Lecture Notes: The Importance and Sources of Technological Innovation

The Importance and Sources of Technological Innovation Lecture Note 1 Prof. Se-Joon Hong  Lecture Note Part 1 Lecture Note 1 mainly describes the importance and role of innovations Why innovations are so important in today’s business?...

The Importance and Sources of Technological Innovation Lecture Note 1 Prof. Se-Joon Hong  Lecture Note Part 1 Lecture Note 1 mainly describes the importance and role of innovations Why innovations are so important in today’s business? How are innovations changing the business horizon and society? Creativity, Characteristics of innovators (inventors) Sources of innovation  The Big Picture Let’s draw a big picture about technological innovations today Technological innovations have been changing industrial pictures, daily life, and society 3 A World of Innovations 4  Some of the Most Important Technological Innovations year technology year technology year technology 1800 Electric Battery 1895 X-ray Machine 1957 Satellite 1804 Steam Locomotive 1902 Air Conditioner 1958 Integrated Circuit 1809 Telegraph 1903 Wrights’ Airplane 1967 Portable Calculator 1817 Bicycle 1910 Electric Washing 1969 ARPANET Machine 1821 Dynamo 1914 Rocket 1971 Microprocessor 1850 Petroleum Refining 1927 Television 1973 Mobile Phone 1867 Typewriter 1928 Penicillin 1976 Supercomputer 1876 Telephone 1940s Computers 1981 Space Shuttle 1886 Internal Combustion 1943 Nuclear Reactor 1996 Internet Automobile 1887 Pneumatic Tire 1947 Transistor 2003 Map of Human Genome 5  Music Industry What happened to this over 100 years old industry for the last 10 years? When did you buy your last CD? Do you even know what it is? How do people consume music?  Autonomous Driving Cars Competition & Collaboration Mercedes Benz, Audi, Lexus, BMW,… NVDIA, MobileEye, AMD, SONY-HONDA, Samsung,… What is possibly going to happen? 7  Education Industry MOOC (Massive Open Online Course) Open Culture (www.openculture.com) Open Yale Courses (oyc.yale.edu) Edx (www.edx.org) Coursera (www.coursera.org) What do you think? What is possibly going to happen in the education industry? 8  The Importance of Technological Innovation Firms rely on products developed within the past five years for more than 1/3 of their sales and profits (Barczak et al.) Johnson & Johnson (30% of sales), 3M (45% of sales) Fierce competition due to the market globalization and technology equalization (leveling) across firms (and countries) has put pressure on firms to continuously innovate to produce differentiated products and services Introducing new products help protect margins Investing in process innovation helps lower costs  The Impact of Technological Innovations on Industries An industry-wide shift to shortened development cycles, more rapid product introductions and greater market segmentation Product life cycles as short as 4~12 months for S/W, 12~24 months for H/W and consumer electronics, 18~36 months for large home appliances Companies that do not innovate quickly find their margins diminishing as their products become obsolete fast The push for innovation has raised the competitive bar for industries Nokia, Blackberry, LG smart phones Fortune 500 Rankings: 1990 vs. 2023 Rank Company Company 1 General Motors Walmart 2 Ford Motor Amazon 3 Exxon Mobil Exxon Mobil 4 IBM Apple 5 General Electric UnitedHealth Group 6 Mobil CVS Health 7 Altria Group Berkshire Hathaway 8 Chrysler Alphabet 9 DuPont McKesson 10 Texaco Chevron 11 Chevron AmerisourceBergen 12 Amoco Costco Wholesale 13 Shell Oil Microsoft 14 Proctor & Gamble Cardinal Health 15 Boeing Cigna Group 16 Occidental Petroleum Marathon Petroleum 17 United Technologies Phillips 66 18 Eastman Kodak Valero Energy 19 Marathon Oil Ford Motor 20 Dow Chemical Home Depot 11  Electronic Industry What happened over the last 20 years? 12 13 What about Automobile Industry? Hyundai Motors 14  The Impact of Technological Innovation on Society and Beyond Innovation: It is the creation of new knowledge to solve our problems and pursue our goals Efficient production of foods and necessities Improved medical treatments Greater communication and mobility Laundry machine? However, it may also pose some negative externalities  Pollution, resource depletion, moral dilemma,… Power and order, politics, world economy,… “Clean Meat” Story 2017, MS founder Bill Gates and a group of other high-profile investors, including Jeff Bezos, Jack Ma, and Richard Branson announced their intention to fund a start-up ‘Memphis Meats’ (Now ‘Upside Foods’) It grew “clean” meat using stem cells, eliminating the need to breed and slaughter animals Why “Clean Meat”? Growth in the demand for meat is skyrocketing Population growth As standard of living goes up, the demand for meat tend to increase Inevitable “meat crisis” A massively negative effect on the environment due to large-scale production of animals Greenhouse gas emissions from cattle > world automobiles Why “Clean Meat”? Animal production is extremely resource inefficient To produce each chicken sold in a supermarket requires more than 1,000 gallons of water (50 gallons for each egg) Each gallon of cow’s milk requires 900 gallons of water It required roughly 23 calories worth of inputs to produce one calorie of beef Why “Clean Meat”? A study by Oxford University indicated that Meat grown from cells would produce up to 96% lower greenhouse gas emissions, use 45% less energy, 99% less land, and 96% less water Scientists also agreed that “Clean” meat promised to bring down the ratio to three calories of inputs to produce a calorie of beef (more than 7 times greater efficiency) Clean meat would not contain antibiotics, steroids, or bacteria such as E. coli It is literally “cleaner”, thus greater for human health Going Commercial In 2015, Uma Valeti, a cardiologist founded his own cultured-meat research lab at the U. of Minnesota On top of the inefficiency of meat production, he paid attention to the suffering of the animals Dreaming a best-of-both-worlds alternative, i.e., a healthier and kinder meat  Launched Memphis Meats Valeti’s team began experimenting ways to get just the right texture and taste In December 2015, they hosted their first tasting event: a meatball  Going Commercial After the success of Valeti’s event, the giant agribusiness firms took notice At the end of 2016, Tyson Foods, the world’s largest meat producer announced its investment (initially USD 150 million) in a venture capital fund In 2017, Cargill announced its investment in Memphis Meats Scale and learning curve efficiencies would soon make cultured meat not only competitive with traditional meat, but more affordable  History Made Upside Foods is approved to sell its cultivated chicken in the U.S. June 21, 2023 Upside’s cultivated chicken will be launched at Bar Crenn in San Francisco through a partnership with 3 Michelin-star chef Dominique Crenn. 24  The Future? Some say the real problem is not production economics, but consumer acceptance Would people be willing to eat meat grown without animals? Sergey Brin, Bill Gates, Jeff Bezos, Jack Ma, and Richard Branson were willing to bet that they would Branson: “In 30 years or so we will no longer need to kill any animals and that all meat will either be clean or plan-based, taste the same and also be much healthier for everyone.” Agriculture Technology Innovations AgTech Smart Farming AI + Big Data + Robot +… 26  Agtech: Why? Warning signs for Water & Soil  The world will need at least 50% more water for food by 2050.  The current utilization is already putting a serious strain on our future self-sufficiency. Food Dependence on Unstable Imports  Unstable food supply system relying on uncertain imports  Long-distance transportation harms food quality and environment Sustainable and Eco-friendly Cultivation  Eco-friendly chemical fertilizers  Less water consumption  Remaining moisture is collected and recycled through drainage devices, preventing it from permeating the soil  Agtech Definition  Agtech = Agriculture + Technology  A new paradigm in the agricultural field CEA (Controlled Environment Agriculture)  Indoor control to create an optimal environment  Artificial adjustment  Better crop yields Vertical Farming  Horizontal systems stacked as high as buildings  Efficient use of a limited land  Plants can be grown 24hrs through out the year  Short distribution time  Fresh deliveries INFARM The Future of Sustainable Urban Food Production Introduction  Overview Agricultural method in which crops such as leafy greens and herbs are farmed indoors within climate- controlled environments  Company At a Glance Basic Info Infarm was founded in Berlin in 2013 by Osnat Michaeli and the brothers Erez & Guy Galonska. Difference with Traditional Farming No pesticides Reasons for Creating Infarm Recycle water and nutrients; use 95% less Self-sufficient land and 95% less water than soil-based Eat better flavors and nutrients agriculture Without chemical pesticides Highly technical Require 90% fewer food miles to get to the consumers’ plates  Advantages ＆ Challenges Advantages Reduces - transportation costs - CO2 emissions - the need for refrigerated storage Protect crops from extreme weather conditions Minimal amount of freshwater needed Challenges Temperature and humidity Air circulation HVAC equipment location  Currently,  Vertical Farming Start-up raising urban farms that are close to communities Currently operating over 600 vertical farms in US, Europe, Canada, and Japan Cooperates with supermarket chain QFC in US operating over 10 vertical farms across US Why Infarm? Vegetables we eat are grown close to where we live and arrives alive with root Zero chemical pesticides ensure organic produce Sustainable vertical farm system allows for continuous production of food Ynsect: reinventing the food chain  Ynsect: reinventing the food chain Founded by scientists and environmental activists in 2011, Ÿnsect is pioneering a new industry realizing the full potential of mealworms – putting them at the service of humanity, the planet, and the living world at large.  Ynsect: reinventing the food chain New stable source of food for pets and humans Great protein source for aquaculture Highly effective and soil-friendly fertilizer solution Permian Basin Fracking & Horizontal Drilling  Technological Innovations of Drilling and Fracking Dramatic improvements in gas and oil extraction methods The U.S. shale oil and gas The Permian Basin’s production already approached to that of Iran—the 3rd largest OPEC member Now U.S. has come back as an energy superpower Impact on the global oil market, the U.S. economy, U.S. political and diplomatic agenda, environment,…  The Strategic Management of Technological Innovation Most innovative ideas do not become successful new products It takes about 3,000 raw ideas to produce one successfully commercial product (Stevens & Burley) Only one out of 5,000 compounds is displayed at a drug store as a new medicine, with an overall time from discovery to market of 15 years, and a total cost of approximately USD 1 billion!! And one out of 3 such drugs can be commercially successful! This is why a well-crafted strategy is required  Innovation Funnel The New Product Development Funnel in Pharmaceuticals 5,000 Compounds 125 Leads 2-3 drugs tested 1 drug Rx Drug Store Discovery & Preclinical Clinical Trials Approval 3-6 years 6-7 years ½-2 years 43  The Strategic Management of Technological Innovation A firm’s new product development process should maximize the likelihood of innovation projects being both technically and commercially successful; to achieve these things, a firm needs: An in-depth understanding of the dynamics of innovation (how and why innovation occurs) A well-crafted innovation strategy Well-designed processes for implementing the innovation strategy What’s Next ?  The 4th Industrial Revolution Klaus Schwab (World Economic Forum, 2016) The 4th Industrial Revolution is characterized by a range of new technologies that are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries, and even challenging ideas about what it means to be human.  The 4th Industrial Revolution IoT + Big Data + AI + Clouds + 3D Printing,… Everything from education to social policies should be reconsidered So many changes, so many issues People live longer, but population is decreasing Productivity gains may go up, but many will lose their jobs 47 48  Neuralink https://www.youtube.com/watch?v=EPUHsnN9R9I 49 Are We Ready?  Innovation The practical implementation of an idea into a new device or process Different sources: individuals, firms, universities Firms: well suited to innovation activities (greater resources, strong incentives) Networks of innovators: leverage knowledge and other resources from multiple sources Innovation begins with the generation of new ideas The ability to generate new ideas is creativity  Creativity Individual creativity A function of one’s intellectual abilities, knowledge, personality, motivation, environment,… Intellectual abilities: the ability to look at problems in unconventional ways, the ability to articulate those ideas to others and convince others that the ideas are valuable Knowledge: a moderate degree of knowledge of a field (not too little, not too much) Confidence, willingness to overcome obstacles and take reasonable risks,… Intrinsic motivation (enjoy what one’s doing) An environment that provides support and rewards  Myths about Creativity The smarter you are, the more creative you are The young are more creative than the old Creativity is for flamboyant risk taker Creativity is a solitary act Manhattan Project, Apollo Project, Thomas Edison You can’t manage creativity A manager can create the conditions that make creativity more likely to occur (rewards, resources, structures, etc.) Matching the right people with the right assignments Giving freedom: be specific about ends, but leave the means to employees Providing sufficient time and resources 53 Creativity can be grown  Creative Groups Many innovations are products of creative groups: Edison’s lab, Transistor (Bell Lab),… Often achieve greater creative output than individuals because they bring a greater sum of competencies, insights, and energy to the effort Must have the right composition of thinking styles and technical skills  Diversity Individual differences can spark new ideas Diversity of thought and perspective is a safeguard against “groupthink” – the tendency of individual idea to converge for social reasons Diversity gives good ideas more opportunities to develop 55  Creative Groups The creative group shows tendencies of thought and action to be mutually exclusive or contradictory Fresh perspectives (beginner’s mind) are needed Bringing contradictory characteristics can catalyze new ideas Beginner’s mind vs. Experience; Freedom vs. Discipline; Play vs. Professionalism; Improvisation vs. Planning  Need a blend/balance 56  Diversity of Skills Look for people whose intellectual perspectives complement your skills and those of your group Look for a balance of expertise and personal characteristics (leadership, ability to get along with others, etc.) Look for people who can work across functional boundaries Put a premium on finding the skills that the group currently lacks Explore nontraditional hiring channels Consider adding a customer or outside professional to the group (Xerox engineers brought in anthropologists to help them design more user-friendly copiers) Must hire a critical mass of people with different perspectives and they must be integrated into the team (no isolation!) 57 Divergent vs. Convergent Thinking in Group Thinking The creative process begins with “divergent” thinking A breaking away from familiar/established ways of seeing and doing (a broad focus) Seeing things from an unfamiliar perspective makes it possible to develop insights and new ideas But are those insights valuable?  That’s what “convergent” thinking attempts to answer 58 Divergent vs. Convergent Thinking Convergent Thinking It helps channel the results of divergent thinking into concrete products As new ideas generated by divergent thinking are communicated to others, they are evaluated to determine which ideas are worth pursuing One of the benefits of group work In moving from divergent to convergent thinking, a team stops emphasizing what is novel and starts emphasizing what is useful It sets limits and narrows the field of solutions within a set of constraints (culture, mission, priorities, costs) 59  Tips for Improving Convergent Thinking Work groups are often tempted to converge quickly on what appears to be a single best solution and to mute any dissent  Wrong! Have an incubation period which people can experiment with the various options Appoint an official devil’s advocate to challenge all assumptions associated with the options Ensure that dissent is tolerated and protected, otherwise, groupthink may take control of future decisions 60  Organizational Creativity A function of creativity of the individuals/groups and a variety of social processes and factors in the organization (structure, routines, incentives, culture,..) Idea collection systems (suggestion boxes, Intranet) Employees can access the idea repository through the Intranet  they can submit ideas and actively interact and collaborate on the ideas (IBM’s “Innovation Jam”, Bank One’s “One Great Idea”) Training/education programs Culture, incentives (intrinsic/extrinsic)  Tips for Increasing Your Creativity Strive for alignment Instead of thinking jobs at which you excel, think about jobs that match your deeply embedded life interests Choose projects where your intrinsic motivation is high (pursue self-initiated activity) Immerse yourself in the problem or challenge Instead of looking at a problem from the outside, dive into it (e.g., by assuming the position of a customer or user)  careful observation, 易地思之 Creative breakthroughs can be found in the uncertain and chaotic world 62  Tips for Increasing Your Creativity Play with the problem Experiment! Guided mastery (experiencing one small success after another) Creativity is something you practice, not just a talent you’re born with Be open to failure If an accident or failure occurs, don’t dismiss it too quickly, but study it for the learning opportunity Break the fear of being judged Supercell Make the habit of asking “Why? Why not? What if?” 63  Tips for Increasing Your Creativity Diversify your stimuli Intellectual cross-pollination can get you thinking in new ways Develop cross-functional skills Take classes not related to your work Bring your insights from outside interests Create opportunities for informal communications Take advantage of opportunities to exchange ideas and challenges with colleagues Build external network Others: exercise, travel, reading, chewing gums,… 64  The Inventor Dean Kamen (Segway), Thomas Edison, James Dyson,.. They have mastered the basic tools and operations of the field in which they invent, but they have not specialized solely on that field; instead, they have pursued 2-3 fields They are curious and more interested in problems than solutions They question the assumptions made previously They often have the sense that all knowledge is unified; they seek global solutions rather than local solutions, and are generalists by nature Meet Dean Kamen, inventor extraordinaire (https://www.youtube.com/watch?v=9gYvDmea5kU&t=67s)  Innovation by Users Innovation often originates with those who create solutions for their own needs They often have both a deep understanding of their needs and the incentive to find ways to fulfill them Examples Laser (popular sail boats designed by a yacht sailor, Bruce Kirby) Snowboards (by several individuals, e.g., Jake Burton) Indermil (a tissue adhesive based on Superglue by medical doctors) Research & Development by Firms One of the most obvious sources of firm innovation The terms Research and Development actually represent different kinds of investment in innovation-related activities Research comprises of steps to collect and analyze information for the advancement of knowledge Research can refer to both basic research and applied research Development refers to activities that apply knowledge to produce useful devices, materials, goods or processes  Innovation by Firms’ R & D Efforts A firm’s R&D spending has a strong positive correlation with its sales growth rate, sales from new products, and profitability Successful firm innovators use multiple sources of information and ideas In addition to the in-house R & D Linkages to customers, to an external network of firms (competitors, complementors, suppliers, government labs, universities,…) A growing recognition of the importance of collaborative R & D networks  Innovation in Collaborative Networks The most significant source of innovation comes from the collaborative networks that leverage resources and capabilities across multiple organizations and individuals Such collaborative networks tend to become bigger (Open collaborations among various entities) Collaboration is often facilitated by geographical proximity, which can lead to regional technology clusters  Technology Clusters Sometimes geographical proximity appears to play a role in the formation and innovative activity of collaborative networks Silicon Valley, Lower Manhattan’s multimedia cluster, Modena, Italy (Knitwear) One primary reason for clusters is the benefit of proximity in knowledge exchange Frequent and close interaction that may lead to greater innovation productivity Also attractive to governments Increase in employment, tax revenues, more business… 70  I. Why Silicon Valley Matters AGENDA II. Mega Trends in the Valley III. Startups Journey  Money: Venture Capital Investments Avg. 50% of VC Investments in US Avg. 50% of VC Investments in Silicon Valley Source: 2017 PWC Moneytree VC Investment Report  Top Talents Top Tier Schools Top tier Companies: FAANG Source: avg. length of employment in These 10 tech. companies, Bureau of Labor statistics, Jan. 2016 Source: GeekWire, startup ranking 2017  Technology Spillovers A significant influence on innovative activity A positive externality of R&D efforts Technology spillovers occur when the benefits from the research activities of one entity spill over to other entities Technology spillovers are partially a function of the strength of protection mechanism (patents, copyrights, trade secrets), also a function of the nature of the underlying knowledge base (e.g., tacit knowledge) and the mobility of the labor (researcher) pool Non-compete clause  NY Became A Tech City https://www.nytimes.com/2019/02/22/t echnology/nyc-tech-startups.html You will understand that NY is rising as a major tech cluster in the 21st century.