M1A1: Essay: “Profiting from Technological Innovation”

Innovating firms often fail to obtain significant returns on their investment, giving up the profits to customers, imitators, or other industry participants. R-I-1, “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy”, analyzes why this occurs, and gives recommendations as to how an innovator should proceed and strategize. Three building blocks that comprise the equation for success are explained, specifically regime of appropriability, dominant design paradigm, and complementary assets. Decision tables and a flowchart are presented for complementary asset integration versus contract.

Outcomes

By the conclusion of this learning activity you will be able to:

1. Describe the main players in the innovation process that may gain from the innovation, and under what circumstances they may gain from the innovation
2. Describe the three building blocks that determine the success of the innovation, and their interrelationship
3. Make decisions, including whether or not to proceed with the innovation
4. Develop strategies for success, such as whether to integrate or contract

Instructions

• Read Article R-I-1: “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy” (pages 32-48)
• Answer the following Comprehensive Questions below

Questions:  R-I-1: “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy:

1. In approximately 200 words, summarize what determines the share of profits captured by the innovator. (20 pts)
2. There are four possible outcomes for an innovation process. For each outcome list the characteristics in terms of strengths and weaknesses of the innovator/imitator and of the product/process that leads to that outcome. (20 pts)
3. Why is codified knowledge easier to imitate than tacit knowledge? Give an example. (5 pts)
4. What happens to a product as it moves from the pre‐paradigmatic stage to paradigmatic stage? What identifies this advancement in evolution? (5 pts)
5. What are the three basic building blocks of innovation? How do they affect the distribution of profits between innovator and follower? (20 pts)
6. Is tight appropriability the exception rather than the rule? What must innovators do to keep imitators at bay? (5 pts)
7. What two factors affect the probability that an innovator will enter the paradigmatic phase possessing the dominant design? (5 pts)
8. Why are petrochemical innovations easy to protect, but not petrochemical product innovations? (3 pts)
9. What is a possible advantage of a smaller less integrated company making a contract with an established company? (2 pts)
10. Why is it hard for an innovator to form strategic partnering or attract venture capital? (5 pts)
11. What is an example of opportunistic abuse on the part of the innovator and on the part of the venture capitalist? (5 pts)
12. When is strategic partnering ideal for the innovator? (5 pts)