Introduction to Innovation Management
:Source of Innovation GSI&TM
Prepared by Wonjoon Kim What is Innovation Management?
Innovation Innovation (Internal Characteristics) (Level of Dimension)
International Level Sources
side National Level side - -
Firm Level Supply Demand Types Product Level Today: Sources of Innovation
• Sources of Innovation • Technology Push and Demand Pull • Economics of Idea
3 Sources of Innovation
• Sources of Innovation • Technology Push and Demand Pull • Economics of Idea
4 Creative Destruction and Market for Idea
5 Creative Destruction and Market for Idea
6 Creative Destruction and Market for Idea
7 Creative Destruction: Evidence
8 Creative Destruction: Evidence of Market II
9 Creative Destruction: Evidence of Mark I
10 Creative Destruction: Evidence
11 Creative Destruction and Market for Idea
• After 10 years, will the MNC(Multi-National Corporation) be the major driving forces of innovation or Entrepreneurial Companies will? What opportunities there will be?
• Where will be a new creative destruction? Mobile? Transportation? Energy?
12 Top 10 US Industrial Firms by Sales 1980-2013
2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1995 1992 1990
Exxon Mobil Wal-Mart Wal-Mart Exxon Mobil Wal-Mart Wal-Mart Wal-Mart Wal-Mart Exxon Mobil GM GM GM GM GM GM
Wal-Mart Exxon Mobil Exxon Mobil Wal-Mart Exxon Mobil Exxon Mobil GM Exxon Mobil Wal-Mart Wal-Mart Ford Motor Ford Motor Ford Motor Exxon Mobil Ford Motor
Chevron Chevron GM GM GM GM Exxon Mobil GM GM Exxon Mobil Wal-Mart Exxon Mobil Exxon Mobil Ford Motor Exxon Mobil
ConocoPhillip GM Chevron Chevron Ford Motor Ford Motor Ford Motor Ford Motor Ford Motor Ford Motor Exxon Mobil Wal-Mart Wal-Mart IBM IBM s
ConocoPhillip ConocoPhillip GE Ford Motor GE GE GE Enron GE GE GE GE AT&T GE GE s s
ConocoPhillip Chevron Chevron GM GE GE Citigroup GE Citigroup IBM IBM IBM GE Mobil Mobil s Texaco Texaco
Conoco Conoco Chevron Ford Motor Ford Motor Ford Motor GE Citigroup Enron Citigroup Citigroup Chrysler IBM Altria Group Altria Group Phillips Phillips Texaco
Chevron AT&T Citigroup Citigroup Citigroup Citigroup Citigroup IBM IBM AT&T Altria Group Mobil Mobil DuPont Chrysler Texaco
Bank of Bank of Sears HP AIG AIG IBM AIG IBM AT&T Altria Group Boeing Altria Group Texaco DuPont America Corp.America Corp. Roebuck
Chevron Valero Energy AT&T AIG IBM IBM AIG Verizon Altria Group Verizon Boeing AT&T AT&T Altria Group Texaco Texaco
Bank of Berkshire J.P. Morgan Bank of Bank of Chevron HP HP HP Altria Group Verizon Altria Group Boeing Chrysler Chrysler America Corp. Hathaway Chase & Co. America Corp.America Corp. Texaco
Chase SBC State Farm State Farm J.P. Morgan Berkshire Bank of Berkshire Conoco Citigroup Verizon AIG Manhattan Communicati Insurance Texaco Insurance Boeing Amoco Chase & Co. Hathaway America Corp. Hathaway Phillips Corp. ons Cos Cos
Verizon American State Farm Prudential Ins. Berkshire Berkshire Bank of Procter & AIG Communicati Home Depot Home Depot Home Depot Electric HP Mobil Insurance Co. of Shell Oil Hathaway Hathaway America Corp. Gamble ons Power Cos America
SBC Berkshire Procter & IBM HP HP Home Depot Verizon HP Duke Energy Communicati Kroger HP HP DuPont Amoco Hathaway Gamble ons State Farm Valero Sears Kmart McKesson IBM IBM McKesson Altria Group Boeing AT&T Boeing Insurance DuPont Shell Oil Boeing Energy Roebuck Holding Cos Top 10 US Industrial Firms by Sales 1980-2009
2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1995 1992 1990
Exxon Mobil Wal-Mart Wal-Mart Exxon Mobil Wal-Mart Wal-Mart Wal-Mart Wal-Mart Exxon Mobil GM GM GM GM GM GM
Wal-Mart Exxon Mobil Exxon Mobil Wal-Mart Exxon Mobil Exxon Mobil GM Exxon Mobil Wal-Mart Wal-Mart Ford Motor Ford Motor Ford Motor Exxon Mobil Ford Motor
Chevron Chevron GM GM GM GM Exxon Mobil GM GM Exxon Mobil Wal-Mart Exxon Mobil Exxon Mobil Ford Motor Exxon Mobil
ConocoPhillips GM Chevron Chevron Ford Motor Ford Motor Ford Motor Ford Motor Ford Motor Ford Motor Exxon Mobil Wal-Mart Wal-Mart IBM IBM
GE ConocoPhillips ConocoPhillips Ford Motor GE GE GE Enron GE GE GE GE AT&T GE GE
Chevron Chevron GM GE GE ConocoPhillips Citigroup GE Citigroup IBM IBM IBM GE Mobil Mobil Texaco Texaco
Conoco Conoco Chevron Ford Motor Ford Motor Ford Motor GE Citigroup Enron Citigroup Citigroup Chrysler IBM Altria Group Altria Group Phillips Phillips Texaco
Chevron AT&T Citigroup Citigroup Citigroup Citigroup Citigroup IBM IBM AT&T Altria Group Mobil Mobil DuPont Chrysler Texaco
Bank of Bank of HP AIG AIG IBM AIG IBM AT&T Altria Group Boeing Altria Group Sears Roebuck Texaco DuPont America Corp. America Corp.
Chevron Valero Energy AT&T AIG IBM IBM AIG Verizon Altria Group Verizon Boeing AT&T AT&T Altria Group Texaco Texaco
Bank of Berkshire J.P. Morgan Bank of Bank of Chevron HP HP HP Altria Group Verizon Altria Group Boeing Chrysler Chrysler America Corp. Hathaway Chase & Co. America Corp. America Corp. Texaco
Chase SBC J.P. Morgan Berkshire Bank of Berkshire Conoco State Farm State Farm Citigroup Verizon AIG Manhattan Communicatio Texaco Boeing Amoco Chase & Co. Hathaway America Corp. Hathaway Phillips Insurance Cos Insurance Cos Corp. ns
Verizon American Berkshire Berkshire Bank of State Farm Prudential Ins. Procter & AIG Communicatio Home Depot Home Depot Home Depot Electric HP Mobil Shell Oil Hathaway Hathaway America Corp. Insurance Cos Co. of America Gamble ns Power
SBC Berkshire Procter & IBM HP HP Home Depot Verizon HP Duke Energy Communicatio Kroger HP HP DuPont Amoco Hathaway Gamble ns
Valero State Farm McKesson IBM IBM McKesson Altria Group Boeing AT&T Boeing Sears Roebuck DuPont Kmart Holding Shell Oil Boeing Energy Insurance Cos Creative Destruction and Market for Idea
• Origin of Creative Destruction?
15 Creative Destruction and Market for Idea
16 Creative Destruction and Market for Idea
17 Creative Destruction and Market for Idea
18 Creative Destruction and Market for Idea
19 Creative Destruction and Market for Idea
20 Creative Destruction: Any Example?
21 Creative Destruction and Market for Idea
22 Creative Destruction and Market for Idea
23 Creative Destruction and Market for Idea
24 Creative Destruction and Market for Idea
25 Creative Destruction and Market for Idea
26 Creative Destruction and Market for Idea
27 Thursday: More on Creative Destruction
• But why do firms so often fail to transition across different innovations?
• Homework will be assigned today for next week
• Preferred group members?
28 Creative Destruction and Market for Idea
• But why do firms so often fail to transition across different innovations?
– Incentives?
– Organizations?
– Fate?
29 Why firms innovate?
(a) Initial Condition Firm Market Price Price
MC ATC Short-run supply, S1 A P1 P1 Long-run supply
Demand, D1
0 Quantity (firm) 0 Q1 Quantity (market) Why firms innovate?
(b) Short-Run Response Firm Market Price Price
Profit MC ATC S1 B P2 P2 A P1 P1 Long-run supply D2
D1
0 Quantity (firm) 0 Q1 Q2 Quantity (market)
Then, firms enter, enter, enter, enter…
Copyright © 2004 South-Western Why firms innovate?
(c) Long-Run Response Firm Market Price Price
S1 MC ATC B S2 P2 A C P1 P1 Long-run supply D2
D1
0 Quantity (firm) 0 Q1 Q2 Q3 Quantity (market) Sources of Innovation
• How about the case of Competitive market? What is their incentive to innovate?
33 Sources of Innovation
• How about the case of Monopoly market? What is their incentive to innovate?
34 Sources of Innovation
35 Sources of Innovation
• Which market has more incentive to innovate?
36 Sources of Innovation
37 Innovation Incentive depends on Environments
38 Innovation Incentive depends on Environments
39 Innovation Incentive depends on Environments
40 Innovation Incentive depends on Environments
41 Innovation Incentive depends on Environments
42 Innovation Incentive depends on Environments
43 Creative Destruction and Market for Idea
44 Creative Destruction and Market for Idea
• The Origin of Creative Destruction
– Technology S-curve
– Market Incentive: a Reluctance to Cannibalize Existing Market Power (Arrow) vs. Competitive Market
– Organizational Inertia: Diseconomies of Scale
– The Potential for Multiple Disruptive Technologies
45 Creative Destruction and Market for Idea
46 Creative Destruction and Market for Idea
47 Creative Destruction and Market for Idea
Arrow emphasized that Christensen, however, Incumbents have less emphasized that if the incentive to innovation incumbents allow small firm to innovation (disruptive technology), those small firms will eventually take over the markets
48 What makes incumbents to have problems?
49 Reasons of Organizational Inertia?
50 Organizational Inertia is always bad?
51 Creative Destruction and Market for Idea
• The Origin of Creative Destruction
– Technology S-curve
– Market Incentive: a Reluctance to Cannibalize Existing Market Power (Arrow) vs. Competitive Market
– Organizational Inertia: Diseconomies of Scale
– The Potential for Multiple Disruptive Technologies
52 Creative Destruction and Market for Idea
• But why do firms so often fail to transition across different innovations?
– Incentives differ by market condition, innovation characteristics, etc.
– Organizational condition and characteristics affect innovation activities
– Fate?
53 Sources of Innovation
• Sources of Innovation • Technology Push and Demand Pull • Economics of Idea
54 Two Engines for Technological Innovation
Private Returns & Consumer Surplus
Technology Demand Push Pull Dosi Schmookler (1988) (1966)
Mowery and Rosenberg (1979) Sources of Innovation
• Sources of Innovation • Technology Push and Demand Pull • Economics of Idea
56 Motivation
. “Burden of knowledge” proposed by Jones (2009)
1910 1960 2013 Sources of Innovation
• Sources of Innovation – Technology S-curve – Incentive (Market Power and Market Structure) – Organizational Inertia • Technology Push and Demand Pull – Both works! • Economics of Idea – Condition changes for idea generation
58 Next week: Types of Innovation
59 End of Lecture note
60