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.