Innovation, Technology and Interactivity Special Interest Group

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An Occasional Essay on Technology and Innovation

Essay of February, 2006

Ten Most Pressing Issues in Innovation
Gerard J. Tellis

Director of Center of Global Innovation
Neely Chair in American Enterprise and Professor of Marketing
USC Marshall School of Business
Office: +1 213-740-5031 Home Office +1 626-369-4391

Innovation is an important activity for individuals, firms, and nations. It creates new markets and transforms old ones, brings down market giants and propels small entrants to leadership, creates wealth for open nations and poverty for closed ones. Due to increasing globalization and more intense competition, entrepreneurs, firms, and governments the world over are eager to understand the dynamics of innovation to catch this great wave of change. They are seeking answers to many vital issues which have been ignored or incompletely addressed in the field. Here are some of the most pressing issues:

Predicting Technology Change
Technological change creates chaos for consumers, firms, and economies. Foster (1986) threw order on this chaos by proposing that technological change followed a series of S-curves which cross once. As such, firms should transition to the new technology when they see an old technology reaching the end of its growth curve. However, recently Sood and Tellis (2005) created fresh disorder when they showed that in many markets S-curves are rare if not nonexistent. In either case, researchers have not developed a model that can predict technological change and give managers a tool to know when to stay and when to quit the course.

Why Great Companies Fail?
Great companies dominate their markets. This dominance should lead to resources that ensure that the dominant firm stays at the cutting edge of innovation and furthers its market dominance. Yet, dominant firms often fail. Researchers have proposed many theories for failure, including size (Schumpeter 1942), technological transitions (Foster 1986), competence-destroying innovation (Utterback 1994), disruptive innovation (Christensen 1997), and internal firm culture (Chandy and Tellis 1998; 2000). Researchers still need to square off these rival explanations or build an integrative theory for why great firms fail.

Decoding Disruption
One of the most popular concepts in innovation today is that of disruption (Christensen. 1997). The key contribution of the concept is that disruptive innovation causes firms to fail even when and maybe precisely because they are focused on their consumers. However, researchers have not tested disruption by a formal large-scale study. Indeed, the concept raises some basic questions: How exactly does one define disruption before disruption occurs? Can one identify a disruptive technology before a technology is introduced? If so, on what characteristics? What percentage and which types of incumbents suffer disruption? How can they prevent it?

Make or Buy?
Incumbents that fail to develop innovation on the inside assume they can always buy it on the outside. However, the real issue is, is this a sustainable strategy in the long-term? Can the price be too high? Given that very many acquisitions fail, what are the drivers of success with this strategy?

Cross-Country Innovativeness
If one looks across countries at any point in time, one sees a dramatic difference in wealth and innovation. This disparity bring up a host of fundamental issues: Is the innovativeness of firms and countries correlated? If so, which leads to which? Or are they both the result of some other Gerard J. Tellis Pressing Issues in Innovation 1/29/2006 more basic exogenous variable? What drives country wealth and innovativeness? Do race, culture, religion, geography, or climate play a role?

Innovation Through History
A related issue to the one above is the temporal nexus between firm and country. If one reviews the history of innovation, one observes that technological leadership has shifted from one country to another over the centuries. For example, in the last five hundred years it has moved from Italy to Portugal and Spain to Netherlands and Denmark to UK and Germany to the US and Japan. Similar shifts in innovation have occurred back in historical time. Why do these shifts occur? Why is innovation not self-stimulating and self-sustaining so that dominant countries stay on top? How do individuals, firms, and countries interact in creating innovations? Does country environment foster innovative individuals and firms or do innovative individuals and firms foster an innovative country?

Causes and Consequences of Takeoff
Several researchers have documented that commercialized innovations do not grow at an even pace but show rapid growth following a takeoff after a long period of flat introductory sales. Researchers have offered different reasons for the takeoff, including price (Golder and Tellis 1997), quality (Agarwal & Bayus 2002), country culture (Tellis, Stremersch and Yin 2003). Which of these explanations is true? More generally, can takeoff signal ultimate success of innovations? Is time to takeoff related to time to introduction?

Network or Quality?
The explosion of high tech products and the increasing existence of monopolies in many new markets have reiterated the importance of networks effects. In particular, economists are very concerned whether network effects enable inferior brands to quickly monopolize a market and prevent superior brands from gaining entry or market share. However, does that really happen? Do consumer really tradeoff between network effects and quality? Are brands which dominate high-tech markets of inferior quality?

Why Chasms?
Moore (1991) strategizes how firms should cross the chasm that occurs between first adopters of an innovation and the mass market. But the strategy should really depend on understanding, in the first place, why chasms occur. Are they because of gaps in new product diffusion (Moore 1991), cyclical patterns in the economy, information cascades (Golder and Tellis 2004) or some other reason? An even more basic issue is how do we define such chasms and how widespread are they?

Innovate or Promote?
Most firms face finite budgets. One of the biggest tradeoffs they face in discretionary spending is between innovation and promotion. Which brings us to another unanswered question, what really causes long term brand equity? Is it strongly and creatively promoting a brand name, as advertising agencies would have us believe? Or it is consistently and relentless innovating, even at the cost of cannibalizing one’s successful products? For example, what has made Intel, Samsung, or Toyota such valuable brand names?

New Methods of Study
Underlying all these issues is the question of method. What is the appropriate method, time frame, domain, and scope for research? The important research questions posed above should suggest that quick, simple, or one shot studies may not be very insightful. What we need is new, innovative, inductive research along the following lines:
  1. Selectively collecting fresh data from independent, public organizations such as patent offices, new firm registrations, new product introductions, etc.
  2. Long-term historical analyses of markets and firms as they evolved
  3. Longitudinal surveys of firms, countries, and consumers to uncover the causality underlying these complex phenomenon.
  4. In-depth case analyses of innovation by onsite observation.
  5. Combining historical, market, and survey methods for more complete understanding.
Innovation is fraught with danger and imbued with the potential for great success and wealth. While research in this area has progressed, many exciting problems remain unresolved and many important questions remain unanswered. Thus, the field promises to be a rich mine of information for the dedicated researcher.

Agarwal, Rajshree, and Barry Bayus (2002), “The Market Evolution and Sales Takeoff of Product Innovations.” Management Science 48 (August), 1024–52.

Chandy, Rajesh K. and Tellis Gerard J. (1998), "Organizing for radical product innovation: The overlooked role of willingness to cannibalize," Journal of Marketing Research, 35 (4), 474-87.

---- and Tellis, Gerard J. (2000), "The Incumbent's Curse? Incumbency, Size, and Radical Product Innovation," Journal of Marketing, 64 (3), 1-17.

Christensen, Clayton M (1997), "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail," Harvard Business School Press.

Foster, Richard (1986), "Innovation: The Attacker's Advantage," New York: Summit Books.

Golder, Peter N. and Gerard J. Tellis (1997), “Will It Ever Fly? Modeling The Takeoff of New Consumer Durables,” Marketing Science, 16, 3, 256-270.

Golder, Peter N and Gerard J. Tellis (2004), “Going, Going, Gone: Cascades, Diffusion, and Turning Points of the Product Life Cycle,” Marketing Science, 23, 2 (180-191).

Moore, G. A. (1991), Crossing The Chasm: Marketing And Selling High-Tech Goods To Mainstream Customers, New York: HarperBusiness

Schumpeter, Joseph (1942), Capitalism, Socialism, and Democracy, New York, NY: Harper.

Sood Ashish and Gerard J. Tellis (2005), “Technological Evolution and Radical Innovation?” Journal of Marketing, 69, 3 (July), 152-168.

Tellis, Gerard J., Stefan Stremersch and Eden Yin (2003), “The International Takeoff of New Products: Economics, Culture and Country Innovativeness,” Marketing Science, 22, 2 (Spring), 161-187.

Utterback, James M. (1994a), Mastering the Dynamics of Innovation, Cambridge, MA: Harvard Business School Press.

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