Enabling open innovation in small‐ and medium‐sized enterprises: how to find alternative applications for your technologies

A critical success factor in the practice of Open Innovation is the timely identification of opportunities for out‐licensing a firm's technologies outside its core business. This can be particularly challenging for small‐ and medium‐sized enterprise (SMEs), because of their focussed business portfolio, specialized knowledge basis, and limited financial resources that can be devoted to innovation activities. The paper illustrates a quick and easy‐to‐use methodology for the identification of viable opportunities for out‐licensing a firm's technologies outside its core business. The method uses established TRIZ instruments in combination with non‐financial weighting and ranking techniques and portfolio management tools. It has been developed by the authors in collaboration with an Italian SME working in the packaging industry.     

The role of supplier relationships in the development of new business ventures

New business ventures have rather limited resources, generally suffer from liabilities of smallness and newness and rely on external business relationships, typically with suppliers, for developing and acquiring necessary resources. Yet, to date, research on how new ventures develop initial relationships with suppliers and how these affect the nascent business has been limited. Taking the business network perspective and relating it to studies of supply chain and supplier involvement in product development, our study contributes to the rather limited body of knowledge on new ventures' supplier relationships. Empirically, we draw on a longitudinal, in-depth single-case study of the first two years of operation of a start-up. Our study shows that the development of the key initial supplier relationships starts from open-ended expectations of mutual future relational benefits and involves a stepwise ‘inter-definition’ of solutions in interaction between the parties. We observe that interdependences arise between the new venture and its key suppliers and these enable but also limit, the development paths of both partners. We argue that the key initial supplier relationships extend a new venture's resource and capability base and are an integral part of a new venture's business model.     

The Effect of "Front-Loading" Problem-Solving on Product Development Performance

In recent years, there has been a growing interest in the link between problem‐solving capabilities and product development performance. In this article, the authors apply a problem‐solving perspective to the management of product development and suggest how shifting the identification and solving of problems—a concept that they define as front‐loading—can reduce development time and cost and thus free up resources to be more innovative in the marketplace. The authors develop a framework of front‐loading problem‐solving and present related examples and case evidence from development practice. These examples include Boeing's and Chrysler's experience with the use of “digital mock‐ups” to identify interference problems that are very costly to solve if identified further downstream—sometimes as late as during or—after first full‐scale assembly. In the article, the authors propose that front‐loading can be achieved using a number of different approaches, two of which are discussed in detail: (1) project‐to‐project knowledge transfer—leverage previous projects by transferring problem and solution‐specific information to new projects; and (2) rapid problem‐solving—leverage advanced technologies and methods to increase the overall rate at which development problems are identified and solved. Methods for improving project‐to‐project knowledge transfer include the effective use of “postmortems,” which are records of post‐project learning and thus can be instrumental in carrying forward the knowledge from current and past projects. As the article suggests, rapid problem‐solving can be achieved by optimally combining new technologies (such as computer simulation) that allow for faster problem‐solving cycles with traditional technologies (such as late stage prototypes), which usually provide higher fidelity. A field study of front‐loading at Toyota Motor Corporation shows how a systematic effort to front‐load its development process has, in effect, shifted problem‐identification and problem‐solving to earlier stages of product development. They conclude the article with a discussion of other approaches to front‐load problem‐solving in product development and propose how a problem‐solving perspective can help managers to build capabilities for higher development performance.     

Mobilizing suppliers when starting up a new business venture

Prior research has shown that new ventures can complement their capabilities and extend their limited internal resources by drawing on suppliers. Yet, our knowledge of the supplier mobilization process in new ventures is limited. In this paper, we take a relational perspective on the mobilizing process, which entails investigating the scope for mobilizing suppliers in new ventures and new ventures' attractiveness to suppliers. Drawing on three new venture cases, we posit that for new ventures the scope for mobilizing suppliers: 1) ranges from the use of suppliers for the procurement of well-defined existing inputs to the co-development of various resources and capabilities with suppliers; 2) varies across ventures, reflecting the new venture's distance to market; and 3) depends on the supplier's assessment of the new venture's attractiveness as a customer. We also argue that the attractiveness of new ventures as customers to the suppliers is based on elements that differ from those found in studies of ongoing businesses, and include: 1) stimuli to innovate and develop new competencies, 2) reputational benefits and prestige, and 3) personal satisfaction.     

Interfirm Innovation under Uncertainty: Empirical Evidence for Strategic Knowledge Partitioning*

This paper analyzes how uncertainty and life‐cycle effects condition the knowledge boundary between assemblers and suppliers in interfirm product development. Patents associated with automotive emission control technologies for both assemblers and suppliers are categorized as architectural or component innovations, and technology‐forcing regulations imposed by the government on the auto industry from 1970 to 1998 are used to define periods of high and low uncertainty. Results confirm that suppliers dominate component innovation whereas assemblers lead on architectural innovation. More importantly, when facing uncertainty firms adjust their knowledge boundary by increasing the knowledge overlap with their supply‐chain collaborators. Suppliers clearly expand their knowledge base relatively more into architectural knowledge during such periods. But assemblers' greater emphasis on component innovation in periods of greater uncertainty is only true as a relative deviation from an overall trend toward increasing component innovation over time. This trend results from an observed life‐cycle effect, whereby architectural innovation dominates before the emergence of a dominant design, with component innovation taking the lead afterward. Thus, for assemblers life‐cycle effects may dominate over task uncertainty in determining relative effort in component versus architectural innovation. This work extends research on strategic interfirm knowledge partitioning as well as on the information‐processing view of product development. First, it provides a large‐scale empirical justification for the claim that firms' knowledge boundaries need to extend beyond their task boundaries. Further, it implies that overlaps in knowledge domains between an assembler and suppliers are particularly important for projects involving new technologies. Second, it offers a dynamic view of knowledge partitioning, showing how architectural knowledge prevails in the early phase of the product life cycle whereas component knowledge dominates the later stages. Yet the importance of life‐cycle effects versus task uncertainty in conditioning knowledge boundaries is different for assemblers and suppliers, with the former dominating for assemblers and the latter more influential for suppliers. Finally, it supports the idea that architectural and component knowledge are critical elements in the alignment of cognitive frameworks between assemblers and suppliers and thus are key for information‐exchange effectiveness and resolution of task uncertainties in interfirm innovation.     

Coordination of Design Supply Chains for Bundling Physical and Software Products*

Research on product development management has concentrated on physical products or on software, but not both. This article explores a special new product development (NPD) approach in which the internal development of core physical products is augmented by bundled and largely outsourced software features. We studied a medical device producer that has established a new medical information product group (MIPG) within their NPD organization to create software features that are bundled with their core physical products. The MIPG has conceptualized these software features as multiple software development projects, and then coordinated their realization largely through the use of external software suppliers. This case study centers on the question: how can firms effectively coordinate such product development processes? Our analysis of case evidence and related literature suggests that such product bundling processes, when pursued through design supply chains (DSC), are more complex than is typical for the development of streams of either physical products or software products individually. We observe that DSC coordination transcends the requirements associated with traditional “stage‐gate” NPD processes used for physical product development. Managers in DSC settings face a tension inherent to distributed work: keeping internal and external development efforts separate to exploit the design capabilities within a network of software suppliers, while ensuring effective delivery of a stream of bundled products. Many managers face this coordination tension with little, if any, prior knowledge of how to create a streamlined and effective DSC. Our research indicates that these managers need to make a series of interrelated decisions: the number of suppliers to qualify and include in or exclude from the DSC; the basis for measuring and modifying the scope of the suppliers' work; the need to account for asymmetric cost structures and expertise across the DSC; the mechanisms for synchronizing development work across elements of the DSC; and the approaches for developing skills—both technical and administrative—that project managers need for utilizing in‐house competencies while acquiring and assimilating design know‐how from external development organizations. When managers take a flexible approach toward these decisions based on a modular set of software development projects, they can improve their NPD outcomes through technical and organizational experimentation and adjust their own resource deployment to best utilize the suppliers' capabilities within their DSC.     

Market Orientation and Innovativeness in Supply Chains: Supplier's Impact on Customer Satisfaction

As today's firms increasingly outsource their noncore activities, they not only have to manage their own resources and capabilities, but they are ever more dependent on the resources and capabilities of supplying firms to respond to customer needs. This paper explicitly examines whether and how firms and suppliers, who are both oriented to the same customer market, enable innovativeness in their supply chains and deliver value to their joint customer. We will call this customer of the focal firm the “end user.” The authors take a resource‐dependence perspective to hypothesize how suppliers' end‐user orientation and innovativeness influence downstream activities at the focal firm and end‐user satisfaction. The resource dependence theory looks typically beyond the boundaries of an individual firm for explaining firm success: firms need to satisfy customer demands to survive and depend on other parties such as their suppliers to achieve customer satisfaction. Accordingly, the research design focuses on three parties along a supply chain: the focal firm, a supplier, and a customer of the focal firm (end user). The results drawn from a survey of 88 matched chains suggest the following. First, customer satisfaction is driven by focal firms' innovativeness. A focal firm's innovativeness depends, on the one hand, on a focal firm's market orientation and, on the other hand, on its suppliers’ innovativeness. Second, no relationship could be established between a focal firm's market orientation and a supplier's end‐user orientation. Market orientation typically has within‐firm effects, while innovativeness has impact beyond the boundaries of the firm. These results suggest that firms create value for their customer through internal market orientation efforts and external suppliers' innovativeness.     

New Product Development Practices and Early‐Stage Firms: Two In‐Depth Case Studies

New product development practices (NPD) have been well studied for decades in large, established companies. Implementation of best practices such as predevelopment market planning and cross‐functional teams have been positively correlated with product and project success over a variety of measures. However, for small new ventures, field research into ground‐level adoption of NPD practices is lacking. Because of the risks associated with missteps in new product development and the potential for firm failure, understanding NPD within the new venture context is critical. Through in‐depth case research, this paper investigates two successful physical product‐based early‐stage firms' development processes versus large established firm norms. The research focuses on the start‐up adoption of commonly prescribed management processes to improve NPD, such as cross‐functional teams, use of market planning during innovation development, and the use of structured processes to guide the development team. This research has several theoretical implications. The first finding is that in comparing the innovation processes of these firms to large, established firms, the study found several key differences from the large firm paradigm. These differences in development approach from what is prescribed for large, established firms are driven by necessity from a scarcity of resources. These new firms simply did not have the resources (financial or human) to create multi‐ or cross‐functional teams or organizations in the traditional sense for their first product. Use of virtual resources was pervasive. Founders also played multiple roles concurrently in the organization, as opposed to relying on functional departments so common in large firms. The NPD process used by both firms was informal—much more skeletal than commonly recommended structured processes. The data indicated that these firms put less focus on managing the process and more emphasis on managing their goals (the main driver being getting the first product to market). In addition to little or no written procedures being used, development meetings did not run to specific paper‐based deliverables or defined steps. In terms of market and user insight, these activities were primarily performed inside the core team—using methods that again were distinctive in their approach. What drove a project to completion was relying on team experience or a “learn as you go approach.” Again, the driver for this type of truncated market research approach was a lack of resources and need to increase the project's speed‐to‐market. Both firms in our study were highly successful, from not only an NPD efficiency standpoint but also effectiveness. The second broad finding we draw from this work is that there are lessons to be learned from start‐ups for large, established firms seeking ever‐increasing efficiency. We have found that small empowered teams leading projects substantial in scope can be extremely effective when roles are expanded, decision power is ground‐level, and there is little emphasis on defined processes. This exploratory research highlights the unique aspects of NPD within small early‐stage firms, and highlights areas of further research and management implications for both small new ventures and large established firms seeking to increase NPD efficiency and effectiveness.     

The double‐edged effect of knowledge acquisition: How contracts safeguard pre‐existing resources

Research summary : Acquiring knowledge on a partner's pre‐existing resources plays an important yet ambiguous role in collaborative relationships. We formally model how contracts trade off productive and destructive uses of knowledge in a buyer‐supplier relationship. We show that, when the buyer's pre‐existing resources are vulnerable to the revelation of sensitive knowledge, the supplier overinvests in knowledge acquisition as it expects to use the knowledge as a threat in price negotiations. A non‐renegotiable closed‐price contract prevents such overinvestment and reduces the supplier's ability to expropriate the buyer ex post. Our results extend to the cases of renegotiable closed‐price contracts, repeated interactions between a buyer and a supplier, and the use of nondisclosure policies. We draw theoretical, empirical, and managerial implications from our model. Managerial summary : This study yields new insights regarding the use of contract design in protecting pre‐existing, nonrelationship specific assets in buyer‐supplier arrangements. Anecdotal examples illustrate the “dark side” of these arrangements where opportunistic suppliers exploit knowledge of buyers' pre‐existing resources to seek rent and appropriate value. When a supplier is likely to act harmfully, a closed‐price contract that specifies the price of the supplier's component upfront may reduce the supplier's incentives to overinvest in acquiring and exploiting knowledge of the buyer's pre‐existing resources. As such, when a buyer's pre‐existing resources are highly valuable, and thus more vulnerable to use by the supplier outside of the arrangement, a non‐renegotiable closed‐price contract is more efficient. Additionally, limited disclosure policies and informal agreements based on repeated interactions complement indirect governance via price contracts. Copyright © 2015 John Wiley & Sons, Ltd.     

Strategic Suppliers' Technical Contributions to New Product Advantage: Substitution and Configuration Options

Current theory lacks clarity on how different kinds of resources contribute to new product advantage, or how firms can combine different resources to achieve a new product advantage. While several studies have identified different firm‐specific resources that influence new product advantage, comparatively little research has explored the contribution of strategic supplier resources. Combining resource‐based and relational perspectives, this study develops a theoretical model investigating how a strategic supplier's technical capabilities impact focal firm new product advantage and how firms combine different resources to gain this advantage. The model is tested using detailed survey data collected from 153 interorganizational new product development projects in the United Kingdom within which a strategic supplier had been extensively involved. Empirical results support our research hypotheses. First, supplier technical performance is shown to have a significant positive impact on new product advantage. Next, we show that while supplier technical capabilities have a positive influence on supplier technical performance, the a priori nature of the supplier's task moderates the relationship. Finally, our data support our hypotheses related to the positive relationship between relationship‐specific absorptive capacity and new product advantage, and the proposed negative moderation of supplier technical capabilities on this relationship. Based upon these findings, we encourage managers to recognize that strategic suppliers' with greater technical capabilities perform better regardless of the degree of creativity required by their task; but that strategic suppliers with lower technical capabilities may partially compensate (substitute) for their lack of technical capabilities, if they are able to respond to high problem‐solving task requirements. Furthermore, we suggest that the firm's development of relationship‐specific absorptive capacity is much more important when a strategic supplier is less technically capable. A buying firm's relationship‐specific absorptive capacity can, according to our data, substitute for low supplier technical capabilities. On the other hand, where the supplier has strong technical capabilities, investments in relationship‐specific absorptive capacity have no effect on new product advantage. Our findings reinforce recent calls for research on how firms can combine different resources and capabilities to achieve superior performance.     

From experience: leading dispersed teams

Although management can gain great performance benefit from colocating cross‐functional product development teams, colocation is becoming increasingly difficult to achieve as companies globalize and form alliances. Consequently, this article offers guidance to keep your development team functioning effectively even though it may be dispersed across town or around the world. We aim our suggestions at the team leader, but both team members and managers will find helpful ideas and become sensitive to critical issues. For example, management often underestimates the loss in team performance as the team disperses and incorrectly assumes that communication technologies alone will largely overcome the complications of distance. An effective team depends on open, effective communication, which in turn depends on trust among members. Thus, trust is the foundation, but it is also the very quality that is most difficult to build at a distance. For this reason and for several others that occur in the very front of the project, we suggest that if you can get your team together face‐to‐face at any time during the project, do it at the beginning. You can establish trust while you are planning the project together, writing the product specification, formulating working approaches, and creating communication protocols (for example, how long before an e‐mail must be answered?). Likewise, the most important maintenance activity during the middle of the project is retaining an effective level of trust, which is far easier than having to rebuild trust. In part, you accomplish this by “humanizing” the project: sharing team member biographical information, telling an occasional good‐natured joke, and knowing when a colleague's family member is in the hospital. We also cover communication technologies—which ones to select and why you need a variety of media. Although such technologies are necessary for running a dispersed team, they are not nearly as sufficient as many technology suppliers suggest. Another complication is that differences in culture tend to grow as the team spreads over greater distances, encountering different time zones, languages, ethnic groups, and thus corresponding values. Although such differences place challenges before the team, diversity also offers advantages to those who are sensitive to the facets of culture. Consequently, we break culture down into its components and suggest ways of working with each one. Although we tend to underestimate the complications of working at a distance today, in time, teams will learn the skills needed. In the meantime, the perceptive manager and team leader will pay special attention to building these skills.     

Supplier involvement in NPD: A quasi-experiment at Unilever

Growing technological complexity makes it impossible for individual firms to be updated on all technologies relevant to new product development (NPD). Involving suppliers, who have knowledge of complementary technologies, in the early phases of NPD is therefore quite a common practice. However, the timing of involvement presents a management challenge. We explore how task ambiguity pertaining to NPD affects buyer-supplier interaction. We set up a quasi-experimental study, manipulating causal ambiguity to observe how this impacts buyer-supplier interactions over time. Our findings reveal that causal ambiguity influences the role expectations and resource mobilisation of the suppliers before interaction, the actors' mobilisation and their pattern of interaction, and the transformation of outcome and mobilisation of resources ex post interaction. We discuss the implications for managers and researchers in a buyer-supplier context.     

A demand‐based perspective on sustainable competitive advantage

We develop an approach to analyzing the sustainability of competitive advantage that emphasizes demand‐side factors. We extend the added‐value approach to business strategy by introducing an explicit treatment of how firms create value for consumers. This allows us to characterize how consumer heterogeneity and marginal utility from performance improvements on the demand side interact with resource heterogeneity and improving technologies on the supply side. Using this approach, we address a variety of questions including whether technology substitutions will be permanent or transitory; the sequence in which new technologies attack different market segments; how rents from different types of resources change over time; whether decreasing marginal utility and imitation give rise to similar rent profiles; the extent of synergies within a firm's resource portfolio; the emergence of new generic strategies; and the conditions that support strategic diversity in a market. Our focus on consumer utility and value creation complements the traditional focus in the strategy literature on competition and value capture. Copyright © 2006 John Wiley & Sons, Ltd.     

Applying Industrial Design and Cost Engineering to New Product Development in Early‐Stage Firms

For early‐stage firms, successful commercialization of each new product is critically important, given the shortage of financial resources, the limited product portfolio, and small staffs typical of such firms. This paper investigates two key contributing factors for new product success in entrepreneurial firms: designing products that are appealing to target users in both form and function and designing products that can be manufactured at an attractive margin so that the new enterprise can generate much needed positive cash flow. These two practices—industrial design and cost engineering—are well studied in the context of larger, established corporations but have not been explored in the context of new ventures. This study focuses on the intensity of individual and combined adoption of design and cost engineering as measured by product development efficiency and effectiveness. The study was conducted on a homogeneous sample of early‐stage firms that develop physical, assembled products where design plays a role. The data collection focused only on the first product developed by each firm respectively. The results show that when implemented together, industrial design and cost engineering enhance both the effectiveness and efficiency of new product development in early‐stage firms, to greater effect than each does individually. Intensive individual adoption of practices had a negative impact on development efficiency measures such as development cost and duration. Only cost engineering individually had a beneficial impact on development effectiveness as measured by product margins. When combined, these two practices had a beneficial impact on both development duration and cost for the company's first commercial product, thereby reducing time‐to‐market and precious cash expenditures while maximizing project breakeven timing. The most successful firms in the study achieved a balance between creative innovation and cost discipline in the NPD process with third‐party design and manufacturing resources. It was found that integrating third‐party design firms into the development process can challenge, simplify, and add additional creative resources to the core entrepreneurial team, maximizing the ability to catalyze beneficial tension between creativity and cost discipline.     

Improving Supplier New Product Development Performance: The Role of Supplier Development

Suppliers play an increasingly central role in helping firms achieve their new product development (NPD) goals. The literature implicitly assumes that suppliers are able to meet or exceed the quality standards and technological expectations of the firm, and yet, in practice, suppliers often lack the technological capabilities needed to undertake collaborative NPD. In such situations, a firm may choose to intervene and actively develop the supplier's technological and product development capabilities. We develop a theoretical framework that conceptualizes supplier development activities within interorganizational NPD projects as part of a bilateral knowledge‐sharing process: design recommendations, technical specifications, and new technology flow from supplier to the firm, and in turn, the firm can implement supplier development activities to upgrade the supplier's technological capabilities. Antecedents (supplier responsibility, skills similarity, single sourcing strategy) and consequences of supplier development activities (on supplier, product, and project performance) are examined using a sample of 153 interorganizational NPD projects within UK manufacturers. We find broad support for our hypotheses. In particular, we show that the relational rents (in the form of improved product and project performance) attained from supplier development activities in new product development are not achieved directly, but rather indirectly, via improvements in the supplier's creative and technological capabilities. Our results emphasize the importance of adopting a strategic view of the potential returns available from investing in the NPD capabilities of key suppliers, and provide clues about underlying reasons for the suboptimal experiences of many companies' collaborative NPD projects.     

Profiting from innovations: the role of new game strategies in the case of Lipitor of the US pharmaceutical industry

In exploring why innovators often do not profit from their innovations, researchers concentrate on innovators versus imitators and the extent to which owners of complementary assets capture profits from innovations. The literature provides scant attention to factors that sap profits from innovations. This paper argues that an innovator's positioning vis‐à‐vis customers, suppliers, complementors, and other co‐opetitors plays a critical role in the innovator's profitability. The article explores how an innovator can use new game strategies to better positioning, thus capturing rents from innovations and enabling further innovations in the future. The study examines the case of Lipitor, one of the world's best‐selling drug, to illustrate how positioning can play in a firm's ability to profit from its innovations.     

Resource relatedness and the mode of entry into new businesses: Internal resource accumulation vs. access by collaborative arrangement

When firms seek to enter a new business segment, they have to decide how to best gain access to the required resources. This paper analyzes how resource relatedness influences a firm's decision between internal development and collaborative arrangement as modes of entry. We distinguish between a firm's capacity to transfer its established resources to the new segment (resource transferability) and the integration and synergistic combination of current firm resources with target segment resources in day‐to‐day operations (resource complementarity). Resource transferability makes entry by internal development more likely, but this effect depends on segment characteristics. Synergies from complementary resources can be exploited more easily within firm boundaries than across an alliance interface. However, certain partner characteristics can substitute in part for belonging to the same firm. Copyright © 2014 John Wiley & Sons, Ltd.     

The value of a ‘failed’ R&D project: an emerging evaluation framework for building innovative capabilities1

In literature and R&D organizations alike, project success consists in minimizing the deviations from set targets in terms of quality, cost and time. The main management task is to execute and monitor progress to reduce risks – assuming that project attributes are known, necessary resources can be estimated and a reasonable time table can be agreed upon. In such a context, evaluating project success is easy. However, in an innovative context, setting project targets initially is difficult and the contributions of the projects sometimes are of an unexpected nature. This paper investigates if projects can be evaluated in terms of how they contribute to the building of innovative capabilities of the firm instead of independently. Based on a case study at the Régie Autonome des Transports Parisians and the theoretical framework of innovation fields, a framework for evaluating projects from an additional perspective is proposed. Based on the following four criteria: financial resources, the development of a structured, refined and expanded strategic vision, developed competences (with related suppliers) and identification of knowledge gaps (occasionally with related partners for knowledge production), this framework shows how seemingly failed R&D projects can instead be considered as invaluable to the overall innovation process.     

The effect of buyer behaviors on preferred customer status and access to supplier technological innovation: An empirical study of supplier perceptions

Buying firms are increasingly looking to suppliers for technological innovations that enhance the competitive position of their new products. However, extant research provides limited guidance on how buying firms may gain access to suppliers' innovative technologies. To address this gap in the literature, we draw from social exchange theory to posit sequential relationships among buyer behaviors, preferred customer status, and supplier's willingness to share technological innovations. We test our assertions by applying structural equation modeling statistical analyses to survey response data from 233 sales personnel of production good suppliers in the U.S. automotive industry. Whereas our results show that two buyer behaviors – early supplier involvement and relational reliability – positively affect preferred customer status, a third behavior – share of sales – has no effect. In turn, we find that preferred customer status is positively associated with supplier's willingness to share new technology with the buyer. Further, our findings indicate that preferred customer status fully mediates the benefits exchanged within a buyer–supplier relationship. Hence, our study highlights why buyers seeking innovations should take care that their behavior is appropriate for managing suppliers' perceptions. Accordingly, our results provide specific guidance to buyers as to how they may increase their access to suppliers' new technologies.     

Product Development Strategy and Organizational Learning: A Tale of Two PC Makers

The personal computer (PC) marketplace in the US presents a dizzying array of component suppliers and products. No single firm dominates the industry with a complete package of hardware and software components. Although one company's operating systems and general-purpose applications are installed on most PCs in the US, the other system components—processors, memory, storage devices, display adapters, monitors, specialized applications, and so on—come from any number of sources. David T. Methe, Ryoko Toyama, and Junichiro Miyabe point out that the PC industry in Japan also exhibits this decentralized nature. However, they also note that despite the decentralized network structure of the Japanese PC industry, one company—NEC—was able to achieve a dominant market share. To provide insight into the key issues involved in the management of complex technology, they contrast NEC's strategic approach to product development and organizational learning with the approaches taken by Fujitsu—the firm that placed a distant second in this market. Despite matching NEC in terms of technological capabilities, financial resources, and managerial talent, Fujitsu never managed to threaten NEC's dominance of the PC market in Japan. Fujitsu continually emphasized technological leadership, even at the expense of protecting its installed base. Poor coordination of resources and product development efforts resulted in incompatibilities among Fujitsu's various products, and the company failed to foster close relationships with suppliers of such key technologies as software and peripherals. NEC's PCs did not enjoy the advantages of first-to-market status or technological leadership. Instead, NEC achieved market dominance by finding the combination of product technologies that met the needs of the greatest number of consumers. Throughout almost 20 years of competition in the PC industry, NEC successfully maintained consistency and backward compatibility across its product lines. NEC also recognized the importance of third-party software developers, and carefully cultivated relations with these firms as a source of competitive advantage. In other words, NEC struck the right balance between three key factors: technological innovation, motivation of third-party developers of software and peripherals, and service to its installed base of customers.