New functionality development through follower substitution for a leader in open innovation

There has been a paradigm shift to a knowledge-oriented economy in the 21st century. Consequently, there has also been a shift in where innovation typically occurs. This shift has been from the production site toward the process of product diffusion. That is, innovation occurs more frequently at the point at which a product or service is moved into the marketplace where it is immediately modified through customer interaction. In this process, new “functionality” — services, the delivery method or even product changes occur in the diffusion process. Given the need to constantly create new value through new product “functionality” or new “functionality development”, firm strategy must address the issue of how to enhance innovation at this new locus — the diffusion process. Sustainable new functionality development over time has become crucial to a firm's competitiveness. In this context, firms have to develop new functionality as early and quickly as possible; leveraging whatever innovation exists in the marketplace. According to theory, the early emergence of functionality development in this context depends on a dynamic system in which the imitator (follower) is constantly substituting for the innovator (leader). This substitution corresponds to the dynamics observed in the process referred to as “open innovation”. According to this theory, functionality development through follower substitution for a leader would be critical for a firm's competitiveness in the open innovation environment. Furthermore, open innovation could be a process for sustaining the ongoing creation of new value through functionality development maximizing limited resources. This paper attempts to demonstrate this hypothesis through an empirical analysis of this process of substitution in major innovative goods and services in Japan.     

Does a ‘non-committed’ government always generate lower social welfare than its ‘committed’ counterpart? Strategic trade policy when consumer surplus matters

We show that social welfare in the setup where the government lacks the full ability to commit to its trade policies may exceed the social welfare when the government possesses full commitment power if consumer surplus is part of the social welfare function. This is never the case in the standard, “third market” framework of strategic trade policy. We provide two examples in which consumer surplus matters: the “home market” and the “intra-industry trade” setup. The policy instruments under consideration are import tariffs and export subsidies and there are R&D spillovers from the domestic to the foreign firm.     

Viscous demand

In many markets, demand adjusts slowly to changes in prices, i.e., demand is “viscous”. This viscosity gives each firm some monopoly power, since it can raise its price above that of its competitors without immediately losing all of its customers. The resulting equilibrium pricing behavior and market outcomes can differ significantly from what one would predict in the absence of demand viscosity. In particular, the model explains the importance of market share as an investment, as well as “kinked demand curves”. It also explains how apparently “competitive” pricing behavior can lead to outcomes that mimic those of collusion.     

Animal spirits and the composition of innovation

This paper shows that the Schumpeterian model with both vertical and horizontal innovative research admits many more equilibria than the unique symmetric balanced growth path (BGP) usually highlighted in the literature. Each of a continuum of BGPs is characterized by a different composition of aggregate R&D (vertical versus horizontal).This appears if firms expect self-fulfilling “waves of enthusiasm” in the newly introduced sectors, as is very common in the real world. Pioneers are challenged by more outsiders and the first monopoly of every new good is likely to last less than in more mature industries: By expecting this horizontal innovation is depressed while vertical innovation is more intense. Such “waves of enthusiasm” have a positive effect on growth rates and a negative effect on consumption levels.     

A theory of innovation for process-based innovations such as nanotechnology

Many see Nanotechnology as the technology that will underlie the next Schumpeterian wave creating new opportunities for wealth and job creation. Further it is a process based or materials technology. Yet all currently used models of innovation are based on assembled products or service products and these simply do not recognize the differences in materials products nor the “enabling” nature of Nanotechnologies. If nanotechnology is poised to become the economic engine of this millennium and if current models of innovation, which are utilized, by policy makers and firm based strategist alike are based on technology product paradigms that are dissimilar to the realities of nanotechnology and other process-based technologies then there is cause for concern.Here the authors provide a model and supporting cases demonstrating a new process or materials based innovation model that is based on the tight coupling between product and process innovation of not only Nanotechnology-based products but other process-based products. This is an important finding, because it identifies and remedies a gap in the literature associated with earlier process and product innovation models. For process-based products like materials, food, chemicals and nanotechnologies any change to the manufacturing processes results in significant changes in end product features. The implications of this model to practice are considered.     

Strategic spin-offs of input divisions

When a downstream producer enters backward into the input market, a “helping the rivals effect” exists: Such entry hurts the firm's downstream business as it increases upstream competition and thus benefits its rival downstream firms. This negative externality prevents the newly-created upstream unit from expanding. A spin-off enables the firm to credibly expand in the input market, thereby forcing its upstream competitors to behave less aggressively. Spin-offs occur in equilibrium if and only if the number of downstream firms exceeds a threshold level. When there is more than one integrated firm, a spin-off by a firm can trigger spin-offs by others that would not occur otherwise.     

Foresight and innovation in the context of industrial clusters: The case of some Italian districts

The “territory” is widely recognized in the literature on business strategy as a critical driver of industrial competitiveness (see, as an example, Porter, The Competitive Advantage of Nations). The generation and exploitation of new knowledge, both tacit and explicit, through the process of socialization, articulation, combination and internalization (see Nonaka and Takeuchi, The Knowledge-Creating Company) is essential to enable innovation of processes and products of “local” firms.Our recent Foresight exercises in the metal working and machinery district of Lecco and in the silk district of Como show that Foresight can play an important role in creating and exploiting new knowledge, and that different methodologies can be more or less effective to this aim.Critical technology list and interactive workshops, with the participation of entrepreneurs of SMEs and technologists, are more suited to foster the transfer of technologies that have overcome the initial stage of the life cycle and that have been already applied in other sectors. However, when radical innovations are needed in order to face the challenges posed by global competition, other methodologies, as Scenarios, are more appropriate. Even if these approaches are complex and time and resource consuming, they may be very effective in actively involving the most relevant private and public stakeholders of a district, and in making them to envisage the long term future of the economic, social, and cultural structure of their district. In this way Foresight drives the small entrepreneurs, the district stakeholders and the medium and large size firms to play the critical roles of Nonaka and Takeuchi's “frontline employees”, “senior managers” and “middle managers” in their “knowledge creating company”: the first ones grasp what the district is; the second ones build the vision of what it ought to be; the third ones, serve as a bridge between the future and the present.     

A study on the relationship between technology diffusion and new product diffusion

This study investigates the relationship between “technology diffusion” and “new product diffusion”. We define “technology diffusion” as a knowledge spillover process, which is represented by patent citation, and “new product diffusion” as the spread of a new product that has been developed by the application of patented technology. To investigate the relationship between the two types of diffusion, we use patent citation data of code division multiple access (CDMA) technology and market sales data of mobile phones in South Korea for the analysis. The results show that the diffusion of technology through patent citation could be successfully explained by empirical analysis, for which the Bass diffusion model was used. Moreover, we can find out if technology diffusion can be the leading indicator of a new product's diffusion before its launching; in other words, before the commercialization of the patent.     

Linking technology intelligence to open innovation

The explosive growth of the Internet has led to a dramatic increase in data sources for (competitive) technology intelligence. Appropriate implementation and use of IT tools to gather and analyze these data is of key importance for the creation of actionable technology intelligence. A strategy to optimize investments in the identified technologies becomes of paramount importance if an organization wants to match knowledge and ideas originating from outside of the organization with internal core competences. Such a strategy can create competitive advantage by effectively linking technology intelligence to open innovation.We show how VIB, a life sciences research organization, has established technology intelligence processes to identify a multitude of external technologies of interest, which are subsequently “probed” for their potential and fit with VIB using real options reasoning, thereby supporting open innovation. Our methodology may be useful for other organizations which are considering implementing open innovation approaches.     

Endogenous asset ownership structures in deregulated markets

This paper determines the equilibrium ownership structure in an emerging market deregulated by a joint privatization and investment liberalization. It is shown that bidding competition in the privatization stage is not sufficient for reaching an efficient equilibrium market structure. Competition in the ensuing entry stage is also required. Otherwise, one firm can induce another to take the role of the weak firm in the subsequent product market competition, by making concessions in the bidding in the privatization auction. It is also shown that Employment Guarantees may “help” the buyer of the privatized firm “abstain” from investing and thus create a less competitive market structure.     

A new definition and framework for the development of a national technology strategy: The case of nanotechnology for Iran

In this research, we use the concepts of “national technology policy” as well as the “firm technology strategy” in defining a new definition for “national technology strategy”. Then, by examining several national technology strategies in a variety of fields in different countries the national nanotechnology strategy for Iran is developed. Furthermore, using capability-effectiveness matrix and SWOT analysis we identify strategies of nanotechnology development in Iran. Finally, considering other countries' strategies and the results of PROMETHEE Method, we prioritize different areas of nanotechnology for Iranian economy, and test for the validity of the extracted strategies.     

Timing, diffusion, and substitution of successive generations of technological innovations: The IBM mainframe case

Based on the behavioral assumptions of diffusion theory, this article proposes an extension of the Bass diffusion model that simultaneously captures the substitution pattern for each successive generation of a durable technological innovation, and the diffusion pattern of the base technology. Normative guidelines based on the model suggest that a firm should either introduce a new generation as soon as it is available or delay its introduction to a much later date at the maturity stage of the preceding generation. The decision depends on a number of factors including the relative size of the market potentials, gross profit margins, the diffusion and substitution parameters, and the discount factor of the firm. This “now or at maturity” rule is thus an extension and generalization of the “now or never” rule of Wilson and Norton [25]. Empirical and normative implications of the proposed model are explored for four successive generations on IBM mainframe computers: first generation (vacuum tubes); second generation (transistors); 360 family (integrated circuits); and 370 family (silicon chips). The model describes the growth of these generations well. The application of normative guidelines suggests that IBM introduced the two successive generations of 360 and 370 families too late, i.e., their time to market should have been shorter. Limitations and further extensions of the model and the application are discussed.     

Agency conflicts in the presence of random private benefits from project implementation

We study a contracting problem where a principal delegates the decision to implement a “project” to an agent who obtains private information about the value of the project before making the implementation decision. Moral hazard arises because the agent gets private random non-contractible benefits, or incurs private random non-contractible costs, if the project is implemented. This contracting problem is pervasive, when “project” and “benefits” are interpreted broadly.     

Managing academic innovation in Taiwan: Towards a ‘scientific-economic’ framework

Since the passage of the Science and Technology Basic Law in 1999, Taiwanese universities have taken a more “scientific-economic” approach to protect and commercialize their research. This research mainly examines innovation activities such as patenting, licensing, and incubated startups in the context of Taiwanese higher education institutions (HEIs). The “scientific-economic” framework used to analyze the strategic aspects influencing these academic innovations includes (1) intellectual property managerial capabilities, (2) the strength of external industrial partnerships, (3) the university entrepreneurial orientation, and (4) government research policy. Four hypotheses were developed. Data were collected via a questionnaire with all 122 HEIs in Taiwan surveyed.The research reveals that the aspects of intellectual property managerial capability, HEI-industry partnerships, and academic entrepreneurial orientation are useful to distinguish the university's innovation performance on patent grants, licensing incomes, and firm incubation. Also, government support on research plays a moderating role in academic innovation. Managerial and policy implications for managing innovation effectively in universities were drawn.     

Investing in innovation to enable global competitiveness: The case of Portugal

The concept of leveraged innovation to create wealth within regions, countries and economies is not a new concept. Competitiveness of regions in the increasingly global economy now requires not only that innovation be present within a regional economy, but also that mechanisms exist to effectively transfer those developed innovations from the research laboratory to the marketplace. It is surmised that increased innovation, and the transfer of this innovation, can lead to increased prosperity of regions (Porter). As such, many developing countries around the world are looking at investments in innovation as a means to spur regional economic development and wealth creation while preserving national competitiveness. That said, innovation investment is by no means an exact science. Historically, typical “innovation investments” have been focused on “tangible” capital infrastructure projects such as the establishment of incubators and science parks. While many regions point to the existence of such tangible innovation assets as proof of investment in innovation, it has been discovered that in some cases, an investment in the capacity building of human networks to engage in technology transfer and commercialization related activities can act as a stronger facilitator for the transformation of economies and produce a larger return on investment in innovation for the country. Given not only Portugal's, but other regions throughout the EU-Zone, recent financial and economic woes, it bears examination on whether investing in the innovation and technology transfer knowledge and “know how” of key human networks within a struggling economy is a worthwhile investment for financially struggling countries during the current times of fiscal crisis.     

Why some product innovations are licensed and others are not?

We study in a Stackelberg industry the licensing of a product that embodies an innovation (quality-improving product) whose owner may be the firm that plays as a leader or a follower in setting output in the the product market. We find that the innovation is transferred (and social welfare is reduced) if its owner is the market-leader firm. However, if the innovation is in the hands of the market-follower firm, it is not licensed, even though licensing would be welfare enhancing. Thus, subsidizing R&D with the mandatory licensing of the resulting innovation may be a socially desirable policy.     

Technological expectations and adoption of improved technology

Attention is focused upon the adoption (demand) rather than the creation (supply) of new technology, which improves from time to time. Based on the expected flow of technological progress over which the firm (demander) has no control, it must decide either to adopt the current best available technology or to postpone adoption. The distinguishing features of the model are that more than one technological innovation is anticipated and expectations about the likelihood of such innovations are revised as time passes since the last innovation. Our analysis shows that the firm will adopt the current best practice if its technological lag exceeds a certain threshold; moreover, as time passes without new technological advances it may become profitable to purchase a technology that has been available even though it was not profitable to do so in the past.     

Can micro-credit bring development?

We examine the long-run effects of micro-credit on development in an occupational choice model similar to Banerjee and Newman (JPE, 1993). Micro-credit is modeled as a pure improvement in the credit market that opens up self-employment options to some agents who otherwise could only work for wages or subsist. Micro-credit can either raise or lower long-run GDP, since it can lower use of both subsistence and full-scale industrial technologies. It typically lowers long-run inequality and poverty, by making subsistence payoffs less widespread. Thus, an equity-efficiency tradeoff may be involved in the promotion of micro-credit. However, in a worst case scenario, micro-credit has purely negative long-run effects. The key to micro-credit's long-run effects is found to be the “graduation rate”, defined as the rate at which the self-employed build up enough wealth to start full-scale firms. We distinguish between two avenues for graduation: “winner” graduation (of those who earn above-average returns in self-employment) and “saver” graduation (due to gradual accumulation of average returns in self-employment). Long-run development is not attainable via micro-credit if “winner” graduation is the sole avenue for graduation. In contrast, if the saving rate and self-employment returns of the average micro-borrower are jointly high enough, then micro-credit can bring an economy from stagnation to full development through “saver” graduation. Thus the lasting effects of micro-credit may partially depend on simultaneous facilitation of micro-saving. Eventual graduation of the average borrower, rather than indefinite retention, should be the goal of micro-banks if micro-credit is to be a stepping stone to broad-based development rather than at best an anti-poverty tool.     

The development of technology foresight: A review

The term “foresight” has long been used to describe readiness to deal with long-term issues (especially on the part of governments). This term “Technology Foresight” took off in the 1990s, as European, and then other, countries sought new policy tools to deal with problems in their science, technology and innovation systems. Large-scale exercises drew in numerous stakeholders as sources of knowledge and influence, and the prominence of these exercises led to “foresight” being used much more widely to describe futures activities of many kinds. While few new tools and techniques have been developed in these exercises, they represent an unprecedented diffusion of forecasting, planning and participatory approaches to long-term issues. Futures approaches are, in consequence, far more officially acceptable and legitimate than in the past.     

Engines of growth. Innovation and productivity in industry groups

The diversity of technological activities that contribute to growth in labour productivity is examined in this article for manufacturing and services industries in eight major EU countries. We test the relevance of two “engines of growth”, i.e., the strategies of technological competitiveness (based on innovation in products and markets) and cost competitiveness (relying on innovation in processes and machinery) and their impact on economic performance. We propose models for the determinants of changes in labour productivity and we carry out empirical tests for both the whole economy and for the four Revised Pavitt classes that group manufacturing and services industries with distinct patterns of innovation. Tests are carried out by pooling industries, countries and three time periods, using innovation survey data from CIS 2, 3 and 4, linked to economic variables. The results confirm the specificity of the two “engines of growth”; economic performances in European industries appear as the result of different innovation models, with strong specificities of the four Revised Pavitt classes.