Sources of Innovation

• Technological innovation drives competition and economic success.
• Many companies generate over 33% of their revenue from products developed within the last five years.
• Globalization and advanced technologies enable rapid product design and shorter production runs.
• Innovation boosts GDP, enhances communication, mobility, and improves medical treatments.
• Negative innovation externalities include pollution and resource depletion.
• Governments and industries fund these R&D efforts.
• Understanding innovation dynamics, strategy, and implementation is key for innovation.

Sources of Innovation

• Creativity relies on intelligence, knowledge, thinking styles, personality, motivation, and environment.
• Individual inventors contribute to innovation.
• Users are another source of innovation.
• Firms invest in R&D and collaborate.
• Universities engage in research and technology transfer.
• Governments conduct and fund R&D and support collaboration.
• Collaborative networks are vital, especially in high-tech.
• Regional technology clusters enhance collaboration.
• Technology spillovers spread knowledge and innovation benefits.

Types and Patterns of Innovation

• Innovation includes product and process, radical and incremental, competence-enhancing and competence-destroying, and architectural and component.
• Technology performance follows an S-curve pattern.
• Market adoption also follows an S-curve.
• Technologies may exceed market needs.
• Technological change cycles consist of discontinuity, turbulence, dominant design, efficiency focus, then a new discontinuity.
• The first design after a breakthrough rarely becomes dominant.

Standards and Increasing Returns

• Increasing returns to adoption make technologies more valuable as they spread.
• Learning-curve effects improve efficiency and reduce costs.
• Network externalities enhance value as more users adopt a technology.
• Some industries standardize technology through regulation.
• Increasing returns can create winner-take-all markets.
• Technology value relies on utility, cost, installed base, and complementary goods.
• Customer perceptions and expectations influence technology adoption.
• Firms shape perceptions through advertising, preorders, and partnerships.
• Markets support multiple standards; others converge on one technology.
• Modularity enables customization and diverse product offerings.
• Platform ecosystems facilitate technology adoption.

Timing of Entry

• First movers build brand loyalty, secure resources, and create switching costs.
• Learning curves and network effects benefit first movers.
• First movers face high R&D costs, consumer uncertainty, and immature supply chains.
• Second movers can refine technology and avoid first-mover risks.
• Customer uncertainty challenges first movers.
• Optimal entry timing depends on innovation advantage, enabling technologies, customer readiness, competition, and firm resources.
• Fast-cycle firms can innovate quickly and act as fast followers.

Defining the Firm’s Strategic Direction

• External analysis tools include Porter’s Five Forces and stakeholder analysis.
• Internal analysis identifies strengths, weaknesses, and competitive advantage sources.
• Core competencies differentiate firms but can become rigidities.
• Dynamic capabilities help firms adapt to changing environments.
• Strategic intent involves goals leveraging core competencies.
• Firms identify resources and capabilities needed to achieve strategic intent.
• The balanced scorecard evaluates goals from financial, customer, process, and innovation perspectives.

Choosing Innovation Projects

• Firms use qualitative and quantitative methods for project evaluation.
• Capital rationing limits project funding choices.
• Quantitative methods include NPV and IRR.
• Real options approach accounts for long-term strategic value.
• Qualitative methods involve screening questions.
• Firms maintain a balanced project portfolio.
• Project mapping assesses balance and resource allocation.
• Q-sort ranks projects, facilitating discussion.
• Conjoint analysis quantifies customer preferences.
• Data envelopment analysis (DEA) compares projects based on multiple criteria and efficiency.