Innovation Challenges in BioBusiness Notes PDF

Innova&on Challenges in Biobusiness Introduc)on 24.10.2023 Why does innova-on ma/er? “The fundamental impulse that sets and keeps the capitalist engine in mo)on comes from the new consumers’ goods, the new methods of produc)on or transporta)on, the new markets, the new forms of industrial organiza)on that capitalist enterprise creates.... key aspect of economic development is the compe))ve elimina)on of the old forms of produc)on. This process of ‘crea)ve destruc)on’ is a fundamental trait of capitalism.” Joseph A. Schumpeter. This means that Capitalism is an economic system driven by the constant need for innova)on and improvement. It thrives on crea)ng and selling new and beKer products, ﬁnding more eﬃcient ways to produce and transport those products, and discovering new markets to sell them in. To make room for these innova)ons, capitalism oNen replaces old and less eﬃcient methods with newer and more eﬃcient ones, a process known as "crea)ve destruc)on." This con)nuous cycle of crea)ng, improving, and replacing is what keeps the capitalist economic engine running. The Schumpeterian view on innova)on, as formulated by Joseph Schumpeter, emphasizes that innova)on is the primary engine of economic progress. It is characterized by the concept of "crea)ve destruc)on," where new innova)ons replace exis)ng ones, leading to economic growth. Central to this view is the role of entrepreneurs who disrupt established markets and create new opportuni)es through their innova)ve ac)vi)es. Schumpeter also recognized that innova)on occurs in waves or cycles, with periods of rapid technological change followed by more stable periods of incremental improvements. Innova)on is seen as a source of proﬁt and a fundamental driver of economic development, mo)va)ng entrepreneurs to introduce new technologies, products, and business methods. Innova)on also contributes greatly to society. It has been found to have a posi)ve impact on: 1) GDP: Innova)on plays a vital role in shaping a country's Gross Domes)c Product (GDP), as ﬁrst highlighted by Solon in 1957. In economic modeling, GDP is oNen seen as a result of the combined contribu)ons of labor, capital, and a residual component represen)ng everything else. Notably, this residual component is signiﬁcantly inﬂuenced by technical change, or innova)on. Technological advancements, new products, and improved processes contribute to this residual component, ul)mately driving economic growth and enhancing GDP. 2) Health: Innova)on drives new and beKer medical equipment, diagnosis methods, drugs and healthcare systems, which in the end lead to a higher health level in society. 3) Consumers and society: Innova)on makes new and improved products & services available for consumers. Most of the )mes innova)on relates with reduces cost of exis)ng goods, which poses a clear beneﬁt for the consumer. Innova)on has shown to increase private wealth, social welfare as well as longer and healthier lives due to speciﬁc inven)ons. So overall, it establishes itself as an important factor with posi)ve inﬂuence on economic growth. 4) Companies: If companies want to achieve superior performance, they need to gain sustained compe))ve advantage. This can be achieved through product diﬀeren)a)on and reduced price compe))on, both of which are accessible through innova)on and crea)on of new and improved products & services. However, while oﬀering numerous beneﬁts, innova)on can have poten)al nega)ve consequences, including job displacement, increased inequality, privacy concerns, security risks, ethical dilemmas, environmental impact, and social isola)on. It may also lead to resistance to change, cultural erosion, overreliance on technology, and unintended consequences. Addressing these issues requires responsible regula)on and ethical considera)ons to balance the beneﬁts of innova)on with its poten)al risks and challenges. Inven-ons vs. Innova-ons Inven)on is the ﬁrst occurrence of an idea for a new product or process, while innova)on is the ﬁrst aKempt to carry it out into prac)ce. Innova)on thus encompasses more strongly the implementa)on and commercializa)on intent. This for example can be the diﬀerence between discovering a chemical compound that can be used for a therapeu)c approach vs. an approved medical drug based on that compound. Or the Da Vincy’ ﬂying machine design vs.The linear the ﬁrst model of innovation use of parachutes. Innovation as a linear process Basic Research Applied Research Development & Product & market experimental testing launch Scientific Discovery Invention Innovation Some notes: Here innova)on is portrayed as a linear process, having basic research as the ﬁrst step ending in product launch between Boundaries to the market. phasesNote that boundaries may be ﬂuid and feedback loops may fluid exist, meaning that a technology / inven)on needs to go back into basic research before Feedback star)ng loops mayphase. the development exist Incremental vs. radical innovation Foundation for “stage-gate model” (c.f. lecture 9) Incremental vs. radical innova-on Incremental Innovation Radical Innovation 29 The radicalness of an innova)on is the degree to which it is new and diﬀerent from previously exis)ng products and processes. Incremental innova)ons may involve only minor changes or modiﬁca)on from exis)ng products and prac)ces. The diﬀerence between incremental and radical innova)on can be seen as a con)nuum. 3 Incremental innova&on Radical innova&on Reinforces capabili)es of the ﬁrm May require diﬀerent set of scien)ﬁc and technological principles Cumula)ve nature: Create new products New markets and poten)al new built on past products applica)ons Stable design and consistent interfaces Diﬃcul)es for established ﬁrms and between components in the product opportuni)es for new entry Compe)ng for small shiNs in the market ONen new ques)ons, new technical and share commercial skills, and new problem solving required Typically stable markets New dominant design may emerge. For example, the osteoporosis treatment was dominated by bisphosphonates un)l it was changed by the use of monoclonal an)body. This represents a radical innova)on example, because this new approach oﬀers a novel mechanism of ac)on and a diﬀerent treatment paradigm. It is not merely an incremental improvement or modiﬁca)on of the exis)ng bisphosphonate therapies but rather a fundamental shiN in the way osteoporosis is treated. Architectural vs modular innova-on Many products, services and designs are modular systems, where components can be designed on themselves. Yet, the overall product performance also depends on the interac)ons between the components. One example for this would be the PC. In a PC, various components, such as the central processing unit (CPU), memory modules, hard drive, graphics card, and power supply, are designed as separate modules. Each component can be individually upgraded or replaced without aﬀec)ng the en)re system. However, the overall performance of the PC is not solely determined by the quality of each individual component. It also relies on how well these components interact with each other. Architectural innova)ons change the way in which product components interact, whilst leaving the core design of the components untouched. One example for this could be the modern smartphone. The fundamental components of a smartphone, such as the processor, memory, baKery, screen, and camera, remain rela)vely consistent in their design and func)on. However, the architectural innova)on in smartphones lies in the overall interac)on and layout of these components, with the introduc)on of touchscreen technology and intui)ve user interfaces. This transforma)on in the user interface fundamentally alters the way users engage with the core components, oﬀering a more user-friendly and adaptable experience without modifying the components themselves. Modifying components, without touching the architecture, are modular innova)ons. Many ﬁrms struggle to produce architectural innova)ons: knowledge about the current architecture if oNen tacit and taken for granted, and therefore, ﬁrms do not challenge the exis)ng architecture and fail to see the poten)al of a new architecture. Product vs. process innova-on Beyond innova)ng on products and services, innova)on may also refer to processes and methods. Process innova)on may refer to all parts of the value chain, such as R&D and manufacturing. There are interdependencies between product and process innova)on, because new processes may allow for new and beKer products. Process innova)on may also allow faster development cycles or cost savings. Example for process and methods innova)on can be the CRISPR/Cas9 system as a new and op)mized way for gene edi)ng. The role of serendipity Serendipity plays a signiﬁcant role in innova)on by oNen leading to unexpected discoveries and breakthroughs. Many innova)ons throughout history have been the result of chance encounters or unintended consequences. While serendipity can be a valuable catalyst for innova)on, it is typically challenging to plan for or rely on as a primary strategy. Innova)on oNen involves a combina)on of planned ac)vi)es, structured research, and experimenta)on. Organiza)ons can create environments that foster crea)vity and open-mindedness, increasing the likelihood of serendipitous moments. However, truly groundbreaking innova)ons are frequently a blend of both planned and serendipitous elements, with the laKer being more diﬃcult to predict or control. Examples for serendipitous moments in innova)ons are Fleming’s discovery of penicillin or Pﬁzer’s Viagra. Measuring innova-on How can innova)on as a macro-tend be measured? 1) Observa)onal data on product launches This data can be gathered from websites, trade-fairs, adver)sements, new drug applica)ons and clinical trials. Generally, this data is challenging to collect systema)cally, but it is a consistent and eﬃcient way for Pharma. Process innova)on is more diﬃcult to measure with product launches. 2) Patent applica)ons and granted patents. Patent informa)on is easy to access through the most used websites and databases. This gives insights about the technological origins and impact. Patents are not equally important across industries, but they are very much so in pharma. One has to keep in mind that patents most likely refer to inven)ons, and not necessarily innova)ons. 3) R&D expenses R&D expenses can be easily accessed through the income statements from key players in the industry. However, R&D expenses as a measure for innova)on is limited in the sense that it portrays only an input factors, and not the output of those expenses into actual innova)ons. Addi)onally, innova)on can also stem from non-R&D prac)ces. 4) Government ques)onnaires’ This way of measuring innova)on is for policy purpose and gives access to a broad set of informa)on related to innova)on. However, in order for this to be eﬀec)ve, high response rates are needed. Addi)onally, people/ﬁrms ﬁlling out the ques)onnaire will not give insights to their par)cular technologies and innova)ons, which limits the details of the innova)on process. Common innova&on challenges 1) Selec-ng the right idea: One of the key challenges in innova)on is iden)fying the most promising ideas from a pool of possibili)es. It requires a careful evalua)on process to determine which ideas align best with an organiza)on's goals, have a feasible implementa)on path, and can oﬀer a signiﬁcant impact. 2) How to beneﬁt from great ideas outside your organiza-on: Innova)on doesn't have to be limited to in-house ideas. Collabora)ng with external partners, customers, or experts can be invaluable, but it requires ﬁnding eﬀec)ve ways to iden)fy, acquire, and integrate external innova)ons while protec)ng intellectual property and aligning goals. 3) How to balance autonomy, crea-vity, and accountability: Encouraging crea)vity and autonomy is essen)al for innova)on, but it must be balanced with accountability to ensure that innova)on eﬀorts align with the organiza)on's strategy and goals. Striking this balance is oNen a complex challenge, as too much control can s)ﬂe crea)vity, while too much autonomy can lead to uncoordinated eﬀorts. 4) How to make sure that skills are put to best use: Having a talented workforce is cri)cal, but ensuring that their skills are eﬀec)vely u)lized for innova)on can be a challenge. Organiza)ons must create an environment that encourages skill development, cross- func)onal collabora)on, and the applica)on of skills to relevant innova)on projects. 5) How to capture value from innova-on and maintain it in the long run: Achieving innova)on is just the beginning; capturing value from those innova)ons and sustaining it over )me is equally important. Organiza)ons oNen struggle with successfully commercializing innova)ons, scaling them, and defending their compe))ve advantage against imitators. Addressing these challenges requires a combina)on of strategic planning, eﬀec)ve leadership, and a suppor)ve organiza)onal culture that values innova)on as a core driver of success. Innova&on Challenges in Biobusiness Industry Dynamics 27.10.2023 Technology S-curves Technological progress can be understood thorugh the lens of technological paradigms and trajectories, following the similar evoluBonary paCerns observed in biology. Just as species adapt and evolve over Bme, technologies exhibit a similar process. This journey begins with the selecBon of a parBcular technology that shows promise and potenBal. As it is put into pracBcal use, technology undergoes adaptaBon, reﬁning and opBmizing its design and funcBonality. Importantly, technological evoluBon thrives on conBnuity and cumulaBveness, where new innovaBons build upon the foundaBons laid by earlier generaBons of technology. Adoption This process results in the gradual transformaBon and advancement(diffusion) S-curves of technology, shaping the course of human progress through a series of interconnected paradigms and evoluBonary trajectories. The adopBon of a new technology in the market can be portrayed with the S-curve. The S-curve results from the existence of disBnct adopter categories, who tend to purchase at a diﬀerent point in the overall product life cycle. The diﬀerent adopter categories have diﬀerent personaliBes and habits S-curves: technology curves when it comes to risk-taking, curiosity, innovaBon Technology - S-curve Adoption Limits of the technology Performance 120 habits, which is what makes them purchase a of the Rate Diminishing improvement technology speciﬁc technology at diﬀerent Bmes. 100 80 E Early Accelerated improvement M At the same Bme, the performance of the 60 Adopters technology can be ploCed against the cumulaBve 40 Innovators Cumulative eﬀort for development of the technology, leading Slow initial progress 20 effort (R&D again to an S-curve. The higher the eﬀort for 0 0 2 4 expenditures) 6 8 10 12 developing the technology (in this case R&D expenditure), the higher the improvement of the technology. The slow iniBal progress can be explained with the fact that at the beginning of the development process the technology fundamentals are not well understood and further science advances are necessary. In addiBon, the slowness can be explained with scarcity of qualiﬁes personnel and funding + lack of enabling technologies for the development of the new innovaBon. ASer this phase we can observe an acceleraBon in improvement. This usually happens when the technology gains legiBmacy and subsequently more resources for the development are made available. In this phase the fundamentals are clariﬁed and there are more predictable pathways to improvements. UlBmately the technology arrives at its decline in the rate of improvements, as the technology approaches natural performance limits. A higher investment in cumulaBve eﬀorts will not lead to a higher performance of the technology. At this point, alternaBve approaches from new technologies with new S-curves gain visibility and interest. At any point in the technological development it is possible that the developing technology is replaced by a new, disconBnuous technology. A disconBnuous technology fulﬁlls a similar market need by means of a new knowledge base. For example, the vinyl records were replaced by CDs. Technological disconBnuity may iniBally have lower performance than the incumbent technology, as was the case with the ﬁrst automobiles, which were much slower than horse- drawn carriages. Firms may be reluctant to adopt new technology because performance improvement is iniBally slow and costly due to signiﬁcant Technology S-curves investments in incumbent technology. Example: Improvements in insulin over time Improvements The improvement of a speciﬁc product or process along the curve: purification, with new technologies can be described different types (short-acting, with mulBple S-curves. For example, the long-acting), case pre- of the intermediate, and improvement in insulin over Bme can mixed be described insulins and new formulations with this. Improvements along each curve can be puriﬁcaBon, diﬀerent types of insulin (short- Animal insulin or long-Semi-synthetic from the pancreases human insulin in the late 1970s and early 1980s, Insulin analogues in the late 1990s and early Latest developments: acBng…), pre-mixed insulins and new formulaBons. of cows and pigs The ﬁrst S-curve using genetic engineering techniques to insert the human would 2000s. then Analog insulin modified form of human be is a the ﬁrstsystems (use improved insulin delivery insulin administered, which was animal insulin fromcells,the pancreases ofdesigned insulin gene into bacteria or yeast which then produced insulin cows and insulin that has been to have pigs. ASer different of nano-particles and bio-responsive insulin this, the next innovaBon was the semi-syntheBc human insulin in that was identical to the natural hormone. the late 1970s pharmacokinetic properties and 1980s, delivery systems establishing a new curve. This insulin type was created using geneBc engineering techniques to insert the human insulin gene into bacteria or yeast cells, which the produced insulin which was idenBcal to the natural hormone. ASer this, the next innovaBon was the insulin analogues in the late 1990s and 2000s, establishing the next S-curve. In this case, analog insulin is a modiﬁed form of human insulin that has been designed to have diﬀerent pharmacokineBc properBes. The latest developments in the insulin area are improved insulin delivery systems such as the use of nano-parBcles and bio-responsive insulin delivery systems. Another example for the accumulaBon of technology S-curves within one area could be the treatment of high cholesterol, which shows again how diﬀerent approaches and new technologies lead to new S-curves, each one improving the treatment. It is important to note that technology improvement and market adopBon are interdependent. With the learning curve leading to more understanding of the technology and therefore more eﬃcient producBon of the product, price can be dropped, which accelerates diﬀusion of the new technology. In addiBon to that, the conBnuous development eﬀorts increase product funcBonaliBes, which might aCract more customers to buy the product. And this all creates a posiBve feedback-loop, as product adopBon provides revenues that can be re-invested in technology. Another crucial point for the technology S-curve is that the performance of the new technology oSen depends on the availability and quality of enabling technologies. Example: If you want a create a strong IA, you need very strong CPUs. In the beginning, these are frequently not available, which explains the slow progress. Dominant Designs With new technological opportuniBes the fundamental quesBons on how to design and how to specify the products of an emerging category persist. Usually, the case is that aSer an iniBal, experimental phase in which diﬀerent product designs compete, a dominant design would ulBmately emerge and establish itself as the standard. This includes a standard architecture, with accepted metrics for determining the way in which components would interact. For establishment of a design as the dominant design, there has to be a general acceptance of how the principal components would interface with others in the architecture. For the establishment of the dominant design, there are diﬀerent phases: Following the nascent, ﬂuid phase, a speciﬁc phase would emerge with focus on process innovaBon, and not much product innovaBon. One classic example of a dominant design is the QWERTY keyboard layout for typewriters and computer keyboards. The QWERTY layout, designed by Christopher Sholes in the 1870s, features leCers arranged in a speciﬁc order on the keyboard. Despite its origins in the typewriter era, the QWERTY layout has become the standard for virtually all keyboards, even on modern digital devices. It has achieved dominance and widespread adopBon as the default keyboard layout, even though alternaBve layouts (like the Dvorak Simpliﬁed Keyboard) exist. This dominant design simpliﬁes the use of keyboards, as most people are familiar with it, and it has become deeply ingrained in the design ofDominant Designsand soSware. computer hardware Fluid phase: The ﬂuid phase describes the design experimentaBon phase in which diﬀerent designs compete. In this phase, architectural and modular design changes are sBll possible. This phase is characterized by a focus on (radical) product innovaBon. Speciﬁc phase: This phase sets in when the dominant design is established. This phase is characterized by a declining rate of product innovaBon with an increasing emphasis on incremental innovaBon. AddiBonally, there is a stronger focus on process innovaBon, with the goal of gaining eﬃciency in the producBon process and realizing favorable cost structures. The establishment of the dominant design can be either before or aSer the market entry of the product with that design. 1) Market entry before the establishment of dominant design: This opBon gives ﬁrms the Bme to experiment and oﬀers the chance to ﬁnd the best technology parameters. There is the risk however on bedng on the wrong design, one design that will not establish itself as the dominant design. The experimentaBon and resulBng experience gains may lead to a faster learning curve which will beneﬁt the ﬁrm once the dominant design is established, if the ﬁrm chose the correct design. Early market entrants have also the possibility to address small performance- oriented niches with modest or low scale barriers to entry. 2) Market entry aAer the establishment of the dominant design: If the dominant has already been established, there is no need for the ﬁrms to have extensive R&D expenditures and design experimentaBons. Barriers to entry rise at this point due to the increasing emphasis on scale advantages and investments in complementary assets. This also increases rivalry among incumbents which makes the industry less aCracBve for new entrants. One risk is the establishment of prohibiBve patent posiBons which may have been established by the incumbents in the market, limiBng opBons for new entrants. Why are dominant designs selected as the standard? 1) Increasing returns: The more adopted a technology is, the more valuable it becomes. The establishment of one dominant design also poses the advantage of the learning curve, which describes that as a technology is used, producers learn to make it more eﬃcient and eﬀecBve. 2) Prior learning: A ﬁrm’s prior experience inﬂuences its ability to recognize and uBlize new informaBon. The use of a parBcular technology builds a knowledge base about that technology, which helps improve the technology. This suggests that technologies adopted earlier than others are likely to become beCer developed, making it diﬃcult for other technologies to catch up. 3) Network externaliGes: In markets with network externaliBes, the beneﬁts from using a good increase with the number of other users of the same good. Network externaliBes are common in industries that are physically networked, such as the railroads or telecommunicaBon industry. Network externaliBes also arise when compaBbility or complementary goods are important, for example many people choose to use the MS Windows in order to maximize the number of people their ﬁles are compaBble with, and the rage of soSware applicaBons they can use. A technology with a large installed based aCracts developers of complementary goods; a technology with a wide range of complementary goods aCracts users, increasing the installed base. The total perceived value of a technology is the sum of the technology’s standalone value and the network externality value. The technology’s standalone value describes the funcBons the technology enables customers to perform, the design and aestheBc qualiBes as well as the user friendliness. The network externality value describes the size of the technology’s installed base and the availability of complementary goods. 4) Government intervenGon: SomeBmes the consumer welfare beneﬁts of having a single dominant design which prompts government organizaBons to intervene, imposing a standard. For example, this is the case with the NTSC color standard in television broadcasBng in the US, the general standard for mobile communicaBons in the EU, or the USB3 standard for charging cables. To successfully overthrow an exisBng dominant technology, a new technology oSen must oﬀer a dramaBc technological improvement, such is the case as with videogame consoles. AlternaBvely, the new technology can show compaBbility with the exisBng installed based and complements. It is important to note that subjecBve informaBon can maCer as much as objecBve informaBon. When however, customer requirements for network externality value are saBated at lower levels of market share, more than one dominant design may thrive. An example for this is the standard war between Blue-Ray and HD-DVD. Two incompaBble formats were compeBng for becoming the standard for the next generaBon high-deﬁniBon DVDs. Toshiba was backing up the HD-DVD system, Sony the Blue-Ray one, both showing similar characterisBcs. This war lasted 2 years, unBl in 2008 Toshiba announced the disconBnuaBon of the HD-DVD product, as Time Warner announced their back up of Blue-Ray. Strategies for ﬁrms to promote their design as the standard 1) Ongoing innovaBon to achieve a clearly superior base technology 2) Gain support from complementary product suppliers 3) Backward compaBbility: Design a technology that can interact with the previous generaBon of that technology 4) Being the ﬁrst mover 5) Freemium model: Provide some parts of the technology for free as a way for customers to test out your technology 6) Leveraging the ﬁrm’s reputaBon, brand or manufacturing 7) Shape expectaBons among consumers about the own winning technology Being the ﬁrst-mover gives the advantage of establishing the technological leadership and the brand loyalty. In addiBon to that, there will be low compeBBon and the ﬁrm can exploit the buyer switching costs for when compeBBon arises. However, there are also some beneﬁts for being a late-mover. Late-movers beneﬁt from the ﬁrst-mover’s investments in research and development. In addiBon to that, the technological and market uncertainty are highly reduced as customer requirements have been made clear by the ﬁrst-mover. In addiBon to that, late-movers enabling technologies and complementary goods for the technology are likely to have been developed at that point. Factors inﬂuencing op&mal entry &ming 1) How certain are customer preferences? If customers’ needs are well understood, it is more feasible to enter the market earlier. 2) How much improvement does the innovaBon provide over previous soluBons? An innovaBon that oﬀers a dramaBc improvement over previous generaBons will accrue more rapid customer acceptance. 3) Does the innovaBon require enabling technologies, and are these technologies suﬃciently mature? If the innovaBon requires enabling technologies (such as long- lasBng baCeries for cell phones, the maturity of these technologies will inﬂuence opBmal Bming of entry. 4) Do complementary goods inﬂuence the value of the innovaBon, and are they suﬃciently available? Not all innovaBons require complementary goods, but for those that do, availability of complements will inﬂuence acceptance. 5) How high is the threat of compeBBve entry? If there are signiﬁcant entry barriers, then may be less need to rush to market to build increasing returns ahead of others. 6) Are there increasing returns on adopBon? If a compeBtor enters earlier and builds a large installed base, it may be very diﬃcult to get consumers to switch products. 7) Does the ﬁrm have resources to accelerate market acceptance and withstand early losses? Firms with signiﬁcant capital resources can invest in aggressive markeBng and supplier and distributor development, increasing the rate of early adopBon. The ﬁrst- mover beats the bulk of R&D expenses and may endure a signiﬁcant period without revenues, the earlier the ﬁrm enters, the more capital resources needed. 8) Can the ﬁrm’s reputaBon reduce uncertainty? InnovaBons from well-respected ﬁrms may be adopted more rapidly, enabling earlier successful entry. Innova&on Challenges in BioBusiness 31.10.2023 Corporate R&D and external innova7on Disrup&ve Innova&on A disrup7ve technology is ini7ally inferior to an exis7ng technology, but it entails a new customer value proposi7on which may grow rapidly and thus enable market entry. It makes new product characteris7cs possible and thus improves performance regarding one or more product features (typically associated with lower prices). However, this is ﬁrst connected with disadvantages concerning other product features. It takes 7me and further stages of development to improve the technology. New Disruptive productsinnovation based on disrup7ve technologies enable entrepreneurs to approach new customer segments. Technological In the and trajectories ini7al stage,zero’ ‘segment the poten7al is not very high due to disadvantages in performance in established criteria, but the product Technologies may improve faster than the customers (or some customers) requir develops rapidly. An example for this are videogame consoles. In an Thisindustry wheretechnologies enables low-end PS and Xbox dominated to eventually the meet the needs of the mass mar market, Nintendo was able to achieve success with the “Wii”, If incumbent a product neglects which the low-end objec7vely market, had it can become breeding ground for n less quality in graphics, but gave the users a new way to play. powerful competitors and disruptive innovation The graph shows the possible scenario in which a certain technology improves faster than the customers require. This enables low-end technologies to eventually meet the needs of the mass market. If incumbent ﬁrms neglect the low-end market, it can become a breeding ground for new, powerful compe7tors and disrup7ve innova7on. The preferences of the mainstream customers cause incumbents’ failure in the transi7on to new technologies that are disrup7ve. Entrant ﬁrms enter in the market to serve the new product to the small niche of costumers who value this product. Eventually, when the technology improves, the new entrants can go for the main market. More examples for disrup7ve technologies: Voice over IP or the digital camera (which had a lower quality than standard cameras but gave the possibility of seeing the picture right away). Sustaining Technology Disrup&ve Technology The performance of the product or process The ini7al performance is regarded as is improved in line with criteria which are below average according to the criteria of already known to customers. the mainstream market. The assessment of the criteria depends However, new product feature is added mainly on key accounts. which aZracts new customer segments. Tends to lead to con7nuous incremental Has the poten7al to replace the exis7ng innova7ons. standard technology. Why are disrup7ve technologies so dangerous? Because it is diﬃcult to the incumbent ﬁrms to react to these technologies. It would feel really odd for a company with a high-quality product to lower the quality of that product in order to match the customers the disrup7ve technology is serving. Innova&on as a search process Innova7on can be interpreted as a search process because it inherently involves explora7on and discovery. Much like a search, innova7on requires the naviga7on through a vast landscape of ideas, technologies, and possibili7es in pursuit of novel solu7ons or improvements. The quest for innova7on involves probing, experimen7ng, and itera7ng to uncover hidden opportuni7es and address challenges. This dynamic and o^en uncertain journey mirrors the essence of a search, where the outcome is not predetermined. In essence, the process of innova7on is the same as a con7nuous and evolving explora7on, as individuals and organiza7ons ac7vely seek new fron7ers to push the boundaries of knowledge and create meaningful advancements in various ﬁelds. Local Innova*on Search: In a local innova7on search, individuals or organiza7ons primarily look for inspira7on, knowledge, and collabora7ons within their immediate physical or industry proximity. This proximity could be geographical, such as neighboring companies, research ins7tu7ons, or communi7es, fostering close rela7onships and easy knowledge exchange. Local innova7on o^en beneﬁts from shared contexts, cultural understanding, and face-to- face interac7ons, facilita7ng a quicker transfer of tacit knowledge. Local Innova7on Search can have its risks too. Local search biases impede the genera7on of truly novel solu7ons. A ﬁrm’s performance in crea7ng new products is a func7on of its search behaviors in terms of search depth and search scope. Long-term use and recuse of exis7ng knowledge decreases the ability to create innova7ons beyond a certain point in 7me. Solu7on to avoid the biases of local search is to cross organiza7onal boundaries and collabora7ng with distributed sources of innova7on. Distance maZers: Knowledge located in contextually distant domains provides the most novel inputs. Distant Innova*on Search: On the other hand, distant innova7on search involves seeking ideas, insights, or collabora7ons beyond immediate geographical or industry boundaries. This could mean exploring global markets, collabora7ng with ins7tu7ons or experts from diﬀerent regions, or tapping into diverse ﬁelds for cross-disciplinary insights. Distant innova7on searches leverage a broader pool of perspec7ves, technologies, and exper7se, allowing for the infusion of novel ideas that may not be readily available in a local context. While it may involve challenges such as communica7on barriers and cultural diﬀerences, distant innova7on searches can lead to groundbreaking discoveries and disrup7ve advancements. Distant innova7on search can be used as a way to avoid local search bias. For this, the analysis of analogous markets can be of great importance. An example is the medical surgery and instruments market. Here the doctors need to work in very sterile condi7ons to not infect the pa7ent. An analogous market is the semiconductor manufacturing, which also has to work in sterile condi7ons. Therefore, these two markets can take inspira7on from one another and see if they can implement certain innova7ons into their own market. There is a great amount of empirical evidence showing the posi7ve eﬀects of crossing boundaries, those being: 1) Solu7ons are more novel 2) Shorter development 7mes, lower development costs 3) Higher number of solu7ons 4) Success poten7al is generally higher Explora&on vs Exploita&on Explora&on Exploita&on Distant search, increasing search scope Local search, increasing search depth Experimen7ng with new alterna7ves Reﬁning and extending exis7ng Characterized by varia7on, risk-taking, competences, technologies, paradigms experimenta7on, ﬂexibility, discovery Characterized by reﬁnement, eﬃciency, No immediate and direct feedback implementa7on, execu7on High uncertainty involved Faster and more precise feedback Risk of having too many undeveloped ideas Lower uncertainty and lack of dis7nc7ve competencies Higher reliability of performance Radical innova7on Risk to be trapped in own competences Fosters learning and increases the Incremental innova7on likelihood of long-run performance Posi7ve short-term performance, diminishing long-run one Corporate R&D The basic mo7va7on for R&D in ﬁrms is to discover new knowledge and technologies thar provide the basis for improved or novel products and services. Products and services with improved func7onali7es help to diﬀeren7ate and to escape price compe77on. New in-house knowledge created by R&D ac7vity may also help to take advantage of external knowledge. R&D in ﬁrms faces some challenges, such us the uncertainty with regard to technological outcomes, costs and 7ming. In addi7on to that, due to appropriability issues ﬁrms may not be able to capture (all) the beneﬁts from the innova7on. And there is the issue of ﬁnding the right balance of R&D: Search Scope vs Search Breadth, Research vs Development, internal R&D vs external R&D… Research vs. Development Research may result in breakthrough innova7on, very original recombina7on of knowledge that may lead to superior innova7on. Science provides a map for technological search in landscape of poten7al op7ons. With this, promising combina7ons of knowledge can be iden7ﬁed. Doing research may aZract scien7ﬁcally trained graduates with a taste for science. Own research may allow for an entry 7cket into academic communi7es, especially if the ﬁrm also discloses its generated knowledge. The scien7ﬁc reputa7on may facility access to public R&D funds, and the scien7ﬁc evidence may also be helpful for the future product adop7on. The problem con7nues to be the great uncertainty of research regarding technological feasibility and commercial success, which might lead to high ﬁnancial costs and resource commitments. It is important to keep in mind the long-term orienta7on of R&D: There will be no immediate impact on revenues while there will be an immediate cost impact. And the appropriability problem shows that even a great inven7on might not be feasible due to patents not being equally viable and eﬀec7ve as a protec7on instrument, therefore not giving you the compe77ve edge necessary to jus7fy the high investment. Publica7ons of a company does not necessarily pose itself as a good proxy for research outcomes, because not every publica7on leads to an actual inven7on, and the company might also decide to not disclose things they research in order to keep them secret. Patents might be a good proxy for development outcomes, as a company will likely only ﬁle and keep patents alive of inven7ons that are successful. Empiric evidence shows that the closer a patent is to science, the more valuable it is for the company. In addi7on, it was found that the publica7on of scien7ﬁc innova7ons by ﬁrms Open Innovation increases ﬁrm’s market value beyond the eﬀects of R&D, Patent Stocks and patent quality. From closed… …to open innovation External Innova&on: Open Innova&on External Innova7on, o^en embraced through the concept of Open Innova7on, represents a departure from tradi7onal closed R&D processes by acknowledging that valuable ideas and exper7se can come from sources outside an organiza7on's boundaries. Open Innova7on involves ac7vely seeking and Source: Chesbrough 2003 integra7ng external knowledge, technologies, and partnerships to drive the innova7on process. This approach recognizes that innova7on ecosystems extend beyond internal R&D departments, tapping into a global network of collaborators, startups, research ins7tu7ons, and even customers. By fostering a more porous innova7on boundary, companies engaging in Open Innova7on can access a broader spectrum of ideas, reduce 7me-to-market, and mi7gate risks. The collabora7ve nature of Open Innova7on not only allows organiza7ons to leverage external crea7vity but also encourages the sharing of their own innova7ons with the wider community, contribu7ng to a dynamic and interconnected innova7on landscape. Embracing external innova7on through Open Innova7on is a strategic move that promotes adaptability, resilience, and the ability to thrive in an ever-evolving business environment. All in all, open innova7on leads to more developed ideas not necessarily Research, in development, the current market, and absorptive which is very likely to increase the ﬁrm’s value. The leve Absorp&ve capacity Search for generating innovations organiz capacity The absorp7ve capacity is a capacity of ﬁrms to process to widel informa7on in the pursuit of genera7ng innova7ons. It is Absorptive Capacity (externa generati dependent on the ﬁrm’s ability to recognize the value of new Pri informa7on, the ability to assimilate new informa7on and ow the ability to apply the new informa7on to commercial ends. Or Ability to The level of an organiza7on’s absorp7ve capacity inﬂuences recognize Ability to Ability to Or assimilate apply it to its ability to widely explore new knowledge for the the value of new commercial str new Lev genera7on of innova7ons. The intensity of the absorp7ve information information ends He capacity depends on the prior knowledge and own R&D Res ac7vity, the organiza7onal culture, the organiza7on structure, the level of “autonomy”, the heterogeneity of staﬀ and the resources. Iden7fying and understanding relevant external knowledge requires a related knowledge base. Typically, ﬁrm-internal R&D ac7vity is required to develop such absorp7ve capacity. Especially the research component is associated with a beZer understanding of the technological landscape, and poten7ally fruiiul technology recombina7ons. Accordingly, many studies ﬁnd some degree of complementarity between internal and external knowledge for genera7ng innova7on. Very strong in-house R&D capabili7es may, however, crowd out the use of external knowledge, because it might seem diﬃcult to ﬁnd external solu7ons that s7ll give extra value, when you already have a vast R&D expense. The logic of Open Innova7on is that good ideas are widely distributed today. It is important to ﬁnd and tap into the knowledge and exper7se of bright individuals outside the company. External R&D can create signiﬁcant value and internal R&D is needed to claim some por7on of that value. The company does not need to originate the research in order to proﬁt from it. Building a beZer business model is beZer than gejng to the market ﬁrst. If the company makes the best use of internal and external ideas, compe77ve advantage is likely. It is important to properly manage intellectual property in order to manage research, to access external IP to fuel the business model, and to proﬁt from the company’s own IP in other’s business models. Innova&on integra&on diﬃculty 1) Leadership and Strategy: Leadership becomes invested in old and control-focused approaches. Innova7on requires changes which can make long-term collabora7ons diﬃcult. 2) Structure, Process & Loca7on: Innova7on usually means high transac7ons costs, dispersed global corporate structures and varia7on in collocated collabora7on op7ons, which creates challenges. 3) Incen7ves: Incen7ves could favor protec7ng proprietary informa7on which leads to disclose concerns and resistance to open innova7on. 4) Culture and mental models: Strong cultures and deeply rooted mental models are resistant to accep7ng outside opinions and ideas, especially diﬃcult if there are diﬀerent cultures within a corpora7on. Non-Invented-Here syndrome The "Not Invented Here" (NIH) syndrome is a mindset within organiza7ons that resist adop7ng external ideas, innova7ons, or solu7ons, favoring internal developments instead. This cultural bias hinders innova7on by discouraging the explora7on of external knowledge and collabora7on with en77es outside the organiza7on. The challenge lies in the missed opportuni7es and limited perspec7ves resul7ng from this insular approach. Embracing a more open and collabora7ve culture is essen7al for success in innova7on, as it allows organiza7ons to tap into a broader range of ideas and exper7se, fostering crea7vity, adaptability, and a compe77ve edge in an ever-evolving business landscape. Overcoming the NIH syndrome is crucial for organiza7ons seeking to thrive through a more inclusive and externally engaged innova7on strategy. External innova&on: Public science What channels of public science might be accessible for corpora7ons to enhance their external innova7on search? 1) Scien7ﬁc literature: Codiﬁed knowledge in peer-reviewed publica7ons and conference proceedings. 2) University-industry collabora7on: Jointly conducted research projects between ﬁrms and academic ins7tu7ons. 3) University graduates: PhD graduates and students with latest training on methodology and knowledge. 4) Contract research: Universi7es delivering speciﬁc outputs based on requests and ﬁnancial payments of companies. 5) Technology transfer: Licensing agreements and academic entrepreneurship. For this there are dedicated oﬃces, the TTOs (Technology transfer oﬃces). Their objec7ve is to transfer research results to commercial applica7on for public use and beneﬁts. Upon inven7on disclosure, TTOs decide ﬁrst whether to shelve an inven7on or to go for commercializa7on. In case of inven7on exploita7on, TTOs decide on the patent applica7on and the licensing strategy. However, it is important to note that success in terms of licensing revenue is quite skewed. In the US, 8 universi7es generated 50% of country wide licensing income, and top 16 universi7es took nearly 75% of the system’s income. Of 155 surveyed universi7es, 130 did not generate enough licensing income to cover the wagers of their staﬀ and legal costs for paten7ng. Importance of external innova&on in Importance of external innova&on in public science for companies public science for academia Greater emphasis on open innova7on Source of addi7onal funding Access to know-how and infrastructure Improving labor market for graduates Recruitment of R&D personnel New impulses for research and educa7on Access to networks Access to research equipment Reducing costs for inhouse R&D Academic vs industrial science Science and technology are similar in that they use similar inputs and produce similar outputs. They use scien7sts, engineers and laboratories to produce knowledge. The diﬀerence of academic and industrial science lies in the nature of the goals: Academic science believes in the genera7on of knowledge as a sake of its own, while companies believe in the genera7on on knowledge to develop new technologies with commercial poten7al. While academic science promotes openness and the free exchange of ideas, industrial science o^en leans towards secrecy to protect proprietary informa7on. In addi7on to this, the reward systems in the two areas are diﬀerent: In academic science the reward system is the recogni7on in the scien7ﬁc community, while in the industrial science it is commercial success. These aspects pose a challenge for innova7on and success as it can hinder the integra7on of valuable insights between these sectors. Finding a balance between the dissemina7on culture of academia and the secrecy impera7ve of industry is crucial to fostering collabora7on, maximizing the transfer of knowledge, and advancing innova7on for the beneﬁt of both realms. Logic of open science vs. technology development Academic logic Commercial logic Economic system Public/not-for-profit funding For profit funding Identity Science as a profession Science as a business Legitimacy Scientific reputation Successful innovation Authority structures Craft-based authority, personal Accountability to business laboratory leaders Mission Pursue scientific novelty Use knowledge to develop new products Strategy Attract research funding, train Maximize pay-off from junior staff, maximize research via exploitation publication impact Governance Open publishing, scientific Proprietary IPRs (e.g. autonomy, market for ideas patents) 54 External innova&on: Other sources Crowdsourcing Crowdsourcing serves as a powerful mechanism for external search in the realm of open innova7on. This approach involves tapping into the collec7ve intelligence, skills, and crea7vity of a diverse group of individuals, o^en distributed across the globe, to solve problems, generate ideas, or contribute to various aspects of innova7on. By leveraging the collec7ve wisdom of the crowd, organiza7ons can access a vast pool of talent and perspec7ves, fostering a more inclusive and dynamic innova7on process. Crowdsourcing plaiorms enable companies to pose challenges or solicit ideas, engaging with a mul7tude of contributors who bring diverse exper7se and insights. This method not only accelerates the innova7on cycle but also enhances the likelihood of uncovering unconven7onal and groundbreaking solu7ons that may not have emerged through tradi7onal internal processes. In essence, crowdsourcing in open innova7on harnesses the distributed power of the crowd, transforming external input into a valuable resource for driving con7nuous and collabora7ve innova7on. For this, the company can have an ac7ve company-driven search for the best qualiﬁed problem solvers. This requires more energy and resource from the company’s side. Alterna7vely, it is possible for a company to ac7vate the self-elec7on among crowds of problem solvers, when they make the problem to be solved announced and wait for the individuals to come to the company. Users In a tradi7onal, conserva7ve innova7on paradigm, the company iden7ﬁes user needs, develop products at private expenses and proﬁts by protec7ng and selling what they have developed. The company is the ac7ve part, while the users are passive. The users provide input about their needs and might test prototype products, but are unable to provide direct input on solu7ons. In a new paradigm on user innova7on, lead users of the product innovate to solve their own needs at a private expense, and then freely reveal their innova7on to user innova7on communi7es and ﬁrms. Why do users innovate? Firstly, because they urgently need the product or service. These users have very speciﬁc of new needs to which no commercial solu7on is available of sa7sfactory, so they innovate themselves to sa7sfy those needs. Secondly, users might innovate because it is diﬃcult to transfer the informa7on. From the customer side it is very diﬃcult to ar7culate a new need, and from the manufacturer side it is very diﬃcult to understand a new need. Innova&on Challenges in BioBusiness 03.11.2023 Corporate R&D and external innova7on II In-house R&D vs. open innova&on models What factors shape a ﬁrm’s tendency to rely on open innova7on? 1) Firm characteris7cs: Does the ﬁrm have already established in-house R&D competences? What is the resource situa7on like? How are the ﬁnancials looking? Does the company possess complementary assets aiding the relying on in-house R&D? 2) Industry and technology condi7ons: Are there any promising emerging scien7ﬁc opportuni7es? Is the industry going through an extensive innova7on phase? What does the appropriability regime and landscape look like? 3) Strategic factors: Are there any transac7on costs? Does the company have a compe77ve posi7on? Have there already been experiences with open innova7on? Is the project a core or a peripheral project? Making an evalua7on of all this factor could poten7ally make the decision between in-house R&D and open innova7on easier. The following parameters are important to consider to decide which mode of open innova7on it is to be pursued: 1) Degree of control and exclusivity: How much control does the company need to have over that project? If it is a lot, it is beSer to go with in-house R&D. 2) Learning: Keep in mind that open innova7on has a higher poten7al for learning and acquiring new competences 3) Maturity projects: Is the project an early idea or a validated technology? 4) Resource commitment The5)R&D and open innovation Timing considera7ons: portfolio What is the expected 7me to project comple7on? High Control Over Third Parties Merger & Acquisitions Contract research Licensing Early-Stage Strategic R&D alliances Late-Stage Development Development (Commercialization) Academic collaboration Crowdsourcing Research Consortia Low Control Over Third Parties 8 Merger & Acquisi&ons The primary mo7ve behind M&A in Pharma is the realiza7on of the scale advantages. By being bigger, economies of scope and economies of scale kick in. In addi7on to this, the merger takes away one compe7tor and gives you all their capabili7es, making the new merged company bigger and stronger. But, M&A can also be considered a method for open innova7on. M&A can lead to the building of new competences, reaching a stronger state in the development of biologics. In M&A, the acquirer obtains full control on all tangibles and intangibles of the target company, such as technologies and intellectual property rights. The target ﬁrm may have technologies at varying maturity stages and possible also some valuable complementary assets, such as manufacturing or distribu7on. M&A pose a learning opportunity by building on the exper7se of the scien7st in the target ﬁrm, as was the example of the merger between Sanoﬁ and Genzyme. Genzyme's scien7sts possessed a deep understanding of rare diseases and had developed pioneering therapies in niche markets. By building on the exper7se of Genzyme's scien7sts, Sanoﬁ could enhance its capabili7es in biotechnology and rare disease research, ul7mately strengthening its posi7on in the market. However, it is important to note that this is a costly way of obtaining competences, as the target companies are usually acquired at a large premium price. In addi7on to this, the ques7on of the intangible assets of the target company, such as patents, remains: Can these assets be sold? Strategic R&D Alliances A strategic R&D alliance is a joint R&D between partners with complementary innova7on exper7se. Alliances diﬀer in their scope when it comes to early stage vs. late-stage projects. There is the poten7al to learn from the partner’s exper7se, but there might be some tension between knowledge sharing and knowledge protec7ng. Strategic R&D alliances mean mutual involvement of partners and possibly also equity investments (=Joint Venture), which gives some degree of control, but requires more coordina7on eﬀorts. Compared to in-house R&D and M&As, strategic R&D alliances have typically lower resource commitment and thus mi7gated risks. In order for strategic alliances to run smoothly, it is important to ensure a ﬁt between the two par7es. There are two types of ﬁts possible: 1) Resource ﬁt: How well does the poten7al partner ﬁt the resource needs of the project? Does every partner have enough R&D capabili7es, enough scien7sts… Are the resources from the partner complementary to the own resources? What is the geographic situa7on like? Proximity may enhance knowledge exchange. 2) Strategic ﬁt: Is there poten7al to learn and build up the own competences and capabili7es ader this alliance? What is the risk of losing sensi7ve knowledge to the alliance partner? Are the results worth this? Are the objec7ves of the alliance and the objec7ve of the two partners aligned? To reinforce this, proper contracts governing the rela7onship should be put in place. These contracts can specify the core parameters of the alliance, such as the resources each partner must bring in, the degree of control of the project, and how the generated gains are distributed. Important is also to talk about how viola7ons and contractual obliga7ons will be handled, as well as deﬁning an eﬀec7ve work and knowledge sharing rou7ne. Trust plays a pivotal role in the governance of R&D alliances, as each party will disclose sensi7ve informa7on which in a compe77ve environment could give a compe77ve edge to compe7tors, and they have to trust that the partner will not do this. Trust is oden build on personal contacts and can begin by collabora7ng over a low-risk area of technology. It is smart to ensure that the collabora7on is not overly dependent on few individuals and that there is always some guard system. Common reasons for the failure of alliances are strategic divergence, partner problems, cultural mismatch, insuﬃcient trust, lack of commitment… The inventors whose technological knowledge is beSer covered by a ﬁrm’s patent porfolio (and thus can exchange informa7on more freely without the risk of revealing too much) are usually the company inventors assigned to par7cipate in the alliance. Interes7ngly, research by Markus shows that collabora7on leads to a higher rate of outgoing employee mobility of R&D scien7sts. This might be due to insa7sfac7on with the collabora7on, or with the fact that the collabora7on augments employees’ general human capital, subsequently increasing their outside employment op7ons. Technology licensing Technology licensing is the contractual arrangement that gives a ﬁrm (the licensee) the rights to use another’s (the licensor) technology, in exchange for some payment (upfront payment and royal7es. This licensing has a transac7onal nature, as it establishes access to a par7cular technology. It is possible to have a set-up in which there is a co-development between the licensor and the licensee. The licensee typically needs to have relevant complementary assets (R&D capabili7es to further develop and assets for downstream commercializa7on). Imperfect control of the licensee since the technology license does not imply full ownership, and the licensee might not get an exclusive license. From an innova7on point of view, the learning opportuni7es for the licensee might be limited, since the agreement may involve knowledge transfer, but they could also be limited due to non-involvement in technology development. The design of upfront, milestone and royalty payments allows for adjus7ng terms well to risk structure and requirements for further commercializa7on. The licensor has the possibility to include grant-back clauses, which describes that follow-on technology developed by the licensee needs to be licensed back to the licensor. One example for the successful licensing of a technology is the an7body plaform of Adimab. They have successfully found licensees in Novo Nordisk, GSK and Gilead, which some of them even include new product clinical development milestones payments and royal7es on therapeu7c product sales. It is also possible to license to diﬀerent players if they are in diﬀerent geographic areas or if they have diﬀerent therapeu7c indica7on. Here, licensing might be a good op7on if the downstream markets can be well separated. Exclusive license Non-exclusive license Only one licensee receives the right to use Several licensees receive the right to use the technology the technology More incen7ves for the licensee, as the Ensures a wide diﬀusion of the technology monopoly posi7on can reap high rewards Licensor will ask for higher royal7es and Less royalty payments from given licensees, payments but also less risk for the licensor More risks for the licensor If fragmented product markets or geographical segmenta7on possible, there is the possibility of par7al exclusivity. Specialized technology providers license or sell their technologies to ﬁrms with downstream assets, such as ability to run clinical trials, master the regulatory process, manufacture drugs, sell the drugs and so on. Licensing can then be a strategy for biotech ﬁrms to receive revenues for intermediate-stage technologies that can be used to further ﬁnance R&D programs and perhaps help to become more integrated. Established ﬁrms can then withdraw from most risky parts of the upstream basic research. The ques7on is if the specialized technology provider is able to maintain a pipeline of promising technology projects to license in the long run. CRO Contract research organiza7on. This type of arrangement works best when a company has a very speciﬁc technology need and contracts and external party that can deliver this technology needs. There is very liSle involvement of the ﬁrm that awards the contract, which reduces risks but also limits the learning opportuni7es. The control is somewhat high since the expected performance parameters can be speciﬁed, and non-compliance from the CRO side can be sanc7oned (although here there are relevant contrac7ng costs). Research consor&a Research consor7a play a pivotal role in fostering innova7on by bringing together a diverse network of partners and resources. The core features of these collabora7ons, par7cularly from an innova7on standpoint, include the ability to access a large innova7on network and pool resources for early-stage, non-compe77ve research ac7vi7es that may lack immediate commercial implica7ons. By avoiding unnecessary duplica7on of costly early-stage eﬀorts, consor7a enable par7cipants to share the burden of research and development. However, due to the number of partners involved, high coordina7on requirements, and varying ac7vity levels, research consor7a are oden characterized as "slow-moving" endeavors. Addi7onally, the collabora7ve nature of these consor7a may make it challenging for any single partner to inﬂuence the direc7on of the research in a manner aligned with their speciﬁc company priori7es. Despite these challenges, the collec7ve strength of research consor7a lies in their capacity to drive innova7on through shared exper7se, resources, and a collabora7ve approach to tackling complex scien7ﬁc challenges. Innova&on Challenges in BioBusiness 07.11.2023 Appropriability strategies for Innova9on Appropriability strategies play a crucial role in fostering and sustaining innova9on within organiza9ons. In the dynamic landscape of today's business world, where technological advancements and crea9ve ideas are highly sought aCer, the ability to protect and capitalize on innova9ons is paramount. Appropriability refers to an organiza9on's capacity to capture the value generated by its innova9ons, preven9ng others from easily replica9ng or imita9ng them. This is par9cularly signiﬁcant because it provides a compe99ve advantage, encouraging companies to invest in research and development with the assurance that they can reap the rewards of their eﬀorts. One key and the most used appropriability strategy is intellectual property protec9on, including patents, trademarks, and copyrights. These legal safeguards oﬀer a means to establish exclusive rights over innova9ons, ac9ng as a barrier to entry for compe9tors. By securing these rights, companies not only protect their investments but also create a founda9on for nego9a9ng partnerships, licensing agreements, or even mone9zing their intellectual assets. Patents as a method of appropria9on to secure royalty income is also a widespread strategy. Another vital aspect of appropriability is the establishment of proprietary technologies and know-how. By developing unique and diﬃcult-to-replicate capabili9es, organiza9ons can create a compe99ve edge that goes beyond legal protec9ons. This could involve building a specialized team with unique skills, implemen9ng proprietary processes, or cul9va9ng a culture of con9nuous learning and innova9on. Related to this is the Secrecy Strategy, in which a technologically diﬃcult inven9on is not patented to not disclose the key informa9on. The challenge with this strategy is to know which key employees need to know the secret and which ones do not. Open innova9on models, which involve collabora9on with external partners such as suppliers, customers, or research ins9tu9ons, also require careful considera9on of appropriability. Striking the right balance between sharing knowledge and safeguarding core innova9ons is essen9al. Companies may u9lize mechanisms like conﬁden9ality agreements, strategic alliances, or joint ventures to manage the ﬂow of informa9on and ensure that they retain a compe99ve advantage. Ul9mately, the eﬀec9veness of appropriability strategies directly inﬂuences the willingness of organiza9ons to invest in innova9on. The assurance that the fruits of innova9on can be protected and leveraged contributes to a conducive environment for con9nuous crea9vity and technological advancement. In a world where innova9on is a key driver of success, mastering appropriability strategies is a cornerstone for organiza9ons seeking long-term sustainability and growth. Channels of imita&on and spillovers Understanding the channels of imita9on and spillovers is essen9al for organiza9ons aiming to protect their intellectual investments. Several avenues serve as conduits for the diﬀusion of knowledge, posing challenges to the appropria9on of innova9ve ideas and diminishing the incen9ves for R&D ac9vi9es. 1) Reverse engineering product: Compe9tors may dissect and analyze a product to understand its underlying technology and replicate its func9onali9es. This method of imita9on circumvents legal barriers and can erode the market advantage of the original innovator, especially when the innova9on lacks robust protec9on. 2) Employee mobility: As talented individuals move between organiza9ons, they carry valuable insights and exper9se with them. This mobility can result in the uninten9onal transfer of proprietary knowledge, weakening a company's ability to maintain a compe99ve edge. 3) Reading codiﬁed informa8on, such as published research papers or technical documenta9on, also facilitates knowledge diﬀusion. While the dissemina9on of informa9on is vital for the progress of science and technology, it simultaneously exposes innovators to the risk of their ideas being replicated by compe9tors who may not have contributed to the original research. 4) Supply chain: While collabora9on enhances collec9ve knowledge, it also poses the risk of uninten9onal knowledge leakage. Companies must strike a delicate balance between sharing informa9on to foster innova9on and safeguarding proprietary insights to maintain a strategic advantage. 5) Compe8tors: compe9tors working on similar projects can lead to duplica9on of eﬀorts, resul9ng in a race to market with similar innova9ons. This parallel development diminishes the exclusivity of an innova9on, limi9ng the poten9al returns on investment and providing less certainty for appropriability. Balancing openness and protec9on becomes impera9ve to sustain a conducive environment for innova9on while safeguarding the compe99ve advantage that fuels ongoing R&D endeavors. Who beneﬁts from Innova&on? The alloca9on of proﬁts resul9ng from innova9on eﬀorts is inﬂuenced by a variety of generic factors. The explora9on of these factors is essen9al for companies aiming not only to foster a culture of con9nuous innova9on but also to strategically capitalize on their inven9ve contribu9ons in a manner that ensures long-term viability and success. Appropriability Regime The appropriability regime is the degree to which rivals can imitate an innova9on. This regime is inﬂuenced by a variety of factors, such as the nature and diﬃculty of the technology, legal instruments such as patents or copyrights, and the degree of tacit vs. codiﬁed knowledge. This regime can either be very 9ght (meaning good protec9on of the inven9on) or loose. Complementary Assets The complementary assets describe the addi9onal assets needed for the technology to be eﬃciently commercialized. This can be marke9ng eﬀorts, compe99ve manufacturing, access to cri9cal data, distribu9on of the technology… The complementary assets can either be generic or specialized. If generic, it means that the assets do not need to be modiﬁed to ﬁt innova9on and no speciﬁc investments are needed. If specialized, the assets need to be modiﬁed speciﬁcally for the inven9on. This can be unilateral (specialized, either innova9on or complementary assets change to ﬁt the other) or bilateral (both need to be modiﬁed). Dominant Design The dominant design is the set of technological speciﬁca9ons that characterize a product. Designs are ﬂuid before a dominant design is established. ACer the dominant design is established, eﬃcient produc9on and distribu9on gains importance. Profit distribution: exercise This graph shows who makes money in which scenario:Who makes money? The innovator or the holder of the complementar 1) Appropriability loose, complementary assets generic: Everyone who has access to the Complementary Complementary assets freely available assets scarce and technology. Low returns for the investor due to and generic (co)-specialized high compe99on. 2) Appropriability 9ght, complementary assets Appropriability Low returns, difficult Holder of generic: High return to the investor due to the regime is loose to make money complementary assets high protec9on of the technology. 3) Appropriability loose and complementary assets Party with both specialized: High return for the holder of Appropriability regime is tight Innovator technology and assets or with complementary assets. bargaining power 4) Appropriability 9ght and complementary assets specialized: High return for the party with both technology and assets. Patents A patent is a legal right to prevent others from using an inven9on for a speciﬁc period of 9me, usually up to 20 years, on a given territory. This protec9on carries the obliga9on to disclose the relevant technical characteris9cs. So, aCer the 20 years, everyone will have access to your technological details and have the right to exploit them for commercial purposes. The objec9ve of a patent is to overcome the market failure and incen9vize innova9on by giving the inventors a 9meframe in which they can exploit their inven9ons alone. Addi9onally, patents support technological advancement and cumula9ve innova9on through the disclosure requirement and facilitate technology transac9ons. Patents can be obtained on a composi9on of maaer (chemical compound), ar9cle of manufacture (machine), a method (example: Synthesizing technique), SoCware (mainly in US), business method (mainly US). Patents cannot be obtained for discoveries (like chemical elements), ideas, mathema9cal formulas or scien9ﬁc theories. In order for an inven9on to be patentable, it has to meet three requirements: 1) Novelty: The inven9on has not been previously invented. Any earlier disclosures of the technology renders the inven9on non-novel 2) Inven9ve step: Inven9on cannot only be a small logical extension of an exis9ng one. For this assessment, the perspec9ve of a person who is an expert in the ﬁeld is used. 3) Industrial applicability: There must be a func9onal purpose for the inven9on. This does not mean however that the inven9on has to be useful from a commercial viewpoint. The patent applica9on procedure has been made easier with joint applica9on processes through the European Patent Oﬃce and the Patent Coopera9on Treaty. Here, the principle of ﬁrst-to-ﬁle applies, instead of the ﬁrst-to-invent. When a patent is created, a patent family also starts. A patent family is a set of patents that share the same priority date and are related to one another. During 18 months aCer the applica9on, the requirements for patentability are assessed. ACerwards the technical informa9on and the patent are disclosed. It is important for new inventors to then ﬁle the patent in each territory they want their patent to be ac9ve in. In the patents, the patent claims are cri9cal, as they deﬁne the protec9on scope of the A procedural view on the patenting process (EPO) patent. If there is some technological feature not described in the patent claims, it is not protected by the patent and can be exploited by another compe9tors to create their own patent and limit your Freedom to Operate. Secrecy and Trade Secrecy 1 The deﬁni9on of trade secrecy is the simple intui9on of secrecy: Keeping valuable knowledge such as technologies or speciﬁc market knowledge within the organiza9on. Condi9ons in order to trade secrecy to work eﬃciently is for just a few sources in the company to know the informa9on, having a complex product, having a product or process that requires high amount of tacit knowledge and having informa9on related to processes, inputs and materials. Speciﬁc legal tools such as the Non-disclosure agreements or non-compete agreements can be used to keep this informa9on secret. Another tool is the inevitable disclosure doctrine, which is a legal doctrine that allows a court to prevent an employee from working for a new employer if the court believes that, based on the nature of the employee's former posi9on and the speciﬁcs of their new role, the employee is likely to "inevitably disclose" or use their former employer's trade secrets or conﬁden9al informa9on. Secrecy has some advantages and disadvantages when compared to the protec9on of patents. Firstly, secrecy has the poten9al to oﬀer a longer 9me horizon of protec9on than patents, which are limited to 20 years. In addi9on to that, secrecy does not involve the disclosure of the innova9on and secrecy has lower direct costs, because in contrast to the patents it does not need an applica9on, renewal and enforcement eﬀorts. However, the use of secrecy may imply to adopt strategies that reduce informa9on exchanges between employees within and across ﬁrms, restric9ng the use of open innova9on and collabora9on. Addi9onally, there is absolutely no protec9on if a compe9tor independently creates the same inven9on. Data exclusivity for pharmaceuticals Data exclusivity can complement patent protection and e Data exclusivity Data exclusivity can be of high interest for pharmaceu9cals. Data exclusivity can complement the protec9on provided by a patent and even extend the period of market exclusivity. This data exclusivity describes a period of 8 plus 2 years from the ini9al authoriza9on of a medicine during which the marke9ng authoriza9on holder beneﬁts from the exclusive rights to the results of preclinical tests and clinical trials on the medicine. ACer this period, the marke9ng authoriza9on holder Source: Gaessler and W Statistics) is obliged to release the informa9on to companies wishing to develop generic versions of the medicine. This exclusivity is independent of patent protec9on. Strategic IP disclosure and Defensive Publica&on When an innova9on is neither patented nor kept secret it is an inten9onal disclosure. The logic behind this is keeping the freedom to operate in compe99ve environments by raising the novelty requirements for future patents, as your inven9on will be considered prior art. This has moderate costs in comparison to paten9ng and needs a proof of the publica9on date to establish priority. Usually these inten9onal disclosures are made in public plagorms such as scien9ﬁc publica9on, specialized providers or in the own journal. Trademarks Trademarks have the purpose of diﬀeren9a9ng products or services from compe9ng oﬀerings, which all in all reduces consumer search costs and can be linked by customers to product quality and characteris9cs. Trademarks serve as a founda9on of company’s branding strategies and can be on a product or a corporate level. Trademarks prevent the use by other of signs that are similar or iden9cal to the protected sign. Terms of protec9on are 7 years, which are always renewable. However, in contrast to patents, the right holder has an obliga9on of use, as non-use leads to invalida9on of the trademark. Protected under trademarks are also words and logos, personal names, sound marks, colors, 3-D conﬁgura9ons… Pharma brand and drugs name have passed various styles and phases: “Old school” with suﬃxes like -ol, -il or -in; “Aspira9onal” crea9ng names with passion; “Pharma 2.0” returning to scien9ﬁc underpinnings of molecules, but with “sexy” enrichments; “Scien9ﬁc Story” with a focus on how the product works; and “An9-Pharma” co-op9ng for names from other domains. Interes9ngly, a trademark study by Heath & Mace found out that stronger trademark protec9on nega9vely aﬀected innova9on and product quality. Stronger trademark protec9on resulted in more opera9ng proﬁts, more trademark lawsuits and reduced R&D spending and patents. Maybe this means that with a higher emphasis in protec9ng the brand, the company forgets about innova9ng. Copyright Copyright deals with the protec9on of intellectual crea9ons, such as literature, music, ar9s9c and scien9ﬁc work, soCware and architecture. It gives the holder the right to distribute, duplicate and provide deriva9ons of that work, while at the same 9me excluding other from doing so. Ideas under this protec9on do not need to be original, but the form of expression does have to be. The dura9on of protec9on ranges from 50 to 70 years aCer the death of the creator and there is no registra9on required. Related to this topic, Walt Disney corpora9on engaged in lobbying ac9vi9es to have a legisla9on extend copyright protec9on to have the copyright of Mickey Mouse s9ll ac9ve. Strategic use of patents The most common reason to patent product innova9ons is to prevent others from copying that inven9on, but it could also be to prevent lawsuits, to use in nego9a9ons, to block compe9tors, to enhance reputa9on, to have licensing revenue or to measure performance of the team and the innova9on eﬀorts. Con9nua9ons allow inventors to add new claims to old patents, leading to concerns about infringement and holdup. This raises the ques9on: Paten9ng inven9ons or inven9ng patents? Patents may also enable ﬁrms to signal competences. Firms are more likely to ﬁnd collabora9on partners once the patents are analyzed and there are complementary capabili9es between the partners. Patents also reduce the uncertainty about the technology and the asymmetries in informa9on, which greatly aaracts funding and helps funding op9ons. Patents may also be seem as an opportunity to ﬁnd produc9ve research and inventors with mul9ple patents in other organiza9ons, which might be interes9ng to look at in respect to hiring them for a company’s own purpose. Addi9onally, patents may keep compe9tors and rivals from entering into the same technological area. Another strategy with patents is to create patent thickets. A patent thicket occurs when a par9cular technological ﬁeld or industry is densely populated with numerous overlapping patents, making it diﬃcult for innovators to navigate and develop new products or technologies without poten9ally infringing on exis9ng intellectual property. Patent thickets are oCen associated with rapidly evolving and highly compe99ve industries, such as technology and biotechnology, where numerous inven9ons and innova9ons are pursued Strategic use simultaneously. of patents: Managing creating patent thickets thickets requires a balance between encouraging innova9on through the gran9ng of patents and ensuring that the patent system does not become a hindrance to further progress Paten9ng is also a successful strategy to retain key employees in the company. A study found out that Wang, the likelihood 2013, Nature of employee Biotechnology 31(6), p. 501 - mo9lity 503 is reduced by 23% with addi9onal patents granted. 43 Limita&ons and costs of patents 1) For the company: Patents are not always eﬀec9ve in preven9ng imita9on, as a “invent- around” the patent is always possible. Patent protec9on implies also mandatory disclosure of informa9on, which is not always what the company wants. Patent protec9on is also rela9vely costly, as there are fees for applica9on, transla9on, renewal… The resources needed to detect and prosecute poten9al infringers cons9tute a high cost stream. And the patent protec9ons does not say anything about the inven9ons, it is possible that the inven9on becomes obsolete quickly. 2) For policies: Patents support the crea9on of monopoly by always having only one player allowed to pursue a speciﬁc technology. Monopolies are never good for the end user. Scien9ﬁc results are taken out of the public domain. However, for Pharma and specially considering the revenue stream in Pharma projects, patent protec9on for drugs and chemicals is highly eﬃcient. If a patent holder discover an infringement, an injunc9on can be obtained that forces the other party to stop viola9ng ac9vity. Courts decided on a case-by-case bases if the injunc9on is ac9ve or not. Non-prac9cing en99es managed to extract a lot of money from the IP system. Most li9ga9on ac9vi9es ask for monetary damages and not to stop infringing ac9vity. Patent metrics 1) Patent counts: Number of ﬁrm-year level counts of patents. Describes the inven9ve output of the ﬁrm. 2) Patent forward cita9ons: Number of patents that cite a given patent. Describes the quality and impact of that patent. 3) Patent family size: Number of patent applica9ons that share the same priority. Talks about the quality of the inven9on and the appropriability regime. 4) Patent backward cita9on: Number of patents that are quoted by a patent as relevant prior art. 5) Number of inventors: Size of the inventor team. 6) Number of claims: Deﬁne the patent scope. Describes the patent quality. Innova&on Challenges in Biobusiness 16.11.2023 AI, IT & ﬁrm innova5on AI History AI formally started in the Dartmouth workshop in 1956. Par5cipants were mathema5cians and scien5st such as Ray Solomonoﬀ or Heber A. Simon. The proposal was that every aspect of learning and any other feature of intelligence can be so precisely described that a machine can be made to simulate it. With this workshop, AI gained its name, its mission, its ﬁrst success and its major players. An expert system is a co

Innovation Challenges in BioBusiness Notes PDF

Document Details

Tags

Related

Summary

Full Transcript