Strategic Management of Technological Innovation, Fourth Edition

331 Pages·2014·4.22 MB·English

by  Melissa A. Schilling

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Strategic
M anagement of
Technological
Innovation
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Strategic
M anagement of
Technological
Innovation
Fourth Edition
Melissa A. Schilling
New York University
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STRATEGIC MANAGEMENT OF TECHNOLOGICAL INNOVATION, FOURTH EDITION
Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas,
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Library of Congress Cataloging-in-Publication Data
Schilling, Melissa A.
Strategic management of technological innovation/Melissa A. Schilling.—4th ed.
p. cm.
ISBN 978-0-07-802923-3 (alk. paper)
1. Technological innovations—Management. 2. New products—Management.
3. Strategic planning. I. Title.
HD45.S3353 2013
658.5’75—dc23
2012026522
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not indicate an endorsement by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy
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About the Author
Melissa A. Schilling, Ph.D.
Melissa Schilling is a professor of management and organizations at New York
U niversity’s Stern School of Business. Professor Schilling teaches courses in
s trategic management, corporate strategy and technology, and innovation manage-
ment. Before joining NYU, she was an Assistant Professor at Boston University
(1997–2001), and has also served as a Visiting Professor at INSEAD and the Bren
School of E nvironmental Science & Management at the University of California at
Santa Barbara. She has also taught strategy and innovation courses at Siemens Cor-
poration, IBM, the Kauffman Foundation Entrepreneurship Fellows program, Sogang
U niversity in Korea, and the Alta Scuola Polytecnica, a joint institution of Politecnico
di Milano and Politecnico di Torino.
Professor Schilling’s research focuses on technological innovation and knowledge
creation. She has studied how firms fight technology standards battles, and how
they utilize collaboration, protection, and timing of entry strategies. She also studies
how product designs and organizational structures migrate toward or away from
m odularity. Her most recent work focuses on knowledge creation, including how
breadth of knowledge and search influences insight and learning, and how the
s tructure of knowledge networks influences their overall capacity for knowledge
creation. Her research in innovation and strategy has appeared in the leading academic
journals such as Academy of Management Journal, Academy of Management Review,
M anagement Science, Organization Science, Strategic Management Journal, and
Journal of E conomics and Management Strategy and Research Policy. She also sits
on the editorial review boards of Organization Science and Strategic Organization.
P rofessor Schilling won an NSF CAREER award in 2003, and Boston University’s
Broderick Prize for research in 2000.
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Preface
Innovation is a beautiful thing. It is a force with both aesthetic and pragmatic appeal: It
unleashes our creative spirit, opening our minds to hitherto undreamed of possibilities,
while simultaneously accelerating economic growth and providing advances in such crucial
human endeavors as medicine, agriculture, and education. For industrial organizations, the
primary engines of innovation in the Western world, innovation provides both exceptional
opportunities and steep challenges. While innovation is a powerful means of competitive
differentiation, enabling firms to penetrate new markets and achieve higher margins, it is
also a competitive race that must be run with speed, skill, and precision. It is not enough
for a firm to be innovative—to be successful it must innovate better than its competitors.
As scholars and managers have raced to better understand innovation, a wide
range of work on the topic has emerged and flourished in disciplines such as strategic
management, organization theory, economics, marketing, engineering, and sociology.
This work has generated many insights about how innovation affects the competitive
dynamics of markets, how firms can strategically manage innovation, and how firms
can implement their innovation strategies to maximize their likelihood of success. A
great benefit of the dispersion of this literature across such diverse domains of study
is that many innovation topics have been examined from different angles. However,
this diversity also can pose integration challenges to both instructors and students.
This book seeks to integrate this wide body of work into a single coherent strategic
framework, attempting to provide coverage that is rigorous, inclusive, and accessible.
Organization of the Book
The subject of innovation management is approached here as a strategic process. The
outline of the book is designed to mirror the strategic management process used in
most strategy textbooks, progressing from assessing the competitive dynamics of the
situation, to strategy formulation, and then to strategy implementation. The first part
of the book covers the foundations and implications of the dynamics of innovation,
helping managers and future managers better interpret their technological environ-
ments and identify meaningful trends. The second part of the book begins the process
of crafting the firm’s strategic direction and formulating its innovation strategy,
including project selection, collaboration strategies, and strategies for protecting the
firm’s property rights. The third part of the book covers the process of implementing
innovation, including the implications of organization structure on innovation, the
management of new product development processes, the construction and manage-
ment of new product development teams, and crafting the firm’s deployment strategy.
While the book emphasizes practical applications and examples, it also provides
systematic coverage of the existing research and footnotes to guide further reading.
Complete Coverage for Both Business
and Engineering Students
This book is designed to be a primary text for courses in the strategic management of inno-
vi vation and new product development. Such courses are frequently taught in both business
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Preface vii
and engineering programs; thus, this book has been written with the needs of business and
engineering students in mind. For example, Chapter Six (Defining the Organization’s Stra-
tegic Direction) provides basic strategic analysis tools with which business students may
already be familiar, but which may be unfamiliar to engineering students. Similarly, some
of the material in Chapter Eleven (Managing the New Product Development Process) on
computer-aided design or quality function deployment may be review material for infor-
mation system students or engineering students, while being new to management students.
Though the chapters are designed to have an intuitive order to them, they are also designed
to be self-standing so instructors can pick and choose from them “buffet style” if they prefer.
New for the Fourth Edition
This fourth edition of the text has been comprehensively revised to ensure that the
frameworks and tools are rigorous and comprehensive, the examples are fresh and
exciting, and the figures and cases represent the most current information available.
Some changes of particular note include:
Five New Short Cases
Theory in Action: Inspiring Innovation at Google. Chapter 2 now includes a “Theory
in Action” that describes some of the ways that Google motivates its employees to
innovate. Google uses a wide array of mechanisms to foster employee innovation,
including contests, awards, and allocating 20 percent of each employee’s time to pur-
sue projects of their own choosing.
Tata Nano: The World’s First Rs. 1 Lakh Car. The new opening case for Chapter 3 is
about the Tata Nano. In 2002, Ratan Tata, head of Tata Group, one of India’s largest and
most revered business holding groups, decided to create a car that the masses of India could
afford—the Tata Nano. At Rs. 1 lakh (about $2,200), it would be least expensive car ever
developed. To accomplish this feat, Tata had to completely reconceptualize, from the car’s
frame, to its major power systems, to even its trim. Tata’s engineers and global supplier base
responded enthusiastically to the challenge, and in 2009, the Nano was officialy launched.
Theory in Action: “Segment Zero”—A Serious Threat to Microsoft? Chapter 3 now
includes a Theory in Action short case that describes how smartphones may pose
a “segment zero” threat to Microsoft. Microsoft has held a position of dominance
in personal computer operating systems for more than thirty years. Despite attacks
from numerous other operating systems (e.g., Unix, Geoworks, NeXTSTEP, Linux,
and MacOS), its market share has held stable at roughly 85 percent. Now, however,
Microsoft’s position was under greater threat than it ever had been. Smartphone
operating systems were becoming increasingly sophisticated, and as they evolved to
handle the increasingly complex activities performed on tablets, they became increas-
ingly close substitutes for the Windows operating system. Furthermore, this was a
market in which Microsoft was not even in the front pack: Apple’s iOS and Google’s
Android collectively controlled about 60 percent of the market. In 2011 Microsoft had
an impressive arsenal of capital, talent, and relationships in its armory—but for the
first time, it was fighting the battle from a disadvantaged position.
From SixDegrees.com to Facebook: The Rise of Social Networking Sites. This new
opening case for Chapter 5 chronicles the rise of social networking sites, from pioneers
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viii Preface
like SixDegrees.com and Friendster, through the growth of MySpace, and ultimately
the dominance of Facebook. The case provides an apt context for considering the role
of timing in an innovation’s success. The pioneers and early movers in social network-
ing sites did not attain sustainable advantages, despite the strong network externalities
that exist in this industry. This case highlights the roles that enabling technologies,
legitimacy, and social networks play in the diffusion of an innovation.
Dyesol: Partnering to harness the power of the sun. This new opening case for Chapter 8
describes the development of dye-sensitized solar cells, and the choices the company
Dyesol has made, and must make, with respect to collaboration. Dye-sensitized solar cells
were a new type of low-cost thin-film solar cell that could generate electricity from sun-
light in much the same way as plants conduct photosynthesis. They could be engineered
into tough, pliable sheets that were used to coat steel and glass, making them an attrac-
tive option for incorporating solar technology into building materials. Dyesol, however,
was small, and did not have the capital or manufacturing capabilities to bring such end
products to market. Dyesol thus partnered with companies like Tata Steel and Pilkington
in large-scale joint ventures. Some managers at Dyesol believed the company would be
better off just licensing its technology to existing manufacturers. Students are encouraged
to consider the advantages and disadvantages of Dyesol’s existing relationships, how such
relationships should be governed, and the trade-offs of switching to a licensing strategy.
Cases, Data, and Examples from Around the World
Careful attention has been paid to ensure that the text is global in its scope. The opening
cases feature companies from Australia, India, Israel, Japan, France, the UK, and the
United States, and many examples from other countries are embedded in the chapters
themselves. Wherever possible, statistics used in the text are based on worldwide data.
More Comprehensive Coverage and Focus on Current Innovation Trends
In response to reviewer suggestions, the new edition now provides more extensive
discussions of topics such as alliance portfolios, alliance governance, and outsourc-
ing. Examples in the text also highlight current important innovation phenomena such
as crowdsourcing, “freemium” pricing models, “patent cliffs” in pharmaceuticals,
three-dimensional printing in manufacturing, viral marketing, and new resources for
funding startups such as Kickstarter.com and AngelList. The suggested readings for
each chapter have also been updated to identify some of the more recent publications
that have gained widespread attention in the topic area of each chapter. Despite these
additions, great effort has also been put into ensuring the book remains concise—a
feature that has proven popular with both instructors and students.
Supplements
The teaching package for Strategic Management of Technological Innovation is available
online from the book’s Online Learning Center at www.mhhe.com/schilling4e and includes:
• A n instructor’s manual with suggested class outlines, responses to discussion ques-
tions, and more.
• C omplete PowerPoint slides with lecture outlines and all major figures from the text. The
slides can also be modified by the instructor to customize them to the instructor’s needs.
• A testbank with true/false, multiple choice, and short answer/short essay questions.
• A suggested list of cases to pair with chapters from the text.
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Acknowledgments
This book arose out of my research and teaching on technological innovation and new
product development over the last decade; however, it has been anything but a lone
endeavor. I owe much of the original inspiration of the book to Charles Hill, who
helped to ignite my initial interest in innovation, guided me in my research agenda, and
ultimately encouraged me to write this book. I am also very grateful to colleagues and
friends such as Rajshree Agarwal, Juan Alcacer, Rick Alden, William Baumol, Bruno
Braga, Gino Cattanni, Tom Davis, Gary Dushnitsky, Douglas Fulop, Raghu Garud,
Tammy Madsen, Rodolfo Martinez, Goncalo Pacheco D’Almeida, Jaspal Singh,
Deepak Somaya, Bill Starbuck, and Christopher Tucci for their suggestions, insights,
and encouragement. I am grateful to executive brand manager Mike Ablassmeir and
marketing manager Elizabeth Trepkowski. I am also thankful to my editors, Laura Grif-
fin and Robin C. Bonner, who have been so supportive and made this book possible,
and to the many reviewers whose suggestions have dramatically improved the book:
Joan Adams Cathy A. Enz
Baruch Business School Cornell University
(City University of New York)
Robert Finklestein
Shahzad Ansari University of Maryland–University
Erasmus University College
Sandy Becker Sandra Finklestein
Rutgers Business School Clarkson University School of Business
David Berkowitz Jeffrey L. Furman
University of Alabama in Huntsville Boston University
John Bers Cheryl Gaimon
Vanderbilt University Georgia Institute of Technology
Paul Bierly Elie Geisler
James Madison University Illinois Institute of Technology
Paul Cheney Sanjay Goel
University of Central Florida University of Minnesota in Duluth
Pete Dailey Andrew Hargadon
Marshall University University of California, Davis
Robert DeFillippi Steven Harper
Suffolk University James Madison University
Deborah Dougherty Donald E. Hatfield
Rutgers University Virginia Polytechnic Institute and State
University
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