation’s knowledge base in
determining innovative capability;
✓ provide an understanding of the concept of the learning organisation;
innovation management; and
✓ recognise a variety of different innovation strategies.
Chapter contents
1. Technology trajectories
2. The knowledge base of an organisation
3. The learning organisation Innovation, competition and
further innovation
4. Developing innovation strategies
Case study: The cork industry, the wine industry and the need for
closure
TECHNOLOGY TRAJECTORIES

▪ Acquiring knowledge about technology takes time, involves people and

experiments and requires learning.
▪ To exploit technological opportunities, a firm needs to be on the ‘technology
escalator’.
▪ The choices available to the firm in terms of future direction are dependent on
its own capabilities, that is, the firm’s level of technology, skills developed,
intellectual property, managerial processes and its routines.
▪ The choices made by any firm must take place in a changing environment,
characterised by changing levels of technology, changing market conditions
and changing societal demands. Teece and Pisano (1994) refer to this
concept as the dynamic capabilities of firms.
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TECHNOLOGY TRAJECTORIES

〉 The acquisition of firm-specific knowledge: Firms need to acquire knowledge

that is useful and applicable.
▪ This is clearly dependent on the firm’s prior knowledge and introduces the notion
of absorptive capacity (refers to a firm’s ability to acquire and utilise new
knowledge).

〉 The resource-based perspective (RBP): is dependent on two basic principles:

▪ There are differences between firms based upon the way they manage
resources and how they exploit them (Nelson, 1991).
▪ These differences are relatively stable.

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TECHNOLOGY TRAJECTORIES

〉 Dynamic competence-based theory of the firm

sees both the external and internal environments
as dynamic: the external environment is constantly
changing as different players manoeuvre
themselves and a company’s internal environment
is also evolving

〉 Dynamic competences enable innovation:

dynamic capabilities that relate to the innovation of
the way innovation is pursued. These are highly
creative ‘reconfigurations’ of thinking and
methods for innovating.

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TECHNOLOGY TRAJECTORIES

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 TECHNOLOGY TRAJECTORIES

〉 Developing firm-specific competencies: Technology

in itself does not mean success; firms must be able to
convert intellect, knowledge and technology into things
that customers want. This ability is referred to as a
firm’s competencies: the ability to use its assets to
perform value-creating activities.
▪ Hamel and Prahalad (1994) use the metaphor of the tree
to show the linkages between core competencies and
end products: a firm’s core competencies are
comparable to the roots of a tree, with the core products
representing the trunk and business units smaller
branches and final end products being flowers, leaves
and fruit.

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TECHNOLOGY TRAJECTORIES

〉 Competencies and profits: According

to Hamel and Prahalad, a firm’s ability to
generate profits from its technology
assets depends on the level of protection
it has over these assets and the extent to
which firms are able to imitate these
competencies.

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TECHNOLOGY DEVELOPMENT AND EFFORT REQUIRED

▪ Foster (1986) and Abernathy and

Utterback (1978) argue that the rate of
technological advance is dependent on
the amount of effort put into the
development of the technology.
➢ Technology life cycles and S-curves:
Under normal circumstances,
technological progress starts off slowly,
then increases rapidly and, finally,
diminishes as the physical limits of the
technology are approached.

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INNOVATION, COMPETITION AND FURTHER INNOVATION

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INNOVATION, COMPETITION AND FURTHER INNOVATION

▪ The introduction of a new technology

will cause a reaction: competitors will
respond to this new product, hence
technological progress depends on
factors other than those internal to the
firm.
➢ Abernathy and Utterback (1978) argued
there were three phases in an
innovation’s life cycle: fluid, transitional
and specific phase.

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INNOVATION, COMPETITION AND FURTHER INNOVATION

〉 Dominant design: Winning the battle for the dominant design is desirable
because it will enable the firm to collect monopoly rents, providing imitation can
be limited, possibly with the use of intellectual property rights..

〉 Radical and incremental innovation: Incremental innovation reinforces the

capabilities of established organisations, whilst 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.

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INNOVATION, COMPETITION AND FURTHER INNOVATION

〉 Radical and incremental innovation:

▪ The first is an internal dimension, based on the knowledge and resources involved.
An incremental innovation will build upon existing knowledge and resources within
the firm, leading to the enhancement of its competencies. Whereas a radical
innovation will require completely new knowledge and/or resources and may,
therefore, destroy many of the existing competencies.These differences are
relatively stable.
▪ The second dimension is external. It differentiates the innovation based on the
technological changes and the impact upon the market competitiveness. An
incremental innovation will involve modest technological changes and the existing
products in the market will remain competitive. A radical innovation will, instead,
involve large technological advancements, rendering the existing products
uncompetitive and, eventually, obsolete.
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DEVELOPING INNOVATION STRATEGIES

〉 Leader/offensive: The strategy here centres on the advantages to be

gained from a monopoly, in this case a monopoly of the technology. The
aim is to try to ensure that the product is launched into the market before
the competition.
▪ This should enable the company either to adopt a price-skimming policy, or to
adopt a penetration policy based on gaining a high market share.
▪ Such a strategy demands a significant R&D activity and usually is
accompanied by substantial marketing resources to enable the company to
promote the new product.
▪ This may also involve an element of education about the new product.

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DEVELOPING INNOVATION STRATEGIES

〉 Fast follower/defensive: the company may develop improved versions of

the original, improved in terms of lower cost, different design, additional
features, etc..
▪ The company needs to be agile in manufacturing, design and development
and marketing.
▪ This will enable it to respond quickly to those companies that are first into the
market.
▪ Without any in-house R&D, their response would have been much slower, as
this would have involved substantially more learning and understanding of the
technology.

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DEVELOPING INNOVATION STRATEGIES

〉 Cost minimisation/imitative: This strategy is based on being a low-cost

producer and success is dependent on achieving economies of scale in
manufacture.
▪ The company requires exceptional skills and capabilities in production and
process engineering.
▪ Technology often is licensed from other companies. However, it is still
possible to be extremely successful and even be a market leader in terms of
market share.
➢ With lower labour costs, Asian developing economies have offered companies
the opportunity to imitate existing products at lower prices, helping them enter
and gain a foothold in a market.

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DEVELOPING INNOVATION STRATEGIES

〉 Market segmentation specialist/traditional: This strategy is based on

meeting the precise requirements of a particular market segment or niche.
▪ Large-scale manufacture usually is not required and the products tend to be
characterised by few product changes. Often, they are referred to as
traditional products.
▪ Indeed, some companies promote their products by stressing the absence of
any change, for example Scottish whisky manufacturers.

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DEVELOPING INNOVATION STRATEGIES

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A TECHNOLOGY STRATEGY PROVIDES A LINK BETWEEN
INNOVATION STRATEGY AND BUSINESS STRATEGY

〉 For each of the strategies discussed above, there are implications in terms
of the capabilities required.
▪ When it comes to operationalising the process of innovation, this invariably
involves considering the technology position of the firm. Hence, the
implementation of an innovation strategy usually is achieved through the
management of technology.
▪ Many decisions regarding the choice of innovation strategy will depend on the
technology position of the firm with respect to its competitors. This will be
based largely on the heritage of the organisation.
▪ In addition, the resource implications also need to be considered.
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KEY WORDS

▪ Technology trajectories
▪ Dynamic capabilities
▪ Core competency
▪ Knowledge base of an organisation
▪ Organisational heritage
▪ Learning organisation
▪ Dominant design
▪ Technology strategy
1. Explain the role played by core competencies in a firm’s strategic planning.
2. What is meant by the technology escalator in the concept of technology trajectories?
3. Explain why a business’s heritage needs to be considered in planning future strategy.
4. Try to plot two firms in each of the quadrants on the profit–competency matrix (Figure
7.4).
5. Explain the difference between individual knowledge and organizational knowledge and
show how an organisation’s knowledge can be greater than the sum of individual
knowledge bases.
6. How would you compare the knowledge bases of two organisations?
7. How can late entrants win the innovation race?
 The cork industry, the
wine industry and the
need for closure

Read The case study in your Textbook, pg. 238

CASE STUDY
ANALYSIS
To Our Next Week

Part 2: TURNING TECHNOLOGY INTO BUSINESS

Read
Chapter 7 – Strategic alliances and
networks (pg. 252)