Patent-based measures of

innovation performance
 List of contents
• Innovation vs invention
• Different ways to measure innovation
• The advantages and limitations to use patent data
• Patent quantity and quality indicators
• The difficulty to move from theory to practice
• Working with RegPat

Department of Economics and Management | University of Padua

 Invention

• The discovery of a new, useful process, machine, improvement,

etc., that did not exist previously, that is recognized as the product
of some unique intuition or genius, and that is not obvious to
persons skilled in the particular field.

• The term invention is also an important legal concept. A patent

legally protects the intellectual property rights of the inventor.

Department of Economics and Management | University of Padua

 Innovation

• An innovation is the introduction of a new or significantly improved

product/service, process, organisational method, or marketing method
by your enterprise.
• Innovation activities include the acquisition of machinery, equipment,
buildings, software, and licenses; engineering and development work,
feasibility studies, design, training, R&D and marketing when they are
specifically undertaken to develop and/or implement a product or
process innovation.

Department of Economics and Management | University of Padua

 What is the difference between invention
and innovation?
• The practical application of invention and discovery in any field of
human activity leads to creation of a new product (technology) and
eventually it determines the transformation of idea, underlying the
invention, to the innovation
• Invention is a potential innovation
• Innovation is something that is new and better and has been
adopted and proven to create positive value

Department of Economics and Management | University of Padua

 Innovation…what’s the research claim?
There are several classifications and
categorizations:
• Individual vs collaborative
• Intraregional vs interregional
• Incremental vs radical
• Low-impact vs high-impact
• Exaptation and path-breaking (radical types)
• Exploitation vs exploration
• Bottom-up vs top-down
• Innovation-to-firm vs innovation-to-market

Department of Economics and Management | University of Padua

 Innovation…what’s the research claim?
• Different research claims lead to different definition of innovation and
require different data and indicators. Es:
Patent data (OECD Reg Pat) • Patent information (Year, Technological
classes, citations)
• Inventors information
Community Innovation Survey • Applicants information

This survey collects information on sampled

Database on strategic alliances enterprises’ innovations and innovation
activities
Eurostat or Istat

Department of Economics and Management | University of Padua

 Patent data advantages
• Patents have a close link to invention. There are very few examples of major
inventions that have not been patented in the last two centuries
• Patent data are quite readily available (now by electronic means) from
national and regional patent offices and the marginal cost for the statistician is
much less than when conducting surveys  large dataset and panel data
• Patent offices provide an important data control function
• The contents of patent documents are a rich source of information: on the
applicant, inventor, technology category, claims, etc.
• Patents cover a broad range of technologies on which there are sometimes
few other sources of data (biotechnology, nanotechnology, etc.).
Department of Economics and Management | University of Padua
 Patent data limitations
• Many patents have no industrial application.
• The value of a patent is difficult to be measured. Assuming all patents to be of equal
value might be a mistake.
• Non-patented inventions. Small inventions with high costs of patenting, or inventions
protected by other means (trade secrecy, lead-time on the market, reputation).
• Differences in patent offices’ methods and human capital can lead to biased indicators.
• Differences in patent regulations across countries make it difficult to compare counts
of patents applied or granted in different countries.
• Changes in patent law over the years make it difficult to analyze trends overtime, make
companies more inclined to patent than before, include technologies which had been
excluded until recently.
Department of Economics and Management | University of Padua
 Patent-based indicators

• The patent-based indicators here should nevertheless be considered

as proxies, since they do not contain information about market
transactions or the real use of the (patented) technologies.
• They better represents invention than innovation performance, even
though several studies confused the two concepts
• Patent data can be used:
• To measure quantity and quality performance
• At different levels (patent, inventors, applicant, regions, countries)
• At different time (availability of large time series, continuously updated)

Department of Economics and Management | University of Padua

 Patent quantity indicators
• Number of patents (log)
• Fractionalized number of patents (es regionalization process)
• Number of patents per capita or per inventor
• Share of patent in a given tecnology

• RTA (Revealed Technological Advantage) index provides an indication of the

relative specialization of a given country in selected technological domains. It
is defined as a country’s share of patents in a particular technology field
divided by the country’s share in all patent fields. It is based on location
quotient computation.

Department of Economics and Management | University of Padua

 Patent quality indicators
• Patent scope
• Claims The aim is to identify a proxy of patent value
• Patent family size
• Backward citations
• Forward citations Reference
• Generality index Squicciarini, M., H. Dernis and C. Criscuolo
• Originality index (2013), "Measuring Patent Quality: Indicators
of Technological and Economic Value", OECD
• Radicalness index Science, Technology and Industry Working
• Patent renewal Papers, No. 2013/03, OECD Publishing, Paris.

Department of Economics and Management | University of Padua

 Patent scope
• The scope of a patent is represented by the technological field the patent is
registered on.
• The patent scope index is based on the number of distinct 4-digit subclasses
of the International Patent Classification the invention is allocated to.
• The basic idea is that the technological breadth of patents in a firm’s portfolio
significantly affects the evaluation of the firm, since the patent can be
potentially applied in more technological fields.
• Thus, the larger the number of distinct 4-digit IPC classes, the broader the
scope index, and the higher the potential technological and market value of a
patent.
• It can be normalized per year and technological field
Department of Economics and Management | University of Padua
 Claims
• Claims are the heart of a patent application. Whereas the description
of the invention contained in a patent document teaches how to
make and use the invention, the claims define the scope of legal
protection.
• As the structure of the patent fee is generally based on the number of
claims contained in the document, a large number of claims might
also imply higher fees.
• The claim-based indicator relies on the number of claims or the
number of claims over backward citations, since backward citations
are used by patent office to validate claims.
• It can be normalized per year and technological field

Department of Economics and Management | University of Padua

 Patent family size
• The Patent family refers to the number of jurisdictions in which
patent is protected.
• The basic idea is that the value of patents is held to be associated
with the geographical scope of patent protection. Applicants might be
willing to accept additional costs and delays of extending protection
to other countries only if they deem it worthwhile.
• The family size index is proxied here by the number of patent offices
at which a given invention has been protected.
• It can be normalized per year and technological field

Department of Economics and Management | University of Padua

 Backward citations
• Backward citations refer to the existing knowledge which the patent
relies on.
• Backward citations are used to assess an invention’s patentability and
define the legitimacy of the claims stated in the patent application
• Indicators based on the number of citations made in a patent can
help assess the degree of novelty of an invention
• Large numbers of backward citations may signal the innovation to be
more incremental (path-depending)
• It can be normalized per year and technological field
• Controlling for self-citations

Department of Economics and Management | University of Padua

 Forward citations
• The number of citations a given patent receives over a following
period after the publication date (usually five or seven years).
• It is a proxy of the technological importance of the patent for the
development of subsequent technologies and of the patent value. It
can be used to represent the degree of adoption of a given
knowledge and
• Each additional forward citation is expected to increase the market
value of a patent by 3% (Hall, Jaffe & Trajtenberg, 2005)
• It can be normalized per year and technological field

Department of Economics and Management | University of Padua

 Generality index

• The generality index measures the range of technology fields that cite
the patent.
• The basic idea is that inventions cited by a large number of diverse
knowledge sources are supposed to be general purpose technologies
• It refers to the number and distribution of citations received (forward
citations) and the technology classes of the patents these citations come
from. It is based on reverse of Herfindahl concentration index (from 0 to 1).
• The higher the index, the more the patent is adopted for the development
of diversified subsequent technologies, and the more general it is.
Department of Economics and Management | University of Padua
 Originality index
• Patent originality refers to the breadth of the technology fields on
which a patent relies.
• The basic idea is that inventions relying on a large number of diverse
knowledge sources are supposed to lead to original results.
• The construction of the patent originality indicator follows a logic that
is very similar to the one used to construct the generality index, the
main difference being that originality relies on backward cites.
• The higher the index, the more diversified is the knowledge the
patent recombines

Department of Economics and Management | University of Padua

 Radicalness index
• Patent radicalness refers to the breadth of the technology fields on which
a patent relies.
• The basic idea is that the more a patent cites previous patents in classes
other than the ones it is in, the more the invention is radical.
• The index counts the number of IPC technology classes in which the
patents cited by the given patent are, but in which the patent itself is not
classified.
• The indicator has further been normalized with respect to the total
number of IPC classes listed in the backward citations (varies from 0 to 1).
Department of Economics and Management | University of Padua
 Patent renewal
• The renewal of a patent signals that the invention described in the
patent document is still useful.
• The basic idea is that only more valuable patents are likely to be
renewed for longer periods.
• The patent renewal index corresponds to the simple count of years
during which a granted patent has been kept alive.

Department of Economics and Management | University of Padua

 Moving from theory to practice

What is a breakthrough invention?

How could you measure the breakthrough capacity
of a firm or a region?

Department of Economics and Management | University of Padua

 Measuring a theoretical concept
How could you measure the breakthrough capacity of a firm or a region?

It depends on the definition you adopt:

• Someone claims a breakthrough patent is a high-impact invention
• Others state a breakthrough patent is a path-breaking invention

Radicalness Forward citations

A chance is to define breakthrough inventions as the top 1% of cited

patents with high level of radicalness
Department of Economics and Management | University of Padua
 Measuring a theoretical concept
How could you measure the exaptation capacity of a firm or a region?
High

EXAPTATION
Radicalness
Low

Low High
Originality

Department of Economics and Management | University of Padua

 Thanks for your attention
[Link]@[Link]

Department of Economics and Management | University of Padua

 Chapter 2
Sources of Innovation
 Getting an Inside Look:
Given Imaging’s Camera Pill
 The Camera Pill: A capsule that is swallowed by
patient that broadcasts images of the small intestine
 Invented by Gavriel Iddan & team of scientists
 Iddan was a missile engineer – no medical background
 Project initiated by Dr. Scapa, a gastroenterologist
 Iddan applied guided missile concept to problem of viewing the
small intestine
 Developing the Camera Pill
 Many hurdles to overcome: size, image quality, battery life
 Formed partnership with Gavriel Meron (CEO of Applitec) for
capital to commercialize
 Formed partnership with team of scientists lead by Dr. C. Paul
Swain to combine complementary knowledge
 Resulted in highly successful, revolutionary product.
2-3
 Getting an Inside Look:
Given Imaging’s Camera Pill
Discussion Questions:

1. What factors do you think enabled Iddan, an engineer with

no medical background, to pioneer the development of
wireless endoscopy?

2. To what degree would you characterize Given’s

development of the camera pill as “science-push” versus
“demand-pull”?

3. What were the advantages and disadvantages of Iddan and

Meron collaborating with Dr. Swain’s team?

4. What were the advantages and disadvantages of Given

being owned by Medtronic?
2-4
 Overview
 Innovation can arise from many different sources and the
linkages between them: suppliers, subcontractors, clients,
lead users, and other firms.

2-5
 Creativity

 Creativity: The ability to produce work that is

useful and novel.
 Individual creativity is a function of:
 Intellectual abilities (e.g., ability to articulate ideas)
 Knowledge (e.g., understand field, but not wed to
paradigms)
 Style of thinking (e.g., choose to think in novel ways)
 Personality (e.g., confidence in own capabilities)
 Motivation (e.g., rely on intrinsic motivation)
 Environment (e.g., support and rewards for creative ideas)

2-6
 Creativity

 Organizational Creativity is a function of:

 Creativity of individuals within the organization
 Social processes and contextual factors that shape how
those individuals interact and behave
 Methods of encouraging/tapping organizational
creativity:
 Idea collection systems (e.g., suggestion box; Google’s idea
management system)
 Creativity training programs
 Culture that encourages (but doesn’t directly pay for)
creativity.

2-7
 Theory in Action

 Inspiring Innovation at Google

 Google uses a range of formal and informal
mechanisms to encourage its employees to
innovate, including:
 20% Time (all engineers are encouraged to spend 20% of
their time working on their own projects)
 Recognition awards
 Google Founders’ Awards
 Ad sense Ideas Contest
 Innovation reviews

2-8
Translating Creativity into Innovation
 Innovation is the implementation of creative ideas
into some new device or process.
 Requires combining creativity with resources and
expertise.
 Inventors
 One ten-year study found that inventors typically:
1. Have mastered the basic tools and operations of the field in which they
invent, but they will have not specialized solely on that field.
2. Are curious, and more interested in problems than solutions.
3. Question the assumptions made in previous work in the field.
4. Often have the sense that all knowledge is unified. They will seek global
solutions rather than local solutions, and will be generalists by nature
 Such individuals may develop many new devices or processes
but commercialize few.
2-9
 Theory in Action

 Dean Kamen
 The Segway HT: A self-balancing, two-wheeled
scooter.
 Invented by Dean Kamen
 Described as tireless and eclectic
 Kamen held more than 150 U.S. and foreign patents
 Has received numerous awards and honorary degrees
 Never graduated from college
 To Kamen, the solution was not to come up with a new
answer to a known problem, but to instead reformulate the
problem

2-10
 Transforming Creativity into
Innovation

 Innovation by Users
 Users have a deep understanding of their own
needs, and motivation to fulfill them.
 While manufacturers typically create innovations to
profit from their sale, user innovators often initially
create innovations purely for their own use.
 E.g., Laser sailboat developed by Olympic sailors;
Indermil tissue adhesive based on Superglue; early
snowboards

2-11
 Theory In Action

 The Birth of the Snowboarding Industry

 First snowboards not developed by sports equipment
manufacturers; rather they were developed by individuals
seeking new ways of gliding over snow
 Tom Sims made his first “ski board” in wood shop class.
 Sherman Poppen made a “snurfer” as a toy for his daughter
– later held “snurfing” contests
 Jake Burton added rubber straps to snurfer to act as bindings
 By 2014 there were approximately 7.3 million
snowboarders in the United States

2-12
Transforming Creativity into Innovation

 Research and Development by Firms

 Research refers to both basic and applied research.
 Basic research aims at increasing understanding of a topic or field
without an immediate commercial application in mind.
 Applied research aims at increasing understanding of a topic or
field to meet a specific need.
 Development refers to activities that apply knowledge to
produce useful devices, materials, or processes.

2-13
Transforming Creativity into Innovation

 Research and Development by Firms

 Science Push (Mowery and Rosenberg)
approaches suggest that innovation proceeds
linearly:
 Scientific discovery  inventionmanufacturing 
marketing
 Demand Pull (Schmookler) approaches argued
that innovation originates with unmet customer
need:
 Customer suggestions  invention  manufacturing
 Most current research argues that innovation is
not so simple, and may originate from a variety
of sources and follow a variety of paths. 2-14
 Transforming Creativity into Innovation
 Firm Linkages with Customers, Suppliers,
Competitors, and Complementors
 Most frequent collaborations are between firm and their
customers, suppliers, and local universities.

2-15
Transforming Creativity into Innovation

 Firm Linkages with Customers, Suppliers,

Competitors, and Complementors
 External versus Internal Sourcing of Innovation
 External and internal sources are complements
 Firms with in-house R&D also heaviest users of external
collaboration networks
 In-house R&D may help firm build absorptive capacity that
enables it to better use information obtained externally.

2-16
Transforming Creativity into Innovation

 Universities and Government-Funded Research

 Universities
 Many universities encourage research that leads to useful
innovations
 Bayh-Dole Act of 1980 allows universities to collect royalties
on inventions funded with taxpayer dollars
 Led to rapid increase in establishment of technology-transfer
offices.
 Revenues from university inventions are still very small, but
universities also contribute to innovation through publication
of research results.

2-17
Transforming Creativity into Innovation

 Universities and Government-Funded Research

 Governments invest in research through:
 Their own laboratories
 Science parks and incubators
 Grants for other public or private research organizations

2-18
Transforming Creativity into Innovation

 Private Nonprofit Organizations

 Many nonprofit organizations do in-house R&D, fund
R&D by others, or both.
 The top nonprofit organizations that conduct a
significant amount of R&D include organizations
such as the Howard Hughes Medical Institute, the
Mayo Foundation, the Memorial Sloan Kettering
Cancer Center, and SEMATECH.

2-19
Gross expenditures on R&D for selected countries, by
performing sector and funding sources: 2011 or most
recent year

GERD Share of total (%)

Country PPP ($billions) Business Government Higher education Private nonprofit

R&D performance
United States (2011)a 429.1 68.5 12.7 14.6 4.3
China (2011) 208.2 75.7 16.3 7.9 0.0
Japan (2011) 146.5 77.0 8.4 13.2 1.5
Germany (2011) 93.1 67.3 14.7 18.0 **
South Korea (2011) 59.9 76.5 11.7 10.1 1.6
France (2011) 51.9 63.4 14.1 21.2 1.2
United Kingdom (2011) 39.6 61.5 9.3 26.9 2.4
R&D funding sources
United States (2011)a, b 429.1 58.6 31.2 6.4 3.8
China (2011) 208.2 73.9 21.7 NA 1.3
Japan (2011) 146.5 76.5 16.4 6.6 0.5
Germany (2010) 93.1 65.6 30.3 0.2 3.9
South Korea (2011) 59.9 73.7 24.9 1.2 0.2
France (2010) 51.9 53.5 37.0 1.8 7.6
United Kingdom (2011) 39.6 44.6 32.2 6.2 17.0
Innovation in Collaborative Networks
 Collaborations include (but are not limited to):
 Joint ventures
 Licensing and second-sourcing agreements
 Research associations
 Government-sponsored joint research programs
 Value-added networks for technical and scientific
exchange
 Informal networks
 Collaborative research is especially important in
high-technology sectors where individual firms
rarely possess all necessary resources and
capabilities 2-20
 Innovation in Collaborative Networks
 As firms forge collaborative relationships, they weave a larger
network that influences the diffusion of information and other
resources.
 The size and structure of this network changes over time due to
changes in alliance activity.

1995 2000
StressgenBiotechnologiesCorp

Seven-ElevenJapanCoLtd

ElanCorpPLC

IBMCorp
BayerAG
MatsushitaElectricIndustrial

HitachiLtd SunMicrosystemsInc
MotorolaInc

Hewlett-PackardCo MicrosoftCorp

MonsantoCo

CSIRO

MagazineHouseCoLtd

QUALCOMMInc

T oyotaMotorCorp

2-21
Innovation in Collaborative Networks

 Technology Clusters are regional clusters of firms

that have a connection to a common technology
 May work with the same suppliers, customers, or
complements.
 Agglomeration Economies:
 Proximity facilitates knowledge exchange.
 Cluster of firms can attract other firms to area.
 Supplier and distributor markets grow to service the cluster.
 Cluster of firms may make local labor pool more valuable by giving
them experience.
 Cluster can lead to infrastructure improvements (e.g., better
roads, utilities, schools, etc.)

2-22
Innovation in Collaborative Networks
 Likelihood of innovation activities being geographically
clustered depends on:
 The nature of the technology
 e.g., its underlying knowledge base or the degree to which it can be
protected by patents or copyright, the degree to which its
communication requires close and frequent interaction;
 Industry characteristics
 e.g., degree of market concentration or stage of the industry
lifecycle, transportation costs, availability of supplier and distributor
markets; and,
 The cultural context of the technology
 e.g., population density of labor or customers, infrastructure
development, national differences in how technology development
is funded or protected.

2-23
Innovation in Collaborative Networks

 Technological spillovers occur when the benefits

from the research activities of one entity spill over to
other entities.
 Likelihood of spillovers is a function of:
 Strength of protection mechanisms (e.g., patents, copyright,
trade secrets)
 Nature of underlying knowledge base (e.g., tacit, complex)
 Mobility of the labor pool

2-24
 Research Brief

 Knowledge Brokers
 Hargadon and Sutton point out that some firms (or individuals)
play a pivotal role in the innovation network – that of
knowledge brokers.
 Knowledge brokers are individuals or firms that transfer
information from one domain to another in which it can be
usefully applied. Thomas Edison is a good example.
 By serving as a bridge between two separate groups of firms,
brokers can find unique combinations of knowledge possessed
by the two groups.

2-25
 Discussion Questions
1. What are some of the advantages and disadvantages of a)
individuals as innovators, b) firms as innovators, c)
universities as innovators, d) government institutions as
innovators, e) nonprofit organizations as innovators?

2. What traits appear to make individuals most creative? Are

these the same traits that lead to successful inventions?

3. Could firms identify people with greater capacity for

creativity or inventiveness in their hiring procedures?

4. To what degree do you think the creativity of the firm is a

function of the creativity of individuals, versus the
structure, routines, incentives, and culture of the firm? Can
you give an example of a firm that does a particularly good
job at nurturing and leveraging the creativity of its
individuals?
2-26
 Chapter 3
Types and Patterns of Innovation
 Tesla Motors
 In 2015, Tesla Motors was a $3.2 billion company on track to set
history. It had created two cars that most people agreed were
remarkable. Consumer reports had rated Tesla’s Model S the best
car it had ever reviewed.
 It was also planning a sports utility vehicle, and a more moderately
priced mass market car.
 Unlike other automakers that were using new, expensive large-
format batteries, Tesla used thousands of small-format laptop
batteries, connected together.
 To help ease people’s anxieties about purchasing an electric
vehicle, Tesla was also building Supercharger stations across the
country, and was providing a roadside assistance program, and a
guaranteed resale value.
 Though it was not yet posting profits, sales were growing rapidly
and analysts were hopeful that profits would soon follow.
3-3
 Tesla Motors
Discussion Questions:
1. Is the Tesla Model S a radical innovation or an incremental
innovation? Competence enhancing or destroying, and from
whose perspective? Is it a component or an architectural
innovation?
2. What factors do you think influence the rate at which
consumers have adopted (or will adopt) the Tesla Model S?
3. Where do you think electric vehicle battery technology is on the
technology s curve?
4. Do you think Tesla Motors will be profitable? Why or why not?

3-4
 Overview

 Several dimensions are used to categorize

innovations.
 These dimensions help clarify how different
innovations offer different opportunities (and
pose different demands) on producers, users, and
regulators.
 The path a technology follows through time
is termed its technology trajectory.
 Many consistent patterns have been observed in
technology trajectories, helping us understand
how technologies improve and are diffused.

3-5
 Types of Innovation

 Product versus Process Innovation

 Product innovations are embodied in the outputs of
an organization – its goods or services.
 Process innovations are innovations in the way an
organization conducts its business, such as in
techniques of producing or marketing goods or
services.
 Product innovations can enable process innovations
and vice versa.
 What is a product innovation for one organization
might be a process innovation for another
 E.g., UPS creates a new distribution service (product
innovation) that enables its customers to distribute their
goods more widely or more easily (process innovation) 3-6
 Types of Innovation
 Radical versus Incremental Innovation
 The radicalness of an innovation is the degree to
which it is new and different from previously
existing products and processes.
 Incremental innovations may involve only a minor
change from (or adjustment to) existing practices.
 The radicalness of an innovation is relative; it may
change over time or with respect to different
observers.
 E.g., digital photography a more radical innovation for
Kodak than for Sony.

3-7
 Types of Innovation
 Competence-Enhancing versus Competence-
Destroying Innovation
 Competence-enhancing innovations build on the
firm’s existing knowledge base
 E.g., Intel’s Pentium 4 built on the technology for Pentium
III.
 Competence-destroying innovations renders a
firm’s existing competencies obsolete.
 E.g., electronic calculators rendered Keuffel & Esser’s slide
rule expertise obsolete.
 Whether an innovation is competence enhancing
or competence destroying depends on the
perspective of a particular firm. 3-8
 Types of Innovation
 Architectural versus Component Innovation
 A component innovation (or modular innovation)
entails changes to one or more components of a
product system without significantly affecting the
overall design.
 E.g., adding gel-filled material to a bicycle seat
 An architectural innovation entails changing the
overall design of the system or the way components
interact.
 E.g., transition from high-wheel bicycle to safety bicycle.
 Most architectural innovations require changes in
the underlying components also.
3-9
 Technology S-Curves
 Both the rate of a technology’s improvement, and its rate of
diffusion to the market typically follow an s-shaped curve.
 S-curves in Technological Improvement

Technology improves slowly at

first because it is poorly
understood.
Then accelerates as
understanding increases.
Then tapers off as approaches
limits.

3-10
 Technology S-Curves

 Technologies do not always get to reach their

limits
 May be displaced by new, discontinuous technology.
 A discontinuous technology fulfills a similar market need by
means of an entirely new knowledge base.
 E.g., switch from carbon copying to photocopying, or vinyl
records to compact discs
 Technological discontinuity may initially have lower
performance than incumbent technology.
 E.g., first automobiles were much slower than horse-drawn
carriages.
 Firms may be reluctant to adopt new technology
because performance improvement is initially slow
and costly, and they may have significant investment
in incumbent technology 3-11
 Technology S-Curves
 S-Curves in Technology Diffusion
 Adoption is initially slow because the technology is
unfamiliar.
 It accelerates as technology becomes better
understood.
 Eventually market is saturated and rate of new
adoptions declines.
 Technology diffusion tends to take far longer than
information diffusion.
 Technology may require acquiring complex knowledge or
experience.
 Technology may require complementary resources to
make it valuable (e.g., cameras not valuable without film).
3-12
 Technology S-Curves
 S-Curves as a Prescriptive Tool
 Managers can use data on investment and
performance of their own technologies or data on
overall industry investment and technology
performance to map s-curve.
 While mapping the technology’s s-curve is useful for
gaining a deeper understanding of its rate of
improvement or limits, its use as a prescriptive tool is
limited.
 True limits of technology may be unknown
 Shape of s-curve can be influenced by changes in the market,
component technologies, or complementary technologies.
 Firms that follow s-curve model too closely could end up
switching technologies too soon or too late.
3-13
 Technology S-Curves

 S-curves of diffusion are in part a function of s-curves in

technology improvement
 Learning curve leads to price drops, which accelerate diffusion

Average Sales Prices of Consum er Electronics Penetration of Consumer Electronics

$1,000 100.00%
90.00%

Percent of U.S. Households

$800 80.00%
70.00%
$600 60.00%
50.00%
$400 40.00%
30.00%
$200 20.00%
10.00%
$0 0.00%
80

82

84

86

88

90

92

94

96

98

00

02

04
80

82

84

86

88

90

92

94

96

98

00

02

04

19

19

19

19

19

19

19

19

19

19

20

20

20
19

19

19

19

19

19

19

19

19

19

20

20

20

VCR CD Player Cell Phone VCR CD Player Cell Phone

3-14
 Research Brief

 Diffusion of Innovation and Adopter Categories

 Everett M. Rogers created a typology of adopters:
 Innovators are the first 2.5% of individuals to adopt an innovation. They are
adventurous, comfortable with a high degree of complexity and uncertainty, and
typically have access to substantial financial resources.
 Early Adopters are the next 13.5% to adopt the innovation. They are well integrated
into their social system, and have great potential for opinion leadership. Other
potential adopters look to early adopters for information and advice, thus early
adopters make excellent "missionaries" for new products or processes.
 Early Majority are the next 34%. They adopt innovations slightly before the average
member of a social system. They are typically not opinion leaders, but they interact
frequently with their peers.
 Late Majority are the next 34%. They approach innovation with a skeptical air, and
may not adopt the innovation until they feel pressure from their peers. They may
have scarce resources.
 Laggards are the last 16%. They base their decisions primarily on past experience
and possess almost no opinion leadership. They are highly skeptical of innovations
and innovators, and must feel certain that a new innovation will not fail prior to
adopting it.
3-15
 Research Brief
Diffusion of Innovation and Adopter Categories

3-16
 Theory In Action

 “Segment Zero” – A serious threat to Microsoft?

 Technologies often improve faster than customer requirements demand
 This enables low-end technologies to eventually meet the needs of the mass
market.

3-17
 Theory in Action, cont’d

 From 1980 to 2011, Microsoft was the dominant personal computer

operating system. However, operating systems for smartphones and
tablets were improving to the point where they could replace many
personal computer functions.
 In 2015, Apple’s iPhone operating system and Google’s Android
collectively controlled over 90% of the market for smartphone
purchases. Microsoft’s Windows Phone held a share of only 3%.
 As tablets based on these systems became fully functional
computers, would Microsoft’s dominance evaporate?

3-18
 Technology Cycles

 Technological change tends to be cyclical:

 Each new s-curve ushers in an initial period of
turbulence, followed by rapid improvement, then
diminishing returns, and ultimately is displaced by a new
technological discontinuity.
 Utterback and Abernathy characterized the technology
cycle into two phases:
 The fluid phase (when there is considerable uncertainty about
the technology and its market; firms experiment with different
product designs in this phase)
 After a dominant design emerges, the specific phase begins
(when firms focus on incremental improvements to the design
and manufacturing efficiency).
3-19
 Technology Cycles
 Anderson and Tushman also found that
technological change proceeded cyclically.
 Each discontinuity inaugurates a period of turbulence
and uncertainty (era of ferment) until a dominant design
is selected, ushering in an era of incremental change.

3-20
 Technology Cycles
 Anderson and Tushman found that:
 A dominant design always rose to command the majority of
market share unless the next discontinuity arrived too early.
 The dominant design was never in the same form as the
original discontinuity, but was also not on the leading edge
of technology. It bundled the features that would meet the
needs of the majority of the market.
 During the era of incremental change, firms often
cease to invest in learning about alternative designs
and instead focus on developing competencies
related to the dominant design.
 This explains in part why incumbent firms may have
difficulty recognizing and reacting to a discontinuous
technology.
3-21
 Discussion Questions
1. What are some of the reasons that established firms might
resist the adoption of a new technology?
2. Are well-established firms or new entrants more likely to a)
develop and/or b) adopt new technologies? What are some
reasons for your choice?
3. Think of an example of an innovation you have studied at
work or school. How would you characterize it on the
dimensions described at the beginning of the chapter?
4. What are some of the reasons that both technology
improvement and technology diffusion exhibit s-shaped
curves?

3-22
 Chapter 4
Standards Battles and Design
Dominance
A Battle Emerging in Mobile Payments

• In 2014, 2.3 billion people had broadband subscriptions that would enable
them to perform financial transactions on their phones.
• Mobile payment systems developed by Apple, Samsung, and Softcard
used NFC chips, merchant banks and Visa or MasterCard to complete
transactions wirelessly
• Other competitors such as Square and PayPal did not require a an NFC
chip, but rather used a downloadable application and the Web to transmit
a customer’s information
• A group of large merchants that included Wal-Mart, Old Navy, Best Buy, 7-
eleven, and more had also developed their own payment system –
“Current-C.”
• In India and Africa, systems like Inter-Bank Mobile Payment Service and
M-Pesa were enabling “unbanked” and “underbanked” people access to
fast and inexpensive funds transfer.

4-3
A Battle Emerging in Mobile Payments

Discussion Questions:

1. What are some of the advantages and disadvantages of mobile

payment systems in a) developed countries and b) developing
countries?
2. What are the key factors that differentiate the different mobile
payment systems? Which factors do consumers care most about?
Which factors do merchants care most about?
3. Are there forces that are likely to encourage one of the mobile
payment systems to emerge as dominant? If so, what do you think
will determine which becomes dominant?
4. Is there anything the mobile payment systems could do to increase
the likelihood of them becoming dominant?
5. How do these different mobile systems increase or decrease the
power of a) banks, b) credit cards?

4-4
 Overview

 Many industries experience strong pressure to

select a single (or few) dominant design(s).
 There are multiple dimensions shaping which
technology rises to the position of the dominant
design.
 Firm strategies can influence several of these
dimensions, enhancing the likelihood of their
technologies rising to dominance.

4-5
Why Dominant Designs Are Selected
 Increasing returns to adoption
 When a technology becomes more valuable the more it is
adopted. Two primary sources are learning effects and
network externalities.
 The Learning Curve: As a technology is used, producers learn
to make it more efficient and effective.

4-6
Why Dominant Designs Are Selected
 Prior Learning and Absorptive Capacity
 A firm’s prior experience influences its ability
to recognize and utilize new information.
 Use of a particular technology builds knowledge
base about that technology.
 The knowledge base helps firms use and improve
the technology
Suggests that technologies adopted earlier than
others are likely to become better developed,
making it difficult for other technologies to catch
up.

4-7
Why Dominant Designs Are Selected

Network Externalities
 In markets with network externalities, the benefit from
using a good increases with the number of other users of
the same good.
 Network externalities are common in industries that are
physically networked
 E.g., railroads, telecommunications
 Network externalities also arise when compatibility or
complementary goods are important
 E.g., Many people choose to use Windows in order to maximize the
number of people their files are compatible with, and the range of
software applications they can use.
4-8
Why Dominant Designs Are Selected

 A technology with a large installed base attracts

developers of complementary goods; a
technology with a wide range of complementary
goods attracts users, increasing the installed base.
A self-reinforcing cycle ensues:

4-9
 Theory In Action

The Rise of Microsoft

 In 1980, Microsoft didn’t even have a personal computer (PC)
operating system – the dominant operating system was CP/M.
 However, in IBM’s rush to bring a PC to market, they turned to
Microsoft for an operating system and Microsoft produced a
clone of CP/M called “MS DOS.”
 The success of the IBM PCs (and clones of IBM PCs) resulted in
the rapid spread of MS DOS, and an even more rapid
proliferation of software applications designed to run on MS
DOS. Microsoft’s Windows was later bundled with (and
eventually replaced) MS DOS.
 Had Gary Kildall signed with IBM, or had other companies not
been able to clone the IBM PC, the software industry might look
very different today!

4-10
Why Dominant Designs Are Selected
 Government Regulation
 Sometimes the consumer welfare benefits of
having a single dominant design prompts
government organizations to intervene, imposing a
standard.
 E.g., the NTSC color standard in television broadcasting in
the U.S.; the general standard for mobile communications
(GSM) in the European Union.
 The Result: Winner-Take-All Markets
 Natural monopolies
 Firms supporting winning technologies earn huge
rewards; others may be locked out.
4-11
Why Dominant Designs Are Selected
 Increasing returns indicate that technology trajectories are
characterized by path dependency:
 End results depend greatly on the events that took place leading
up to the outcome.
 A dominant design can have far-reaching influence; it
shapes future technological inquiry in the area.
 Winner-take-all markets can have very different
competitive dynamics than other markets.
 Technologically superior products do not always win.
 Such markets require different firm strategies for success than
markets with less pressure for a single dominant design.

4-12
Multiple Dimensions of Value
 In many increasing returns industries, the value
of a technology is strongly influenced by both:
 Technology’s Standalone Value
 Network Externality Value
 A Technology’s Stand-alone Value
 Includes such factors as:
 The functions the technology enables customers to
perform
 Its aesthetic qualities
 Its ease of use, etc.

4-13
 Multiple Dimensions of Value

Kim and Mauborgne

developed a “Buyer
Utility Map” that is
useful for identifying
elements of a
technology’s stand-
alone value:

4-14
Multiple Dimensions of Value

 Network Externality Value

 Includes the value created by:
 The size of the technology’s installed base
 The availability of complementary goods
 A new technology that has significantly more standalone
functionality than the incumbent technology may offer less
overall value because it has a smaller installed base or poor
availability of complementary goods.
 E.g., NeXT Computers were extremely advanced technologically,
but could not compete with the installed base value and
complementary good value of Windows-based personal
computers.

4-15
Multiple Dimensions of Value

 To successfully overthrow an existing dominant technology, new

technology often must either offer:
 Dramatic technological improvement (e.g., in videogame consoles, it has
taken 3X performance of incumbent)
 Compatibility with existing installed base and complements

4-16
Multiple Dimensions of Value
 Subjective information (perceptions and expectations) can matter as
much as objective information (actual numbers)
 Value attributed to each dimension may be disproportional

4-17
 Multiple Dimensions of Value
 Competing for Design Dominance in Markets with Network
Externalities
 We can graph the value a technology offers in both standalone value
and network externality value:

4-18
Multiple Dimensions of Value
 We can compare the graphs of two competing technologies, and identify
cumulative market share levels (installed base) that determine which
technology yields more value.

4-19
Multiple Dimensions of Value
 When customer requirements for network externality value are
satiated at lower levels of market share, more than one dominant
design may thrive.

4-20
Are Winner-Take-All Markets Good
for Consumers?

 Economics emphasizes the benefits of

competition.
 However, network externalities suggest users
sometimes get more value when one
technology dominates.
 Should the government intervene when
network externalities create a natural
monopoly?

4-21
Are Winner-Take-All Markets Good
for Consumers?
 Network externality benefits to customers rise with cumulative
market share
 Potential for monopoly costs to customers (e.g., price gouging,
restricted product variety, etc.) also rise with cumulative market
share.
Curve shapes are different; Network
externality benefits likely to grow
logistically, while potential monopoly
costs likely to grow exponentially.
Where monopoly costs exceed network
externality benefits, intervention may
be warranted. Optimal market share is
at point where lines cross.

4-22
 Discussion Questions

1. What are some of the sources of increasing returns to

adoption?
2. What are some examples of industries not mentioned in the
chapter that demonstrate increasing returns to adoption?
3. What are some of the ways a firm can try to increase the
overall value of its technology, and its likelihood of
becoming the dominant design?
4. What determines whether an industry is likely to have one
or a few dominant designs?
5. Are dominant designs good for consumers? Competitors?
Complementors? Suppliers?

4-23
 Chapter 5
Timing of Entry
From [Link] to Facebook: The
Rise of Social Networking Sites
 [Link] was started in 1997 and attracted three million members,
but users felt that not enough of their friends were members and there was
little to do on the site.
 Friendster was launched in 2003, and rapidly attracted seven million users,
but its servers could not handle the traffic, causing many delays.
 MySpace was also started in 2003, and leveraged the 20million users of
eUniverse to jumpstart membership, but heavy advertising annoyed users.
 In 2006, Facebook was made available to the public, and used a more open
platform that enabled a rapid proliferation of games, product review sites,
and user-created groups. It was also easier for users to restrict who viewed
their profile. The site attracted 901 million users by 2012.
 Other popular sites (e.g., Twitter, Linked-in, etc.) offered different
functionality that did not compete directly against Facebook.
 In 2011, Google introduced a site to compete directly against Facebook
called Google+, which attracted 100 million users by 2015, but there was still
speculation about whether it could overtake Facebook.
5-3
From [Link] to Facebook: The
Rise of Social Networking Sites

Discussion Questions:
1. Why did the first social networking sites fail? Is there anything
they could have done to survive?
2. What factors made MySpace more successful than Friendster
and [Link]? What factors enabled Facebook to
overtake MySpace?
3. Are there significant switching costs that lock users into a
particular social networking site?
4. What will determine if Google+ can overtake Facebook?

5-4
 Overview
 Increasing returns suggests that timing of entry
can be very important.
 There are a number of advantages and
disadvantages to being a first mover, early
follower or late entrant. These categories are
defined as follows:
 First movers are the first entrants to sell in a new
product or service category (“pioneers”)
 Early followers are early to market but not first.
 Late entrants do not enter the market until the
product begins to penetrate the mass market or later.

5-5
First-Mover Advantages and
Disadvantages
 Being a first mover can confer the advantages of:
 Brand loyalty and technological leadership
 Preemption of scarce assets
 Exploiting buyer switching costs
 Reaping increasing returns advantages.
 However, first movers often bear disadvantages
also:
 High research and development expenses
 Undeveloped supply and distribution channels
 Immature enabling technologies and complements
 Uncertainty of customer requirements
5-6
 First-Mover Advantages and
Disadvantages
 The market often perceives first movers as having
advantages because it has misperceived who was first.
Product First Mover Notable Follower(s) The Winner
8 mm video camera Kodak Sony Follower
Disposable diaper Chux Pampers Follower
Kimberly Clark
Float Glass Pilkington Corning First mover
Instant camera Polaroid Kodak First mover
Microprocessors Intel AMD First Mover
Cyrix
Personal computer MITS (Altair) Apple Followers
IBM
Smartphones IBM (Simon) Apple Followers
Nokia
Social Network Sites [Link] MySpace Followers
Facebook
Video game console Magnavox Atari Followers
Nintendo
Web browser NCSA Mosaic Netscape Followers
Microsoft (Internet
Explorer)
Word processing MicroPro (Wordstar) Microsoft (MS Word) Followers
software Wordperfect
Workstation Xerox Alto Sun Microsystems Followers
Hewlett Packard
5-7
 Theory In Action

 Obstacles to the Hydrogen Economy

 Hydrogen offers an inexhaustible and environmentally fuel
source that could be used to power automobiles and the
electrical grid that serves homes and businesses.
 However, several serious obstacles stood in the way of
utilizing hydrogen for energy:
 Hydrogen vehicles would require a new fueling infrastructure.
 Isolating hydrogen for energy in an environmentally-friendly
way required a major shift to windmills or solar energy which
were not considered mature technologies.
 Implementing hydrogen as a primary energy source required
the cooperation of numerous stakeholders, including
government, automakers, oil (or other energy) companies,
etc.

5-8
 Factors Influencing Optimal
Timing of Entry
1. How certain are customer preferences?
 If customer needs are well understood, it is more
feasible to enter the market earlier.
2. How much improvement does the innovation
provide over previous solutions?
 An innovation that offers a dramatic improvement
over previous generations will accrue more rapid
customer acceptance.
3. Does the innovation require enabling
technologies, and are these technologies
sufficiently mature?
 If the innovation requires enabling technologies (such
as long-lasting batteries for cell phones), the maturity
of these technologies will influence optimal timing of
entry.
5-9
 Factors Influencing Optimal
Timing of Entry
4. Do complementary goods influence the value
of the innovation, and are they sufficiently
available?
 Not all innovations require complementary goods, but
for those that do (e.g., games for video consoles),
availability of complements will influence customer
acceptance.
5. How high is the threat of competitive entry?
 If there are significant entry barriers, the may be less
need to rush to market to build increasing returns
ahead of others.
6. Are there increasing returns to adoption?
 If so, allowing competitors to get a head start can be
very risky.
5-10
 Factors Influencing Optimal
Timing of Entry
7. Can the firm withstand early losses?
 The first mover bears the bulk of R&D expenses and
may endure a significant period without revenues;
the earlier a firm enters, the more capital resources it
may need.
8. Does the firm have resources to accelerate
market acceptance?
 Firms with significant capital resources can invest in
aggressive marketing and supplier and distributor
development, increasing the rate of early adoption.
9. Is the firm’s reputation likely to reduce the
uncertainty of customers, suppliers, and
distributors?
 Innovations from well-respected firms may be
adopted more rapidly, enabling earlier successful
entry. 5-11
 Research Brief

Whether and When to Enter?

 Will Mitchell studied 30 years of data on whether and
when an incumbent in one subfield of the medical
diagnostic imaging industry would enter another
subfield. He found:
 If only one firm can produce an inimitable good, it can enter
if and when it wants. If several firms could produce a good
that will subsequently be inimitable, they race to capture
the market.
 If good is highly imitable, firms prefer to wait while others
invest in developing the market.
 Firms were more likely to enter if they had specialized assets
that would be useful in the new subfield or if their current
products were threatened by the new subfield.
 Firms entered earlier when their core products were
threatened and there were several potential rivals.

5-12
 Strategies to Improve Timing
Options
 To have more choices in its timing of entry, a
firm needs to be able to develop the innovation
early or quickly.
 A firm with fast-cycle development processes
can be both an early entrant, and can quickly
refine its innovation in response to customer
feedback.
 In essence, a firm with very fast-cycle
development processes can reap both first- and
second-mover advantages.

5-13
 Discussion Questions
1. What are some of the advantages of entering
a market early? Are there any advantages to
entering a market late?
2. Can you think of an example of a successful a)
first mover, b) early follower, and c) late
entrant? Can you think of unsuccessful
examples of each?
3. What factors might make some industries
harder to pioneer than others? Are there
industries in which there is no penalty for late
entry?

5-14
 Part Two: Formulating
Technological Innovation Strategy

 Assessing the firm’s position and defining its strategic

direction,
 Choosing innovation projects in which to invest,
including both quantitative and qualitative valuation
techniques,
 Deciding whether and how the firm will collaborate on
development activities, choosing a collaboration mode,
and choosing and monitoring partners,
 Crafting a strategy for protecting – or diffusing – a
technological innovation through such methods as
patents, trademarks, copyrights, and trade secrets.
5-15
 Chapter 6
Defining the Organization's Strategic
Direction

© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Chapter 6
Defining the Organization’s Strategic
Direction
 Reinventing Hotels: citizenM
 In 2008, Michael Levie, Rattan Chadha, and Robin Chadha set out to
develop a new kind of hotel by rethinking what dimensions customers
really cared about, and which they didn't really value.
 They decided to offer:
 Small “pod-like” rooms with luxurious amenities
 Stylish ambience
 Self check-in with no reception desk or porters
 Self-service kitchen instead of restaurant or bar
 “Mood pads” for adjusting temperature, lighting, etc.
 Average of $50 lower price per night than hotels in a similar class
 The combination of the comfortable and stylish ambiance with
affordable prices resulted in occupancy rates that were consistently
higher than industry averages -- over 95% compared to 85%.

6-4
 Reinventing Hotels: citizenM
Discussion Questions
1. What are some of the challenges and opportunities of competing
in the hotel industry? How do you think the hotel industry (or
travel industry more generally) has changed over time?
2. Can you identify different customer groups in the hotel industry?
What are some of the ways that hotels attract these different
groups?
3. What are the advantages and disadvantages of targeting a
narrower niche of customers rather than trying to appeal to a
wide range of hotel customers?
4. What are some of the ways that citizenM has substituted
technology for labor? What are some of the benefits/risks of this
approach?
5. Can you think of other ways to dramatically re-envision how a
hotel might operate and attract guests? What are the advantages
and disadvantages of your approach?
6-5
 Overview
 A coherent technological innovation
strategy leverages the firm’s existing
competitive position and provides
direction for future development of the
firm.
 Formulating this strategy requires:
 Appraising the firm’s environment,
 Appraising the firm’s strengths, weaknesses,
competitive advantages, and core
competencies,
 Articulating an ambitious strategic intent. 6-6
 Assessing the Firm’s Current
Position
 External Analysis
 Two common methods are Porter’s Five-
Force Model and Stakeholder Analysis.
 Porter’s Five-Force Model
1. Degree of existing rivalry. Determined by number of
firms, relative size, degree of differentiation between
firms, demand conditions, exit barriers.
2. Threat of potential entrants. Determined by
attractiveness of industry, height of entry barriers (e.g.,
start-up costs, brand loyalty, regulation, etc.)
3. Bargaining power of suppliers. Determined by number
of suppliers and their degree of differentiation, the
portion of a firm’s inputs obtained from a particular
supplier, the portion of a supplier’s sales sold to a
particular firm, switching costs, and potential for
vertical integration.
6-7
Assessing the Firm’s Current Position
4. Bargaining power of buyers. Determined by number of
buyers, the firm’s degree of differentiation, the portion of a
firm’s inputs sold to a particular buyer, the portion of a
buyer’s purchases bought from a particular firm, switching
costs, and potential for vertical integration.
5. Threat of substitutes. Determined by number of potential
substitutes, their closeness in function and relative price.

Recently Porter has acknowledged the role of complements.

Must consider:
a) how important complements are in the industry,
b) whether complements are differentially available for the
products of various rivals (impacting the attractiveness of
their goods), and
c) who captures the value offered by the complements.

6-8
Assessing the Firm’s Current Position
 Five-Force Model

6-9
Assessing the Firm’s Current Position
Stakeholder Analysis
1. Who are the stakeholders.
2. What does each stakeholder want.
3. What resources do they contribute to
the organization.
4. What claims are they likely to make on
the organization.

6-10
Assessing the Firm’s Current Position
 Internal Analysis
1. Identify the firm’s strengths and weaknesses. Helpful to
consider each element of value chain.

6-11
Assessing the Firm’s Current Position
2. Assess which strengths have potential to be
sustainable competitive advantage
 Rare Competitive
 Valuable Advantage Sustainable
 Durable Competitive
 Inimitable Advantage

 Resources are difficult (or impossible) to imitate when they

are:
 Tacit
 Path dependent
 Socially complex
 Causally ambiguous

6-12
Identifying Core Competencies and
Capabilities

 Core Competencies: A set of integrated and

harmonized abilities that distinguish the firm in
the marketplace.
 Competencies typically combine multiple kinds of
abilities.
 Several core competencies may underlie a business unit.
 Several business units may draw from same
competency.
 Core competencies should:
 Be a significant source of competitive differentiation
 Cover a range of businesses
 Be hard for competitors to imitate

6-13
Identifying Core Competencies and
Capabilities

6-14
 Risk of Core Rigidities
 When firms excel at an activity, they can
become over committed to it and rigid.
 Incentives and culture may reward current
competencies while thwarting development
of new competencies.
 Dynamic capabilities are competencies that
enable the firm to quickly respond to
change.
 E.g., firm may develop a set of abilities that enable
it to rapidly deploy new product development
teams for a new opportunity; firm may develop
competency in working with alliance partners to
gain needed resources quickly.

6-15
 Strategic Intent
 Strategic Intent
 A long-term goal that is ambitious, builds upon and
stretches firm’s core competencies, and draws from all
levels of the organization.
 Typically looks 10-20 years ahead, establishes clear milestones
 Firm should identify resources and capabilities needed to close
gap between strategic intent and current position.

6-16
 Theory In Action

The Balanced Scorecard

 Kaplan and Norton argue

that effective performance
measurement should
incorporate:
 Financial perspective
 Customer perspective
 Internal perspective
 Innovation and learning

6-17
 Discussion Questions
1. What is the difference between a strength, a competitive
advantage, and a sustainable competitive advantage?
2. What makes an ability (or set of abilities) a core
competency?
3. Why is it necessary to perform an external and internal
analysis before the firm can identify its true core
competencies?
4. Pick a company you are familiar with. Can you identify some
of its core competencies?
5. How is the idea of “strategic intent” different from models
of strategy that emphasize achieving a fit between the
firm’s strategies and its current strengths, weaknesses,
opportunities and threats (SWOT)?
6. Can a strategic intent be too ambitious? 6-18
 Chapter 7
Choosing Innovation Projects
 The Mahindra Shaan: Gambling
on a Radical Innovation

 Mahindra Tractors, the Farm Equipment Sector of the Mahindra &

Mahindra Group in India is one of the world’s largest producers of
tractors.
 Because of seasonal rainfall, Indian farmers only used tractors for
farming about one-third of the year. Furthermore, many farmers had
plots so small that it was difficult to raise enough funds to buy any tractor
at all.
 R.N. Nayak, R&D Manager at Mahindra & Mahindra, began developing a
futuristic-looking prototype for a radical product concept he called the
“Sactor” – a hybrid between a transporter and a tractor that farmers
could use on and off the farm.
 Sanjeev Goyle, head of M&M’s Farm Equipment sector supported the
project, arguing “even if we made small margins, we would be pioneers,
be distinctive: innovative.”

7-3
 The Mahindra Shaan: Gambling
on a Radical Innovation

 Mahindra Tractors, the Farm Equipment Sector of the Mahindra &

Mahindra Group in India is one of the world’s largest producers of
tractors.
 Because of seasonal rainfall, Indian farmers only used tractors for
farming about one-third of the year. Furthermore, many farmers had
plots so small that it was difficult to raise enough funds to buy any tractor
at all.
 R.N. Nayak, R&D Manager at Mahindra & Mahindra, began developing a
futuristic-looking prototype for a radical product concept he called the
“Sactor” – a hybrid between a transporter and a tractor that farmers
could use on and off the farm.
 Sanjeev Goyle, head of M&M’s Farm Equipment sector supported the
project, arguing “even if we made small margins, we would be pioneers,
be distinctive: innovative.”

7-4
 The Mahindra Shaan: Gambling
on a Radical Innovation

• The Shaan was launched in mid-2006, and won an award from the
American Society of Agricultural and Biological Engineers as one of the
50 outstanding innovations of the year. By 2008 Mahindra & Mahindra’s
senior management considered the Shaan a “runaway success.”

• Discussion Questions:
1. Why does Nayak say it's important to "start with the pictures not with the
numbers"?
2. What are the challenges with doing a quantitative analysis of the value
of the Shaan project?
3. What are the different sources of value that Mahindra's management
appears to think will arise from developing the Shaan?

7-5
 Overview
 Methods of choosing innovation projects range
from informal to highly structured, and from
entirely qualitative to strictly quantitative.
 Often firms use a combination of method to
more completely evaluate the potential (and
risk) of an innovation project.

7-6
 The Development Budget
 Most firms face serious constraints in
capital and other resources they can
invest in projects.
 Firms thus often use capital rationing:
they set a fixed R&D budget and rank
order projects to support.
 R&D budget is often a percentage of
previous year’s sales.
 Percentage is typically determined through
industry benchmarking, or historical
benchmarking of firm’s performance.

7-7
 The Development Budget
 R&D Intensity varies considerably across and within industries.
Rank Industry description Num. Industry Industry R&D
firms revs($mil) R&D ($mil) intensity)
1 Drugs, biological products, and 730 $693,674 $112,984 16%
diagnostics
2 Special industry machinery 42 $27,111 $3,955 15%
3 Semiconductors and electronic 233 $428,554 $46,349 11%
components
4 Software and computer 724 $789,878 $67,461 9%
programming services
5 Medical equipment 241 $121,758 $9,721 8%
6 Measuring equip. and instruments 102 $126,821 $9,149 7%
7 Communications equip. 106 $319,869 $22,526 7%
8 Computers and peripherals 91 $406,678 $28,215 7%
9 Toys and games 18 $20,216 $1,245 6%
10 Household audio and video equip. 22 $111,986 $6,124 5%
7-8
 The Development Budget (Top 20, 2013)
Company R&D ($millions) R&D intensity
Volkswagen $14,035 5%
Intel $10,611 20%
Roche Holding $10,411 19%
Microsoft $10,411 13%
Novartis $9,852 17%
Toyota $8,842 4%
Johnson & Johnson $8,763 12%
Google $7,952 13%
Merck $7,503 17%
General Motors $7,200 5%
Pfizer $6,678 13%
Sanofi $6,573 14%
[Link] $6,565 9%
GlaxoSmithKline $6,502 14%
Ford $6,400 4%
Honda $6,158 5%
IBM $5,959 6%
Cisco Systems $5,942 12%
Siemens $5,808 6%
Daimler $5,651 3%
7-9
 Theory In Action

Financing New Technology Ventures

 Large firms can fund innovation internally; new start-ups
must often obtain external financing.
 In first stages of start-up and growth, entrepreneurs may
have to rely on family, friends, and credit cards.
 Start-ups might be able to obtain some funding from
government grants and loans.
 If idea and management are especially promising,
entrepreneur may secure funds from “angel investors”
(typically seed stage and <$1 million) or venture
capitalists (multiple early stages, >$1 million).

7-10
 Quantitative Methods for
Choosing Projects
 Commonly used quantitative methods include
discounted cash flow methods and real options.
 Discounted Cash Flow (DCF)
 Net Present Value (NPV): Expected cash inflows are discounted
and compared to outlays.

7-11
 Quantitative Methods for
Choosing Projects
 Internal Rate of Return (IRR): The discount rate that
makes the net present value of investment zero.
 Calculators and computers perform by trial and error.
 Potential for multiple IRR if cash flows vary
 Strengths and Weaknesses of DCF Methods:
 Strengths
 Provide concrete financial estimates
 Explicitly consider timing of investment and time value
of money
 Weaknesses
 May be deceptive; only as accurate as original
estimates of cash flows.
 May fail to capture strategic importance of project

7-12
 Quantitative Methods for
Choosing Projects
 Real Options: Applies stock option model to
nonfinancial resource investments. E.g.,with
respect to R&D:
 The cost of the R&D program can be considered the
price of a call option.
 The cost of future investment required to capitalize
on the R&D program (such as the cost of
commercializing a new technology that is
developed) can be considered the exercise price.
 The returns to the R&D investment are analogous to
the value of a stock purchased with a call option.

7-13
 Quantitative Methods for
Choosing Projects

 Examples of real call options

7-14
 Quantitative Methods for
Choosing Projects
 Options are valuable when there is uncertainty
(as in innovation)
 However, real options models have some
limitations:
 Many innovation projects do not conform to the same
capital market assumptions underlying option models.
 May not be able to acquire option at small price: may require
full investment before its known whether technology will be
successful.
 Value of stock option is independent of call holder’s behavior,
but value of R&D investment is shaped by the firm’s
capabilities, complementary assets, and strategies.
7-15
 Qualitative Methods of
Choosing Projects
 Many factors in the choice of development
projects are extremely difficult (or misleading) to
quantify.
 Almost all firms thus use some qualitative
methods.
 Screening Questions may be used to assess different
dimensions of the project decision including:
 Role of customer (market, use, compatibility and ease of use,
distribution and pricing)
 Role of capabilities (existing capabilities, competitors’
capabilities, future capabilities)
 Project timing and cost 7-16
 Qualitative Methods of
Choosing Projects
 The Aggregate Project Planning Framework
 Managers map their R&D projects according to levels of risk,
resource commitment and timing of cash flows

7-17
 Qualitative Methods of
Choosing Projects
 Advanced R&D Projects: develop cutting-edge
technologies; often no immediate commercial application.
 Breakthrough Projects: incorporate revolutionary new
technologies into a commercial application.
 Platform Projects: not revolutionary, but offer fundamental
improvements over preceding generations of products.
 Derivative Projects: incremental improvements and variety
in design features.
 Derivative projects pay off the quickest, and help service
the firm’s short-term cash flow needs. Advanced R&D
projects take a long time to pay off (or may not pay off at
all), but can position the firm to be a technological leader.
 Managers then compare actual balance of projects with
desired balance of projects.

7-18
 Qualitative Methods of
Choosing Projects
 Q-Sort is a simple method for ranking ideas on
different dimensions.
 Ideas are put on cards.
 For each dimension being considered, the cards are
stacked in order of their performance on that
dimension.
 Several rounds of sorting and debate are used to
achieve consensus about the projects.

7-19
 Combining Quantitative and
Qualitative Information
 Managers may use multiple methods in
combination.
 May also use methods that convert qualitative
information into quantitative form (though this has
similar risks as discussed with quantitative methods)
 Conjoint Analysis estimates the relative value individuals
place on attributes of a choice.
 Individuals given a card with products (or projects) with different
features and prices.
 Individuals rate each in terms of desirability or rank them.
 Multiple regression then used to assess the degree to which an
attribute influences rating. These weights quantify the trade-offs
involved in providing different features.
7-20
 Theory In Action
Courtyard by Marriot
 Marriot used conjoint analysis to help it develop a
midprice hotel line.
 First used focus groups to identify customer
segments and attributes they cared about in a
hotel.
 Then created potential hotel profiles that varied
on these features and asked participants to rate
the profiles.
 Regression identified which features were valued
most.
 Based on the results, Marriott developed
Courtyard concept: relatively small hotels with
limited amenities, small restaurants and meeting
rooms, courtyards, high security, and rates of $40-
$60 a night.

7-21
Combining Quantitative and
Qualitative Information
 Data Envelopment Analysis (DEA) uses
linear programming to combine measures of
projects based on different units (e.g., rank
vs. dollars) into an efficiency frontier.
 Projects can be ranked by assessing their distance
from efficiency frontier.
 As with other quantitative methods, DEA results
only as good as the data utilized; managers must
be careful in their choice of measures and their
accuracy.

7-22
 Discussion Questions
1. What are the advantages and disadvantages of
discounted cash flow methods such as NPV and IRR?
2. For what kind of development projects might a real
options approach be appropriate? For what kind of
projects would it be inappropriate?
3. What are some of the reasons that a firm might use
both qualitative and quantitative assessments of a
project?
4. Identify a particular development project you are
familiar with. What kinds of methods do you believe
were used to assess the project? What kinds of
methods do you believe should have been used to
assess the project?
5. Will different methods of evaluating a project typically
yield the same conclusions about whether to fund its
development? Why or why not? 7-23
 Chapter 8
Collaboration Strategies
Ending HIV? Sangamo Biosciences
and Gene Editing

 Sangamo Biosciences had developed zinc-finger nucleases (ZFNs),

a technology that could edit the genes of a living individual.
 The technology had enormous potential, but it required a
significant amount of R&D work to ensure that it was both precise
enough, and would penetrate enough of an individual’s cells to
make a difference.
 One of Sangamo’s ZFN programs was to develop a way to give
people a mutation that would cure HIV. This was obviously a
HUGE opportunity. Drug development, however, is extremely
expensive and risky, and Sangamo did not yet have revenues to
fund its programs.
 Sangamo thus had to decide whether to partner with another
organization on the HIV program, and if so, how and with whom.
8-3
Ending HIV? Sangamo Biosciences
and Gene Editing

Discussion Questions:
1. What were the pros and cons of Sangamo pursuing its gene
editing programs alone versus working with a partner?
2. Does the HIV program offer any special opportunities or
challenges?
3. What do you think Sangamo should do regarding the HIV
program? Should it license the technology to a large
pharmaceutical? Should it form a joint venture with another
biotech or pharma company? If so, who?

8-4
 Overview

 Firms must often choose between performing

innovation activities alone or in collaboration.
 Collaboration can enable firms to achieve
more, at a faster rate, and at less cost and risk.
 However, collaboration also entails sharing
control and rewards, and may risk partner
malfeasance.
 The advantages of going solo are compared
with those of collaborating, and then different
forms of collaboration are compared.

8-5
 Reasons for Going Solo

 Whether a firm chooses to engage in solo

development or collaboration will be influence
by:
 Availability of capabilities (does firm have needed
capabilities in house? Does a potential partner?)
 Protecting proprietary technologies (how important
is it to keep exclusive control of the technology?)
 Controlling technology development and use (how
important is it for firm to direct development process
and applications?)
 Building and renewing capabilities (is the project key
to renewing or developing the firm’s capabilities?)
8-6
 Advantages of Collaborating
 Collaborating can offer the following advantages:
 Obtaining needed skills or resources more quickly
 Reducing asset commitment and increase flexibility
 Learning from partner
 Sharing costs and risks
 Can build cooperation around a common standard
2500
New Technology or Research

Worldwide 2000
formation
of 1500
Alliances

technology
or 1000
research
alliances
500
varies
over time.
0
1990

1993
1994

1998
1999

2002
2003

2006
2007

2010
2011
1991
1992

1995
1996
1997

2000
2001

2004
2005

2008
2009
8-7
 Types of Collaborative Arrangements
 There are numerous types of collaborative arrangements, each with its own
advantages or costs.
 Strategic Alliances: formal or informal agreements between two or more
organizations (or other entities) to cooperate in some way.

Doz and Hamel note

that a firm’s alliance
strategy might
emphasize combining
complementary
capabilities or
transferring
capabilities. It might
also emphasize
individual alliances or
a network of
alliances.

8-8
Types of Collaborative Arrangements

 Joint Ventures: A particular type of strategic alliance

that entails significant equity investment and often
establishes a new separate legal entity.
 Licensing: a contractual arrangement that gives an
organization (or individual) the rights to use another’s
intellectual property, typically in exchange for
royalties.
 Outsourcing: When an organization (or individual)
procures services or products from another rather
than producing them in-house.
 Collective Research Organizations: Organizations
formed to facilitate collaboration among a group of
firms.

8-9
 Choosing a Mode of Collaboration
 Firms should match the trade-offs of a collaboration mode to their
needs.

8-10
Choosing and Monitoring Partners
 Partner Selection
 Resource fit: How well does the potential partner fit the
resource needs of the project? Are resources complementary
or supplementary?
 Strategic fit: Does the potential partner have compatible
objectives and styles?
 Impact on Opportunities and Threats: How would
collaboration impact bargaining power of customers and
suppliers, degree of rivalry, threat of entry or substitutes?
 Impact on Internal Strengths and Weaknesses: Would
collaboration enhance firm’s strengths? Overcome its
weaknesses? Create a competitive advantage?
 Impact on Strategic Direction: Would the collaboration help
the firm achieve its strategic intent?
8-11
Choosing and Monitoring Partners

 Partner Monitoring and Governance

 Successful collaborations require clear yet flexible
monitoring and governance mechanisms.
 May utilize legally binding contractual arrangements.
 Helps ensure partners are aware of rights and obligations.
 Provides legal remedies for violations.
 Contracts often include:
1. What each partner is obligated to contribute.
2. How much control each partner has in arrangement.
3. When and how proceeds of collaboration will be distributed.
4. Review and reporting requirements.
5. Provisions for terminating relationship.

8-12
Choosing and Monitoring Partners

 May also use shared equity ownership (i.e., each

partner contributes capital and owns a share of equity
in the alliance)
 Helps to align incentives and provide sense of ownership
 May rely on relational governance (self-enforcing
governance based on the goodwill, trust, and
reputation of partners)
 Built over time
 Can facilitate more extensive cooperation, sharing, and
learning by partners

8-13
 Research Brief
Strategic Positions in Collaborative Networks
A firm’s position within a
collaborative network
influences its access to
information and other
resources, and its influence
over desired outcomes. InformixSoftwareInc

Some of the key aspects of FulcrumTechnologiesInc

a firm’s position include ToshibaCorp

centrality and opportunities IBMCorp

BelmontResearchInc

for brokerage. For example, PPDInc

in this graph, though PPD TexacoInc

Inc. has only three AbbottLaboratories

alliances, it serves as an EliLilly&Co

important bridge between

the two lobes of the
network, which should give
it important opportunities for
brokerage.

8-14
 Discussion Questions

1. What are some of the advantages and disadvantages of

collaborating on a development project?
2. How does the mode of collaborating (e.g., strategic alliance,
joint venture, licensing, outsourcing, collective research
organization) influence the success of a collaboration?
3. Identify an example of collaboration between two or more
organizations. What were the advantages and disadvantages of
collaboration versus solo development? What collaboration
mode did the partners choose? What were the advantages and
disadvantages of the collaboration mode?
4. If a firm decides it is in its best interest to collaborate on a
development project, how would you recommend the firm go
about choosing a partner, a collaboration mode, and
governance structure for the relationship?

8-15
 Chapter 9
Protecting Innovation
The Digital Music Distribution Revolution
 In 1991, Fraunhofer IIS of Germany invents the MP3 format; by late 1990’s the format is
wildly popular.
 In 1999, Shawn Fanning releases Napster, a free software program that allows users to
easily share MP3 files (“peer-to-peer”)
 The RIAA starts to worry about illegal trade of copyrighted music. In 2001 it gets a court
ruling against Napster, taking it offline.
 However, new peer-to-peer music services began to sprout up to meet the demand of the
large population of “music pirates.”
 In 2003, Apple opens its iTunes Music Store – a one-stop-shop for music files from the five
major record labels. Now record industry is earning significant revenues from MP3s.
 In 2006, France pushes Apple to loosen its restrictions on iTunes music and iPods. Should
Apple use a more “open” model?
 By 2011, sales of digital music surpassed the sale of physical music for the first time.
However, some analysts anticipated a move away from music ownership altogether, with
users instead just listening to music streamed from services such as Pandora and Spotify.
9-3
The Digital Music Distribution Revolution

Discussion Questions:
1. What industry conditions lead to the revolution in audio
distribution? Which stakeholders stand to benefit most (or least)
from this revolution?
2. Why did the music stores created by the record labels fail to
attract many subscribers? What, if anything, should the record
labels have done differently?
3. What factors led iTunes to be successful?
4. What new models of music distribution have emerged, and what
do you think will influence whether they endure?

9-4
 Overview

 Firms must decide whether and how to protect

their technological innovations.
 Protecting innovation helps a firm retain
control over it and appropriate the rents from
it.
 However, sometimes not protecting a
technology is to the firm’s advantage – it may
encourage others to support the technology
and increase its likelihood of becoming
dominant.
9-5
 Appropriability

 Appropriability: The degree to which a

firm is able to capture the rents from its
innovation.
 Appropriability is determined by how easily
or quickly competitors can copy the
innovation.
 Some innovations are inherently difficult to copy
(tacit, socially complex, etc.)
 Firms may also attempt to protect innovations
through patents, trademarks, copyrights or trade
secrets.

9-6
Patents, Trademarks and Copyrights
 Patents, trademarks and copyrights each protect
different things.
 Patents: rights granted by the government that
excludes others from producing, using, or selling an
invention.
 Must be useful, novel, and not be obvious.
 Utility patents protect new and useful processes, machines,
manufactured items or combination of materials.
 Design patents protect original and ornamental designs for
manufactured items.
 Plant patents protect distinct new varieties of plants.
 In 1998, many software algorithms became eligible for
patent protection. 9-7
 Patents, Trademarks and Copyrights
 Rapid growth in patent applications have helped fuel
significant delays in the time between application and granting.
700 000 The
600 000 patent
process
500 000
can take
400 000 2-5 years,
300 000 with an
average
200 000
of 33
100 000 months in
0
2011.
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Total patent applications
Utility patent applications, US origin
Utility patent applications, foreign origin
9-8
 Patents, Trademarks and Copyrights
 Patent Laws Around the World
 Countries have their own laws regarding patent
protection. Some treaties seek to harmonize these laws.
 Paris Convention for the Protection of Industrial Property
 Foreign nationals can apply for the same patent rights in each
member country as that country’s own citizens.
 Provides right of “priority” – once inventor has applied for protection
in one member country, they can (within certain time period) apply
for protection in others and be treated as if they had applied on same
date as first application.
 Patent Cooperation Treaty (PCT)
 Inventor can apply for patent in a single PCT receiving office and
reserve right to apply in more than 100 countries for up to 2 ½ years.
Establishes date of application in all member countries
simultaneously. Also makes results of patent process more uniform. 9-9
Patents, Trademarks and Copyrights
 Countries that are members of Patent Cooperation Treaty

PCT Covered Non-PCT Covered

countries countries
9-10
Patents, Trademarks and Copyrights
 Patent Strategies
 It is typical to assume that an inventor seeks a
patent because they desire to make and sell the
invention themselves.
 However, inventors and firms may monetize patents
in a range of different ways, including licensing the
technology to others, or selling the patent rights to
another firm that can better utilize the technology.
 Sometimes firms seek patents just to limit the
options of competitors, or to earn revenues through
aggressive patent lawsuits. These actions are
sometimes referred to as "patent trolling."
 Apple claims to be the #1 target for patent trolls, having
faced nearly 100 lawsuits between 2011 and 2014
9-11
Patents, Trademarks and Copyrights
 Dense webs of “patent thickets” can make it hard for
firms to compete, and stifle innovation.
 Firms sometimes buy bundles of patents just to create a
“war chest” to defend themselves from lawsuits by offering a
credible threat of retaliation.
 For example, in 2011, the bankrupt Nortel auctioned off its
massive patent portfolio. A consortium called Rockstar Bidco
that included Microsoft, Apple, RIM, Sony, and Ericsson, won
the auction for $4.5 billion, beating out Google which bid
$4.4 billion. Google subsequently bought 1,030 IBM patents
that covered a range of technologies. These patents were
not necessary for Google's business directly; rather they
provided a retaliation threat to others that might attack
them through patent suits.

9-12
Patents, Trademarks and Copyrights
 Trademarks and Service Marks: a word, phrase,
symbol, design, or other indicator that is used to
distinguish the source of goods form one party from
goods of another (e.g., Nike “swoosh” symbol)
 Rights to trademark are established in legitimate use of mark;
do not require registration.
 However, marks must be registered before suit can be
brought over use of the mark.
 Registration can also be used to establish international rights
over trademark.
 Two treaties simplify registration of trademarks in
multiple countries: Madrid Agreement Concerning
the International Registration of Marks, and the
Madrid Protocol. Countries that adhere to either or
both are in Madrid Union (85 members) 9-13
Patents, Trademarks and Copyrights
 Copyright: a form of protection granted to works of
authorship.
 Copyright prohibits others from:
 Reproducing the work in copies or phonorecords
 Preparing derivative works based on the work
 Distributing copies or phonorecords for sale, rental, or lease
 Performing the work publicly
 Displaying the work publicly
 Work that is not fixed in tangible form is not eligible.
 Copyright is established in first legitimate use.
 However, “doctrine of fair use” stipulates that others can
typically use copyrighted material for purposes such as criticism,
new reporting, teaching research, etc.
 Copyright for works created after 1978 have protection for
author’s life plus 70 years.
9-14
Patents, Trademarks and Copyrights

 Copyright Protection Around the World

 Copyright law varies from country to
country.
 However, the Berne Union for the
Protection of Literary and Artistic Property
(“Berne Convention”) specifies a minimum
level of protection for member countries.
 Berne convention also eliminates differential
rights to citizens versus foreign nationals.

9-15
 Trade Secrets
 Trade Secret: information that belongs to a
business that is generally unknown to others.
 Firm can protect proprietary product or process as
trade secret without disclosing detailed information
that would be required in patent.
 Enables broad class of assets and activities to be
protectable.
 To qualify:
 Information must not be generally known or ascertainable.
 Information must offer a distinctive advantage to the firm that
is contingent upon its secrecy.
 Trade secret holder must exercise reasonable measures to
protect its secrecy.
9-16
 The Effectiveness and Use of
Protection Mechanisms
 In some industries, legal protection mechanisms
are more effective than others
 E.g., in pharmaceutical patents are powerful; in
electronics they might be easily invented around.
 It is notoriously difficult to protect
manufacturing processes and techniques.
 In some situations, diffusing a technology may
be more valuable than protecting it.
 However, once control is relinquished it is
difficult to reclaim.
9-17
 Theory In Action
IBM and the Attack of the Clones
 In 1980, IBM was in a hurry to introduce a personal
computer (PC). It used off-the-shelf components such as
Intel microprocessors an operating system from
Microsoft, MS DOS.
 It believed that its proprietary basic input/output
system (BIOS) would protect the computer from being
copied.
 However, Compaq reverse engineered the BIOS in a
matter of months without violating the copyright, and
quickly introduced a computer that behaved like an IBM
computer in every way. Compaq sold a record-breaking
47,000 IBM-compatible computers its first year, and
other clones were quick to follow. 9-18
 The Effectiveness and Use of
Protection Mechanisms
 Wholly Proprietary Systems vs. Wholly Open Systems
 Wholly proprietary systems may be legally produced or augmented
only by their developers.
 Wholly open system may be freely accessed, augmented and
distributed by anyone.
 Many technologies lie somewhere between these extremes.

9-19
The Effectiveness and Use of
Protection Mechanisms

 Advantages of Protection
 Proprietary systems offer greater rent
appropriability.
 Rents can be used to invest in further
development, promotion, and distribution.
 Give the firm control over the evolution of the
technology and complements
 Advantages of Diffusion
 May accrue more rapid adoptions if produced and
promoted by multiple firms
 Technology might be improved by other firms
(though external development poses its own
risks).
9-20
 The Effectiveness and Use of
Protection Mechanisms
 Production Capabilities, Marketing Capabilities, and
Capital
 Factors influencing benefits of protection vs. diffusion
1. Can firm produce the technology at sufficient volume or
quality levels?
2. Are complements important? Are they available in sufficient
range and quality? Can the firm afford to develop and produce
them itself?
3. Is there industry opposition against sole source technology?
4. Can the firm improve the technology well enough and fast
enough to compete with others?
5. How important is it to prevent the technology from being
altered in ways that fragment it as a standard?
6. How valuable is architectural control to the firm? Does it have
a major stake in complements for the technology?
9-21
 Discussion Questions
1. What are the differences between patents, copyrights, and
trademarks?
2. Consider a firm that is considering marketing its innovation in
multiple countries. What factors should this firm consider in
formulating its protection strategy?
3. When will trade secrets be more useful than patents, copyrights or
trademarks?
4. Can you identify a situation in which none of the legal protection
mechanisms discussed (patents, copyrights, trademarks, trade
secrets) will prove useful?
5. Describe a technological innovation not discussed in the chapter,
and identify where you think it lies on the control continuum
between wholly proprietary and wholly open.
6. What factors do you believe influenced the choice of protection
strategy used for the innovation identified above? Do you think the
strategy was a good choice? 9-22
Part Three: Implementing Technological
Innovation Strategy
 Structuring the firm to improve its likelihood of innovating,
its effectiveness at new product development, and its
speed of new product development,
 Managing new product development processes to
maximize fit with customer needs, while simultaneously
minimizing development cycle time and controlling
development costs,
 Composing, structuring, and managing new product
development teams to maximize new product
development effectiveness,
 Crafting a strategy for effectively deploying the innovation
into the marketplace, including timing, licensing
strategies, pricing strategies, distribution, and marketing.

9-23
 Cooperation, alliances and open
innovation
1

BASED ON JOR GE NIOSI

PR OFESSOR
SCHOOL OF M ANAGEM ENT
U QAM -PAD U A LECTU R ES

J. Niosi Padova 2016

 Contents
2

 Definitions
 Theoretical frameworks
 Why do alliances exist?
 Alliance typologies
 International cooperation
 Management of alliances and cooperation
 Public policy and cooperation
 Conclusions

J. Niosi Padova 2016

 Definitions
3

 Cooperation is the action of participating in a

common endeavour
 Alliances are contractual cooperation processes
among independent organizations
 Strategic technology alliances are long-term
cooperation agreements aiming at developing new
products, new processes or both and/or improving
existing products or processes
 Open innovation refers both to external cooperation
and the use of external knowledge by any
organization; it is more a new buzzword for well-
known processes

J. Niosi Padova 2016

 Different forms of technology
cooperation
4

General Informal Formal Mergers &

description cooperation cooperation acquisitions
Exchange of Firm-to firm
non strategic R&D alliances
information
Specific forms Industrial U-I consortia Coordination of
of innovative conferences innovative
cooperation activities within
the merger

Publication of R&D Joint

articles in journals ventures
website and
technical press

J. Niosi Padova 2016

 Some theoretical frameworks
5

 Transaction cost theory sees alliances and cooperation as hybrid forms

between markets and hierarchies (Williamson, 1985)
 Competence theories of the firm sees them as activities through which
organizations look for new capabilities (Richardson, 1972; Lado et al,
1997; Lin & Darnall, 2010)
 Evolutionary theory sees them as initiatives aiming at reducing
uncertainty and risk through new routines in face of a turbulent
economic and technical environment; they have become permanent
characteristic of the economic environment (Niosi, 1995)
 Open innovation puts together both external cooperation and the use of
external knowledge, with or without cooperation (Chesbrough, 2003)

J. Niosi Padova 2016

 Open innovation
6

 According to Chesbrough (2003) firms must integrate

both internal and external ideas while developing
technology and innovation
 Yet, this external openness is nothing new and has existed
since there are industrial companies: Westinghouse
imitated GE in the late 19th century; Japanese technical
cooperation among the zaibatsu in the 19th century
 Central banks have cooperated for a century and a half
(Borio and Toniolo, 2006).
 In the 19th century the US land-grant universities were
created to cooperate with agricultural farms, as MIT was
founded in 1867 to cooperate with industry

J. Niosi Padova 2016

 Complexity and game theory
7

 Axelrod (1984 and 1997) has examined the

evolution of cooperation in humans, and animals
 The most stable cooperation game is called tit-for-
tat. The firm starts by cooperating and afterwards it
repeats the action of the partner: if the partner
defects it defects, if the partner reciprocates, it
cooperates again
 In a situation of repeated games, the chances of
defecting and cheating are less common

J. Niosi Padova 2016

 Complexity and game theory
Other strategies
8

 Gentle: always cooperates (and is thus exploited)

 Bad guy: always defects
 Rancorous; Cooperates but if the partner cheats, defects
forever and never forgives
 Suspicious: it starts defecting, but then repeats the game of
the partner, and may thus start cooperating
 Tit-for-tat with pardon: it is like tit-for tat, but from time to
time it forgives and cooperates again
 Patient: it cooperates unless it is cheated twice
 These cooperation strategies are to be found in real life
situations: student teams, family relationships and inter-
firm cooperation
J. Niosi Padova 2016
 Why do organizations cooperate?
9

 Economies of scale and scope in R&D

 Acceleration of innovation
 Capturing knowledge or other assets from users, suppliers
or competitors
 Reduction of risk and uncertainty
 Shortened life cycle of products
 Develop new norms or standards
 Develop new management methods
 Respond to government incentives
 Capturing regional externalities (Niosi, 1995)

J. Niosi Padova 2016

 Some suggestions from the literature: important
factors in promoting alliances

1. Partner selection is the more crucial step in forming alliances

2. Gains among partners must be mutual (costs and risks reduction)
2. The value of the alliance must be visible to customers
3. The alliance offers a competitive advantage to all firms
4. There are three main driving forces: knowledge complementary, scale
economies, reduction of duplication R&D efforts
5. Operation risks and rewards are balanced
6. Alliance partners are willing to explore new opportunities together
7. The objectives are clearly defined and there is a through planning
8. There is an excellent clarity of aims
9. The role of each partner is clearly defined
10. Firm-specific (tacit) knowledge must be protected by firms
11. Partners have a shared vision and there is commitment and support at
all levels; there is a high degree of trust
12. Shared goals are measurable
13. Top executives from both companies support the goals of the alliance
14. Excellent channels of communication at all levels must be implemented
15. Key contrasting issues must raised early and promptly resolved within a
continuity in the approach
 Collaboration versus competition
11

 Many firms draw important advantages from

collaboration; yet the process is difficult and risky
- 50 to 60% of alliances fail and do not respond to
partners goals and expectations (Duysters et al,
1999)
- Companies run the risk of creating their future
competitors and losing their competitive advantage
(Gleister et al , 2004).

J. Niosi Padova 2016

 Why do alliances fail?
12

 Wrong management practices: bad choice of partners,

bad project management
 Behaviour of partners: hidden agendas, mutual suspicion
 Complexity of technical and scientific knowledge; too
much tacit knowledge needs to be codified
 Absorption capacity of partners (Lane & Lubatkin, 1998)
 Lack of flexibility of partners confronted to a changing
environment, market and technical uncertainty
 Expected results did not materialize

J. Niosi Padova 2016

 Typologies of alliances
13

 Based on market relationships: horizontal (Alcatel-

Lucent), vertical (assemblers with suppliers) or
lateral i.e. semiconductor firms and watchmakers
(Lo Nigro, 2016)
 According to the degree of formalization: pure
contracts or joint ventures
 According to the geographical horizon: regional,
national or international
 According to industry: intra- or inter-industrial
cooperative agreements

J. Niosi Padova 2016

 Number of alliances and firm size
14

 Large firms manage dozens of alliances at the same

time, even if alliances occupy a fairly small
percentage of their innovation efforts
 Small and medium-sized enterprises usually
manage only one ort two alliances, but these occupy
most of their innovation resources (Niosi, 1995;
Lichtenthaler, 2004)
 Most alliances occur within North America, within
the EU, or East Asia, or among blocks i.e China-EU,
or China North America (Kang & Sakai, 2000)

J. Niosi Padova 2016

 Number of international alliances (1990-2000)
15

Country 1990-4 1995-9 2000 1990-2000

Australia 692 446 461 1599
Canada 1574 2490 498 4562
France 1712 1533 287 3532
Germany 2050 2012 472 4534
Japan 5478 3952 935 10365
UK 2752 3214 780 6746
USA 11121 11172 2409 24702
Total OCDE 14459 20155 4130 42808

Source: OECD

J. Niosi Padova 2016

 US public organizations in R&D Joint ventures
16

Source : NSF
J. Niosi Padova 2016
 High-tech alliances in Canada
17

 A study based on interviews with some 10 firms in four

sectors: aerospace, biotech, ITC and advanced materials
(Niosi, 1995)
 Cooperation modes vary from one industry to the next
(i.e. aerospace & biotech)
 The direction and management of the alliance by the
leader (usually a large firm) is the most common situation
 The majority if alliance is the R&D contract (not R&D
joint-venture)
 The main problem is the ownership of the results, even if
the contract is clear on the topic; co-patenting is seldom
used
 Expected outcomes differed often from obtained ones

J. Niosi Padova 2016

 High-tech alliances in Canada
18

 Around 50% of the firms had experienced problems;

but problems became less frequent as the
cooperation unfolded
 Government financing is frequent, but the most
valuable alliances were seldom supported by
governments (in order to keep secrecy about the
projects)
 Size and sector determined the main characteristics
of the alliances

J. Niosi Padova 2016

 Initial conditions required to succeed in
cooperation for innovation
19

 Clearly determine the value and nature f the contribution

of each partner
 Define the goal and scope of the alliance
 Stipulate the indicators to measure the performance of
the alliance
 Use project management with time frames and groups of
activities
 Anticipate future tension issues and their solutions
 Find the right partner
 Select the proper design of the alliance
 Parallam case: McMillan Bloedel, Celanese & German
machinery manufacturer

J. Niosi Padova 2016

 Public policy and alliances
20

 Governments stimulate the creation of alliances; the main

goals are
- To stimulate the diffusion of new technologies
- To avoid multiplying spending in similar projects
- To support a share of the increasingly costly R&D projects
- To accelerate technical change
 However the multiplication of international alliances risks
channelling out some R&D results with public support
(Hagedoorn et al , 2000)

J. Niosi Padova 2016

 Public policy and alliances
21

 One simple numerical example will do.

Six companies try to design a new semiconductor. The estimated
cost of the R&D project is $1 million; if they go alone
- Firm A spends $1 million and develops model A;
- Firm B spends $ 0,8 million and abandons;
- Firm C spends $1,2 million and abandons
- Firm D invests $1,4 million and develops model B;
- Firm E spends $1 million and abandons
- Firm F spends $0,6 and gives up
 With a 20% tax credit for R&D the government has spent $1,2
million in forgone revenues; with an alliance the government
would have spent $0,2 million, at least one design would have
been produced

J. Niosi Padova 2016

 Public policy and alliances
22

 Japan has been the first country to support collaborative

R&D; the goal was to accelerate catching up, and save funds
 In the EU, the USA, Canada and Australia changed their
anti-trust legislation to allow technological collaboration
among local firms, and developed new programs
 Examples are the European Framework Programs which
aimed at intra-European collaboration starting in 1984 and
up to this day. Three main research areas were aimed at:
- Excellent science
- Industrial leadership with six subprograms ICT, biotech,
nanotech, advanced materials, advanced manufacturing
and space
- Societal change: health food, energy, transport, security, etc

J. Niosi Padova 2016

 The European Framework Programs

23

Framework Program Period Budget

(billions of €)
First 1984-87 3,8
Second 1987-91 5,4
Third 1990-94 6,6
Fourth 1994-98 13,2
Fifth 1998-2002 15,0
Sixth 2002-2006 17,9
Seventh 2007-2013 53,2
Horizon 2020 2014-2020 80

Source: European Commissions

J. Niosi Padova 2016

The European Framework Programs criticized
24

 They are often inflexible

 Their budget is too small
 Research and innovation should be connected
 New financial instruments should be developed
 EU, national and regional programs should be more
integrated
 New areas of research should let emerge bottom up
 Goals should be clarified and hierarchized
 Simplification is needed
 The entire value chain should be covered

J. Niosi Padova 2016

 The European Framework Programs results
GERD as % of GDP
25

Source: Eurostat
J. Niosi Padova 2016
 The European Framework Programs results
GERD at constant prices and million PPP$
26

2000 2005 2010 2014

USA 333 146 361 065 410 093 432 583*
China 41 090 95 544 213 460 344 678
EU 28 240 940 265 563 308 831 334 255
Japan 120 209 140 617 140 607 159 220

• Data for 2013

• Source: OECD

J. Niosi Padova 2016

 Conclusions
27

 Firms, and other innovative organizations form alliances to access

complementary knowledge, reduce risk and uncertainty, and face an
increasingly competitive environment
 Alliances (like all types of human cooperation)are not always
successful
 The internationalization of alliances makes the results even more
uncertain
 Public policy is often a necessary requirement to build and sustain
alliances; yet in the case of Japan and the EU, there is the red queen
problem: running increasingly faster to stay in the same (relative
place)
 The EU has increased its collaborative efforts but is now in third
place, even with the Framework and other cooperative R&D
programs

J. Niosi Padova 2016

 Bibliography
28
 Axelrod, R. (1984): The evolution of cooperation, Princeton U. P..
 Axelrod, R. (1997): The complexity of cooperation, Princeton U. P.
 Bonio, C. an G. Toniolo (2006): One hundred years of central bank cooperation, Basel, B.I.S.
 Chesbrough, H. (2003): Open innovation, Boston, Harvard Business School Press.
 Duysters et al (2009): “Crafting successful strategic technology partnerships” R&D Management, 29
(4): 343-351.
 Glaister, K et al (2004): Strategic business alliances, Cheltenham, Elgar.
 Hagedoorn, J. et al (2000): “Research partnerships”, Research Policy, 29 (4-5).
 Kang, N. & K. Sakai (2000): International Strategic Alliances: Their Role in Industrial Globalisation,
OECD Science, Technology and Industry Working Papers
 Lado, A. et al (1997): “Competition, cooperation and the search for economic rents”, Academy of
Management Review, 22 (1): 110-141.
 Lane, P. J. & M. Lubatkin (1998):”Relative absorptive capacity and organizational learning, Strategic
Management Journal, 19, 461–477.
 Lichtenthaler, U. and E. Lichtenthaler (2004): “Alliance functions”, Technovation, 24 (7): 541-552.
 Lo Nigro (2016) :”The effect of in-bound alliance on innovation” Journal of Bus. Res., 69: 1791-5
 Niosi, J. (1995): Flexible Innovation, Montreal and Kingston, McGill-Queen’s U.P.
 Richardson, G.B. (1972): « The organization of industry”, Economic Journal, 82 (327): 883- 896
 Williamson, O. (1985): The Economic Institutions of Capitalism, New York, Free Press.
J. Niosi Padova 2016
Alliances and open innovation

Fiorenza Belussi
[Link]@[Link]
 Source

Book
Based on Innovation, Alliances, and networks in high-tech
environments (Belussi F. and Orsi L.) eds.
Routledge 2016

Selected readings
 Introduction
Focus on some important interrelated characteristics
of the strategic management of high-tech firms (Baum
et al., 2000; Inkpen & Beamish, 1997)
• 1. high levels of innovativeness (Levitt and March,
1988; Nelson, 1991; Nonaka, 1991; Conner and Prahalad, 1996;
Grant, 1996; Powell et al., 1996; Cloodt et al., 2006; Mowery et
al., 1996)
• 2. an open organisational design based on
technological strategic alliances (Kanter, 1994; Dyer,
1997; Doz and Hamel, 1998; Gulati, 1998; Das and Teng, 2001)
• 3. an open research networks (Chesbrough, 2003;
Hagedoorn and Duysters, 2002;).
 We combine three theoretical research
paths
a) the topic of alliances;
(b) the network analysis approach (Sydow and Windeler,
1998; Cross et al., 2002; Capaldo, 2007; Tiwana, 2008)
looking at the configuration of networks among firms and at
the connectivity among actors, resources, and activities; and
(c) the open innovation study tradition

The formation of R&D alliances is considered to be a contractual agreement

alternative to a more concentrated and verticalised mode of governance,
where R&D activities are internalised in large laboratories owned by the
largest firms. In high-tech alliances are considered a necessary step in
order to boost innovative performance (Shan et al., 1994), new product
development (Deeds and Hill, 1996; Rothaermel and Deeds, 2004) and,
more generally, performance (Baum et al., 2000).
 In order to generate and sustain a
competitive advantage
Firms rely heavily on unique and innovative capabilities, i.e. specific
expertise and competences related to the development and introduction
of new processes and products (Rumelt, 1974; Hagedoorn and Duysters,
2002a).

Such capabilities might be either endogenous or exogenous

Moreover, knowledge is often tacit, especially in technological- and

knowledge-intensive contexts, and thus difficult to be transferred from
one firm to another (Larsson et al., 1998)

Markets are imperfect mechanisms: thus, alliances or acquisitions may

be better options
 Some suggestions from the literature
…
Important factors in promoting alliances (Alliance Management
International, 1999):
1. Partner selection is the more crucial step in forming alliances
2. Gains among partners must be mutual (costs and risks reduction)
2. The value of the alliance must be visible to customers
3. The alliance offers a competitive advantage to all firms
4. There are three main driving forces: knowledge complementary, scale
economies, reduction of duplication R&D efforts
5. Operation risks and rewards are balanced
6. Alliance partners are willing to explore new opportunities together
7. The objectives are clearly defined and there is a through planning
8. There is an excellent clarity of aims
9. The role of each partner is clearly defined
10. Firm-specific (tacit) knowledge must be protected by firms
11. Partners have a shared vision and there is commitment and support at all
levels; there is a high degree of trust
12. Shared goals are measurable
13. Top executives from both companies support the goals of the alliance
14. Excellent channels of communication at all levels must be implemented
15. Key contrasting issues must raised early and promptly resolved within a
continuity in the approach
 Some important open issues
- Who allies with whom

- Knowledge similarity vs knowledge complementarity

- Alliances vs acquisitions (knowledge exploration vs exploitation?)

- Geography of connectedness (districts vs RIS)

- Motivations

- Access to knowledge, k. integration, or knowledge acquisition?

- Importance of prior alliances and post-acquisition performances

MODEL OF OPEN INNOVATION
“Open innovation is a paradigm that assumes that
firms can and should use external ideas as well
as internal ideas, and internal and external
paths to market, as the firms look to advance
their technology”
Chesbrough H. W.

 development of internal
competences
 search for new competences
through an extension of the firm
boundaries
 InnoCentive = Innovation+ Incentives
 InnoCentive is a business model based on
Open Innovation
 It is a website that has a vast community of
scientists and private organizations, which
are seeking technical solutions or technical
problems that could not be found by their
internal R&D departments
 Problems cover aspects of organic
chemistry and analytical and formulation
processes of chemical compounds.
 Seekers: organizations that are
seeking for answers

 Solvers: people who are interested in

solving critical and pressing
problems
 InnoCentive Challenges:
An InnoCentive Challenge is a unique problem
posted by Seekers in the InnoCentive Challenge
Marketplace.
The goal of a Challenge is to solicit solutions
from InnoCentive’s community of 200,000
Solvers and ultimately choose the one that best
fits the criteria set out by the Seeker. If a
solution is selected as “best” by the Seeker, the
Solver transfers the Intellectual Property (IP)
to the Seeker and receives a financial award,
which varies per Challenge.
 InnoCentive ONRAMP (Open iNnovation
Rapid Adoption Methods and Practices):
ONRAMP is a suite of professional services and
technical resources developed and delivered by
InnoCentive’s team of scientists, and
consultants to help Seeker companies adopt
open innovation rapidly and successfully
within their organizations.
ONRAMP provides planning, education,
communication, and reporting services to help
Seekers manage the process, adjust their open
innovation plan, and measure the returns of
their innovation strategy.
 InnoCentive@Work:
InnoCentive@Work is an internal Web-based
community customized by InnoCentive for
Seeker organizations.
It applies a Seeker’s internal resources to an
organization’s hardest problems. Cross-
fertilization of ideas and solutions accelerate
success by accessing the currently untapped
value of institutional experience and
knowledge, so results are optimized and occur
faster.
As companies gain experience with
InnoCentive@Work, they can move problems
from inside their organization’s community to
InnoCentive’s global community of Solvers to
further increase the diversity of potential.
INNOCENTIVE CHALLENGES
1. InnoCentive Ideation Challenge: a global
brainstorm for producing a breakthrough
idea.
This could include ideas for a new product
line, a new commercial application for a
current product, or even a viral marketing
idea for recruiting new customers.
INNOCENTIVE CHALLENGES
2. Theoretical Challenge: a design that
implements an idea but is not yet a proof of
concept.
A solution to a Theoretical Challenge will
solidify the Solver’s concept with detailed
descriptions, specifications, and
requirements necessary to bring a good
idea closer to become an actual product or
service.
INNOCENTIVE CHALLENGES

 RTP Challenge: a prototype that proves an

idea.
Once an organization has a theory or design
for a product or service, an RTP Challenge
requests that Solvers prove their solution
will work within the organization’s specific
needs, decision criteria, and manufacturing
parameters.
INNOCENTIVE CHALLENGES

 eRFP Challenge: a request for a partner or

supplier to provide materials or expertise
to help solve a business Challenge.
Organizations can use the InnoCentive
network to find businesses or consultants
that have already developed the technology
they need or have the experience to help
organizations develop it themselves.
CROWDSOURCING
 Crowdsourcing is a distributed problem-
solving and production model
 It may produce solutions from amateurs
or volunteers working in their spare
time, or from experts or small
businesses that were unknow to the
initiating organization.
 Using InnoCentive website, a “Seeker”
posts a “Challenge” and commits to pay
succesful “Solver” a cash award. In this
way a “Seeker” pays only for the
solution it accept.
CROWDSOURCING
THE BENEFITS OF OPEN INNOVATION

 Open Innovation allows many people from

different disciplines to tackle the same
problem simultaneously and not
sequentially.

 Anyone can participate with collaborative

technology and OI training.
THE BENEFITS OF OPEN INNOVATION

 When many minds are working on the same

problem, it will take less time to solve it.

 It is issued a challenge, and many Solvers

answer the call at the same time. And the
beauty is that they are working for free. It
is payed only for a successful solution,
saving time and money.
 Open iNnovation Rapid Adoption Methods and
Practices:
Once a firm has decided to implement Open
Innovation in its organization, it will need to
have all the resources in place to ensure that
it is adopted rapidly and successfully. This
adoption necessitates an organizational
culture change, that must be communicated
effectively throughout the enterprise.
ONRAMP helps firms accomplish this by
giving them tools to inspire their manager
and employees to be more creative and find
answers to issues important to their
company’s growth and prosperity.
CONCLUSION
 InnoCentive promotes a faster research
process at lower costs than the alternative
of using additional internal resources to
explore solutions or going to an outside
consultant or university institution to gain
access to experts

 Improves the innovative culture

 The organization gains access to expertise

and competence in new areas made
available through InnoCentive’s global
network: “unique solutions that we would
have never come up with ourselves”.
Gabriela Gonçalves Silveira Fiates, PhD
Associated Professor
Federal University of Santa Catarina, Florianópolis, Brazil
 Brazil, despite being an industrialized and capitalist country, can not
be considered high relevant by the capitalist world and has been
positioned as a dependent economy.
 However, the country could be classified as semi-peripheral.

 It is an intermediate group that presents median levels of human

development, relative economic growth and, especially, the capacity to
become major world powers in the medium and long term.
BRAZIL: AN
EMERGING COUNTRY
 210.147.125 Inhabitants

 GDP (Gross Domestic Product) 2018: R$

6,8 trillions (US$ 1,67 trillions) exchange
rate 18/12/2019.
 Per Capita Income 2018: R$ 32.747,00
(US$ 8.076,00) increase in 0,3%
comparing with previous period.
 2019.

 Unemployment rate - 12% - July/2019.

Business Incubators
• Infrastructure; Business management; Technological management;
• Marketing of products and services; Accounting;
• Legal assistance;
• Fundraising; Contracts with financiers;
• Production engineering; Intellectual property.
Acelerators
• Focused on scalable startups;
• Help to capture resources and offer mentories
Coworking Spaces
• space to share infrastructure and experiences

Research institutes
• R&D projects
• Research labs infrastructure

Universities
• Source of research and human capital
• Basic research infrastructure
5
 Center-
West North Northest South Southest

Incubators 31 39 61 100 132

Acelerators 4 2 6 12 33

Center-
Universities West North Northest South Southest Brazil
Public 19 24 67 32 157 299
Private 239 149 499 382 969 2238
Total 258 173 566 414 1126 2537
2018.
6
 Innovation leader in Latin America.

 Ranked as 66th out of 129 countries, revealed the World

Italy France Germany
Intellectual Property Organization (WIPO).
2015 1,34 2,22 2,94

Investments R&D Millions US$ % %GPD

Public - Federal 6.327,51 31,06 0,39
Public - States 3.803,93 18,67 0,24
Private 10.243,64 50,28 0,64
Total 20.375,11 100 1,26

2017.
Considering graduate scholarships.
  In Brazil

National patents granted per year.

Average time in Brazil to grant a patent in years.

 RESULTADOS DIGITAIS STATION (DIGITAL
RESULTS STATION)
 AUDACES
 EMBRACO
 EMBRAER
 Inc  Founded in Brazil in 2011

 Ace  André Siqueira (Management – UFSC),

Cwk  Bruno Ghisi (Computer Science – UFSC)

 R&I  Eric Santos (Control and automation engineering – UFSC) - CEO

 Uni
 Guilherme Lopes (Control and automation engineering – UFSC and Management – FGV)

 Pedro Bachiega (Computer Science – UFSC)

 About 900 employees

 Located in Florianópolis – SC – Brazil

 Solid company, backed by TPG growth, RedPoint [Link], DGF Inova and Astella (4 investment rounds completed)

 More then 12.000 final custumers in 20 countries.

 Mission: To help medium and small enterprises understand and leverage the benefits of Digital Marketing, thereby
achieving real and long-lasting results for their businesses.
 RD Station Marketing – a software platform that helps the customers build, execute and
measure their digital marketing strategies, thereby driving growth for their companies.

 It’s possible to try the platform in this site:

[Link]
The company also offers:
-face-to-face and distance training -
[Link]
-intermediation between end customers and marketing agencies – support
them during all time ( more than 1500 trained agencies).
-the biggest event about digital marketing in Brazil (16.000 people/year).
- the largest and most solid network and community of practice related to
digital marketing In Brazil.
 The Platform RD Station Marketing - is absolutely user friendly, really very easy to plan; develop and
evaluate the digital marketing strategies.
 Planning - the costumer Journey

 Attract qualified visitors to the costumer website

 Convert Visitors into Leads and business opportunities

 Build relationships with your contacts throughout their journey

 Close more deals

 Analyze the results, optimize the process and demonstrate ROI

The big difference is the flexibility to integrate various applications and
systems already existing for shopping, e-commerce, CRM, chat, social media,
database, ERP and others, keeping everything in just one platform.
 R&D – in house – competence developed inside – (internships and student
recruitment at UFSC).
 Innovation types – product; mostly incremental.
 Innovation scope – Innovation in Brazil
 Patents - no patents because software is not patentable.
 Innovation Sources:
 Users (final costumers and marketing agencies);
 Partners/suppliers (apps and others systems that can be integrated);
 Practice community.
 Inc
Ace  Born in 1992 inside the CELTA Incubator.
Cwk  Founded by 5 students of the Computer
 R&I Science Course
(2 majority – 90%).
 Uni
 Develop software and Hardware for several
sectors but mainly for textile and furniture
sectors.
 About 160 employees in Brazil and 12 in Italy.

 Operating in more than 70 countries (sales)

 Located in Florianópolis – SC – Brazil. And it

has a factory in Italy in the city of Rovereto.
 Mission: To help other companies produce
more and better.
 [Link]
VHumJsnswj4&list=PLuYG7ymqeL2z
aRklf51-IU-hXekCDwtr4
 SYSTEMS
 Idea - Automates the technical sheet  HARDWARE FOR INDUSTRY 4.0
and pre-cost
 Neocut Bravo - cutting-off machine
 4D - Development of models in 4D
 Neocut SL - cutting-off machine
 Isa - collection manager
 Audaces ICF - cutting-off machine
 Digiflash - mold digitizer
 Linea - Automatic baler
 Pattern - CAD
 Jet Lux - plotter
 Marker - fabric optimization
 Pratica - Multivalent stress table
 Supera - Fast Fitting Server
 Digiflash device - mould board
 Digiflash device XT - mold digitizer
 Innovation Award, IMB - Germany, with Audaces Tower Jet

 Highlight as one of the 10 biggest innovations of Brazil, of the last decade, in the VII Conference of
Anpei (Brazilian National Association for Research and Development of Innovative Companies)

 Top 10 best innovative brazilian products, of the lst decade - Audaces Digiflash

 Innovation Award, IMB - Germany, with Audaces Digiflash

 National Award for Innovative Entrepreneurship, promoted by Anprotec, Sebrae, CNI, CNPq, FINEP,
Ministry of Science and Technology and Ministry of Industry and Commerce

Flexible products - adaptable to the reality and needs of

each customer.
 Neocut Bravo, made within the industry 4.0 concept; has more than 300
interconnected sensors and, at the same time, is connected to the cloud. It makes
decisions about cutting points without loss of fabric between the pieces and
reveals the rhythm of activities, for the manager to know the production level.

 Digiplash - pattern scanning from any photo.

 R&D: in house - competence developed inside – (internships and student recruitment at UFSC and
UDESC).
 Innovation types – mainly in their products

- incremental and radical

 Innovation Scope – Innovation in Brazil.

 Patents – 3 in EPO

 Innovation Sources:

 Radical: the founding members usualy research and attend trade fairs around the world, the idea is discussed and
developed with the R&D professionals.
 Incrementals: lead users (Big Clothing Factories and they have partnership with 8 education institutions that use
their products in Fashion Courses).
  Embraco was founded in 1971 by three refrigerator
Inc manufacturers - Consul, Springer and Prosdócimo -
with the objective of replacing the import of
 Ace compressor.
Cwk  On September 6, 1974 the first compressor was
 R&I produced, with technology from the Danish company
Danfoss.
 Uni
 In 1987, Embraco launches its first compressor
produced with its own technology.

 Embraco today directly employs about 10,000

people in six countries (Brazil, China, Italy, Slovakia,
United States and Mexico).

 This year EMBRACO was sold and since 2 jully it

belongs to the Japanese Nidec Corporation.
[Link]
EMBRACO:
PRODUCTS
 Embraco's main activity is the production of
compressors for refrigeration equipment.

 Fixed Speed Compressors.

 Variable Speed Compressors.

 Cooling solutions.
 EMBRACO:
INNOVATION
 Recognized for their energy savings, easy installation
and maintenance, gain of physical space and reliability.

 Use natural refrigerant, reducing CO2 emissions by

99%.

 Development of products that reduce energy

consumption.

 Use of artificial intelligence to optimize production

and logistics throughout the production chain.

Many awards in Brazil and abroad for

innovations developed and for the company’s
innovative attitude.
 R&D:

 the company invests 3% of its revenue in research and

development.

 43 laboratories, 13 are located in Brazil.

 Partnership with research institutes and universities.

 Innovation types:

 Product; process and Organizational

 Incremental and Radical

 Innovation Scope: Innovation in Brazil and some products and

process are first in the world

 Patents: 67 in EPO

 Innovation sources: Internal and External Research; Lead

Costumers.
 Inc
 Ace
 Cwk
 R&I

 Uni
 Empresa Brasileira de Aeronáutica S.A, founded in 1969 as a public
company, but in 1994 it was privatised with stock market opening.
 It is a holding company responsible for manufacturing aircrafts.
 It is the third largest jet manufacturer, losing only to Boeing and Airbus.
 Currently is the largest Brazilian company in terms of exports, in addition
to having the largest number of jet orders, which places it as market
leader in the category of 70 to 120 seats.
 17.000 employees.
 Located in São José dos Campos, Brazil with two joint ventures: Portugal
and China.
military

commercial

executive

agricultural
It is considered the most innovative company in Brazil.

It invests 10% of its revenue in R&D.

Several national innovation awards.

 R&D – in house – and partnership with more than 50
Research Institutes and Universities.
 Innovation types – product; process and organizational.
 Innovation scope – Innovation in Brazil; some Technologies
used in manufacturing are innovative in the world.
 Patents – 71 in EPO.
 Innovation Sources:
 Users (final costumers);
 Partners (RI and Universities; Joint ventures)
 Suppliers
 Competitors

 To know more about EMBRAER:

[Link]
 RD Audaces Embraco Embraer
 Inc  Inc Inc Inc
 Ace Ace  Ace  Ace
Cwk Cwk Cwk  Cwk
 R&I  R&I  R&I  R&I

 Uni  Uni  Uni  Uni

 INNOVATION
Part 1

Prof. F. Belussi (Padua University)

[Link]@[Link]
1. A general introduction

2. Indicators of science and technology

3. Models and sources of innovation

1. A general introduction
 4

Science vs. technology

• What is science? An enormous and costly

effort, tedious, lumbering, laborious, but
invincible
• The world is understandable
• Science explains and predict
• The world can change
• Scientific knowledge is durable
 5

Doing science

• Science is a systematic activity that builds and organizes

knowledge in the form of testable explanations and
predictions about the universe
• In the past science has been closely linked to philosophy
• In the 17th and 18th centuries scientists increasingly
sought to formulate knowledge in terms of laws of nature.
• Science is associated with the scientific method itself, as a
disciplined way to study the natural world, including
physics, chemistry, geology and biology
 6

Scientific method: what is it?

A particular way of asking and answering
questions
• Evidence
– Data (choosing variables; manipulating; controlling the ones not
chosen because noise and bias repetition experiments under
different conditions, instrumental bias, sample bias, mothodology
bias, researcher bias)
• Logic
– Inductive and deductive reasoning
• Imagination
– Hypothesis and/or theories (often we need a story that contrasts
the existing scientific paradigm: theory falsification
with the creation of a new explanation)
 7

Science is discovery
• Science Technology
Heliocentric model of the solar system Galileo made innovative use of experiment and mathematics

He used the design of a refracting telescope consisted of a convex objective lens and a concave eyepiece,
developed in Holland in 1608; Hans Lippershey and Zacharias Janssen invented the microscope (Galileo
called the “occhilino”); Carl Zeiss (1816-1888) and Ernst Abbe (1840-1905) invented the apocromatic
microscope; Ernst Ruska (1906-1988) the electron lens; 2014 Nobel prise for fluorescence microscopy
(nano dimension)

During time we moved from an object of wonder

and surprise to an useful social thing

• Galileo is considered one of the fathers of modern science

 8

The birth of modern science

• Europe is the place of birth of modern
science. Copernico was Polish, Bacone
and Newton British, Fermat and Pascal
French, Keplero and Lebniz German,
Galileo, Malpighi and Torricelli Italian.
• Universities were not the privileged locus,
in fact it was a social community that give
rise to a Republic of Science. It started
with the interpenetration of science and
techniques.
 9

A scientific revolution
• Secrets – corpus hermeticum vs scientia experimentalis [ex:
Fracastoro diffusion of pest through invisible seminaria]
• Engineering (Botteghe)
• A new sky vs cosmology
• Mechanical philosophy
• Physical philosophy
• Chemical philosophy
• Magnetic philosophy
• The efforts of classification
• The creation of Academies
• The diffusion of printing (only in the West, because Arabs characters
were difficult to reproduce)
 10

The rediscovering of the past.

After centuries of intellectual destructions the Greek and Arab manuscript come to
a new life through commerce and the influence of the Al Andalusia kingdom
and the “reconquista” of Isabella di Castiglia and Ferdinando di Aragona
- Fibonacci 1200 hindu-arab numbers
-Ipazia 400 inventor of astrolabe (killed in Alessandria by Cristian fundamentalists)
11
 12

Science Technology Innovation

Innovation has been studied in a variety of contexts, including in relation

to technology, commerce, social systems, economic development, and
policy construction.

The classic definitions of “innovation” include:

• the process of making improvements by introducing something new

• a new idea, method or device
• the successful exploitation of new ideas
• a creative idea that is realized
 13

Scientists or entrepreneurs?

• - Investing in science

Vannevar Bush/Nathan Rosenberg

Fredrich List national innovation systems

• Schumpeter - Heroic innovators

• von Hayek – Market process driven by

entrepreneurs: discovering opportunities
2. Indicators of science and technology
- R&S
- Scientific articles
- Patents
 15

Investing in Science & Technology

 16

Investing in Science & Technology

 17

Investing in Science & Technology

 18

Investing in Science & Technology

 19

Investing in Science & Technology

 20

Investing in Science & Technology

 21

Investing in Science & Technology

 22

Investing in Science & Technology

 23

Investing in Science & Technology

 24

Investing in Science & Technology

 25

Investing in Science & Technology

 26

Investing in Science & Technology

 27

Investing in Science & Technology

 28

Investing in Science & Technology

 29

Investing in Science & Technology

 30

Investing in Science & Technology

 31

Investing in Science & Technology

 32

Investing in Science & Technology

 33

Investing in Science & Technology

 34

Investing in Science & Technology

 35

Investing in Science & Technology

 36

Investing in Science & Technology

 37

Investing in Science & Technology

Why Us scores so high? Good science or Matthew

effect? Language bias/Scientific communities based
in US play an increasing role in citing

Matthew effect (or accumulated advantage) is the phenomenon

where the rich get richer and the poor get poorer.
Metaphorically, in network science, the Matthew effect is used
to show the preferential attachment to earlier nodes in a
network, which explains that these nodes tend to attract more
links. Thus, English and early written articles tend to be more
cited than more recent articles.
 38

Innovations and patents

Inventions not in use

Patents Inventions
 39

Tab Economic exploitation of EPO patents in six

European countries
Licensing Licensing Cross Internal Blocking Sleeping Total
&single licensing use competitors patents
use

Large firms 3.03 3.22 3.03 49.93 21.72 19.6 100.0

Medium-sized 5.38 3.59 1,20 65.62 13.90 10.31 100.0
firms
Small firms 14.97 6.90 3.39 55.78 9.62 8.84 100.0
Hospitals 35.42 6.25 0.0 16.67 18.75 22.92 100.0
PRO (public 23.19 5.80 4.35 21.74 10.8 34.06 100.0
research
organisations)
University 22.50 5.00 5.00 26.25 13.75 27.5 100.0
Others non 17.02 8.51 4.26 34.04 12.77 23.40 100.0
classified
Total 6.17 3.92 3.06 50.53 18.83 17.50 100.0
Sources: Giuri (2007)
 40

Investing in Science & Technology

 41

Investing in Science & Technology

Trends in patent filings 1883-2006
 42
Investing in Science & Technology
Total number of inventors 4738584
Number of inventors of patents involving EU inventors 1978194
Share of inventors of patents involving EU inventors 41,75%
Number of European inventors 1853886
Share of European inventors 39,12%
Number of Extra-EU inventors 124308
Share of Extra-EU inventors 2,62%
Total number of patents 2583285
Number of individual patent 891279
Share of individual patent 34,50%
Number of coinvented patents 1692006
Share of coinvented patents 65,50%
Number of European patents (with at least an European inventor) 1271325
Number of European individual patents 499239
Share of individual patents on European patents 39,27%
Number of European coinvented patents 772086
Share of coinvented patents on European patents 60,73%
Number of European coinvented patents 772086
Number of coinvented patents by only European inventors 703457
Share of coinvented patents by only European inventors 91,11%
Number of coinvented patents with Extra-European inventors 68629
Share of coinvented patents with Extra-European inventors 8,89%
Number of coinvented patents by only European inventors 703457
Number of coinvented patents within the same region 300625
Share of coinvented patents within the same region 42,74%
Number of coinvented patents among European regions 402832
Share of coinvented patents among European regions 57,26%
Number of coinvented patents with Extra-European inventors (1) 68629
Number of coinvented patents with US-CA-JP inventors 55753
Share of coinvented patents with US-CA-JP inventors 81,24%
Number of coinvented patents with BRICS inventors 6352
Share of coinvented patents with BRICS inventors 9,26%
Number of coinvented patents with other Extra-European inventors 8671
 43
Investing in Science & Technology
 44
Investing in Science & Technology
 45
Investing in Science & Technology

Source: Powell and Giannella (2010)

 Investing in Science & Technology 46

Source: Powell and Giannella (2010)

 Investing in Science & Technology 47

Source: Powell and Giannella (2010)

 48

Investing in Science & Technology

Patent applications
 49
Investing in Science & Technology
Patent application for metropolitan area
Investing in Science & Technology 50

Patent application by new innovative emerging sectors

 51
Investing in Science & Technology
Patent application in enviromental technologies
 52

Investing in Science & Technology

3. Models and sources of innovation
 54

Innovation
Innovation involves the exploration and exploitation of new
opportunities for advances in technical practice (“know-how”) –
better products/processes - or for the answer to new demand needs,
or for a combination of the two. Innovation is therefore a matching
process (Mowery and Rosenberg, 1979)

Innovation is inherently uncertain, given the impossibility of

predicting accurately the cost and performance of the new artefact,
and the reaction of users to it. Therefore it involves a process of
learning through either experimentation (trial and error) and/or
improved understanding (theory)

Some (but not all) of this learning is “firm specific”

Competition in capitalist markets can be seen as competition

between alternative products, systems, processes, and services
 55

Innovation

Process innovation involves the implementation of a new

or significantly improved production in manufacturing.
Examples: new machineries or new instrument. Consequences: costs
reduction; increase of quantity/quality of products; increase of flexibility.

Product innovation involves the introduction of a new

good or service that is new or substantially improved.
This might include improvements in functional characteristics, technical
abilities, ease of use, or any other dimension.
 Managerial/Organisational 56

Innovation
Business Model innovation: involves changing the way
business is done in terms of capturing value e.g.
Marketing innovation: is the development of new
marketing methods, often associated to an improvement in
product design or packaging, product promotion or pricing.
Organizational innovation: involves the creation or
alteration of business structures, practices and models, the
management of staff and may therefore include process,
marketing and business model innovation (ex. Chandlerian
firm with scale economies)
Discovery of new markets (Schumpeterian definition)
 57
The Schumpeterian tradition: the innovation
cycle

The start of the

process Innovation
Invention

1. New
products

2. New Diffusion/ Diffusion/

sectors Adoption adoption
the economic
3. Low system reaches
cost Re-invention an higher
products /improvement productivity
and growth when
innovations are
widely adopted
 58

Who is an inventor and who is an innovator?

Leonardo was an inventor but not an innovator

(his helicopter was never sold in the market)

Thomas Edison was an inventor and an innovator

(he built one of the first large R&D laboratory in the US at the Edison
firm, still nowadays in business)

Steve Jobs was an innovator

(he used some existing technologies (mouse, windows, icons, and
other technologies like graphical user interface) seen at the Palo
Alto laboratories in Xerox in California. Xerox managers at the East
Coast of the USA did not care a straw for the PARC’s research
results unless they were directly involved with photocopiers)
 59

The traditional epidemic (S-shaped )

diffusion curve

lagged-risk
risk-bearing adverse
innovators innovators
 60

Adoption Decision Process

 61

Disequilibrium models
Probit models based on adopters heterogeneity

100% of potential
adopters

Non
adopters
adopters in relation with given characteristics

Adopters

time
 62
Origins of selected innovation and estimated time-
lag from invention to innovation

Innovation Key inventor Status Year Innovator Year

Syntetic detergents Krafft Univ 1886 IG Farben (G) 1930

Insulin Banting Univ 1921 Connaught Labs 1923

(Can.)
Freon refrigerants Midgeley and Hume Emp R&D 1930 Kinetic Chemicals (US) 1931

Plexiglas Chamlers Univ 1929 Rohm & Haas(US) 1935

Kodachrome Godowsky & Mannes Independent 1923 Eastman Kodak (US) 1935
Inv.
Radar Hertz Hüllmeyer Univ 1887 Societe Francaise 1935
Independent 1904 Radio Electrique (F)
Television Zworykin Emp. R&D 1919 RCA (US) 1936
Farnsworth Independent 1929
Houdry Independent 1922
Nylon Carothers Emp. R&D 1934 Du Pont Corp (US) 1938

Fluorescent Lamp Cooper-Hewitt Independent 1896 Westinghouse 1938

Helicopter Many inv. among which Focke-Wulf (G) 1938

Leonardo (I)
Jet engine Whittle Gov 1929 Rolls Royce (UK) 1943

Penicillin Fleming Univ 1929 Kemball Bishop (UK) 1942

 63

Innovation Key inventor Status Year Innovator Year

DDT Müller et al. Emp. R&D 1939 Geigy Co. (Swiss) 1942

Ball-point pen Biro Independent 1938 Eterpen Co. 1944

(Argentina)

Streptomiyin Waksman Univ 1943 Merck &Co (US) 1946

Polaroid camera Land Independent 1937 Polaroid Co. (US) 1948

Transistor Shokley , Barden, Emp. R&D 1947 Bell Lab. (US) 1951
Brittain

Laser Townes Univ. 1954 Hughes Aircraft 1967

(UK)

ABS Voisin Independent 1929 Dunlop Maxaret (F) 1960

Chrysler (US) 1971
Toyota (elect. 1971
controlled) (J)
Flash memory Masuoka Emp R&D 1981 Toshiba (J) 1984

Mobile telephony Cooper Emp. R&D 1973 Motorola (US) 1983

Mob. Telephony on Bell Labs Emp.R&D 1947 ----------- --------

cars (15 kg)
Air conditioning Carrier Ondependent 1902 Buffalo (US) 1902

Sources: Jewkes, sawers, and Stillerman, 1969 and our elaborations

on web search
64
 65

Are first innovators leading the market?

Motorola 1984

Evolution of mobile phone

 66

Are first innovators leading the market?

4 Technology platforms for mobile

phones: Android (Samsung), iOS
(Apple), Windows phone (Nokia),
Blackbarry

105 models

25 brands-firms (Huawei, Samsung,

HTC, Apple, Sony, LG, Blackbarry;
Wiko, Honor, Nokia, Google, Motorola,
Porsche design, Acer, Yotaphone, Jiayu,
Nokia was Asus, Oneplus, Phicomm, Alcatel,
acquired Microsoft , Prestigio, Icefox, Kazam,
partially by
Microsoft, but it Caterpillar)
then acquired
Alcatel-Lucent Ericsson was
acquired by
Sony Google
acquired
Simens closed Motorola
down
 67

First to invent first to market?

Top Five Worldwide Total Mobile Phone Vendors, 2013

Rank Manufacturer Gartner IDC

1 Samsung 24.6% 24.5%

2 Nokia 13.9% 13.8%

3 Apple Inc. 8.3% 8.4%

4 LG 3.8% 3.8%
5 ZTE 3.3% -
6 Huawei - 3.0%

Others 34.0% 46.4%

Note: Vendor shipments are branded shipments and exclude OEM sales for all vendors
 68

Stylised facts about innovation

• Uncertainty- high failure rate

• Technological Opportunity/nature of
knowledge/appropriability/accumulation
• Complexity
• Learning
• Lock-in/path dependency
• Access of various sources
• Clustering and links with science institutions (spillovers and start-ups)
• Role of lead-users or clients (von Hippel) and role of users or suppliers
(Lundvall)
• Dominant design vs. product differentiation and customisation
 69

The principal phases of implementation of an innovative

project :
Example: Drug Development

1 2 3 4 5 6 7 8

10.000 250 5 1
1. Identification and validation of target structure (cause of disease)
2. Identification and validation of biotech application (possible treatment)
3. Pre-clinical tests
4. Clinical tests, phase 1
5. Clinical tests, phase 2
6. Clinical tests, phase 3
7. Registration and production
8. Commercialisation
 70

Time lag from invention to innovation

 71

Aggregated Models of Innovation

Triple helix
Regional
system of
innovation
Chain link
model

Open
Linear innovation
innovation
model (Chesbrough,
Open sources 1993)
(Laursen and
Salter, 2006)

Open-source
software/ lead
user (von
Hippel, 2009)
 72

Types of Innovation

Sources: Tidd & Bessant , Strategic Innovation Management, John Wiley and
Sons 2014
 73

Models of creativity

• Individual inventors (serendipity)

• R&D laboratories (firms) (deliberate investments)

• Linkages with universities (government investiments)

• Networks/communities
 74

SOURCES of Innovation

INSTITUTIONAL “PIPELINE” (typical of large firms) : R&D activity

NON ISTITUTIONAL “PIPELINE” (SME): CLIENTS, SUPPLY,

PATENTS acquisition or in-licensing, COLLABORATION WITH OTER
FIRMS, COLLABORATION WITH UNIVERSITIES, ACCESS TO
DATABASES
 75

The principal phases of implementation of an innovative project :

1. Idea generation
2. Screening
3. Revision within the group
4. Sponsoring and definition of the project leader
5. Planning of the various phases
6. Implementation
7. Commercialisation
 76

Linear model
In the past, the linear model as representation of the innovative process:
(V. Bush, 1950)

Science Technology Firms

BASIC APPLIED
DEVELOPMENT
RESEARCH RESEARCH

COMMERCIALIZATION PRODUCTION
Ignored:
• Imitation capability of technology by backward countries/firms
• Market questions (better understanding of consumer needs)
• Educational system / training (school, univ., vocational training.)
• Knowledge sharing by the actors of innovation system
 77

NON-linear models

Technology Science
(es: biotech or new material)

Chain-linked Model (Kline e Rosemberg, 1986)

Key factors are the interaction and relationships:

• Inside the firm
• Between firms
• Between the different actors inside the innovation
system (firms, Univ., public administration)
 78
Chain-linked model (CONTINUE)

New
Needs/Necessities of persons/society
Needs

Idea
development production Marketing/comm. Markets
Generation

New
Scientific and technological state of the art
Ideas
 79
Triple Helix model
H. Etzkowitz (2000) Tri-lateral networks
and
Hybrid organizations
 80
OPEN INNOVATION

CLOSED innovation VS OPEN innovation H. CHESBROUGH (2003)

The firms can and should utilize ideas (and technologies) that are
outise of them in the same way/time they utilize the ones that are
inside them.
Firms need to use pipeline outside the core business through:
 start-up
 licensing agreements
 joint ventures

In the same time ideas arise outside research labs of the firm are
carried inside to be developed and/or commercialized.
The firm define new strategies to capitalize the notions of
the open innovation.
 81

Open vs. Closed

 82

Open vs. Closed

 83

Open vs. Closed

 84

Open vs. Closed

 85

Open vs. Closed

 86

Open vs. Closed

 87

Open vs. Open source

 88

Innovation strategy: patent usability

A firm owning a patent can:

1. use internally
2. sell the license
3. activate a cross licensing with a competitor buying at the same time some
patents owned by it (this is common in high-tech where many firms develop
complex technologies for which it is necessary to use several innovations
made by different firms)
4. sell the license with the permission of internal use (this is common if there
are economies of scale that an individual firms cannot reach alone)
5. use the patent to block the entry of other competitors in a given
technological niche, developing a multi-patent strategy (inventing around)
5. do not use the patent at all waiting better opportunities to introduce it in its
product lines (sleeping patent)
 89

Knowledge Flows
 90

Degrees of uncertainty in the innovative activity:

a map of the two principal dimensions

2 1
Engineering applications Exploring Basic Research
High
(applied reasearch)
Uncertainty
of the 4 3
innovative Market researches. Development
output Activity of incremental
improvement of the
Low technologies.
Combination of already
existing technological
knowledges.

Low High

Uncertainty on the modalities of the process

Source: our elaboration from Pearson (1991)

 91

THE END
Patent analysis

Ivan De Noni
[Link]@[Link]
Department of Economics and Management
University of Padua
 List of contents
❖ The relationship between invention, patents, innovation
and business performance
❖ Advantages and disadvantages of using patent data
❖ The main patent quantity and quality indicators
❖ How to use Orbit platform and project work

Department of Economics and Management | University of Padua

 Invention and innovation
• The discovery of a new, useful process, machine, improvement,
etc., that did not exist previously, that is recognized as the product
of some unique intuition or genius, and that is not obvious to
persons skilled in the particular field.
• The term invention is also an important legal concept. A patent
legally protects the intellectual property rights of the inventor.
• An innovation is the introduction of a new or significantly improved
product/service, process, organisational method, or marketing
method by a company.

Department of Economics and Management | University of Padua

 What is the difference between invention
and innovation?
• The practical application of invention and discovery in any field of
human activity leads to creation of a new product (technology) and
eventually it determines the transformation of idea, underlying the
invention, to the innovation
• Invention is a potential innovation
• Innovation is something that is new and better and has been
adopted and proven to create positive value

Department of Economics and Management | University of Padua

Moving from invention to innovation

Department of Economics and Management | University of Padua

From invention to firms performance
R&D process

Inventions

Protection (patents)
Licensing usage Selling the
rights patent
Exloitation (invention
utilization)
Financial returns
Commercial
development Sales returns
Department of Economics and Management | University of Padua
Invention is not innovation but
several researchers use patent
data for studying innovation.
Are patents the only or the best
way to measure innovation?
 It depends on

1. Research claim and used classification

Department of Economics and Management | University of Padua

 It depends on the research claim
There are several classifications and
categorizations:
• Invention vs innovation
• Individual vs team
• Close vs open innovation
• Exploitation vs exploration
• Intraregional vs interregional
• Incremental vs radical
• Low-impact vs high-impact
• Bottom-up vs top-down
• Innovation-to-firm vs innovation-to-market
Department of Economics and Management | University of Padua
 It depends on

2. The level of analysis (inventors,

organizations, regions or countries)
3. Available data sources, type and quality
of information, easiness to access and
use.

Department of Economics and Management | University of Padua

 Data sources
• Structured panel dataset, ready but not
necessary easy to use, sometime you have to
pay
Patent dataset
• Patent population or large size
• Micro data→Several information (Patent,
Innovation surveys
Inventors and Applicants , Technologies)
Statistics office
Surveys allow to collect all information you need.
Criticalities are: sampling, collection data,
structure of variables (dummy, likert scales,
Aggregated data continuous, %)

Department of Economics and Management | University of Padua

 Patent data advantages
• Patents have a close link to invention. There are very few examples of major
inventions that have not been patented in the last two centuries
• Patent data are quite easily available (now by electronic means) from national
and regional patent offices and the marginal cost for the statistician is much
less than when conducting professional surveys → large dataset and panel
data
• Patent offices provide an important data control function (quality of data)
• The contents of patent documents are a rich source of information
• Patents cover a broad range of technologies on which there are sometimes
few other sources of data (biotechnology, nanotechnology, etc.).
Department of Economics and Management | University of Padua
 Patent data limitations
• Many patents have no industrial application.
• The value of a patent is difficult to be measured. Assuming all patents to be of equal
value might be a mistake.
• Non-patented inventions. Small inventions with high costs of patenting, or inventions
protected by other means (trade secrecy, lead-time on the market, reputation).
• Differences in patent offices’ methods and human capital can lead to biased indicators.
• Differences in patent regulations across countries make it difficult to compare counts
of patents applied or granted in different countries.
• Changes in patent law over the years make it difficult to analyze trends overtime, make
companies more inclined to patent than before, include technologies which had been
excluded until recently.
Department of Economics and Management | University of Padua
 Goals of Patent Analysis
Patent data can be used for:
✓ Exploring single patent
✓ Exploring one or more technologies
✓ Exploring and comparing inventors or organizations
✓ Exploring and comparing regions or countries
✓ Exploring trends (availability of large time series,
continuously updated)
✓ Measuring quantity and quality performance

Department of Economics and Management | University of Padua

 Patent quantity indicators
✓ Number of patents (cumulative o average number of
patents, per capita or per employee, growth)
✓ Share of individual or collaborative patents (at inventor or
applicant level) → close/open invention
✓ Share of interregional co-patenting (global inventor networks
capacity)
✓ Geographical and technological heterogeneity (portfolio
diversification)
Department of Economics and Management | University of Padua
 Patent quality indicators

Exist different way to assess the quality of a

patent based on:
✓ Claims
✓ Patent family size
✓ Patent renewal
✓ Backward citations
✓ Forward citations

Department of Economics and Management | University of Padua

 Claims

✓ Claims are the heart of a patent application. The claims

define the scope of legal protection.
✓ As the structure of the patent fee is generally based on the
number of claims contained in the document, a large
number of claims might imply higher fees.
✓ The higher the number of claims, the higher the expected
value

Department of Economics and Management | University of Padua

 Patent family size
✓ The Patent family refers to the number of patent offices
(countries) at which a given invention has been protected
✓ The basic idea is that the value of patents is associated with
the geographical scope of patent protection.
✓ Because of additional costs, organizations extend invention
protection to multiple countries only if it is useful.
✓ The larger the geographical extension of protection, the
higher the expected value.

Department of Economics and Management | University of Padua

 Patent renewal
✓ The renewal of a patent signals that the invention
described in the patent document is still useful.
✓ The basic idea is that only more valuable patents are likely
to be renewed for longer periods.
✓ The patent renewal index corresponds to the simple count
of years during which a granted patent has been kept alive.
✓ The longer the renewal period, the higher the value.

Department of Economics and Management | University of Padua

 Backward citations
✓ Backward citations refer to the existing knowledge which
the patent relies on.
✓ When a patent cites several technologically similar patents
(in the same technological classes), we can suppose it is an
incremental invention (path-depending).
✓ When a patent cites technologically dissimilar patents, we
can suppose it is a radical invention.

Department of Economics and Management | University of Padua

 Forward citations
✓ The number of forward citations a given patent receives
over a following period after the publication date
✓ It represents the degree of adoption of the knowledge
included in the patent
✓ It is a proxy of the technological importance of the patent
for the development of subsequent technologies.
✓ Each additional forward citation is expected to increase the
market value of a patent by 3% (Hall, Jaffe & Trajtenberg,
2005)

Department of Economics and Management | University of Padua

 Breakthrough inventions
✓ Breakthrough patents can be defined as high-impact and
path-breaking inventions.
✓ So they might be defined by merging the most cited (high
number of forward citations) and the most radical (%
backward citations in technologically dissimilar classes)
patents

Department of Economics and Management | University of Padua

The evolution of the bicycle

(This case is based on work by the Open University/UMIST Design and Innovation
Group).

People began exploring the idea of the bicycle in the middle of the 19th century and a
huge variety of types emerged between 1860 and 1890. Various attempts were made
to establish a dominant design, but it was not until near the turn of the century that the
experiments with wheels, gears, seats, etc. converged to the now familiar 'diamond
frame'. This still forms the basis of most cycle design.

Manufacturers introduced all sorts of incremental improvements including new

materials (e.g. alloy steels for the frame), new components (e.g. gears), accessories
(e.g. lights), etc. By 1930 there were bicycles to suit different market segments,
ranging from dependable working cycles with 3 speed gears, lever operated brakes,
through to high performance racing and sports bikes made of lightweight materials
and incorporating advanced gear and braking technology. This phase was very much
about market segmentation - innovating to suit the needs of different user groups.

The post-war period in Europe led to an expansion in the demand for cycles as a
cheap mode of transport and this put emphasis on production to low cost and high
quality. For a long period innovation focused on process improvement to achieve
these goals and the product and market remained stable - essentially characteristic of
the mature phase in the product/technology life cycle.

This did not mean that more radical concepts were not being explored, simply that
they were not adopted widely. Innovation was still taking place in specialist niches p
for example, in racing bike technology where new materials played a role. But it was
not until the 1960s when Alex Moulton introduced his small wheel collapsible bike
that mainstream product innovation took place. His original design was for a bicycle
which could be folded up and carried on the train for commuters to use between the
office and the station; other variants included a small shopping bike.

Such models were not huge commercial successes but they demonstrated the potential
of the design in terms of efficiency and reliability - traditionally smaller wheels posed
problems with transmission and with shock absorption. The market where it really
had an impact was in 'fun bikes' for children; in particular manufacturers borrowed
from the idea of motorcycle cross country rallying to create the BMX - bicycle motor
cross - market. This opened up a new business and tapped into the increasingly
affluent markets of the 1970s.

Considerable product innovation followed this development, especially around

accessories, new lightweight materials, and cycle clothing (helmets, etc.). The leisure
cycle industry expanded further as the BMX kids grew up and began demanding adult
versions which could travel off-road; this led t the development of the mountain bike
and to a resurgence of interest in cycling as a leisure activity rather than as a mode of
transport.
For manufacturers this came at a good time since the rise of car ownership had
impacted heavily on traditional markets. It opened up a phase of product
differentiation - broadly into leisure and transport cycling but within these categories
into multiple variants. (We should not understimate the process innovation challenges
posed by trying to do this. For example, the National Bicycle Company of Japan now
offer 18 basic models, a choice of 19 colours and 6 different calligraphies - giving a
staggering potential choice of 11, 231, 862 variants!)

Innovation continues - for example, there is considerable interest in recumbent bicycle

where the rider lies down on a low level cycle which is more efficient in terms of
energy transmission and aerodynamics; the resulting design is capable of speeds in
excess of 40km/hour. Motorising cycles with various kinds of electric devices has
been tried, notably with the ill-fated Sinclair C5; although unsuccessful the concept of
electric motor assistance to pedal power has led to the relqatgi9vely successful Zeke
device. But the pattern appears to have stabilised again into a transitional/mature
phase with emphasis on product differentiation of an incremental nature in specialised
market niches, and in process innovation towards cost reduction.

Given the 150 year history of the bicycle, with its patterns of radical change followed
by convergence and consolidation it would be foolish to suggest that today's product
represents the end of the road for innovation in this sector.
ORGANIZING AND MANAGING CREATIVITY
(Ch. 1 libro Networks of creativity

Belussi and Staber, 2011)

Si ringraziano gli studenti

Alessandra Franco
Maria Francesca Savarese
Stefania Michelazzo per la collaborazione
prestata
 WHAT IS CREATIVITY?

Creativity is the foundation of every human invention and it is

embodied in art, culture, science, and management.

INTELLECTUAL

ACTIVITY

ENVIRONMENT KNOWLEDGE

STYLE OF
MOTIVATION THINKING

PERSONALITY
 THEORIES OF CREATIVITY

Theory of creativity follows different approaches:

1. Individualistic approach

Creativity is an individual act peculiar of

few people who have a particular
gift.

2. Collective approach

Creativity is a psychological feature shared by

all humans. It is seen as a social process
involving groups of individuals and
communities.
 SCHUMPETER

Schumpeter, in his definition of the innovative entrepreneur,

follows the individualistic theory.

He divides technological changes into three different phases:

INVENTION:
the creation of new INNOVATION:
technologies
the commercial
DIFFUSION
introduction of
new technologies of new
technologies in
the markets
 SIMON (1996)
Creativity is a question of problem solving activity; this approach is
embedded both in the Individualistic and Collective view. Every
creative act is related to:

Being ready: creative activity is not an accident, but it needs

insights expectation, and prior knowledge
(“surprise” effects or unexpected results need to be
interpreted) Pasteur: “chance only favours the
prepared mind”
• Being expert: we can not improvise a creative act, but we have to
acquire competencies and knowledge.

• Being not adverse to risk: scientists have to explore new fields and
must have open mind.
Amabile et al. (1996)
define creativity as

“creativity as the production of novel and useful ideas

in any domain. We define innovation as the
successful implementation of creative ideas within an
organization. In this view, creativity by individuals
and teams is a starting point for innovation; the first
is a necessary but not sufficient condition for the
second. Successful innovation depends on other
factors as well, and it can stem not only from
creative ideas that originate within an organization
but also from ideas that originate elsewhere” such as in the
open innovation model
Creativity in action
Creativity is a process related to an unexpected
combination of elements
that represent a new and surprising solution to
a problem

Circularity of the structure of invention is a

process of linking a purpose with a principle that
will satisfy it (Brian Arthur)
Lateral thinking (Del Bono)
Creative industries (Caves)
Evolutionary metaphor
variation-selection-retention

Generation of the idea-selection of the

idea proposed-verification-diffused
adoption
 Elements and Issues of Creativity
Studied at Different Levels of Analysis

Individual (isolated genius-heroic entrepreneurs)

Problem solving individuals in organisations (activity based on
accidental discoveries where chance favour the prepared mind;
expertness; inclination to risk and to contrast the existing)
Organisations (integrated view of creative actions versus
habitual actions: depending on sense making, motivation, and
capabilities)
Individuals in large networks overcoming organisational borders
(Team-community, ergo local and global nets; division of labour
between exceptionally talented mind and collaborators, ergo
firms plus external consultants; creativity is organised through
new organisational forms: temporary projects, alliances,
individual-latent organisation-project based)
 CREATIVITY VS INNOVATION

Creativity is giving life to something which does

not exist before and it is just the first step of
innovation.

Innovation is the application of creative ideas to a

new product, a new productive process or a new
kind of organization in such a way to have an
economic return.

NOT ALL CREATIVE ACTS PRODUCE AN INNOVATION

 CREATIVITY VS INNOVATION

New
productive
process

New
organizations New
products
 PROCESS OF INNOVATION

The process of innovation is related on exploration and exploitation of

opportunities coming from both internal and external, new and old knowledge,
top-down and bottom-up process.

Exploitation: is a process of selecting, improving and redefining something that exists before.
For a manager: search of efficiency, improving ability, incremental innovation.

Exploration: is a process of search, creating and discovering of new opportunities.

For a manager: looking for new markets, discovering new technologies, radical innovation.

Internal knowledge: R&D laboratories, managers and entrepreneurs.

External knowledge: University laboratories, suppliers, other firms, networks and lead consumers.

Top-down process: involves managers and entrepreneurs.

Bottom-up process: involves virtual web communities, clients and suppliers.

PROCESS OF INNOVATION

Innovation is an uncertain process:

we can not know costs and performance ex ante.

Arrow (1962): market failure (science)

We need Sate
Intervention
 THE NEW PARADIGM OF
CREATIVITY:
FROM INDIVIDUAL TO COLLECTIVE CREATIVITY

The new paradigm of creative industries is settling as a collective process

that should be share through the net, communities of practise,
brainstorming, etc.

In the network phenomenon, the

gap between sharing and
protecting knowledge is
reducing.

The diffusion of knowledge is both a top-down and bottom-up

process that moves through the borders.
 HOW CAN A CREATIVE IDEA
ENTER THE MARKET?

As a unique product (a painting)…

…as a unique product that can be

reproduced (a piece of music)...

…as a unique product that can be

replicated in a standardize format.
 THE SUCCESS OF A NEW IDEA

It depends on: Only those goods which

can added economic,
social or emotional value
1. for the customers might
The nature of the be diffuse in the market.
idea

2.
The selective forces of
the market

3.
The capacity to answer to
specific needs, material or
immaterial
A leading company in the cable ties
sector, SapiSelco s.r.l. has designed
and manufactured its products
entirely in Italy since 1950.
The company is wholly owned
by the Griggio family whose
dedicated mission focuses totally on
the product, firmly convinced that

even excellence has room for

improvement
 Romeo Griggio

The year S.A.P.I. was founded as a

sub-supplier and sub-contractor
manufacturing thermosetting resin mouldings to order
for the production of technical articles in Bakelite.
In the sixties, the company specialised in injection
moulding, developing technologies
and knowhow in all plastic materials.
 Engineer Stefano Griggio focused
the company’s business on the
manufacture of cable ties, with independent
development of equipment design, selection of
raw materials, production
process and product quality
control.

S.a.p.i. became an independent

entity on the market, with direct
sales of its products under the brand name
SELCO Fissaggi, the first independent sales
network. S.a.p.i. took over the SELCO Fissaggi
brand and reorganised the structure of the two
companies resulting in the creation of SapiSelco
srl as we know it today.
 Today, SapiSelco srl is one of the leading company in the cable ties
sector. The company is owned by the Griggio family and today sees the third
generation come on board with the arrival of the sons Federico and Giacomo
Griggio.
This new team, and plus more than 60 years’ experience, mean that SapiSelco
faces the future with high expectations.
 “Tools and Solutions that
support the Creativity of our customers"

“18 million cable ties

leave our production plants every day.
Each tie must be able to meet the
specified needs, ensure high levels of
performance in every type of
application and be worthy of the
continuing Confidence that
our customers have given us
for more than 60 years"
 € 27.000.000
€ 25.000.000
€ 23.000.000
€ 21.000.000
€ 19.000.000
€ 17.000.000
+10%
+16% € 15.000.000
2007
2017
2008
employees 2009
2010
2011
2012
2013
2014
2015
2016
2017
Export production

International markets
International patents
 Sq.m UNIT 1
Offices\Management
Of plant surface area Production 1
Logistics 1
R&D laboratory 1

UNIT 2
Production 2
MILANO
R&D laboratory 2
VENEZIA Logistics 2
SAPISELCO STAMPI
Design, planning
and manufacture
of moulds

UNIT 3
ROMA
Logistics 3
Active production
days
automated moulding lines
pieces a day
pieces a year
 Sq.m warehouse
with automatic order fulfilment
using Replica software (EAN 128/13)
for a pallet capacity
At ,
the unit where moulds
are designed, planned and
manufactured, SapiSelco makes
high-precision injection moulds.

A high level of experience

and use of the best
technological solutions
guarantee compliance with
maximum quality standards.
In its Laboratory, SapiSelco carries
out daily checks to ensure compliance with quality
parameters set by the most important international
legislation. Our team also studies the use of
new materials and processes in line with
the company’s highly innovative character.
more than
articles pn
SapiSelco represents an added guarantee of professionalism and quality.
The company, efficiently structured and strategically organised, has now been recognised for
its constant application of correct procedures to ensure compliance with
European and international standards, to offer a product and services
that are safe, efficient and designed to meet the client’s needs.
SapiSelco is among the few Italian companies to boast

SapiSelco cable ties have been subjected to

stringent international certification standards, attaining
attestation from control bodies in the sector.
 Nylon
for application requirements
involving high temperatures
up to °

Black Nylon

for application requirements

involving cold temperatures,
down to °
Black Nylon

for application requirements

involving direct
exposure to sunlight.

Black Nylon

for high-level safety

requisites and flame
resistance in compliance
with UL 94 standard.
 for application requirements
involving aggressive chemicals
environments.

Nylon

for uses requiring the

detection of plastic parts
in the finished product.
for uses requiring
the product to be visible
in environments subject
to unexpected blackouts.

for specific applications

or for identification
requirements.
 . UL 94 WORKING
TYPE OF MATERIAL OPENING LOAD FRAGILITY PRICE CODE
CLASSIFIC TEMPERATURE

V2 -40°C ÷ +85°C = = price list price list

V2 -40°C ÷ +125°C = = + 30% 8

V0 -40°C ÷ +65°C - + + 270% EC2

V2 -40°C ÷ +85°C = = + 30% UVV2

HB -40°C ÷ +85°C = + + 30% price list

HB -40°C ÷ +85°C = + + 30% FOS

HB -40°C ÷ +65°C - + price list DET

HB -15°C ÷ +95°C - + + 30% P

HB -40°C ÷ +65°C - + price list COL

SECTOR -
consumer goods for any kind of user and application,
targeting different types of markets and distribution
channels.

characteristics of the
- handling (and storage) of large quantities
- consistency of the range
- necessity for rapid flexible service
- complete range
- perception of technological content
characteristics of the
- high level of concentration
- big differences in price and products
*only in some cases does the product represent the core business

main in the sector

-Electrical 10% 10% WHOLESALERS

-Hardware TRADERS
20%
-Automotive 25%
INDUSTRIES

-Shipyards
LARGE-SCALE RETAIL
-Airport building sites 35%
HARDWARE
-Tramline building sites
-Building and construction
-Aerospace
 ’
Production entirely focused on the cable tie sector and 60 years’
experience have taken us to a very high quality level that, in some
cases, exceeds that of sector leaders while guaranteeing a lower price
range.
SapiSelco therefore finds itself in a “ ” position and can
therefore attract consumers from other market
segments with:

 Marketing and brand awareness

 Increase in consumers’ quality perception (especially regarding
market leader clients)
 Increase in SapiSelco branded distribution networks

SapiSelco is not interested today in competing in price-oriented

market segments
 ATTRACTIVENESS OFSEGMENTO
ATTRATTIVITA’ DEL THE SEGMENT

high

QUALITY
LEVEL

low

low PRICE LEVEL high

+50%
 Portafoglio ordini 2014
ANDAMENTO PORTAFOGLIO ORDINI 2014 - 2015 - 2016 - 2017 - 2018 Portafoglio ordini 2015
Portafoglio ordini 2016
Portafoglio ordini 2017
Portafoglio ordini 2018
5000

4500

4000

3500

3000
€/1000

2500

2000

1500

1000

500

settimane lavorative Angelica

 ’
- competitive advantage of
Focusing production on this single product has, over 60 years, enabled
economies of scale and big reductions in production costs, resulting in a
range positioned below the high-price market brackets.

- constant level of offered

intended as the quality of the range in terms of service (delivery times, after
sales, returns and complaints management) and product (performance). The
high product competence developed guarantees a high level of quality equal
to/exceeding the level offered by market leaders.
- the
- compliance with the most important
- upstream integration of
unit for design, planning and manufacture of moulds that guarantees the
company great flexibility and independence in R&D terms
which in turn translates into constant expansion of the range
 ’
- top-level
SapiSelco aims at long-term consolidation of its client relationships while
maintaining high service levels and guaranteeing client loyalty and trust.

- strong policies
Since 1994, SapiSelco has availed of the services of international
credit assurance bodies in order to protect and ensure the expected
incoming cash flows by selecting financially solid clients.
This policy in turn gives SapiSelco financial stability, helping the company
to access bank loans.
- top-level
Every year, SapiSelco invest 10% of its profits into innovating products,
methods and structure with a view to guaranteeing and growing its
productivity level and updating the technological level of its processes.
This policy has enabled a higher production process and automation level
than other sector players, representing a
pieces a day
 ’
- management
Complaints are handled in compliance with the SapiSelco Quality Manual in
accordance with IATF 16949:2016 standard and aim to provide structured
management of complaints for guaranteed rapid response. If necessary,
measures to improve processes or production are made possible by the
company’s flexibility.
(High level of internalisation).

justified
 ’

Over the years, the company has acquired the necessary competences for
distributing its product worldwide.

SapiSelco’s aims to open new contacts in

countries of interest and consolidate markets where it already operates.

of production is exported

international markets
The policy and competitive strategy of SapiSelco ensure
.

The for the company’s internationalisation strategy

are diverse in nature and have different market penetration levels.
Where demand calls for large volumes, the company reserves the right to
package the product under a private brand name and create a smaller stock
of the same. It does not guarantee any extension of certifications or the same
range price level.
This kind of channel allows for
in a country where the product is not yet
available. This kind of penetration does not guarantee further development
even if the option can increase this possibility.

today of the SapiSelco range

Allows and consolidation of the quality perception

of the same in a country where it is not yet known.
The presence of the brand may lead to interesting contacts.

today of the SapiSelco range

After a trial year with consistent turnover, the SapiSelco distributor becomes a
with exclusivity for all intents and purposes.
A longstanding loyal reliable partnership ensures continually growing reciprocal
profitable business.

The , ensures a good level of penetration for the brand

linked to the distributor’s sales performance ability.
SapiSelco supports the latter with extension of all its certifications, informative,
illustrative and promotional material and direct contacts with the sales force (area
manager and back office).

Difficulty in identifying possible distributors suitable for this purpose is the most
important obstacle to be overcome.

today of the SapiSelco range

 Respect
Positivity
Happiness
Solidarity
…why SapiSelco?

We believe in the

Solutions
Quality
that guides us every day

deserves all of our

Innovation
…and each day

Organization
Planning
Products
Collaborators
Suppliers
Customers
Sapiselco
Via Irpinia 43 z.a.
35020 Saonara (PD) Italy
TEL +39 049 644925
FAX +39 049 8790695
[Link]