Innovative Technologies in Organizational Efficiency - Essay Example

Part A Question Write an essay on how innovation and technology cycles are interrelated. Demonstrate in your essay how this relationship affects organizational efficiency in terms of production. Use examples and evidence from the literature to support your ideas. Tushman and Murmann (1997) pointedly stress that the realization of the technological cycles can indeed provide useful and essential information for the suitability and fit of the different types of innovation; incremental, discontinuity or radical and/or architectural. Benner and Tushman (2001) further argue that it is the identification of the cycles of technology that eventually determines the type of innovation but at the same time the cycles the same are affected and influenced by the innovation employed by organizations, especially in high technology sensitive product markets. Technological discontinuities, according to Tushman et al. (1997), intervene with incremental innovations – which are oriented towards improving and continuously re-configurating technologies – and eventually result in a conflict and rivalry between already existing technologies and new emerging technologies. Tushman and O’Reilly (2002) explain that the technological cycles involve four phases; the technological ferment where the emergence of technology is feasible and competencies are developed, the emergence of the dominant design – which reflects the best practices and the innovations on the technology, the retention phase which refers to the era of incremental innovation and improvement of the existing technology takes place and finally the variation phase, where technological discontinuity emerges and the competencies and capabilities of organizations are either enhanced or destroyed. Great importance is attributed by Tushmann and Murmann (1997) to the second and fourth phase of the technology cycles; the authors suggest that the emergence of innovation with the selection of the dominant design sets forth the mechanisms for proceeding from product innovation to process innovation. While the focal point after the technological ferment is the development of the product, the choice over the dominant design energizes the innovation at the process level and shifts the attention to the process oriented new designs (Tidd et al., 1999). Once the dominant design is set it gradually leads to the incremental innovation which predominantly focuses on improving the “standard product” (Tushman et al., 1997). The next phase that is critical for the innovation with regards to the technology cycle is the fourth one which signals the need for radical and discontinuous innovation patterns and streams (Tushman and Murmann, 1997). This phase (cycle) is marked by unpredictable and non-anticipated changes in the technology and initiates the technology cycle from its very beginning. Changes in the subsequent technologies or radical changes in the technological inputs eventually drive the variation phase (Adner and Levinthal, 2001). In this phase variation is driven either from the emergence of technological discontinuities or from the development of architectural innovation. Architectural innovations are defined by Fagerberg and Verspagen (2001) as breakthroughs on the combination and design of the existing central inputs or subsystems; simply put, architectural innovations emerge from the device of new links between the already existing systems that gradually lead to technological discontinuities and call for the development of new dominant designs (Tushman et al., 1997). The relationship between innovation and technology cycles as underlined by Tushman et al. (1997), Tushman and Murmann (1997) and Tushman and O’Reilly (2002) is underpinned by the appropriate investment and focus on the type of innovation in the different phases of the technology cycle. The ferment phase is characterized by the need for radical innovation so that the emergence of the dominant design can be feasible, whereas prior to the variation phase incremental and continuous improvement and architectural innovations are necessary. Organizational efficiency is highly influenced by the relationship between the technology cycles and innovation. This can be explained by the fact that firms that have created and developed capabilities and competencies in the innovation process and are able thus to anticipate changes in the technology cycles can more effectively commit to the different types of innovation (incremental, discontinuous and/or architectural) (Fagerberg and Verspargen, 2001; Tushman and O’Reilly, 2002). Firms can leverage capabilities and competencies on the innovation framework and this eventually is what creates and sustains competitive advantage (Tidd et al., 1999). Organizational efficiency in terms of production is thus gained through the unique resources of firms (in terms of core capabilities) with regards to deploying strategic position within the context of innovation on the basis of the technology cycles. Examples of such organizational efficiencies include Ciba which proceeded into ‘cannibalizing’ its own technology products within a period of technology ferment in order to discontinue the technology cycle and stay ahead of competition (Tushman et al., 1997) or Intel’s move to micro-processors with increased capacity when the competitors focused on simply the size of the systems (Gawer and Cusumano, 2002). Part B. Question 1: Why is innovation so important to Intel and how does it benefit the company? Intel is an organization that focuses on developing latest technological hardware systems for computers. Given the fact that the firm competes in a high technology sensitive and intense market, innovation becomes critical in a fast changing, dynamic environment where the technology cycles are shortened in the onset of accelerated new product development and architectural innovation processes (Ofek and Sarvary, 2003). Innovation in technological intense markets is central to achieving competitiveness and sustaining competitive advantage (Gawer and Cusumano, 2002). Especially in the particular market of PCs and computers, where the fast pace of technological changes call for constantly new products, innovation becomes equivalent to the competitive strategy employed by relevant firms (Johannessen and Olsen, 2001). Intel has benefited from its innovative orientation in the sense that it has managed to sustain its leading position in the market through offering new technologies in regular and tactical periods without leaving room for competitors to duplicate or imitate its own capabilities and resources (Gawer and Cusumano, 2002). Question 2: According to Henderson and Clark (1990), there are four types of innovation. List and discuss these types and decide in what type of innovation does Intels 45 nanometer transistor fit? (Explain and justify your answer). Henderson and Clark (1990) have classified innovation into four different types: Incremental Innovation, Architectural Innovation, Modular Innovation and Radical Innovation. The Incremental innovation involves the improvement of existing products or systems through the introduction of minor but essential changes which eventually lead to new products that are variant from the existing ones (Popadiuk and Choo, 2006). The knowledge over the products and the components is enhanced while the knowledge over the architecture is destroyed (Figure 1). The Architectural innovation refers to the new combination of existing product inputs, systems or processes under which new potential products can be developed or new market opportunities can emerge (Henderson and Clark, 1990). Frenken (2006) comments that incremental innovation along with the architectural innovation predominantly refer to the ‘evolution’ of the existing products. The Radical Innovation is based on the development of new knowledge and new products from the very beginning and calls for different engineering principles and systems for the development of the new products (Henderson and Clark, 1990). Finally the Modular Innovation is the innovation that proceeds to altering the “core design” of the products’ system (that is components of the products) but maintains the architecture (the entire interactive system) (Frenken, 2006). Figure 1: Hederson’s and Clark’s (1990) Types of Innovation (Source Popadiuk and Choo, 2006) Intel in its production of the 45 nanometer transistor which has managed to increased capacity and speed proceeded into a modular innovation as it appears that the architecture (the linking and the combination of the systems production) remained the same but new components – new materials were used for the innovative transistor. Question 3: What is meant by product-led and market-led new product development approaches? How does Intel use these approaches? Give at least 2 examples. New Product Development (NPD) is the procedure of creating ideas on products, designing features and product designs, testing the new product concept to the market and eventually launching the new product (Herrmann et al., 2000). Cottam et al. (2001) suggest that there are two primary orientation of new product development; the product led and the market led NPD. Product led new product development pertains to the conceptualization and launch of new products driven by the product features or product characteristics themselves. Herrmann et al. (2000) claim that product oriented NPD emerges from the competencies, capabilities and resources of firms which invested and committed in Research and Development eventually drive innovations. The product led type of NPD is pertinent to the design of features, technologies and characteristics that stem from the utility of the product itself (Tidd et al., 1999). The product oriented NPD, further more, as noted by Cottam et al. (2001) first and foremost addresses the needs of the product in the sense that the new designs or features should be targeted towards new technologies employed. On the other hand, market led or market oriented new product development pertains to the design and launch of new products on the basis of market demand and customer needs, wants and expectations (Herrmann et al., 2000). The idea is that NPD incorporates and encompasses the consumers’ demand into developing products that address to this demand. Market research becomes the source of information for the market led NPD, in an attempt of organizations, to fill gaps existing in the markets and eventually match consumer need with their own resources. Intel appears to be combining those two approaches within the framework of new product development. For example in the case of the 45 nanometer transistor Intel focused on its own innovative processes but took into consideration the demand for faster and greater capacity microprocessors. As the case study suggests, Intel employs anthropologists to study how consumers use their computers and therefore identify gaps in the market; this information along with the innovative orientation of Intel eventually lead to new product development. Another example is the fact that Intel engages into extensive Research and Development that not only focuses on the performance of the new products but also on the degree in which these products are actually necessary according to consumers’ perceptions (Gawer and Cusumano, 2002). Question 4: Why is it so important for businesses like Intel to invest in R&D? Explain with examples of how R&D has enabled Intel to gain competitive advantage. Research and Development (R&D) is an essential part of the entire innovation and new product development process (Johannessen and Olsen, 2001; Mairesse and Mohnen, 2004; Tidd et al., 1999). According to Ofek and Sarvary (2003) technologically intense markets (such as the PC markets and especially the components of the PCs) are faced with rapid new product developments as there are constantly new products introduced. The fast pace technological change as well as the technological advancements are highly interrelated to the overall concept of innovation. On the one hand, they stimulate innovation and on the other hand they are based on innovation (Mairesse and Mohnen, 2004). Ofek and Sarvary (2003) posit that the particular industry is characterized by ‘next generation products’ which fairly implies that innovation is greatly valued and intensely pursued by competing organizations in the particular markets. Intel operates in a highly competitive environment, where the core product is the technology itself. In that extend, Research and Development is critical not only to the competitiveness of the firm but predominantly even to the survival of the organization (Gawer and Cusumano, 2002). Mairesse and Mohnen (2004) further explain that innovation is actually very sensitive to Research and Development in industries that involve high technology systems and latest technology infrastructure. Therefore, investing in Research and Development becomes equivalent to investing and further intensifying the innovative orientation of organizations. Research and Development allows firms to exploit resources and capabilities and eventually test whether product conceptualizations can indeed generate successful performance in the market. In addition to that, investment on Research and Development enables corporations to test the applicability and suitability of the new projected products (Tidd et al., 1999). While R&D in the PC industry generates increased costs and capital committed, it offsets these costs with the opportunities for effective and successful innovation (Gawer and Cusumano, 2002). Intel spends enormous amounts on Research and Development especially with regards to the launch of new products in an efficient and quick manner (Segerstrom, 2007). The investment in R&D has enabled Intel to develop state of the art products such as innovative microprocessors which feature high quality and latest technology designs. The most important issues in Intel’s R&D system are: first that the company focuses on the quick process of conceptualizing and developing the new product (Intel generally manages to launch new products or improved products literally every year. Additionally, heavy investment in R&D allows Intel to engage into large production volumes efficiently (with regards to both time and costs). The second important issue is that Intel does not outsource any of its Research and Development processes; the company runs its own departments, engages into open innovation and collaborates with universities and institutions in order to drive innovation (Gawer and Cusumano, 2002; Gawer and Henderson, 2007). In that extend the organization maintains its control over the new product development or the innovation and protects its competitive advantage. List of References Adner, R. and Levinthal, D. (2001). Demand Heterogeneity and Technology Evolution: Implications for Product and Process Innovation. Management Science, 47(5), pp. 611 – 628 Benner, M.J. and Tushman, M. (2001). Process Management and Technological Innovation: a longitudinal study of the photography and paint industries. [Online] Available at: http://mackcenter.wharton.upenn.edu/WhartonMiniConfPapers/BennerTushmanfinalASQ.pdf Accessed on March 7 2010 Cottam, A., Ensor, J., and Band, C. (2001). A benchmark study of strategic commitment to innovation. European Journal of Innovation Management, 4(2), pp. 88 - 94 Fagerberg, J. and Verspagen, B. (2001). Technology –Gapes, Innovation Diffusion and Transformation: an evolutionary interpretation [Online]. Available at: http://www.druid.dk/uploads/tx_picturedb/ds2001-181.pdf Accessed on March 7 2010 Frenken, K. (2006). Innovation, Evolution and Complexity theory. UK: Edward Elgar Publishing Limited. Gawer, A. and Cusumano, M.A. (2002) Platform Leadership: how Intel, Microsoft and Cisco drive industry innovation. Boston: Harvard Business School Press Gawer, A. and Henderson, R. (2007). Platform Owner Entry and Innovation in Complementary Markets: evidence from Intel. Journal of Economics and Management Strategy, 16(1), pp. 1-34 Henderson, R.M. and Clark, K.B. (1990). Architectural Innovation: the reconfiguration of existing product technologies and the failure of established firms. Administrative Science Quarterly, 35(1), pp. 9-30 Herrmann, A., Huber, F. and Braunstein, C. (2000). Market-driven product and service design: Bridging the gap between customer needs, quality management, and customer satisfaction. International Journal of Production Economics, 66 (4), pp. 77-96 Johannessen, J.A. and Olsen, B. (2001). Innovation as newness: what is new, how new, and new to whom? European Journal of Innovation Management, 4(1), pp. 20-31 Mairesse, J. and Mohnen, P. 92004). The Importance of R&D for Innovation: A Reassessment Using French Survey Data. Journal of Technology Transfer, 30(2), pp. 1-24 Ofek, E. and Sarvary, M. (2003). R&D, Marketing and the Success of Next Generation Products. Marketing Science, 22(3), pp. 355-370 Popadiuk, S. and Choo, C.W. (2006). Innovation and knowledge creation: How are these concepts related? International Journal of Information Management, 26(4), pp. 302-312 Segerstrom, T.S. (2007). Intel Economics. International Economic Review, 48(1), pp. 247-280 Tidd, J., Bessant, J. and Pavitt, K. (1999). Managing innovation. Second Edition. Chichester: Wiley and Sons. Tushman, M.L and Murmann, J.P. (1997). Dominant Designs, Technology Cycles and Organizational Outcomes, In Garud, D., Kumaraswamy, A. and Langlois, R.N. (eds) Managing in the Modular Age: architectures, networks and organizations (2003), Oxford: Blackwell Publishers, pp. 316-361 Tushman, M.L., Anderson, P.C. and O’Reilly, C. (1997). Technology Science, Innovation streams and ambidextrous organizations: Organization Renewal through innovation streams and strategic change. Managing Strategic Innovation and Change, pp. 1-22 Tusman, M.L. and O’Reilly, C.A. (2002). Winning through Innovation: a practical guide to leading organizational change and renewal. US: Harvard Business School Press Read More