Charles C. Snow is a professor in the business school at Penn State, in the management department. He has been there for a long time studying various management topics. Over the last 5 or 6 years he has really been focusing on innovation management. He has been doing a variety of things in terms of research, joining LinkedIn groups and a variety of other things to get it sorted out.
Does innovation vary by industry type?
Just about anything you would focus on would vary by industry, because each industry has its own culture, way of doing things and stage of development. The two things Charles has been focusing on in his research and writing is firstly the notion of value configuration. Each industry has its own way of creating value and firms that wish to participate in that industry need to understand what the value creation process is like.
There are 3 main value configurations which are helpful in understanding how industries work.
One is the well known value chain introduced by Michael Porter. This is representative of companies like Starbucks, BMW or any company in which value is added at each stage of production.
Another type of value configuration is called the value shop. This would be illustrated by something like a consulting firm or a hospital where the basic way of creating value is to mobilize resources to create a customized solution for the client or customer.
The third type is called Value Networks. The illustrative companies here would be telecom companies, Facebook, etc. In these type of industries firms create value by connecting those who are or wish to be interdpendent.
Any firm that wants to compete in a particular value configuration needs to understand how it works and to design their own strategies and business models around that value creation process.
The second key feature of industries are the level of knowledge required to operate in that industry. The knowledge intensive industries such as bio-technology and nano-technology, professional services, computers, micro-electronics, etc are the industries in which innovation occurs continuously. In order for a firm to be successful in that environment they need the organizational structures and management processes which can keep pace with the the developments in knowledge.
Does innovation vary by firm?
Yes. Those were Charles' original studies where they looked at competitive strategy and tried to determine the capabilities required to support those strategies. In every industry they looked at, starting with college textbook publishing firms, followed by electronics firms, food processing firms, private hospitals. In every industry they looked at they found 3 common forms of strategic behavior.
They labeled them Prospectors, Defenders and Analyzers. These studies were done in the late 60s, early 70s. Labels were developed later on which pretty much supplanted the original labels. However, the behavior hasn't changed at all. Today they are referred to as first movers, fast followers and late movers. Obviously, a first mover (Prospectors) are going to be engaged in the most amount of innovation and it tends to be innovation within the realm of technology, products, and market.
Second movers, or Analyzers, tend to focus mostly on commercialization and market building. They simply work with technologies which have improved themselves. They don't engage in a lot of experimental behavior which to some extent will fail. That strategy has a particular type of innovation in mind.
Finally, the late movers or Defenders typically engage in process innovation. They usually have a fairly narrow product and service line. They tend to have a lot of stability in their operations. They are efficiency oriented where they try to find things to do right, rather than finding new things to do. As a result, they simply try to become more efficient by developing better production systems, distribution systems, etc.
Depending on what your competitive strategy or approach is in the industry, the types of innovation you will engage in varies quite a bit.
Differences in innovation across economies and cultures
Charles hasn't personally done a lot of research in different countries and economies. However, he has traveled a lot and has taught executive programs and courses in more than 25 countries. Charles has a lot of impressions about how the innovation process works. Charles was intrigued by something from the McKinsey newsletter where they talk about innovation in China in 3 different industries; autos, semiconductors and pharmaceuticals.
Given where China is in its development, roaring ahead but coming from further up the learning curve, in autos for example they don't even focus on technical achievement. This is because the knowledge and expertise is already spread around this global industry.
They typically partner with a global firm like GM for the technology. The Chinese will focus on modular platforms so that they can commercialize their own models. This form of innovation in the automobile industry is rapidly developing in China.
In Semiconductors on the other hand, China is still in an investigative mode to try to determine the best way to proceed. According the McKinsey article, 33% of the world's chips are purchased and used by China. There is a huge market there but Chinese firms are not the technological leaders of this global industry. The government has organized a policy process which basically says they will make purchases from domestic firms as the highest priority. That policy basically incentivizes other semiconductor firms in the world to find partners among Chinese firms because if they can do business with them the government will make the purchase from the Chinese firms.
Of course, the global leaders in semiconductors are worried about the transferrance of their IP. All of that needs to be worked out. The Chinese government is trying to create policies that will encourage global semiconductor firms to be interested in partnering with Chinese firms to further develop the industry.
In pharmaceuticals in China Charles sees it as how it developed in the US. The big pharma companies have outsourced R&D to smaller firms. The pharmaceutical industry is more a biotech industry now. They let these new technologies and therapeutic approaches develop in the small R&D firms typically owned by entrepreneurial scientists. If something becomes promising and potentially commercializable they then license the technology or acquire the firm entirely.
The big pharma companies have basically over the years reduced the size of their own R&D teams and have learned how to spot promising activities developing elsewhere. According to the McKinsey article, this is what the Chinese are doing. They are trying to develop their capabilities in partnering, exploration and manufacturing so that they can essentially license or acquire firms wherever they exist in the world that are developing promising new technologies.
About Charles C. Snow
Mellon Foundation Professor of Business Administration
The Pennsylvania State University