Chapter 11 & 17

Chapter 11 Appropriating the Gains from Innovation

The author of this chapter discusses firm’s approach towards patent protection and also provides factors that are affecting firms to achieve more gains from their innovation. Firms have to pass three hurdles to achieve profits through innovation. They are:

• The technology must be successful.
• Technology must create value i.e., customers should be willing to pay more for the value that a technology provides.
• Value appropriation

Author examines the management challenges to appropriate gains from the technology and indicates factors responsible for that and suggests a framework to explore the issues associated with emerging technologies. Generally, firms pay more attention to intellectual property rights and overemphasis on intellectual property discussions leads to three aspects, it creates an impression that firms should concentrate more on patents of a technology, contributes misallocation of resources and finally leads to mistakes in selecting future projects. Starbucks example in the chapter shows that instead of relying on patents, if firms think ahead of time by leveraging complementary assets then they gain from its innovation.

• Firms overlook other factor or mechanisms that prevent them from gaining maximum profits of a technology. There are four mechanisms of appropriability that a firm has to examine. They are:
• Patents and related legal protection: Though there are many advantages of patent rights, firms should also look into the disadvantages of it. There are certain limitations of patent protection such as legal cost, limited effectiveness in some industries and inventing around.
• Secrecy: Maintaining secrecy about a new product is difficult once the product is released in the market. To gain lead time over the competitors/imitators, firms should maintain secrecy while developing the product. Making products resistant to reverse engineering also gives advantage to the innovative firms.
• Control of complementary assets: Controlling complementary assets not only gives competitive advantage but also helps firm appropriate gains from many innovations.
• Lead time: Firms should take advantage of lead time. Lead time advantage helps firms make profits before competitors enter the market and also helps build complementary assets.

The author says firms with emerging technologies should take into account all the four factors. Author also suggests important aspects firm should consider when dealing factors affecting the appropriability gains from innovation of emerging technologies.

• Identify the uncertainties: This chapter suggests identifying uncertainties surrounding intellectual property, secrecy, complementary assets and lead time. By identifying uncertainties, firm can develop strategies to address at least some of these uncertainties.
• Assess and Reassess the Knowledge Environment:
  To understand their environment and its impact, managers should ask the following questions regarding appropriation of gains from innovation:

1. Who are your competitors?
2. Where are the headwaters of the new knowledge that flow in this field?
3. How fast are the rapids?
4. What are the prospects for strong patents?

In conclusion, author suggests that building and sustaining the dynamic capabilities help firms to keep track of the technological changes related to the business. In case of emerging technologies, developing and sustaining dynamic capabilities is very narrow because of the uncertainties. To manage dynamic capabilities is very complex. Author also suggests that firm should concentrate more on other aspects of appropriation of gains from emerging technologies rather than only on intellectual properties.

Chapter 17 Design of New Organizational Forms

Chapter 17 of Wharton on Managing Emerging Technologies talks about the organizational designs required for the uncertain emerging technologies. The authors provides emerging forms such as virtual organizations, networfirms, spinouts, ambidextrous firms , front back designs and sense- and – response form.
Though most of the management theories focused on the traditional hierarchical structures and its variations, but, in today’s faced paced ever changing environment this traditional approach is becoming obsolete and firms are looking for new organizational forms. Authors suggest that there are two capabilities that are considered as critical success factors in the uncertain and ambiguous environment. The first one is an effective balance and exploration and exploitation and the second is recombination of established competencies.

Organizational forms are based on six elements are Organizational goals, Strategies, Authority, Technologies, Markets, Processes.

Emerging Organizational Forms

Authors suggest six different and potentially enduring organizational models for emerging organizational forms. Though this models are not mutually exclusive and is not well defined, but they are useful to emerging technologies of production, communication and distribution. The six organizational forms for emerging technologies are :

• Virtual Organization: Virtual form is an organization in which employees, suppliers, and customers are geographically dispersed but united by technology. Virtual organization forms works by connecting firms with their scattered customers through network of distributed organizational units. Advantages of virtual forms are that: They minimize asset commitments, results in greater flexibility, lower costs and results in faster growth. Other advantages include virtual organization forms act as a marketing tool for emerging technologies, attracts creative and energetic employees.

• Network Organization: The network form is based on an organized set of relationships among autonomous or semi-autonomous work units for delivering a complete product or service to a customer. Network forms are present both externally and internally in a company.
  External network form: This can be viewed as outsourcing in the extreme. The firms create a symbiotic relationship among independent entities to collect the necessary skills, assembly and services. This form relies on lateral communication.
  Internal network forms: Internal network form is same as external network form but is applied within the firms. In this form, strategic business units, microenterprises and autonomous work teams are building blocks and they are controlled by the top of the pyramid.
  
  Both external and internal network forms provide greater flexibility with their built-in modularity. Network organizational form is useful industries that are ever changing and rapidly emerging technologies.

• Spin-Out Organization: Spin- out organization forms are built when companies establish fresh entities inside new business concepts and then set them partially on their own. In this type of form, parent companies act as venture capitalist, protective incubator and proud mentor and hold a major stake in the fresh entities. Spin-out organization form helps firms develop and commercialize emerging technologies.

• Ambidextrous Organization: In this form, both established and emerging business flourish side by side, some working on the incremental improvements in technologies and others on breakthroughs. This form is designed to use the skill involved in both continuous and discontinuous innovation. Advantages of ambidextrous organization form are it develops emerging technologies without abandoning old ones.

• Front-Back Organization: This type of form organizes around customers in front and all the company functions are placed at back to support front end. Purpose of this form is to serve customers with fast, customized and responsive solutions. Inverted organization and hybrid model are types of front-back organization form. In inverted organization, all line executives, systems and support staff work for front-line person and front-line person in turn serves the customers with the back-end support. In hybrid model, companies process teams either vertically or horizontally. This type of form works as a centerless corporation, where resources are directed to the most important front-end. Advantage of front-back organization is employees are accountable for their work and helps motivate employees to be competent.

• Sense-and –Respond Organization: This form is focused more on identifying emerging customer needs. In this model, whole organization is involved in meeting the needs of the ever-changing customer needs. Advantages of this form are high adaptability of firms and extremely flexible to meet changing customer needs.

Authors conclude by saying that in this ever-changing competitive environment, organizational forms are increasingly becoming important. Selection of forms depends on company’s goals and nature of emerging technology an organization involved in. Firms should carefully analyze the competitive markets and internal capabilities in selecting the right organizational form.

Analysis

I find both chapters interesting, thinking of chapter 11, to me, it appeared as if author’s approach is more towards management tactics applicable to any kind of businesses and trying to fit emerging technologies in those theories. But, I found chapter 17 extremely engaging and different from what we learnt so far from the previous chapters. This chapter shows new perspective in dealing with emerging technologies. I think ready-made organizational forms approach is very innovative and extremely useful to firms, especially to those firms involved in emerging technologies will definitely benefit from them. With so much of uncertainty and ambiguity surrounding emerging technologies, I think firms can at least minimize some of the risks involved in emerging technologies if they adopt organizational forms. But again as the authors said choosing the right forms depends on what emerging technologies firms are developing and involved with.

Cohen-Bayer

Stanley Cohen an associate professor of medicine at Stanford University and Herbert Boyer, a biochemist and genetic engineer at the University of California. Boyers’ team worked on an enzyme which cuts DNA strings into segments that carry the code for a predetermined protein. Cohen introduced antibiotic carrying plasmids into certain bacteria and as well as a method of isolating and cloning genes carried by the plasmids. They combined their work and showed that Boyer’s enzymes allowed Cohen to introduce specific DNA segments to plasmids, resulting plasmisds as a vehicle for cloning. Four months after that they had a breakthrough, succeeded in cloning predetermined patterns of DNA and a technique of recombinant DNA was born.

Reference :

http://www.ias.ac.in/currsci/mar252009/760.pdf