Wharton Chapter 11 - Appropriating the gains from innovation

In chapter 11, the author states that there are four major appropriation mechanisms to protect innovative gains.

• patents and related legal protection - patents are over-empasized as a way to protect innovations and their effectiveness is sometimes ambiguous. Science and technology can catch up with patents quicker than the patent life. Time and energy may best be invested by evaluating the other mechanisms
• secrecy - one of the hardest mechanisms to protect gains because products can be immitated or information leaked to the public. Simply put, don't share the secrets with the public to protect your innovation. Typically, it's easier to protects secrets surrounding processes than products as processes can be incredibly complex and difficult to reproduce without the knowledge.
• control of complementary assets - by controlling the facilities and capabilities of the manufacturer, innovations can be protected. Without the complementary assets, it's difficult to capitalize on products or know how that require the complementary assets to produce an innovative product. Sometimes, products in an entire industry can be protected because complementary assets are not available to the competitors in the market (IBM example).
• lead time - knowlege and know-how can create lead-time advantages with innovations. product characteristics such as durability can impact lead time. By creating a reputation or having high switching costs for alternate products, advantages can be made in the lead time.

Finding the right mechanism or a combination is very important for companies to protect their innovations. Understanding the uncertainties and applying the appropriate mechanism(s) to protect the innovative gains is important to companies. As the book outlined, "protect the golden goose". It's difficult to determine which idea or innovation will yield the biggest gain but it's important to protect all innovations and think not only about how to protect the innovation today but how to protect the innovation in the future by being responsive.

This framework of protecting innovative ideas can be applied to Mcdonalds food products. McDonalds holds a variety of patents on their processes for french fries (http://www.google.com/patents?id=fbYgAAAAEBAJ&dq=Mcdonalds+product&as_drrb_ap=q&as_minm_ap=1&as_miny_ap=2008&as_maxm_ap=1&as_maxy_ap=2008&as_drrb_is=q&as_minm_is=1&as_miny_is=2008&as_maxm_is=1&as_maxy_is=2008)
Not only is McDonalds products trademarked but the sauce used in the big mac is one of the greatest trade secrets in the fast food industry. Though a patent would help protect the "secret sauce", McDonalds may forgo the patent to protect it as a trade secret. (http://query.nytimes.com/gst/fullpage.html?res=9D00E6D9103EF936A35751C0A9679C8B63). The manufacturing and distribution channels are complementary assets that have allowed Mcdonalds to move into new markets around the world and still deliver a quality product that consumers love (I'm not the biggest fan). McDonalds holds considerable power in their lead time to get new products to market delivering existing products to locations all over the globe.

Wharton Chapter 10 - Scenario Planning for Disruptive Technologies

The chapter asked a few interesting questions to determine how a company can best prepare for emerging technologies by using scenario planning. The future is unknown but companies should ask. "which set of multiple futures" might be likely and how should a company prepare for them. Companies should consider multiple different scenarios and create or adjust their strategies to define the best path. Scenario planning also helps define the best opportunities and risks associated with the emergent technology and how a company should go about handling them. This can be done by watching for weak signals in the industry and amplifying them. These signals can have dramatic changes on a market or industry.

Scenario planning address three challenges that are inherent in emerging technologies:

• Uncertainty - scenario planning is based around this attribute and can be qualified using objective probabilities
• Complexity - scenarios that are based around a diverse set of factors (political, economic, social, technological) and explores how they mingle with one another in a system
• Paradigm Shift - scenarios that change and "shift the entire mindset and rules" and focus "amplifying the weak signals"

Scenario planning takes the various inputs, uncertainties, and data and puts them into usable scenarios with differing assumptions to be further analyzed. The results are patterns among all the outcomes that can help a company make decisions on an emerging technology and shape the future.

There are a number of steps used in constructing scenario planning. These steps include:

1. Define the issue - determine the scope and use past experiences to help define time frame
2. Identify key stakeholders - who are the parties affected by the change and who are the parties that can influence them
3. Study the driving forces that shape the future of the technology - these forces include Political, Economic, Social, Technological. Gather information that pertains to these forces
4. Identify trends that will affect the interest - based on the data, try to understand how and why these trends will expert influence on the future
5. Identify key uncertainties - outcomes from events (i.e. political race) and these uncertainies can be used to project possible outcomes from the scenarios. It's important to understand the level of importance of each of these uncertains and to weight them accordingly
6. Select the 2 most important key uncertainties - go through list of uncertainties and vote on the top two based on findings from steps 2 - 5.
7. Assess te plausability of the scenarious - determine the likelyhood of these scenarios occuring by analzying trends, the number of uncertainties, and the actions of the stakeholders.
8. Assess the revised scenarios - determine how the stakeholders would react in the scenarios to develop more conversation with the organization and strengthen/weaken the scenarios.
9. Complete more research - put the scenarios into models and diagrams to further explain the nature of the scenario and it's complexities.
10. Reassess the uncertainty ranges - examine the variables under each of the scenarios to see how things might change. Go through the details and examine steps 1-9 to see if any of the data should be changed.

The scenario planning is important because it can be used to "calibrate the nature and extent of comittment a firm to should take in pursuing a set of technologies.. ". The chapter applies the concepts from scenario planning to the newpaper industries.

There are four key traps to avoid when scenario planning:

1. Failing to gain top mgmt support early on - getting buy in from the top early on in the project will help ensure success for the project. Top mgmt are most of the key decision makers in scenario planning (Step 2) and without them, steps 3 -10 may not be completed
2. Lack of Diverse Inputs - get outsiders opinions to scenarios as they may see things differently from those internal participants and these people may help identify other complexities or possible scenarios that should be considered
3. Failure to stimulate new strategic options - the options may not be as groundbreaking or as convincing to leaders in the company.
4. Not tracking the scenarios via signposts - the scenarios may not always have all the grainular data and scenarios need to look at both the big picture and the details to fully understand the scope and impact.

A good example that has followed scenario planning has been the change from oil/fossil fuel cars to electric/hybrid vehicles. The issue at hand is that gas has become very expensive and the consumers (the stakeholders) are looking for personal transportation to alleviate the issue of rising fuel prices.

Car manufactures have looked at a variety of technologies (scenarios) regarding how to combat the issue of rising fossil fuel costs. The manufactures have analyzed the driving forces (political issues, economic issues, social issues) of the rising costs and are creating new ways to deliver low-cost, high effecient vehicles to consumers. These new vehicles have come in the forms of hybrid, electric, and biodiesel giving us four scenarios as stated from the energy scenarios website:

• Peak of Oil is in the distance, Reactive Response - resume business as usual; no change
• Peak of Oil is in the distance, Proactive Respone - transition towards other sources & options
• Peak of Oil is soon, Reactive Response - limited local supply of oil and import will be very expensive, pay higher prices or switch to alternative vehicle
• Peak of Oil is soon, Proactive Response - known that the supply of oil will be limited, disperse fuel where most needed and import only when necessary.

The next step is to look at the uncertainties (price of the dollar falls in world market, new oil supply is discovered in the US, etc) and evaluate the plausability and the level of impact and determine feasibility. Car manufactures are continuing research to look into other methods of energy (battery powered and solar powered that allow for greater distance) and reassess their markets and findings. They then make the decision of whether to move forward.

(http://info.energyscenariosireland.com/Scenario_Planning)

Wharton Chapter 9 - Strategy Making in Uncertain Environments

In chapter 9, the author discussed the rapidly changing strategies needed to survive in the market today. New strategies and the continual adjustment of existing strategies must be tested and tried to impact the overall results. The author discussed discipline and imagination as the underlying pillars of strategies.

Discipline - using a consisten application of rules to evaluate a set of alternatives. using systemic ways to evaluate competitive environments.

Limitations: sticking to methods that have always worked rarely create new original insights. Discipline focuses too much on analysis and thinking that because a method was done one way in the past, it will generate similar results in the future (not taking into account variables such as market, technological, and consumer changes). Alternatives are rarely generated and there is too much power placed on analysis.

Imagination - finding "deliberate diversities" in the way problems are defined and using these diversities to develop solutions. Focus less on experience and more on new and innovative ideas and ways to envision the future.

Limitations: simply put- chaos ensues because of lack of structure. Imagation may focus too much on the future and not the current issues at hand. Imagation may overlook valuable experience and undervalue where the technology/company has come from. Imagination can slow the process because it is chaotic and unstructured and can involve many decision makers.

The framework of utilizing experience with imagination is seen in many companies today. Apple again is a very creative company that has expanded it's product line through creativity and understanding their history/core competencies. With many of apple's products, they exercise discipline within their product lines but have also evaluated other alternatives to create superior products in the market. Apple uses both the framework and the limitations to create new, innovative products for constantly changing markets in uncertain environments.

Wharton Chapters 8 - Commercializing Emerging Technologies.

In chapter 8, the author describes capitalizing on new technologies in the marketplace by watching their success and failures and determine how to improve the product in the market or couple complementary technologies (either products or services) with the new technology to succeed. There were three challenges of commercialization discussed in the chapter:

• Change in Complementary Assets - As the market changes with new products and services, the existing complementary assets can become obsolete (ie. training and sales staff on eletromechanical calculators example).
• Change in Customers - Customer needs evolve with technology and with new products and technologies, the set of customers also change (i.e. typesetting in offices replaced by word processors for all users -new market segments)
• Change in Competition - Competitors change as technology in the market place changes and new market niches emerge -new competition arises as well

The author stated three hurdles emerging technology must overcome:

• whether to invest in developing new technology
• using the investment to develop or acquire new technological capabilities
• commercializing the technology.

A great example of commercializing the technology is the shift from analog watches to digital watches. The analog watch was carefully crafted by the swiss until the introduction of liquid crystal displays and LED's for digital displays. The skilled staff to create the watches was no longer necessary as the manfacturing process to mass produce was farmed out all over the world and digital display watches began to outsell analogs because of cost. Many of the larger companies (Seiko, Casio) began watching the other manufactures and merged companies and products. The mass commercialization of watches could hit new markets because the watch become both affordable and available to all types of consumers. Information taken from "Swatch and the Global Industry" - http://eres.boisestate.edu.libproxy.boisestate.edu/eres/docs/10483/swatch_and_the_global_watch_industry.pdf

Wharton Chapter 7 - Technology Strategy in Lumpy Market Landscapes

In Chapter 7, the technologies developed by companies must determine the direction of the market to determine how to design their products. In the laptop example, the manufacturer looks at both durability and component weights to give the best balance for a rugged, yet high performing laptop. Companies must understand the barriers and determine which ones to push with emerging technology.


The book discussed the "dimension of merit" or the set of attributes to a technology that the user finds valuable and preferable. These preferences create uneven groups of customers or "lumps" in the market. The goal of these emerging technologies is to find the "most favored attribute set" within the market to capture the largest customer set and marketshare.

The firm can then make a choice -focus on a niche market and be vulnerable to competition. Small changes in the attributes can cause a shift and can lead to greater or fewer customers based on the lump in the market. Many disruptive technologies fail to mee the needs of the intended market. These technologies then focus on niche markets which allows the attribute set to grow more rapidly, allowing the technology to infultrate new market segments.

Strategists use an attribute matrix and evaluate customer reactions and responses to the technology. The spectrum of responses are broken down into 3 components:

• Basic: a basic attribute that is expected in an offer but gives no real value in the market but can preclude the firm from the market if not included
• Discriminators: attributes that distinguish the technology in the market (can be both +/-)
• Energizing features: These are typically new attributes that have a sharp distinction in comparison to other offerings and great influence on the consumer .

After the attributes have been determined, the constraints to bring these attributes to market must be determined and evaluated. Companies evaluate the market landscapes to push barriers and look for technologies that will help improve positioning. Other companies have technologies and are in search of markets. Companies can use three strategies to position themselves in the market:

• Niche dominantion - company offers a product to a niche market and creates or moves the technology barrier or constrains the attributes available in the market
• Niche fusion - the fusion of two or more niche markets allowing a firm to dominate the fused niche markets. The attributes of the products are favorable among many niche markets
• Create a new technology envelope - radically changing the set of attributes to offer superior products or brand new products to consumers. The shift can put firms out of business and change the market landscape.

This concept of lumpy markets can be seen in the digital and film SLR camera markets. Camera uses were either point and shoot operators to high end photography professionals. The markets were lumpy based on the the type of camera users and the products avaible to those users. When digital photography took off, some of the film markets dried up and looked for new ways to compete with digital photography.

When looking at current digital SLR and point and shoot digital cameras, both have a desired market: lower and mid end, reasonably priced cameras versus higher end consumer cameras & photographer professionals. Over the last few years, we have seen many of the digital cameras carrying basic attributes (LCD screen on the back) to distinguishing attribute (photo dock and printer capabilities for cameras). But the energizing attributes diminish quickly (very high resolution, high dynamic range *HDR*) as cameras continue to push the level of megapixels.

Wharton Chapter 6 - Assessing Future Markets for New Technologies

With new and emerging technologies, it is sometimes difficult to find a market or a customer to fit these technologies, the price they would be willing to pay, how they will use these technologies, or if the market will be accepting of these technologies. We can learn and understand markets by evaluating the relative size and supporting infrastructure for the new technology. There are three approaches that useful assessments of markets:

• Diffusion and Adoption - technologies diffuse in a market at different rates and some technologies are adopted early and some not at all. Determine the value of the new product relative to the best alternatives in the market but be mindful of barriers in the market that might affect acceptance. Be mindful of innovation and price of new technologies when evaluating markets. Analyze consumer behaviors and user requirements in a given market to determine possible adoption rates of the technology. There will be early and late adopters if the technology takes off in a given market.


• Exploration and Learning - informed anticipation by watching other exploration efforts to see how products and technologies have faired in the market and making anticipatory actions to capture opportunities. Analyze what you need to know about the market and intrepret the findings to determine market expectations and how to proceed.
Try not to assume too much about the market and the preferences associated with it.


• Triangulation for Insights - absorb uncertainty and anticipate opportunities. Start with diverse market research and analyze the approaches and findings from each of the research methods. Look for different approaches that ask similar questions -this typically yields patterns and a probably bias. Look to users that are pioneers in the market (much like wait and watch approach) and tend to lead the technology. Learning from their mistakes and approaches can help you succeed. Analyze markets for indirect evidence of market needs through looking at potential customers and ask customers about frustrations and needs to determine if the market is the right one to enter. Use modeling techniques to try and anticipate the possible level of adoption and integration into the market.

There are numerous technologies that have used this methodology to find new opportunistic markets for emerging technologies. Nanotechnology has applications in so many different markets that in some cases, it can apply to almost all markets. But, in order to implement. companies must find markets that will readily adopt this technology. The biomedical field has seen numerous nanotechnology-related products become adopted but will all humans accept nanotechnologies as part of their healthcare. Companies researching and implementing nanotechnology are carefully watching the market to see what their competitors are doing, how consumers are accepting and integrating nanotechnology into their lives, and the long term affects of this technology. Costs associated with nanotechnology in biomedicine (because of research) can be higher and not all patients will be willing to pay for these costs.

Wharton Chapter 5 - Public Policy and Lessons from the Internet

This chapter of the Wharton book discusses the role of government in emerging technologies and how they help/hinder this process. The chapter analyzes the events that occurred with the introduction and adoption of the internet and how the government handled these changes.

While the government has control to monitor, tax, and set policy to disrupt technologies, they also have the power to create technology infrastructure through institutional infrastructure and research infrastructure. The government can set standards and regulations on the technologies while also offering subsidies to help emerging technologies get started.

The government helped start the ARPA net in the late 1960’s for the Department of Defense. ARPA was stabilized and the NSFnet was born for the use of academic research. In 1990, ARPA was shutdown and moved to NSFnet. During this time, technology projects were nurtured and became a testbed for techhnology.

In the early 1990’s, the NSFnet changed due to three major developments:
· NSF net was no longer privatized and moved toward a for-profit model. NSF moved to pritized backbone and NSF no longer existed by 1995
· Protocols and standard for data to travel over the internet were invented and put into place by CERN. First web browser was built by NCSA for use on the WWW
· By the early 90’s, over 30% of US households owned a MAC or PC

Lessons from the Internet:
1. Government can play a powerful roles in shaping the development of a new technology in its earliest research stage (i.e. as seen in incubating this technology in ARPA and NFSnet)
2. Withdrawal of government support for a research effort is resisted by the beneficiaries as the effort gets closer to commercialization (subsidies disappear and universities, science labs, etc suffer)
3. Government can help manage the transition from public (educational institutions, research labs) to the private sector (commericialization) but everyone will complain. Government had trouble determining and regulating the information that should be available to the public sector (ie. hate or sexually explicit information).
4. Public concern about these new technologies on social mores and how the government should intervene to limit these impacts. These impacts including legal issues, intellectual property infringement, and national security must all be addressed by the government
5. Commercial and government interests will seek a government or legal response to disruptions caused by technology. These disruptions include cellular technology, broadband technology, and “hard” /”soft” networks. These entities want to know if these services are available to all, affordable to all, efficiently provided at a “reasonable quality”, and who is making all the money on these services (i.e. monopoly)
6. A new technology leads to demand universal service for all and the needs for governmental intervention. New regulations are set in place to provide a set quality of service on the technology (i.e. the cable companies outage example)
7. Dominant firms may treat customers poorly which leads to regulation. A monopoly can increase pricing structures on technology and lead to excess profits.
8. Regulation and Antitrust help prevent a single firm from gaining a “dominant market position” through a new technology. “Closed computing architecture” and vertical integration can all lead to an issue in public policy.
9. Technology leads to a firm’s dominance in a confined marketplace and there is need for political governance to prevent the firm from vertically integrating. The technologies can lead to a monopolistic approach in the market allowing a firm to push out the competition.
10. Regulations can have unintended side effects on emerging technology. Regulations can push competitors out of the market by creating unintentional barriers to entry.

These lessons when paired with the internet example truly show how an emerging technology can both grow and be stifled by governmental policy. Government policy can help emerging technologies become more widely accepted, integrated, and maintained through regulations and policies. These same policies can have a negative impact on the technologies as well (as see in Lesson 10).

The development of experimental pharmaceutical drugs may go through a similar process. The government gives subsidies to research institutions for developing drugs to cure the ailing people of the world. After the drugs become commercialized, regulation by the FDA is set in place to ensure the drugs are safe. The drugs are then allowed to be sold to other pharmaceutical companies as generics to prevent a monopoly in the marketplace.