In my second blog ‘What is innovation’ I compared two types of innovation, incremental and radical. However these two innovations can be a basis of discussion for two views of which is more likely to innovate (Afuah, 1998, p16). These views are Strategic incentives and Organisational Capabilities.
With ‘Strategic Incentive’ (to invest) innovation the type of innovation, whether radical or incremental, determines which type of firm is likely to invest and be the first to innovate. (Afuah, 1998, p16). Radical innovations may render existing products as non competitive, therefore these existing products’ organisations may be reluctant invest in radical innovate in fear of annihilating their current products (Afuah, 1998, p16). New product entrants on the other hand do not have this risk, therefore they will more willingly invest in radical innovations as not doing so would mean that they have no product to compete with (Afuah, 1998, p16). Contrastingly current products are not made invalid by incremental innovations therefore organisations with existing products are more likely to invest in innovations in this case, as their existing products would remain competitive (Arrow, 1962, p609-626. CITED: Afuah, 1998, p16).
Within ‘Organisational Capabilities’ incremental innovations may have problems exploiting radical innovations. Firstly since the radical innovation may destroy the competences of the incremental innovation, there would be no way of exploiting it (Ettlie, 1984, p682-95. CITED: Afuah, 1998, p16). Secondly because of the new radical innovation the existing product capabilities may be deemed useless (Leonard-Barton, 1992, p111-126. CITED: Afuah, 1998, p16) as they have to ‘unlearn’ old ways of doing things in order to still be considered competitive (Afuah, 1998, p16). In opposition New entrants do not have the hold back of old technology and so can build the capabilities to exploit it (Afuah, 1998, p16).
Despite the obvious advantages of radical innovation in terms of strategic incentive and organisational capabilities. Porter suggests that the Innovation value added chain model can explain why a incumbent can outperform new entrants at radical innovation and why it may also fail at incremental innovation (Porter, 1985). The value added chain differs from other models as they tend to focus on the impact of innovation on an organisations capabilities and competitiveness, the value added model focuses on what innovation does to the competitiveness and capabilities of an organisation’s suppliers, customers and complementary innovators (Afuah, 1998, p19).
Examples of this may be Ford’s electric car. The value added chain would imply that the electric car does not only enhance Ford’s technical and market knowledge, but it also effects the knowledge of the suppliers (e.g. suppliers of electronic fuel injection systems) and the customers and complementary innovators such as petrol stations and oil companies (Bahram and Afuah, 1995
Another example of this may be the DSK keyboard, which, it has been suggested, works 20-40% better than the QWERTY keyboard. Despite suppliers/manufacturers only having to rearrange the keys in order to produce this product, it deemed to be pointless as this ‘radical innovation’ was competency destroying as customers would have relearn how to type and touch type therefore regarding the incumbent as outperforming the new entrant (David, 1985).
DSK keyboard
QWERTY Keyboard
Each of these examples shows how innovation can have a different impact on each stage of the value added chain. Showing that an innovation may be incremental or radical at different stages of the value chain (Afuah, 1998, p21).
The implications of this are that an organisation’s success in exploiting innovation depends as much on how the innovation effects the capabilities of the organisation as what it does to the capabilities of suppliers, customers and complementary innovators (Afuah, 1998, p21).
References
Afuah, A. (1998). Innovation Management: Strategies, Implementation and Profits. New York: Oxford Press University Inc.
Bahram, N.Afuah, A N. (1995) The Hypercube of Innovation. Research Policy. Vol. 24 pp51-76.
David, P A. (1985) Clio and the economics of QWERTY. American Economic Review. Vol, 75, issue 2, pp332-336.
Porter, M E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press.
