Management of Technology Reports

Management of Technology 201
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EVOLUTION OF TECHNOLOGY
Objectives:
To be highly knowledgeable about Evolution of Technology;
To have a wide understanding about technology according to the human needs;
To have better understanding about the development of technologies.
What is Technology?
Technology is
the
making,
usage,
and
knowledge
of tools, machines,
techniques, crafts, systems or methods of organization in order to solve a problem or perform a
specific function. It can also refer to the collection of such tools, machinery, and procedures. The
word technology comes from Greek (technologa); from (tchn), meaning
"art, skill, craft", and - (-loga), meaning "study of-"The term can either be applied generally
or to specific areas: examples include construction technology, medical technology,
and information technology.
Theory of Technological Evolution
Technology evolves in:
three stages:
tools, machine, automation.
two trends:
the replacement of physical labour with more efficient mental labour, and
the resulting greater degree of control over one's natural environment
Stages of Technological Development

The pre-technological period - prehistoric man
The pre-technological period, in which all other animal species remain today aside from
some avian and primate species was a non-rational period of the early prehistoric man.
The first stage: the tool

The emergence of technology, made possible by the development of the rational
faculty, paved the way for the first stage: the tool. A tool provides a mechanical
advantage in accomplishing a physical task, and must be powered by human or animal
effort.
Hunter-gatherers developed tools mainly for procuring food. Tools such as a
container, spear, arrow, plow, or hammer that augments physical labor to more efficiently
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achieve his objective. Later animal-powered tools such as the plow and the horse,
increased the productivity of food production about tenfold over the technology of the
hunter-gatherers. Tools allow one to do things impossible to accomplish with one's body
alone, such as seeing minute visual detail with a microscope, manipulating heavy
objects with a pulley and cart, or carrying volumes of water in a bucket.
The second technological stage was the creation of the machine
The second technological stage was the creation of the machine. A machine (a
powered machine to be more precise) is a tool that substitutes the element of human
physical effort, and requires the operator only to control its function. Machines became
widespread with the industrial revolution, though windmills, a type of machine, are much
older.
The third, and final stage of technological evolution is the automation
The third, and final stage of technological evolution is the automation. The
automation is a machine that removes the element of human control with an automatic
algorithm. Examples of machines that exhibit this characteristic are digital watches,
automatic telephone switches, pacemakers, and computer programs.
It's important to understand that the three stages outline the introduction of the
fundamental types of technology, and so all three continue to be widely used today. A
spear, a plow, a pen, and an optical microscope are all examples of tools
I.
HISTORY OF TECHNOLOGY
The history of technology is the history of
the invention of tools and techniques, and is similar in many
ways to the history of humanity. Background knowledge has
enabled people to create new things, and conversely, many
scientific
endeavors
have
become
possible
through technologies which assist humans to travel to places
we could not otherwise go, and probe the nature of the
universe in more detail than our natural senses allow.
Technological artifacts are products of an economy, a
force for economic growth, and a large part of everyday life.
Technological innovations affect, and are affected by, a
society's cultural traditions. They also are a means to
develop and project military power.
The wheel was invented in the 4th millennium BC,
and has become one of the world's most famous, and most
useful technologies.
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Measuring Technological Progress

Lewis H. Morgan, Leslie White, and Gerhard Lenski, declare technological progress to
be the primary factor driving the development of human civilization. Morgan's concept of
three major stages of social evolution (savagery, barbarism, and civilization) can be divided
by technological milestones, like fire, the bow, and pottery in the savage era, domestication
of animals, agriculture, and metalworking in the barbarian era and the alphabet
and writing in the civilization era.
Instead of specific inventions, White decided that the measure by which to judge the
evolution of culture was energy. For White "the primary function of culture" is to "harness
and control energy." White differentiates between five stages of human development: In the
first, people use energy of their own muscles. In the second, they use energy
of domesticated animals. In the third, they use the energy of plants (agricultural revolution).
In the fourth, they learn to use the energy of natural resources: coal, oil, gas. In the fifth,
they harness nuclear energy. White introduced a formula P=E*T, where E is a measure of
energy consumed, and T is the measure of efficiency of technical factors utilizing the energy.
In his own words, "culture evolves as the amount of energy harnessed per capita per year is
increased, or as the efficiency of the instrumental means of putting the energy to work is
increased". Russian astronomer, Nikolai Kardashev, extrapolated his theory creating the
Kardashev scale, which categorizes the energy use of advanced civilizations.
Lenski takes a more modern approach and focuses on information. The more
information and knowledge (especially allowing the shaping of natural environment) a given
society has, the more advanced it is. He identifies four stages of human development,
based on advances in the history of communication. In the first stage, information is passed
by genes. In the second, when humans gain sentience, they can learn and pass information
through by experience. In the third, the humans start using signs and develop logic. In the
fourth, they can create symbols, develop language and writing. Advancements in the
technology of communication translates into advancements in the economic
system andpolitical system, distribution of wealth, social inequality and other spheres of
social life. He also differentiates societies based on their level of technology, communication
and economy:
hunters and gatherers,
simple agricultural,
advanced agricultural,
industrial,
special (such as fishing societies).
Finally, from the late 1970s sociologists and anthropologists like Alvin Toffler (author
of Future Shock), Daniel Bell and John Naisbitt have approached the theories of post-industrial
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societies, arguing that the current era of industrial society is coming to an end, and services and
information are becoming more important than industry and goods. Some of the more extreme
visions of the post-industrial society, especially in fiction, are strikingly similar to the visions of
near and post-Singularity societies.
PERIOD AND GEOGRAPHY
Early technology
1. Stone Age
The early Stone
During the Stone Age, all humans had a lifestyle which

involved limited use of tools and few, if any, permanent
settlements. The first major technologies, then, were tied to
survival, hunting, and food preparation in this environment. Fire,
stone tools and weapons, and clothing were technological
developments of major importance during this period. Stone
Age
cultures
developed music,
and
engaged
in
organized warfare. A subset of Stone Age humans ,
including Ngaro Aborigines, developed ocean-worthy outrigger
canoe technology, leading to an eastward migration across
the Malay
archipelago,
across
the
Indian
ocean
to Madagascar and also across the Pacific Ocean, which
required knowledge of the ocean currents, weather patterns,
sailing, celestial navigation, and star maps.
Age is described as Epipaleolithic or Mesolithic. The former is generally used to describe

the early Stone Age in areas with limited glacial impact. The later Stone Age, during which the
rudiments of agricultural technology were developed, is called the Neolithic period. During this
period, polished stone tools were made from a variety of hard rocks such
as flint, jade, jadeite and greenstone, largely by working exposures as quarries, but later the
valuable rocks were pursued by tunnelling underground, the first steps in mining technology.
The polished axes were used for forest clearance and the establishment of crop farming, and
were so effective as to remain in use when bronze and iron appeared.
2. Copper and Bronze Age
The Stone Age developed into the Bronze Age after the Neolithic Revolution. The
Neolithic Revolution involved radical changes in agricultural technology which
included development of agriculture, animaldomestication, and the adoption of permanent
This technological trend apparently began in the Fertile Crescent, and spread outward
settlements. These combined factors made possible the development of metal smelting,
over time. These developments were not, and still are not, universal. The Three-age
with copper and later bronze, an alloy of tin and copper, being the materials of choice, although
system does not accurately describe the technology history of groups outside of Eurasia, and
polished stone tools continued to be used for a considerable time owing to their abundance
does not apply at all in the case of some isolated populations, such as the Spinifex People,
compared with the less common metals (especially tin).
the Sentinelese, and various Amazonian tribes, which still make use of Stone Age technology,
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and have not developed agricultural or metal technology.

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The Iron Age involved the adoption of iron smelting
3. Iron Age
technology. It generally replaced bronze, and made it possible

to produce tools which were stronger and cheaper to make
than bronze equivalents. In many Eurasian cultures, the Iron
Age was the last major step before the development of written
language, though again this was not universally the case. It
was not possible to mass manufacture steel because high
furnace temperatures were needed, but steel could be
produced by forging bloomery iron to reduce the carbon
content in a controllable way. Iron ores were much more
widespread than either copper or tin. In Europe, large hill
forts were built either as a refuge in time of war, or sometimes
as permanent settlements. In some cases, existing forts from
the Bronze Age were expanded and enlarged. The pace of
land clearance using the more effective iron axes increased,
providing more farmland to support the growing population.
4. Ancient Civilizations
It was the growth of the ancient civilizations which produced the greatest advances in
technology and engineering, advances which stimulated other societies to adopt new ways of
living and governance.
The Egyptians invented and used many simple machines, such as the ramp to aid
construction processes. The Indus Valley Civilization, situated in a resource-rich area, is notable
for its early application of city planning and sanitation technologies. Ancient India was also at the
forefront of seafaring technologya panel found at Mohenjodaro, depicts a sailing craft. Indian
construction and architecture, called 'Vaastu Shastra', suggests a thorough understanding of
materials engineering, hydrology, and sanitation.
The Chinese were responsible for numerous technology discoveries and developments.
Major technological contributions from China include early seismological detectors, matches,
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paper, cast iron, the iron plough, the multi-tube seed drill, the suspension bridge, the parachute,
natural gas as fuel, the magnetic compass, the raised-relief map, the propeller, the crossbow,
the South Pointing Chariot, and gun powder.
Greek and Hellenistic engineers invented many technologies and improved upon preexisting technologies. Particularly the Hellenistic period saw a sharp rise in technological
inventiveness, fostered by a climate of openness to new idea, royal patronage the blossom of a
mechanistic philosophy and the establishment of the Library of Alexandria and its close
association with the adjacent museion. In contrast to the typically anonymous inventor of earlier
ages, ingenious minds such as Archimedes, Philo of Byzantium, Heron, Ctesibius and
Archytas now remained known by name to posterity.
Ancient Greek innovations were particularly pronounced in mechanical technology,
including the ground-breaking invention of the watermill which constituted the first humandevised motive force not to rely on muscle labour (besides the sail). Apart from their pioneer use
of waterpower, Greek inventors were also the first to experiment with wind power (see Heron's
windwheel) and even created the earliest steam engine (the aeolipile), opening up entirely new
possibilities in harnessing natural forces whose full potential came only to be exploited in
the industrial revolution. Of particular importance for the operation of mechanical devices
became the newly devised right-angled gear and the screw.
An illustration of the aeolipile, the earliest steam-powered device

Ancient agriculture, as in any period prior to the modern age the primary mode of
production and subsistence, and its irrigation methods were considerably advanced by the
invention and widespread application of a number of previously unknown water-lifting devices,
such as the vertical water-wheel, the compartmented wheel, the water turbine, Archimedes
screw, the bucket-chain and pot-garland, the force pump, the suction pump, the doubleaction piston pump and quite possibly the chain pump.
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The compartmented water-wheel, here its overshot version,

was invented in Hellenistic times
In music, water organ, invented by Ctesibius and subsequently improved, constituted the
earliest instance of a keyboard instrument. In time-keeping, the introduction of the
inflow clepsydra and its mechanization by the dial and pointer, the application of a feedback
system and the escapementmechanism far superseded the earlier outflow clepsydra.
The famous Antikythera mechanism, a kind of analogous computer working with a differential
gear, and the astrolabe show great refinement in the astronomical science.
Greek engineers were also the first to devise automaton such as vending machines,
suspended ink pots, automatic washstands and doors, primarily as toys, which however
featured many new useful mechanisms such as the cam and gimbals.
In
other
fields,
ancient
Greek
inventions
include
the catapult and
the gastraphetes crossbow in warfare, hollow bronze-casting in metallurgy, the dioptra for
surveying, in infrastructure the lighthouse, central heating, the tunnel excavated from both ends
by scientific calculations, theship trackway, the dry dock and plumbing. In horizontal vertical and
transport great progress resulted from the invention of the crane, thewinch,
the wheelbarrow and the odometer.
Further newly created techniques and items were spiral staircases, the chain
drive, sliding calipers and showers.
The Romans developed an intensive and sophisticated agriculture, expanded upon
existing iron working technology, created laws providing for individual ownership, advanced
stone masonry technology, advanced road-building (exceeded only in the 19th century), military
engineering, civil engineering, spinning and weaving and several different machines like
the Gallic reaper that helped to increase productivity in many sectors of the Roman economy.
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Roman engineers were the first to build monumental arches, amphitheatres, aqueducts, public
baths, true arch bridges reservoirs and dams, vaults and domes on a very large scale across
their Empire. Notable Roman inventions include the book (Codex), glass blowing and concrete.
Because Rome was located on a volcanic peninsula, with sand which contained suitable
crystalline grains, the concrete which the Romans formulated was especially durable. Some of
their buildings have lasted 2000 years, to the present day.
The engineering skills of the Inca and the Mayans were great, even by today's
standards. An example is the use of pieces weighing in upwards of one ton in their stonework
placed together so that not even a blade can fit in-between the cracks. The villages used
irrigation canals and drainage systems, making agriculture very efficient. While some claim
that the Incas were the first inventors of hydroponics, their agricultural technology was still
soil based, if advanced. Though the Maya civilization had no
metallurgy or wheel technology, they developed complex writing and astrological systems, and
created sculptural works in stone and flint. Like the Inca, the Maya also had command of fairly
advanced agricultural and construction technology. Throughout this time period much of this
construction, was made only by women, as men of the Maya civilization believed that females
were responsible for the creation of new things. The main contribution of the Aztec rule was a
system of communications between the conquered cities. In Mesoamerica, without draft animals
for transport (nor, as a result, wheeled vehicles), the roads were designed for travel on foot, just
like the Inca and Mayan civilizations.
Medieval and Modern Technologies
1. European Technology
European technology in the Middle Ages may be best described as a symbiosis
of traditio et innovatio. While medieval technology has been long depicted as a step backwards
in the evolution of Western technology, sometimes willfully so by modern authors intent on
denouncing the church as antagonistic to scientific progress (see e.g. Myth of the Flat Earth), a
generation of medievalists around the American historian of science Lynn White stressed from
the 1940s onwards the innovative character of many medieval techniques. Genuine medieval
contributions include for examplemechanical clocks, spectacles and vertical windmills. Medieval
ingenuity was also displayed in the invention of seemingly inconspicuous items like
the watermark or the functional button. In navigation, the foundation to the subsequent age of
exploration was laid by the introduction of pintle-and-gudgeonrudders, lateen sails, the dry
compass the horseshoe and the astrolabe.
Significant advances were also made in military technology with the development
of plate armour, steel crossbows, counterweight trebuchetsand cannon. Perhaps best known
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are the Middle Ages for their architectural heritage: While the invention of the rib
vault and pointed archgave rise to the high rising Gothic style, the ubiquitous medieval
fortifications gave the era the almost proverbial title of the 'age of castles'.
2. Chinese Technology
Inexpensive paper: a revolution in the diffusion of knowledge
Paper making, a 2nd century Chinese technology, was carried to the Middle East when a
group of Chinese paper makers were captured in the 8th century. Paper making technology was
spread to Mediterranean by the Muslim conquests. A paper mill was established in Sicily in the
12th century. The spinning wheel increased the productivity of thread making by a factor of
greater than 10. Lynn White credited the spinning wheel with increasing the supply of rags,
which led to cheap paper, which was a factor in the development of printing.
Renaissance Technology
The era is marked by such profound technical advancements like linear
perceptivity, patent law, double shell domes or Bastion fortresses. Note books of the
Renaissance artist-engineers such as Taccola and Leonardo da Vinci give a deep insight into
the mechanical technology then known and applied. Architects and engineers were inspired by
the structures of Ancient Rome, and men likeBrunelleschi created the large dome of Florence
Cathedral as a result. He was awarded one of the first patents ever issued in order to protect an
ingenious cranehe designed to raise the large masonry stones to the top of the structure.
Military technology developed rapidly with the widespread use of the cross-bow and ever more
powerful artillery, as the city-states of Italy were usually in conflict with one another. Powerful
families like the Medici were strong patrons of the arts and sciences. Renaissance
science spawned the Scientific Revolution; science and technology began a cycle of mutual
advancement.
1. Age of Exploration
The sailing ship (Nau or Carrack) enabled the Age of Exploration with the European
colonization of the Americas, epitomized by Francis Bacon's New Atlantis. Pioneers like Vasco
de Gama, Cabral, Magellan and Christopher Columbus explored the world in search of new
trade routes for their goods and contacts with Africa, India and China which shortened the
journey compared with traditional routes overland. They also re-discovered the Americas while
doing so. They produced new maps and charts which enabled following mariners to explore
further with greater confidence. Navigation was generally difficult however owing to the problem
of longitude and the absence of accurate chronometers. European powers rediscovered the
idea of the civil code, lost since the time of the Ancient Greeks.
2. Industrial Revolution
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The British Industrial Revolution is characterized by developments in the areas of
textile manufacturing, mining, metallurgy and transport driven by the development of the steam
engine. Above all else, the revolution was driven by cheap energy in the form of coal, produced
in ever-increasing amounts from the abundant resources of Britain. Coal converted to coke gave
the blast furnace and cast iron in much larger amounts than before, and a range of structures
could be created, such asThe Iron Bridge. Cheap coal meant that industry was no longer
constrained by water resources driving the mills, although it continued as a valuable source of
power. The steam engine helped drain the mines, so more coal reserves could be accessed,
and the output of coal increased. The development of the high-pressure steam engine made
locomotives possible, and a transport revolution followed.
3. 19th Century
The 19th century saw astonishing developments in transportation, construction, and
communication technologies originating in Europe, especially in Britain. The Steam
Enginewhich had existed since the early 18th century, was practically applied to
both steamboatand railway transportation. The first purpose built railway line opened between
Manchester and Liverpool in 1830, the Rocket locomotive of Robert Stephenson being one of
the first working locomotives used on the line. Telegraphy also developed into a practical
technology in the 19th century to help run the railways safely.
Other technologies were explored for the first time, including the incandescent light bulb.
The invention of the incandescent light bulb had a profound effect on the workplace because
factories could now have second and third shift workers. Manufacture of ships' pulley blocksby
all-metal machines at the Portsmouth block mills instigated the age of mass production.Machine
tools used by engineers to manufacture parts began in the first decade of the century, notably
by Richard Roberts and Joseph Whitworth. The development ofinterchangeable parts through
what is now called the American system of manufacturing which began in the firearms industry
at the U.S Federal arsenals in the early 19th century and became widely used by the end of the
century.
Steamships were eventually completely iron-clad, and played a role in the opening of
Japan and China to trade with the West. The Second Industrial Revolution at the end of the 19th
century saw rapid development of chemical, electrical, petroleum, and steel technologies
connected with highly structured technology research.
The period from last third of the 19th century until WW1 is sometimes referred to as
the Second Industrial Revolution.
20th century technology developed rapidly. Communication technology, transportation
technology, broad teaching and implementation of scientific method, and increased research
spending all contributed to the advancement of modern science and technology. Due to the
scientific gains directly tied to military research and development, technologies including
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electronic computing might have developed as rapidly as they did in part due to
war. Radio, radar, and early sound recording were key technologies which paved the way for
the telephone, fax machine, and magnetic storage of data. Energy and engine technology
improvements were also
The US National Academy of Engineering, by expert vote, established the following ranking of
the most important technological developments of the 20th century:
1. Electrification
2. Automobile
3. Airplane
4. Water supply and Distribution
5. Electronics
6. Radio and Television
7. Mechanized agriculture
8. Computers
9. Telephone
10. Air Conditioning and Refrigeration
11. Highways
12. Spacecraft
13. Internet
14. Imaging
15. Household appliances
16. Health Technologies
17. Petroleum and Petrochemical Technologies
18. Laser and Fiber Optics
19. Nuclear technologies
20. Materials science
Absent from the above list is the systematic method of mass production which
contributed to almost all of the above technologies.
4. 21th century
In the early 21st century, the main technology being developed is electronics.
Broadband Internet access became commonplace in developed countries, as did connecting
home computers with music libraries and mobile phones. Biotechnology is a relatively new field
that holds yet unknown possibilities.
Research is ongoing into quantum computers, nanotechnology, bioengineering, nuclear
fusion(see ITER and DEMO), advanced materials (e.g., graphene), the scramjet (along with rail
guns and high-energy beams for military uses), superconductivity, the memristor, and green
technologies such as alternative fuels (e.g., fuel cells, plugin hybrid cars) and more
efficient LEDs and solar cells.
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The understanding of particle physics is also expected to expand through particle
accelerator projects, such as the Large Hadron Collider the largest science project in the
world[4] and neutrino detectors such as the ANTARES. Theoretical physics currently
investigates quantum gravity proposals such as M-theory, superstring theory, and loop quantum
gravity.
Spacecraft designs are also being developed, i.a. under the Project
Constellation (see Orion and Ares V).[dated info] The James Webb Space Telescope will try to
identify early galaxies as well as the exact location of the Solar System within our galaxy, using
the infrared spectrum. The finished International Space Station will provide an intermediate
platform for space missions and zero gravity experiments. Despite challenges and
criticism, NASA and ESA plan a manned mission to Mars in the 2030s.
II. HISTORY OF COMPUTERS
The Beginning
In 1936, it was in this year that the first "computer" was developed. It was created by
Konrad Zuse and dubbed the Z1 Computer
In 1942, business saw profit and opportunity in computers.
Next ten years, the introduction of the transistor, a vital part of the inner workings of
the computer, the ENIAC 1 computer.
In 1953, The age of computers was forever altered by the introduction of
International Business Machines, or IBM, into the computing industry. The first
contribution was the IBM 701 EDPM Computer.
A Programming Language Evolves
A year later, FORTRAN was written so that more people could begin to program
computers easily.
The year 1955, creation of the first computers for use in banks. The MICR, or
Magnetic Ink Character Recognition, coupled with the actual computer, the ERMA,
was a breakthrough for the banking industry.
During 1958, the creation of the integrated circuit, also known as the chip, is one of
the base requirements for modern computer systems.
Gaming, Mice, & the Internet
In 1962, creation of the first computer game, which was created by Steve Russel and
MIT, which was dubbed Spacewar.
In 1964, the mouse, was created by Douglass Engelbart. It obtained its name from
the "tail" leading out of the device.
In 1969. ARPA net was the original Internet, which provided the foundation for the
Internet that we know today.
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It wasn't until 1970 that Intel entered the scene with the first dynamic RAM chip, which
resulted in an explosion of computer science innovation.
In 1958, on the heels of the RAM chip, the first microprocessor was developed, which
was also designed by Intel.
A year later, the floppy disk was created, gaining its name from the flexibility of the
storage unit.
In 1973, the first networking card was created, allowing data transfer between
connected computers.
Household PC's Emerge
The next three years, it develops systems for the average consumer. The Scelbi,
Mark-8 Altair, IBM 5100, Apple I and II, TRS-80, and the Commodore Pet
In 1978, major breakthroughs, the release of the VisiCalc Spreadsheet program.
1979, WordStar, the first word processing program, was released to the public for
sale.
In 1981,
The IBM Home computer quickly helped revolutionize the consumer market,
The mega-giant Microsoft enter the scene with the MS-DOS operating system.
The Competition Begins: Apple vs. Microsoft
In 1983, a vital change, Apple Lisa computer the first with a graphical user interface,
or a GUI.
CONCLUSION:
Technology involves manipulation of the environment to meet human needs such as food,
shelter, communication, and health. The development of various technologies within the last
10,000 years of human history has been affected by and has affected the environment, human
societies, and science.
Rachel Badanowski,
Southfield HS, Southfield, MI
References:
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Brush, S. G. (1988). The History of Modern Science: A Guide to the Second Scientific
Revolution 1800-1950. Ames: Iowa State University Press.
Bunch, Bryan and Hellemans, Alexander, (1993) The Timetables of Technology, New
York, Simon and Schuster.
Derry, Thomas Kingston and Williams, Trevor I., (1993) A Short History of Technology:
From the Earliest Times to A.D. 1900. New York: Dover Publications.
Greenwood, Jeremy (1997) The Third Industrial Revolution: Technology, Productivity
and Income Inequality AEI Press.
http://EzineArticles.com/?expert=Rebecca_Blain
MANAGING TECHNOLOGICAL TRANSITIONS

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Technological change (TC) is a term that is used to describe the overall process
of invention, innovation and diffusion of technology or processes. The term is synonymous with
technological development, technological achievement, and technological progress. In essence
TC is the invention of a technology (or a process), the continuous process of improving a
technology (in which it often becomes cheaper) and its diffusion throughout industry or society.
In short, technological change is based on both better and more technology.
Invention
The creation of something new, or a "breakthrough" technology. For example, a personal
computer
Innovation
Rogers proposes that there are five main attributes of innovative technologies which
influence acceptance. These are relative advantage, compatibility, complexity, trialability, and
observability. Relative advantage may be economic or non-economic, and is the degree to
which an innovation is seen as superior to prior innovations fulfilling the same needs. It is
positively related to acceptance (i.e., the higher the relative advantage, the higher the adoption
level, and vice versa). Compatibility is the degree to which an innovation appears consistent
with existing values, past experiences, habits and needs to the potential adopter; a low level of
compatibility will slow acceptance. Complexity is the degree to which an innovation appears
difficult to understand and use; the more complex an innovation, the slower its
acceptance. Trialability is the perceived degree to which an innovation may be tried on a limited
basis, and is positively related to acceptance. Trialability can accelerate acceptance because
small-scale testing reduces risk. Observability is the perceived degree to which results of
innovating are visible to others and is positively related to acceptance.
Diffusion
The spread of a technology through a society or industry. The diffusion of a technology
generally follows an S-shaped curve as early versions of technology are rather unsuccessful,
followed by a period of successful innovation with high levels of adoption, and finally a dropping
off in adoption as a technology reaches its maximum potential in a market.
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Understanding Technology Risk

Technological changes are responsible for both the creation and destruction of
industries. In the face of sweeping changes in technology, some industries die while others are
born. Quite clearly, a firms competitiveness is significantly influenced by its ability to understand
and embrace new product or process technologies. Introducing technological change is risky
because it brings with it a high degree of uncertainty. Understanding the nature of this
uncertainty, especially the obstacles to the acceptance of the new technology, is a tricky issue.
Between technical feasibility and commercial viability is a period of suspense.
The Growing Pace of Innovation
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Earlier, innovation cycles were quite long. This was the case with water power, textiles
and iron in the late 18th century; steam, rail and steel in the mid-19 th century; and electricity,
chemicals and the internal-combustion engine at the turn of the 20th century. Another innovation
cycle led by oil, electronics, aviation and mass production, is now drawing to a close. Current
indications are that a fifth industrial revolution based on semiconductors, fibre optics, genetics
and software is not only well under way, but even approaching maturity. Quite clearly,
innovation cycles have shortened, from 50-60 years to around 30-40 years. Unless
organizations can foster a culture in which new ideas are encouraged and commercialized
rapidly, they may find themselves being overtaken by faster innovators.
Commercializing New Technologies
Successful technology management is all about bringing a new concept to the market in the
most efficient way. To commercialize an idea successfully, a number of different stages2 must
be completed, each more difficult than its predecessor. Not only must each of these stages be
completed successfully, but adequate resources mobilized to facilitate transition from one stage
to the next.
Imagining: Developing the initial insight about the market opportunity for a particular
technical development.
Incubating: Nurturing the technology sufficiently to gauge whether it can be

commercialized.
Demonstrating: Building prototypes and getting feedback from potential investors and
customers.
Promoting: Persuading the market to adopt the innovation.
Sustaining: Ensuring that the product or process has as long a life as possible in the
market.
The first three stages obviously cannot be managed like an ordinary business with tight controls.
So they have to be fostered and nurtured in an environment which is culturally quite different
from normal corporate settings.
Conclusion
When it comes to successful innovation, technology by itself is not the crucial factor.
Technology must be considered together with market conditions and human factors. Companies
have to be on the look-out for emerging market segments. They must also understand why
there is resistance to the acceptance of new ideas. For established companies, existing product
lines are important because they provide the cash flows so vital for financing the development of
future products. At the same time, they cannot resist new initiatives. Indeed, the challenge for
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management is to find the right balance between incremental improvements and new and
unproven technologies.
Incremental improvements on an ongoing basis demand equal emphasis on product and
process design, which should be closely integrated. Regularly measuring product and process
performance and tapping all the potential opportunities for improvement are important.
Companies should look for cost reduction through better use of materials, energy and labor,
reduction in number of products, and product and process simplification. At the same time, they
must develop the core capabilities which will become critical in the future. This means they
should be prepared to shift their strategic and competitive postures from time to time by
regenerating and renewing their businesses.
While it is difficult to anticipate technological discontinuities, efforts must nevertheless

be made to scan the environment. Firms often make the mistake of looking in the wrong places.
They need to look more carefully at obscure, and unconventional sources of competition.
Moreover, companies must strike the right balance between focus and diversification when
developing technologies. If a company is highly focussed on a few competencies, it runs the
danger of becoming vulnerable to a radical innovation based on a different set of competencies.
On the other hand, if the firm tries to develop too broad a set of competencies, it may be
spreading its resources too thin. In other words, technology risk management is a tightrope
walk. And the chances of falling off the rope are high for most players. The ones who dont fall
off ultimately emerge as the winners.
REFERENCES:
http://en.wikipedia.org/wiki/Technological_change#Invention
Managing Technological Change A strategic Partnership Approach by Carol Joyce
Haddad, Sage Publication, Inc. 2002
Shawn Tully and Tricia Welsh, The modular corporation, Fortune, February 8, 1993,
pp.106-111.
http://www.urenio.org/tools/en/Product_Life_Cycle_Management.pdf
Managing Technological Innovations, A V Vedpuriswar, Nagendra Chowdhary and A
S K Ghori
STANDARD AND NETWORK EXTERNALITIES

STANDARDS
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Introduction
The purpose of this paper is to contribute towards a theory of telecommunications and
information standardization, by organizing available information in a consistent framework. It
updates the work that was originally presented last year [1]. The framework for the activities in
the area of technical standards is elaborated by focusing on questions related to strategy and to
tactics. The strategic questions are: 1) Why seek a standard? 2) What are the interfaces to be
standardized? 3) When to standardize? The tactical questions are: 1) Which is the appropriate
standards development organization? 2) How will consensus be reached? 3) Where will the
standard be used?
Background
Multimedia communication merges telecommunications and information technologies. As a
consequence, it brings together conflicting design philosophies and engineering practices
without any explicit mechanism to solve the contradictions and to ensure end-to-end
compatibility.
Stand-alone terminals (e.g., video recorders) and computing equipment operate more or less
independently. As a result, terminal and early computer manufacturers attempted to dominate
markets with unique products. When stand-alone terminals are interconnected, communications
networks can be viewed as pipes that transport bits of information transparently, with all the
intelligence needed for processing residing in the end-user terminal or computer. Many
designers of end-user equipment (modems, personal computers, work stations, browsers, word
processors, etc.) subscribe to that opinion. Because of short product life cycles, intense rivalry
among suppliers and the constant threat of substitutes, they avoid standardization as much as
possible and when forced, their aim is to provide the lowest common denominator.
The term "network externalities" describes the value of connecting various endpoints. In a
communications network the value of the externalities increases with the number of users (up to
a point). For the transport interactive and delay sensitive information such as speech, the
telecommunications network should have enough intelligence to adapt its internal state to the
demands of the active end-users. These needs are expressed in terms of availability, reliability,
quality of service, etc. The deployment of such intelligence requires long-term planning to
ensure the integration of compatible systems. Therefore, communications service providers,
while seeking standards, attempt to differentiate their service via pricing, quality, coverage, or
range of service options. Clearly, participants in the standardization of information technologies
tend to fall into two large categories: standards creators and standards seekers. Standards
creators believe that they can or should create their own unique product or service, while
standards seekers like to assemble as many stakeholders as possible, including potential users.
Both groups represent competing paradigms in a battle that cannot be resolved by proofs, the
proponents of each competing paradigm "practice their trades in different worlds." [4]
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Reasons for Standardization
In a technologically mature field, where competition is basically on price, there may be no real
incentive to reveal technical information. In this case, a commercial organization "will accept and
use standards only if it believes that it cannot expand the market directly and that standards
can." [2] Standardization may also be a competitive strategy for new entrants to oppose the
dominant firms [3]. In contrast, in an emerging field, the risks may be so high that firms have to
share their knowledge selectively to stimulate the market and/or discover unanticipated
applications. Standardization may also help legitimize a new technology and allows the
organization owning or mastering the new technology to have a central position [5].
The commercial decision not to standardize has two implications. First, the organization may be
seeking a unique, possibly controllable, market. Second, the product may be ephemeral. These
two conditions are clearly present in the case of computer games. Conversely, a decision to
standardize suggests the desire to address markets with some long-term commonality. For
example, the global market of smart cards in electronic commerce requires a series of
standards for the operating systems, commands and interfaces, etc., that would encourage the
development of necessary applications.
Figure 1 shows the position of the standard in the product cycle. Accordingly, standards can be
anticipatory, participatory, or responsive. Obviously, depending on their position, the types of
details to be included will vary.
Need
Responsive
standards
Anticipatory
standards
Participatory
standards
Product or Service
Anticipatory standards are those standards that must be created before widespread
acceptance of devices or services. Examples of anticipatory standards are: V.32 modem, X.25
packet interface, ISDN, TCP/IP, the H.323 Recommendation of Internet telephony or the Secure
Electronic Transactions (SET) protocol for bank card payments. The studies that precede the
adoption of an anticipatory standard should, ideally, involve all interested parties. In this way, the
standardization activities provide a more formal way for sharing innovations among firms. The
danger of anticipatory standards is that the specifications could be premature and encumbered
by unnecessary or irrelevant details. The resultant standards could be ignored, such as OSI
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management protocols, or force a whole industry into a dead-end, such as the case of Group 4
facsimile. Therefore, the best anticipatory standards have very well defined objectives and offer
a minimum set of features to stimulate the market.
Participatory standards proceed in lock-step with implementations that test the specifications
before adopting them. This incidental benefit can be an important factor in spurring innovation;
for example, the development of G.728 CCITT/ITU-T 16 kbit/s speech coding algorithm led to a
major breakthrough in voice coding [6]. Some of the participatory standards are the speech and
voiceband coding algorithms of ITU Recommendations G.726, G.727, G.728 and G.729, and
the various Internet applications above the TCP layer may be considered participatory
standards (e.g., MBONE, MMUSIC, etc.). Several specifications by industry groups to achieve
compatibility such as the Frame Relay Forum and the ATM Forum may be considered as
participatory standards. However, before the Internet, a widespread interactive standards
development environment did not exist.
Responsive standards occur to codify a product or service that has been sold with some
success. When a stand-alone product is well entrenched (e.g., Microsoft Windows), there may
be no incentive to standardize. In the telecommunications field, however, a manufacturer, even
with a large market share, may want to formalize their product or service to benefit from network
externalities. Thus, responsive standards offer a systematic way of distilling scientific
information and available data into useful technical constructs. They expedite the consolidation
of knowledge and provide avenues for sharing technical know-how. Some examples of
responsive standards are: V.42 (which is based on Microcom MNP protocol), AT&T RJ
telephone jacks, IBM's SDLC protocol of link layers, DataBeam's data conferencing protocol
that led to Recommendation T.120 and Java. In such a case, precursor products or services
have already provided sufficient evidence that the technology or market interest justifies the
work on such standards. A recent example is what happened with proprietary 56 kbit/s modems
that stimulated the development of the V.90 modem Recommendation from the ITU.
Alternatively, a formal standards committee may wish to standardize a technology that it is
widely used (e.g., modem AT command sets, UNIX operating system, programming languages,
etc.) and allow its reference in future work.
Responsive standards mean however, that the initial manufacturer will have to contribute to the
standards development, in addition to developing a product. They may have to release technical
information earlier than anticipated or modify future product plans. In addition, product
differentiation will have to shift to areas not covered by the standard and requires more agility to
response quickly to market needs. Should the choice of supporting a responsive standard be
made, the initial manufacturer has to: 1) Achieve the maximum market penetration before
supporting a responsive standard., 2) enhance the product beyond the standardized levels of
functionality, or 3) differentiate the product based on quality, customer support, or services.
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One way to deny a competitor an advantage is to delay the issuance of a responsive standard.
This may be possible when numerous interest groups are involved and there is no way to
achieve consensus. However, delaying a standard often results in incompatible approaches and
may fragment the market, such as what happened with color television.
Interfaces to be Standardized
4. Standards for evolution

3. Standards for interactions
(flexibility)
(compatiblity)
2. Standards for minimal admissible attributes

1. Standards for units, reference and definition
(similarity)
(reference)
Figure 1 A layered architecture for technical standards.

Layer 1: Reference Standards. - Reference standards provide measures to describe general
entities in terms of reference units. They include unit standards that define measurable physical
qualities, e.g., ohm, volt, watt, dBm, etc. Examples in the information and telecommunications
field include the ASCII character set, the Open System Interconnect (OSI) model, the E.163
numbering plan for international telephone service, Internet addresses, the ITU-T (International
Telecommunications Union Telecommunications Standardization Sector) software tools library,
etc.
Layer 2: Similarity Standards. Similarity standards define aspects that have to be identical
on both sides of the communicating link, such as the nominal values, the low-level technical
specifications and the allowed variations (if any) among implementations of the standard. This is
the case for speech and video coding algorithms, computer operating systems, as well as for
functions that terminate a layer in the OSI model.
Layer 3: Compatibility Standards. Protocol standards today often consist of a core portion
and many options. They define common functions that the transmitter and the receiver pairs
must have to ensure successful communication, but both sides do not have to be identical.
Examples can be found in frame relay and ATM specifications. The multiplicity of options has
spurred the creation of compatibility standards that go by as interfaces, templates, user
agreements or implementation agreements. Compatibility standards can be verified if
implementations are available for testing before the standard is approved. This was the case for
mail protocols such as SMTP, Post Office Protocol 3 (POP3) and Multipurpose Internet
Messaging Extensions (MIME). Compatibility itself has multiple dimensions, and maintaining
compatibility as standards evolve requires the ability to accommodate extensions not yet
defined.
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Layer 4: Flexibility Standards. - Flexibility standards define how multiple protocols could be
run over a single platform. They provide the framework to specify areas left for the future or that
are manufacturer specific options. While extension bits can be found within many specifications,
e.g., LAPD in ITU-T Recommendation Q.921 or LAPF in Recommendation Q.922, the
programmable processors may stimulate the development of independent flexibility.
For network access, proper flexibility means the support of changes in the physical node (e.g.,
switching from Ethernet to another interface), backward compatibility, or different types of
access (wireline or wireless). At the network end-points, flexibility means the possibility of using
different terminals. For example, a hypothetical smart card may be read by readers with contact
and with contact-less readers, and may contain several applications (bank card, electronic
purse, wallet, etc.).
Tactical considerations
Contribution towards a standard implies a policy of knowledge management, i.e., that of
generating, keeping, and/or releasing information. Without such a discipline, organized and
consistent participation in the standardization process may be difficult or inefficient.
The explosion in information technology and the need for interconnection have encouraged the
proliferation of Standards Development Organizations (SDOs). Information technology now
deals with the preparation, collection, transport, retrieval, storage, access, presentation and
transformation of signals in many forms. These forms include speech, audio and video signals,
graphics, texts, still images, video as well as data. The end-users of the information systems
can be people, machines or a combination of both. The number of permutations is exceedingly
large, and each specific organization is addressing only a part of the whole spectrum of
possibilities. A further complication is the proliferation of consortia and fora that, in their view,
they are not "standard-setting" organizations, although they produce compatibility standards to
ensure that all components of the whole communication system works together end-to-end.
The applicability of a standard can be assessed in terms of market, industry or geography. This
item has implications on the details of the standards as well as how to go about standardization.
Traditionally, standards have been adopted by governmental authorities that enforced them over
a defined geographic area. Increasingly, standards are adopted voluntarily and regional
standards organizations are expanding their influence. For example, ETSI (European
Telecommunications Standard Institute), which is a European standards organization has taken
the lead role in defining the interface of IP-based telephony with the existing telephone
networks.
Selection of the standards organization to present to depends on the following factors:
1. The working methods and procedures of a SDO may make it more suitable for one type of
interface standard than another. For example, compatibility standards can be developed
faster than similarity standards, or flexibility standards do not require the consensus need to
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achieve a reference standard. In general, formal SDOs have more rigorous rules to ensure a
fair and unbiased process, while industry groups have less open procedures
2. The structure, composition and decision making process of a SDO can be matched to the
standardization process within the product cycle. Anticipatory standards involve mostly
architects, participatory standards depend on developers while response standards require
users input. It is important to choose the SDO whose decision-making process reflects the
appropriate inputs for each category of standards.
3. Whether the standards are local, regional or international. In the area of electronic commerce
standards such as as Electronic Data Interchange (EDI), parts of the standards will be local
or regional and others will be international.
4. The parties that are involved. The constituency for standardization could also include "system
integrators," whose business objective is to offer their customers, and on a world-wide basis,
a seamless suite of end-to-end information services. While individual consultants have
participated in various standards organizations, the increased contribution of system
integrators in the standardization process may enhance the possibility for reaching a faster
consensus because their interests usually lie in between standards seekers and standards
creators.
Summary
Standards are the only realistic means of maintaining compatibility in an increasingly complex
multi-media environment. Success in standardization requires an understanding the general
environment in which they take place. Hopefully, the proposed framework will stimulate
discussions on how to refine this above model to produce more applicable guides for future
standardization activities.
NETWORK EXTERNALITIES
INTRODUCTION
To explain what network externalities is, in an understandable manner, I will use an example.
Imagine if you were the only person having an email address and using emails as a form of
communication, this network would not worth anything as the product as no one else uses this
product. The more users there are using the product, the more valuable the medium becomes.
If you are not able to write email to anyone else then what use/value does the email have to
you. In concrete terms, network externalities exist when the value of a product to any user is
greater the larger is the number of other users of the same product.
Writing in 1950, Harvey Leibenstein analyzed the bandwagon effect, by which he meant the
extent to which the demand for a commodity is increased due to the fact that others are also
consuming the same commodity. It represents the desire of people to purchase a commodity in
order to get into the swim of things; in order to conform with the people they wish to be
associated with; in order to be fashionable or stylish; or, in order to appear to be one of the
boys.
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TYPES OF NETWORK EXTERNALITIES
There are two types of Network Externalities, namely, Direct and Indirect. Direct network
externalities exist when an increase in the size of a network increases the number of others with
whom one can communicate directly. Direct network externalities involve the value aspect of
things like telephone systems, computing platforms, and especially the Internet and eCommerce.
On the other hand, Indirect Network Externalities exist when an increase in the size of a network
expands the range of complementary products available to the members of the network.
Additionally, indirect externalities involve related items like devices (telephones, fax machines,
or software applications) becoming cheaper and more accessible as the number of overall users
increases. This may also extend to things like service or parts.
Many industries exhibit network externalities. Some examples are :
Telephone Network (direct): value of that any user places on subscribing depends on the
number of others with whom he can communicate
ATM machines (indirect): the larger the network the greater is the number of machines at
which an ATM card can be used, hence greater is the value of the network to any user
Diesel powered cars (indirect): having more widely available fuel and service facilities
the larger the number of other drivers of such cars
In each case the value of the good derives entirely from its ability to link many people
possessing the same good. As a result, the marginal benefit of the good to any one
individual depends on the number of other individuals who use it.
BENEFITS OF NETWORK EXTERNALITY

Network externalities are the effect that one user of a good or service has on the value of that
product to other people. Positive network externalities exist if the benefits are an increasing
function of the number of other users (a lot of people use that product/service). Negative
network externalities exist if the benefits are a decreasing function of the number of other users.
Considering firstly the positive externality, the classic example is the phone market. The more
people own phones, the more valuable the phone is to each owner. That phenomenon
generates a positive effect because a user may purchase their phone without intending to
create value for other users, but does so in any case.
Lets consider Apple as an example: it derives most of its revenues from the network
externalities created from its iTunes platform. The iPhone mainly and the iPod drive the
companys revenues, according to the main principle that everyone will have compelling
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reasons to use an iPhone because the network externality will make that device the product
someone uses simply because it is the one everyone else uses.
There are two important concepts that can rise as a consequence of positive network effects:
the bandwagon effect and the tipping effect. The first one is an observed social behavior in
which people tend to go along with what others do or think without considering their actions. The
likelihood of a bandwagon effect is greatly increased as more and more people adopt an idea or
behavior; this has led to the pejorative description herd effect in reference to this interesting
behavioral phenomenon. The bandwagon effect can be seen at almost all levels of human
interaction, and being aware of its influence on you can help you make calculated decisions
which are based on your beliefs and values rather than the temptation to go along with a group.
Tipping, indeed, is a situation more related to a competitive scenario. It occurs when two
companies are trying to sell quite the same product and a small initial advantage for one of two
competing goods proves self-reinforcing, even with the possibility to drive the other out of the
market. In other words, it appears when positive feedback causes consumers to swing to one of
the two competing products; when a good that has a substantial but not dominant market share
may stay in that range for an extended period, then, quite suddenly, and often for no obvious
reason, the market tips either for or against it, and the good either become dominant or fades
away. A typical example of this phenomenon is the case of Betamax Vs VHS: Sony's Betamax
video standard was introduced in 1975, followed a year later by JVC's VHS. For around a
decade the two standards battled for dominance, with VHS eventually emerging as the winner.
The victory was not due to any technical superiority, it was just a consequence of the tipping
effect.
On the other side, negative network externalities can also occur, where more users make a
product less valuable (network congestion)6. Congestion occurs due to overuse. The applicable
analogy is still related to a telephone network. While the number of users is below the
congestion point, each additional user adds additional value to every other customer. However,
at some point the addition of an extra user exceeds the capacity of the existing system. After
this point, each additional user decreases the value obtained by every other user. In practical
terms, each additional user increases the total system load, leading to busy signals, the inability
to get a dial tone, and poor customer support.
Improvements in the technology of goods subject to network externalities may at first lead to
only gradual increases in the size of the network, but when that network reaches a certain size,
a critical mass, it suddenly explode. At that point, in fact, the value obtained from the product or
service is 3 Mac to PCs PC to iPhones... greater than or equal to the price paid for the product
or service. As the value of the good is determined by the user base, this implies that after a
certain number of people have subscribed to the service or purchased the good, additional
people will subscribe to the service or purchase the good due to the positive 'utility/price' ratio.
Beyond the critical mass, the increasing number of subscribers generally cannot continue
indefinitely. After this point, in fact, most networks become either congested or saturated,
stopping future uptake. Positive feedback is obvious, more people means more interaction
(Wikipedia itself, for instance, depends on positive network effects).
Negative network effects result from both resource limits and provider complacency (The
absence of viable competitors in a successful network can cause a provider to restrict
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resources, consider fee increases, or otherwise create an environment contrary to the users'
benefit). What is obvious is that both success and failure are self-reinforcing, which represents
a way to pat yourself on the back for progress towards the goal or standard you have
established. Self-reinforcement is an invaluable link between the response & the outcome. The
more often that a person can pick out a target behavior & consistently give him or herself
reinforcement for that behavior, the more likely it will occur in the future.
THE IMPACT OF NETWORK EFFECTS ON TECHNOLOGY
If a technology that is dependent on network effect starts to lose market share to a challenger
with a disruptive innovation, the network effects will possibly be beneficiary to the challenger,
who perhaps have been successful in differentiating itself. In addition, the technology life cycle
will accelerate the tipping point, meaning going from the maturity stage to the decline stage
quickly. Hence, how do technology companies use network effects as a competitive advantage?
LOCK-IN
One method for creating a network effect is vendor lock-in, also known as proprietary lock-in or
customer lock-in. Lock-in can be caused by network effects, and network effects generate
increasing returns that are associated with lock-in. This method is well known in the
telecommunications industry, where telecom operators enthusiastically SIM lock the mobile
phones that are sold with their subscription which makes the phones only able to use the
specific telecom operators own SIM cards. This method can help in ensuring the technology
life cycle for a period of time.
WHAT TYPES OF NETWORK EFFECTS EXIST TODAY?
Today, there two kinds of values when discussing network effects: Inherent, when people gain
value from the use of the product. A known example is Apple who is using both the iPod Touch
and the iPhone together with their Apps store, enabling the user to take advantage of the
products full capability.
The other value is Network, which can be both direct and indirect. One gains value from the
product when other or more people use the same product. When it is a direct network value you
get an immediate result from more peoples use of the product, and when it is an indirect
network value, it is a secondary result that the user gain. For example, when many users adopt
the same standards, the complementary products become cheaper.
On the other hand, network effect can both be positive and negative.
Positive network effect is basically defined as the more people the more interaction is achieved.
Wikis depend mostly on positive network effect. They usually only have value if there is many
users who share knowledge.
A well known example of positive network effects today is Apples iPhone along with their Apps
store, where the Apps store has created an added value to the iPhone. According to Micael
Arrington, an entrepreneur and founder/co-editor of the online blog TechCrunch, Apple has an
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opportunity in increasing the value of the iPhone even more through the Apps store. The
suggestion was that Apple should consider ways to have users interact with each other in order
to build network value in order for Apple to have a long term success with the iPhone. Arrington
also argues that ignoring this opportunity will open the doors for other competitors.
One opportunity in increasing the positive network even more is through the development of
game applications with a multiplayer game mode that enables iPhone owners to interact with
each other across the world. A decade ago, Apple claimed its computers were better than PCs.
However, PCs became omnipresent, meaning that there were more applications available
everywhere. As a result, Apples share of the computer market fell. So, why did the assumed
inferior product win? Apple was at the time promoting negative network effects, meaning that
their computer was limited to only a few applications that was at that time only developed by
Apple, resulting in Microsoft gaining the competitive advantage of having many applications to
offer.
Ironically, the negative network effects, that killed the Apple computer, made Apple able to
redeem itself through the iPhone and the Apps store and at the same time beat Microsoft at its
own game.
COMPETITION AND NETWORK EXTERNALITIES
Companies, who are dealers of Information goods, are completely aware of the significance of
Network Externalities. But, the question remains as how does this concept shape their ideas.
Building a strong Sales Network is often the answer to products which are believed to account
for strong Network Externalities. This could even be at the expense of short-term profits. The
theory is often seen to be relevant for the information industry which tends to gather profits.
In order to understand this effect, lets look at an example subject to a critical mass effect, such
as that of NetBooks. At the beginning, only Asus and MSI was the suppler of the product, which
was largely to in their interest to get the industry to critical mass-to get explosion of sales that
will occur when many people feel that they should have NetBooks as so many other have it.
But, the question always remain on how the companies got the industry to critical mass. Asus
and MSI provided the NetBooks at a cheaper price-may be even at a loss in the start-in order to
increase the size of the network. So we often see companies introducing new high-technology
products at a price we below production cost.
Similar logic could be applied in markets in subjects to Tipping. As companies wants to do it all it
can to induce the market to tip towards their product, it has the audacity to introduce the product
at a cheaper rate until the market has diverted towards its favor. Of course, firms offering rival
products have the same incentive, so the early stages of competition in information goods often
involve rival firms offering their products for very littlein some cases nothing. The most famous
case may be the browser wars of the 1990s. A browser is software used to access the
Internet; the two main competitorsNetscape Navigator and Microsoft Internet Explorerwere
both available for free.
In the reality, of course, we cannot be quite sure whether a new product will ever achieve critical
mass or whether it is possible to tip the market toward a product by offering it cheaply. The
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result is that there are many cases of attempts to launch products that seem foolish in
retrospect: goods sold cheaply, with lots of money lost, that never take off.
CONCLUSION
Forecasting the future, market analysis and strategy are the most important aspects of a
product launch but, often, strategist forget to think about the Network Externalities. It remains as
the hidden force which contributes towards success of the product. A major reason how
products like the Windows OS, NetBooks and the iPhone App Store sustained the hard times
and made place for itself.
REFERENCES:
Baskin, E., Krechmer, K. and Sherif, M. H. (1998) "The Six Dimensions of

Standards: Contribution Towards a Theory of Standardization," pp. 53-62 in
Management of Technology, Sustainable Development and Eco-Efficiency,
Selected Papers for the 7th IAMOT Conference, L. A. Lefebvre, R. M. Mason and
T. Khalil, edts. Elsevier, 1998.
Mangematin, V. and Callon, M. (1991) Technological competition,: strategies

of the firm and the choice of the first users: The case of road guidance
technologies, Colloquium on the Management of Technology: Implications for
Enterprise Management and Public Policy, Paris, France, May 27-28.
http://www.worthpublishers.com/krugmanwellsnew/pdf/chapter22.pdf
PROFITING FROM INNOVATION

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Learning Objectives
Explain why innovating firms often fail to obtain significant economic returns from an
innovation, while customers, imitators and other industry participants benefit
Discuss the fundamental building blocks of profiting from innovation
Explain the implications of profitability and channel strategies
Introduction
It is quite common for innovators those firms which are first to commercialize a new
product or process in the market to lament the fact that competitors/imitators have
profited more from the innovation than the firm first to commercialize it.
Who benefits from an innovation?
Possible Outcomes from Innovation
Table presents a simplified taxonomy of the possible outcomes from innovation.

Quadrant 1 represents positive outcomes for the innovator. A first-to-market advantage is
translated into a sustained competitive advantage which either creates a new earnings stream
or enhances an existing one. Quadrant 4 and its corollary quadrant 2 show an example of
innovators that fail and imitators/followers that won the industry.
Definition of Terms
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Appropriability - environmental factors that govern an innovators ability to capture

profits generated by an innovation
Codified Vs. Tacit knowledge - The ability to formally communicate knowledge
Paradigmatic stage - when the dominant design has not be formalized (technologies
and arch. are fluid)
Dominant Design - The standard form, technology, and architecture
Complementary Assets
- Non technology assets that are needed to make a
product successful
Profiting from innovation: Basic building blocks

There are three (3) fundamentals building blocks:
Appropriability regime
Complementary assets, and
Dominant design paradigm
1. Regime of Appropriability
A regime of appropriability refers to the environmental factors, excluding firm and market
structure, that govern an innovators ability to capture the profits generated by an
innovation.
The most important dimensions of such a regime are the nature of the technology, and
the efficacy of legal mechanisms of protection.
Appropriability regime: Key dimensions
Legal Instruments
Patents
Copyrights
Trade secrets
Nature of Technology
Product
Process
Tacit Knowledge
Codified Knowledge
Patents
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It has long been known that patents do not work in practice as they do in theory.
Many patents can be invented around at modest costs. They are especially ineffective
at protecting process innovations.
Often patents provide little protection because the legal requirements for upholding their
validity or for proving their infringement are high.
Trade Secrets
In some industries, particularly where the innovation is embedded in processes, trade
secrets are a viable alternative to patents.
Trade secret protection is possible, however, only if a firm can put its product before the
public and still keep the underlying technology secret.
Usually only chemical formulas and industrial-commercial processes (e.g., cosmetics
and recipes) can be protected as trade secrets after theyre out.
Codified and Tacit Knowledge
The degree to which knowledge is tacit or codified also affects ease of imitation.
Codified knowledge is easier to transmit and receive, and is more exposed to industrial
espionage and the like.
Tacit knowledge by definition is difficult to articulate, and so transfer is hard unless those
who possess the know how in question can demonstrate it to others.
Tight or Weak?
The property rights environment within which a firm operates can thus be classified according to
the nature of the technology and the efficacy of the legal system to assign and protect
intellectual property.
Appropriability regime can either be:
Tight - technology is relatively easy to protect.
Weak- technology is almost impossible to protect.
2. Dominant Design Paradigm
The emergence of a dominant paradigm signals scientific maturity and the acceptance of
agreed upon standards by which what has been referred to as normal scientific
research can proceed.
These standards remain in force unless or until the paradigm is overturned.
Once DDP emerges, competition shifts to price and AWAY from design.
Future innovation focuses on process innovation and/or details of DPP.
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If imitation is easy, followers can enter market, modify innovators design yet
rely on fundamental designs of innovator to establish themselves as dominant
design!
It is commonly recognized that there are two stages in the evolutionary development of a
given branch of a science:
1. the pre-paradigmatic stage when there is no single generally accepted conceptual
treatment of the phenomenon in a field of study, and
2. the paradigmatic stage which begins when a body of theory appears to have
passed the canons of scientific acceptability.
3. Complementary Assets
Complementary Assets are non-technology assets that are needed to make a product
successful.
Everything else required to bring a product to market.

Marketing, manufacturing, support, distribution channels, suppliers, learning, and
name
In almost all cases, the successful commercialization of an innovation requires that
the know-how in question be utilized in conjunction with other capabilities or
assets.
Complementary Assets Needed to Commercialize an Innovation
Complementary assets: Generic, specialized and Co-specialized
Generic: general purpose assets not tailored to the innovation. e.g. plant &
equipment for athletic shoes.
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Specialized: assets with one-way dependence between innovation and the asset
e.g. specialized repair facilities for rotary engine of automobiles
Co-specialized: assets with two-way dependence between innovation and the
asset. e.g. filling stations for hydrogen fuel cell vehicles.
Implications for Profitability

These two concepts can now be related in a way which will shed light on the imitation
process, and the distribution of profits between innovator and follower.
1. Tight Appropriability Regimes
2. Weak Appropriability Regimes
1. Tight Appropriability Regimes
Strong legal protections &/or trade secrets are hard to access

Innovator can and will translate innovation into superior returns
Innovator has time to access needed complementary assets
Innovator may license innovation to gain generic assets
OR, innovator can commit money to acquiring specialized or co-specialized CAs,
AND
Innovator has time to refine product concept before DDP.
2. Weak Appropriability Regimes

1st question: Paradigmatic or Pre-paradigmatic phase?
If pre: innovator must be very careful to let the basic design float until it is clear
which design will become industry standard.
Innovators must be linked to market ASAP so that user needs can influence design.
Paradigmatic stage: As leading design emerges, volumes increase economics of
scale opportunities.
Firms ramp up for mass production by acquiring specialized tooling & distribution.
Prices become less important -access to complementary assets CRITICAL.
Since core technology is easy to imitate, COMMERCIAL SUCCESS DEPENDS ON
TERMS OF ACCESS TO CAs.
Monopoly holders of CAs could capture ALL profits from innovation.
Channel Strategies: Contractual Mode

CONTRACTUAL MODE
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Innovator signs contract (e.g. license) with independent suppliers, manufacturers,

distributors.
Pros: Less investment = less risk.
o Less investment = less need for cash
o Gain credibility/reputation of partner
o Learn from partner
Cons: Convince potential partners to invest in irreversibilities : Innovator may have
to
offer to carry some/most of risk.
Risk that partner doesnt perform as planned
Risk that partner copies & runs with design ie. innovator CREATED competitor
Channel Strategies: Integration Mode
Integration involves ownership

Innovator could buy capacity in CAs BEFORE announcing innovation OR
Innovator could buy capacity in CAs AFTER announcing innovation.
However, if appropriability regime is WEAK, getting control of CAs fast is CRITICAL
bottlenecks/tight supply e.g. manufacturing capacity, distribution)

In this case, innovator must PRIORITIZE CAs: If a CA is critical, try to own.
BUT: money constraint (minority share)
Watch competitors (they might build or buy more quickly/cheaply)
Integration vs. contract strategies: An analytic summary
The table makes it apparent that even when firms pursue the optimal strategy, other
industry participants may take the jackpot. This possibility is unlikely when the
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intellectual property in question is tightly protected. The only serious threat to the
innovator is where a specialized complementary asset is completely locked up, a
possibility recognized in cell 4.
With weak intellectual property protection, however, it is quite clear that the innovator will
often loose out to imitators and/or asset holders, even when the innovator is pursuing
the appropriate strategy (cell 6). Clearly, incorrect strategies can compound problems.
Clearly, incorrect strategies can compound problems:
For instance:
if innovators integrate when they should contract, a heavy commitment of resources

will be incurred for little if any strategic benefit, thereby exposing the innovator to
even greater losses than would otherwise be the case.
On the other hand, if an innovator tries to contract for the supply of a critical
capability when it should build the capability itself, it may well find it has natured an
imitator better able to serve the market than the innovator itself.
Summary Points
In a weak appropriability regimes especially where required manufacturing assets are
specialized to the innovation, participation in manufacturing is NECESSARY if innovator
wants to appropriate rents from innovation.
If an innovators manufacturing costs are HIGHER than those of its imitators, innovator
may lose most of the profits to the imitators.
As the technology gap closes (dominant design emerges), basis of competition shifts to
co-specialized assets.
Take note that
Innovation produces information (i.e., reduces uncertainties about outcomes)
You cant sell information on the open market without legal protection because
information can be copied at no cost
You can increase appropriability through legal protections but it is not perfect in
information because some always leaks out
References:
Summary & Discussion of Profiting From Technological Innovation:

Implications for Integration, Collaboration, Licensing and Public Policy By
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David J. Teece (1987) Presentation to InventVermont monthly meeting Feb.

10/05 Robert Letovsky, Ph.D.
Appropriability and Profiting from innovation, IPPD 4/13/00
www.wikipedia.com
www.google.com
NEW TECHNOLOGIES: CHOOSING THE RIGHT BUSINESS MODEL

Objectives:
To define a business model.

To identify the role of a business model.
To identify business model options.
Introduction
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts,
systems or methods of organization in order to solve a problem or perform a specific function. It
can also refer to the collection of such tools, machinery, and procedures.
A business model describes the rationale of how an organization creates, delivers, and
captures value (economic, social, or other forms of value). The process of business model
construction is part of business strategy.
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In theory and practice the term business model is used for a broad range of informal and formal
descriptions to represent core aspects of a business, including purpose, offerings, strategies,
infrastructure, organizational structures, trading practices, and operational processes and
policies. Hence, it gives a complete picture of an organization from a high-level perspective.
Whenever a business is established, it either explicitly or implicitly employs a particular business
model that describes the architecture of the value creation, delivery, and capture mechanisms
employed by the business enterprise. The essence of a business model is that it defines the
manner by which the business enterprise delivers value to customers, entices customers to pay
for value, and converts those payments to profit: it thus reflects managements hypothesis about
what customers want, how they want it, and how an enterprise can organize to best meet those
needs, get paid for doing so, and make a profit.
Business models are used to describe and classify businesses (especially in an entrepreneurial
setting), but they are also used by managers inside companies to explore possibilities for future
development. Also, well known business models operate as recipes for creative managers.
Business models are also referred to in some instances within the context of accounting for
purposes of public reporting.
Business Modeling is an important tool to both capture, design, innovate and transform the
business. However, in order to transform ones organization and align them to ones business
model, a business model should not be seen separately, but in connection with:
The main business goals of the organization, e.g. strategic business objectives, critical
success factors and key performance indicators, which a holistic business model approach
should include.
The main business Issues/pain points and thereby organizational weakness, which a
holistic business model approach should include for they represent the threat to the
companys business model.
A clear cause and effect linkages between the competencies, desired outcomes and
performance measurements e.g. scorecards.
An emphasis on business model management and thereby a continuous improvement

and governance approach to the business model.
The business maturity level, in order to develop the organization representation of core
differentiated and core competitive competencies [linked to strategy], which is a basis for
building a business model as they the represent some of the most important sources of
uniqueness. These are the things that a company can do uniquely well, and that no-one
else can copy quickly enough to affect competition.
Linkages among competences and competency development.
The possible value creation and realization of the organization.
The information flow, and thereby information need for effective and efficient decision
making.
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Such a holistic approach would help clarify both intent and sources of synergy and disconnect
between business model, strategy, scorecards, information, innovation, processes and IT
systems. This includes architectural alignment as well as business transformation and value and
performance views. Such dialogues allow Executives to use the business model with their
business alignment.
The Business Model
To extract value from innovation, a start-up (or any firm for that matter) needs an appropriate
business model. Business models convert technology to economic value.
For some start-ups, familiar business models cannot be applied, so a new model must be
devised. Not only is the business model important, in some cases the innovation rests not in the
product or service but in business model itself. In their paper, The Role of the Business
Modeling Capturing Value from Innovation, Henry Chesbrough and Richard Rosenbloom
present a basic framework describing the elements of a business model.
Given the complexities of products, markets, and the environment in which the firm operates,
very few individuals, if any, fully understand the organizations task in their entirety. The
technical experts know their domain and the business experts know theirs. The business model
serves to connect these two domains as shown below.
A business model draws on a multitude of business subjects, including economics,

entrpreneurship, finance, marketing, and strategy.The business model itself is an important
determinant of the profits to be made from an innovation. A mediocre innovation with a great
business model may be more profitable than great innovation with mediocre business model.
In their research, Chesbrough and Resenbloom searched literature from both the academic and
the business press and identified some common themes. They list the following six components
of the business model.
1. Value proposition a description the customer problem, the product that
addresses the problem, and the value of the product from the customers
perspective.
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2. Market segment the group of customers to target recognizing that different
market segments have different needs. Sometimes the potential of an innovation
is unlocked only when a different market segment is targeted.
3. Value Chain Structure the firms position and activities in the value chain and
how the firm will capture part of the value that it creates in the chain.
4. Revenue generation and margins how revenue is generated (sales, leasing,
subscription, support, etc.), the cost structure, and target profit margins.
5. Position in value network identification of competitors, complementors, and any
network effects that can be utilized to deliver more value to the customer.
6. Competitive strategy how the company will attempt to develop a sustainable
competitive advantage, for example, by means of cost, differentiation, or niche
strategy.
Business Model vs. Strategy
Chesbrough and Rosenbloom contrast the concept of the business model to that of
strategy, identifying the following differences:
1. Creating value vs. capturing value the business model focus is on value creation.
While the business model also addresses how that value will be captured by the firm,
strategy goes further by focusing on building a sustainable competitive advantage.
2. Business value vs. shareholder value the business model is architecture for
converting innovation to economic value for the business. However, the business
model but nonetheless impact shareholder value.
3. Assumed knowledge levels the business model assumes limited environmental
knowledge, whereas strategy depends on a more complex analysis that requires
more certainty in knowledge of the environment
Thanks to technology, there are more business models to choose from than ever before. Today
you can start a business part-time or full-time, at home, online or in a brick-and-mortar
commercial location!
The key is to choose a business model that fits your Life Plan.
As we always say, plan your life, then plan your business...
Some of the most successful and happy people we know are entrepreneurs who created a
business thats in perfect synchronicity with what they want out of life. If you do what you love,
youll work harder, better and more happily.
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Elements of your Life Plan:
Your Current Status
Think carefully and honestly about where you are now in your life. Consider work, recreation,
relationships, finances and anything else thats important to you. And then jot down some
simple, succinct bullet points in each of these categories:
Quality rating of your life on a scale of 1 through 100, with 100 being the best possible
life
Realities of your life, including responsibilities, funds available to start a business,
expenses
Things that make you happy
Things that make you unhappy
Your Ideal Life

This is a snapshot of your ideal life, in a very brief, bulleted list. And remember, the skys the
limit, so dont be afraid of being bold or maybe even a little grandiose. Factor in things like family
time, hobbies, charity work, early retirement anything that gets you really excited.
Your Loves: What You Really Like Doing
Think about the types of things that you love to do, whether at work, at home, or at your local
soup kitchen. List these things out briefly. And don't worry if some themes are starting to repeat
in each section,
that just means you have some really focused ideas about what you want in life!
Your Skills & Capabilities: What You Do Well
List the abilities, experience and strengths you can build on to attain that ideal life.
Bear in mind that your skills need not be strictly from your professional life list skills developed
in your personal life as well. It may be a combination of skills that leads you to a startup thats
best suited to fit your needs.
Your Track Record: What You Have Experience Doing
List those accomplishments in your professional and personal life of which you're most proud.
Pay particular attention to successes you've had that would be helpful in starting a business and
managing it successfully.
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Your Ideal Work Style
Whether full-time or part-time, at-home or on the road, working behind the scenes or interacting
with lots of people understand what your work style priorities are so you can define the best
kind of business for you.
Another way to look at this is, what level of risk do you want to take? You may want a relatively
low-pressure first-go at entrepreneurship.
Your Manifesto
This is your personal mission, your values and what drives you forward, all wrapped up into a
one-page (maximum) statement. To write this, you should draw on everything youve already
discovered about yourself in steps 1 through 6, and bring it all together into a clear statement of
your principles and priorities.
Our example manifesto
Work as Freedom: We think work is about pursuing our dreams, not for the benefit of some
nameless, faceless company, but for ourselves. We believe that owning our own business leads
to the liberties and freedoms that the forefathers of our country envisioned for us. Were free to
choose the kind of business we conduct. Were free to choose the way we spend our time.
Were free to choose the people with whom we work. Were free to set our priorities.
Work as Family: Weve tried to create a workplace environment where employees feel like
theyre actually members of a greater family. Theres a sense of common purpose, mutual
respect, and deep trust. Everyone should feel important and as though theyre a
meaningful member of the collective effort. Its an environment that empowers people to share
in the hard workand in the benefits.
Work as Fulfillment: Weve made it a priority to ensure that our work gives us a sense of
satisfaction. When we wake up in the morning, we cant wait to get on the phone, get online,
and get our team in gear. The work
we do is truly the work we love. For us theres nothing that turns us on more than facing a
challenge and transforming it into an opportunity. Theres nothing more thrilling than seeing a
customer use our product. Theres nothing more gratifying than helping someone else turn a
dream into a real business. And over time, weve found that our fulfillment comes as much from
the process of trying to achieve our goals as it does from actually achieving them.
Key Moves to Get You Where You Want to Go
These are simple strategic action items you must develop in order to transform your Life Plan
from a self-assessment into an action plan. At this point in life planning, you know where you
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want to go, what skills you already have, as well as what type of work suits you best. Draw from
that information a list of moves youll need to make to achieve your ideal life.
Using your Life Plan
Its very important to print your Life Plan and keep it in plain view. Youll find that its presence
even in your peripheral visionwill constantly remind you of what you want, whats important,
and what to do next.
Ideally, you should also revisit your Life Plan periodically to measure your success and to make
adjustments and additions where appropriate. Its okay if things change over timelife is a fluid
and dynamic thing and your Life Plan should be, too!
Use your Life Plan to provide context for strategic decisions you makeincluding what niche
you choose to operate in, what business model youll use, whether youll have lots of employees
or a home-based, one person operation.
Most importantly, your Life Plan will position you to do what you LOVE and that always brings
out the best in an entrepreneur.
This will ensure that you spend the right number of hours each week, take the right level of risk
(some models involve more risk than others), are practical in terms of your financial
wherewithal, and gain the kind of satisfaction and success you're after.
First off, you have to make a key choice: How much time do you want to devote to your
business?
When you go for a full-time business model, you leave behind whatever you were doing
previously to commit yourself completely to your startup. When you make this leap, expect to
spend more hours working than you ever did working for someone else.
Alternatively, you can start up a business part-time. With this model, you adapt your business to
time-consuming obligations you already have, such as your day job, parenting responsibilities or
any other activities that would keep you from making your start up your primary focus.
Once youve determined whether you see yourself as a part-time or full-time entrepreneur,
consider our list of business model options.
1. Home-based
2. Brick-and-mortar
3. e-Commerce
4. eBay
5. Franchising
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6. Licensing your product
7. Multi-level marketing
Business Model Options
Home-based Business
Drawing upon technology, you can create a legitimate and competitive business from home. Its
part of our culture now, accounting for more than half of all businesses. Home-based
businesses can be run full-time or part-time, and may or may not be web-based.
Upside
Less risk and lower startup costs - allows you to test the entrepreneurial waters
without having to spend money on real estate and staff.
Easily scaleable - you can make your home-based business as big or small as youd
like to suit existing commitments, such as parenthood and a day job.
Outsourcing - a great strategy to keep things simple at home. You can contract with
other companies to do your public relations, warehousing, shipping, website
management, even manufacturing.
Downside
Shipping activities and customer traffic at residential properties are restricted by local
zoning ordinances (check with your local government for details).
Working at home can come with lots of distractions and can infringe on your other
domestic commitments.
If foot traffic is necessary in your business, your home may not make the desired
impression on customers.
Brick-and-Mortar
This is a business with a classic physical location outside of the home. It involves a dedicated
facility - whether retail, wholesale, service or manufacturing.
Upside
Gives you an opportunity to work face-to-face with people and become more involved
in your community.
A physical location may attract walk-in traffic to supplement traffic you gain through
marketing efforts, depending on your type of business.
Gives you a dedicated space to go to work each day and become mentally and
physically immersed in running your business.
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Downside
Higher risk and startup costs (build-out costs to set up your location, lease/purchase
costs)
Requires a full-time commitment upfront to get the facility ready for business, as well as
to hire personnel to staff it.
If your concept is retail-oriented, you must acquire inventory to merchandize your store.
e-Commerce
In this model, you dont have foot traffic in your business, only traffic to your website. You sell
your product through your website to consumers or to other businesses.
Upside
As with a home-based business, this is a lower risk, lower cost business to start. You
dont necessarily need lots of personnel, inventory and facilities.
You can choose to do it full-time or part-time.
Easily scaleable you can make your e-commerce business as big or small as youd
like to suit existing commitments, such as parenthood and a day job.
You can tap into a national, or even global, customer base through the internet.
Downside
As with a brick-and-mortar store, shipping, inventory management, and credit card

processing can all become headaches if you dont do them right, particularly if you are a
one-person show.
Over 800 million people access the internet globally, but its a challenge to a) get that
traffic to come to your site and b) convert them into a customer confident enough to
make a purchase.
eBay-preneurship
A sub-category of e-commerce, but one big enough to consider on its own, eBay can serve as a
location for your online store, and allow you to tap into its huge marketplace.
Upside
Lower cost, lower risk than starting an independent e-commerce site as there are a
great many tools to help eBay sellers get their businesses off the ground (e.g. PayPal to
accept payment, a ready-made marketplace, online store templates, market research
tools).
Avoid having to build website traffic from scratch - eBay has a huge following
worldwide, so you tap into a vast existing customer base.
Downside
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As with a brick-and-mortar store, shipping, inventory management, and credit card

processing can all become headaches if you dont do them right, particularly if you are a
one-person show.
Even with the guaranteed traffic that eBay offers, you will still face stiff competition from
existing sellers who have already staked their claim and built up a strong feedback rating
& customer base.
Franchising
When you choose a franchise business model, you use someone elses proven business
concept as your entrepreneurial roadmap. Typically you pay an upfront fee, as well as a portion
of revenues over time, to the franchisor.
Franchising is the practice of using another firm's successful business model. For the franchisor,
the franchise is an alternative to building 'chain stores' to distribute goods and avoid investment
and liability over a chain. The franchisor's success is the success of the franchisees. The
franchisee is said to have a greater incentive than a direct employee because he or she has a
direct stake in the business.
Upside
Lower risk than opening an independent brick-and-mortar business, because
franchising provides you with a streamlined process to start your business, as well as
support for marketing, business plan samples and estimates, assistance with real estate
issues, and staff training.
Provides you with a recognized, established brand to attract customers more quickly.
To illustrate the lower risk inherent in a franchise, success rates for franchises are
higher than non-franchise businesses.
Downside
Youve got to be able to pay the upfront franchise fees.

Franchise guidelines can be strict and limit your ability to get creative with your business.
Your financial upside is somewhat limited because you must pay your franchisor a cut of
your profits.
Licensing your Product

If youre working a day job and dont want to start a business, you can still take advantage of
your great product idea by licensing the product to another company that has the entire
infrastructure in place to properly manufacture, market and sell the product .
Upside
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Lower risk because you can work on your product part-time.

Lower cost because your main expense is production of a prototype and testing the
product to make it attractive to potential licensees (rather than the cost involved in
setting up an entire business to make, market and sell the product).
Freedom to move on to the next big business idea - if you do successfully license your
product idea, you could receive royalties long after youve stopped working on the
product!
Downside
Finding the right licensee takes tenacity and determination, and can take a long time
dont quit your day job!
Unless your product gets sold in a significant enough volume by the company to which
you license it, the amount of royalties you receive can be low or non-existent.
Its extremely difficult to get through the door of big companies to start a negotiation.
Thats partly why less than 3% of all patented ideas actually make it to market through
licensing agreements.
Multi-level Marketing
Multi-level marketing (MLM) is a marketing and distribution structure. People at the top sell to
those below them, who in turn sell to those below them. The higher up you are in this structure,
the more money you can make. The challenge with MLM businesses is that people at the top
are frequently the winners. The vast majority of people at the bottom end up spending money
and time to get involved and end up losing whatever they put in.
If you're determined to choose a business with an MLM model, be sure to check with at least a
handful of other people who've entered at your level (who you identify on your own, separate
from people the MLM promoter refers you to), and see what they have to say. Find out their
perspectives on how - and if its possible - to be successful.
Upside
Typically, limited startup costs (a membership or initial inventory commitment).

Viable home-based business.
You are provided pre-packaged tools, products and sales techniques.
Downside
Most people lose money in MLM activities, because they cant sell the product as
effectively as they thought they could.
Credibility can become an issue, especially if you start treating friends like theyre
customers.
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Examples of Business models
In the early history of business models it was very typical to define business model types such
as bricks-and-mortar or e-broker. However, these types usually describe only one aspect of the
business (most often revenue model). Therefore, more recent literature on business models
concentrates on describing business model as a whole instead of one most visible aspect.
Following examples provide an overview for various business model types that have been in
discussion since the invent of term business model:
Bricks and clicks business model
Business model by which a company integrates both offline (bricks) and online (clicks)
presences. One example of the bricks-and-clicks model is when a chain of stores allows
the user to order products online, but lets them pick up their order at a local store.
Collective business models
Business organization or association typically composed of relatively large numbers of
businesses, tradespersons or professionals in the same or related fields of endeavor,
which pools resources, shares information or provides other benefits for their members.
Cutting out the middleman model

The removal of intermediaries in a supply chain: "cutting out the middleman". Instead of
going through traditional distribution channels, which had some type of intermediate
(such as a distributor, wholesaler, broker, or agent), companies may now deal with every
customer directly, for example via the Internet.
Direct sales model
Direct selling is marketing and selling products to consumers directly, away from a fixed
retail location. Sales are typically made through party plan, one to one demonstrations,
and other personal contact arrangements. A text book definition is: "The direct personal
presentation, demonstration, and sale of products and services to consumers, usually in
their homes or at their jobs.
Distribution business models, various
Fee in, free out
Business model which works by charging the first client a fee for a service, while offering
that service free of charge to subsequent clients.
Freemium business model

Business model that works by offering basic Web services, or a basic downloadable
digital product, for free, while charging a premium for advanced or special features.[27]
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Other examples of business models are:
Auction business model

All-in-one business model
Chemical Leasing
Low-cost carrier business model
Loyalty business models
Monopolistic business model
Multi-level marketing business model
Network effects business model
Online auction business model
Online content business model
Premium business model
Professional open-source model
Pyramid scheme business model
Razor and blades business model
Servitization of products business model
Subscription business model
REFERENCES
http://www.startupnation.com/start-a-business/business-model/1/
http://www.quickmba.com/entre/business-model/
http://en.wikipedia.org/wiki/Business_model
http://en.wikipedia.org/wiki/Technology
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INTELLECTUAL PROPERTY RIGHTS: Key Aspects and Management

What is Intellectual Property?
Intellectual property refers to creations of the mind: inventions; literary and artistic works;
and symbols, names and images used in commerce.
Intellectual property describes ideas, inventions, technologies, artworks, music and
literature, that are intangible when first created, but become valuable in tangible form as
a product.
What are intellectual Property Rights?
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Intellectual property rights are like any other property right. They allow creators, or
owners, of patents, trademarks or copyrighted works to benefit from their own work or
investment in a creation.
A right that is had by a person or by a company to have exclusive rights to use its
own plans, ideas, or other intangible assets without the worry of competition, at least for
a specific period of time. These rights can include copyrights, patents, trademarks,
and trade secrets. These rights may be enforced by a court via a lawsuit. The reasoning
for intellectual property is to encourage innovation without the fear that a competitor will
steal the idea and / or take the credit for it.
Intellectual property is divided into two categories:

Intellectual property rights are customarily divided into two main areas:
(i) Copyright and rights related to copyright
The rights of authors of literary and artistic works (such as books and other writings, musical
compositions, paintings, sculpture, computer programs and films) are protected by copyright, for
a minimum period of 50 years after the death of the author.
Also protected through copyright and related (sometimes referred to as neighbouring) rights
are the rights of performers (e.g. actors, singers and musicians), producers of phonograms
(sound recordings) and broadcasting organizations. The main social purpose of protection of
copyright and related rights is to encourage and reward creative work.
(ii) Industrial property.
Industrial property can usefully be divided into two main areas:
1. One area can be characterized as the protection of distinctive signs, in particular
trademarks (which distinguish the goods or services of one undertaking from those of
other undertakings) and geographical indications (which identify a good as originating in
a place where a given characteristic of the good is essentially attributable to its
geographical origin).
The protection of such distinctive signs aims to stimulate and ensure fair competition and
to protect consumers, by enabling them to make informed choices between various
goods and services. The protection may last indefinitely, provided the sign in question
continues to be distinctive.
2. Other types of industrial property are protected primarily to stimulate innovation,
design and the creation of technology. In this category fall inventions (protected by
patents),industrial designs and trade secrets.
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The social purpose is to provide protection for the results of investment in the
development of new technology, thus giving the incentive and means to finance research
and development activities.
A functioning intellectual property regime should also facilitate the transfer of technology
in the form of foreign direct investment, joint ventures and licensing.
The protection is usually given for a finite term (typically 20 years in the case of patents).
While the basic social objectives of intellectual property protection are as outlined above,
it should also be noted that the exclusive rights given are generally subject to a number of
limitations and exceptions, aimed at fine-tuning the balance that has to be found between the
legitimate interests of right holders and of users.
Why promote and protect intellectual property rights?
There are several compelling reasons:
First, the progress and well-being of humanity rest on its capacity to create and invent
new works in the areas of technology and culture.
Second, the legal protection of new creations encourages the commitment of additional
resources for further innovation.
Third, the promotion and protection of intellectual property spurs economic growth,
creates new jobs and industries, and enhances the quality and enjoyment of life.
An efficient and equitable intellectual property system can help all countries to realize
intellectual propertys potential as a catalyst for economic development and social and cultural
well-being. The intellectual property system helps strike a balance between the interests of
innovators and the public interest, providing an environment in which creativity and invention
can flourish, for the benefit of all.
How does the average person benefit?
Intellectual property rights reward creativity and human endeavor, which fuel the
progress of humankind. Some examples :
The multibillion film, recording, publishing and software industries which bring
pleasure to millions of people worldwide would not exist without copyright protection.
Without the rewards provided by the patent system, researchers and inventors would
have little incentive to continue producing better and more efficient products for
consumers.
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Consumers would have no means to confidently buy products or services without

reliable, international trademark protection and enforcement mechanisms to discourage
counterfeiting and piracy.
FORMS OF INTELLECTUAL PROPERTY

PATENT
What is a Patent?
A patent is an exclusive right granted for an invention a product or process that
provides a new way of doing something, or that offers a new technical solution to a problem.
What does a patent do?
A patent provides patent owners with protection for their inventions. Protection is granted
for a limited period, generally 20 years.
Why patents are necessary?
Patents provide incentives to individuals by recognizing their creativity and offering the
possibility of material reward for their marketable inventions. These incentives encourage
innovation, which in turn enhances the quality of human life.
What kind of protection do patents offer?
Patent protection means an invention cannot be commercially made, used, distributed
or sold without the patent owners consent. Patent rights are usually enforced in courts that,
in most systems, hold the authority to stop patent infringement. Conversely, a court can also
declare a patent invalid upon a successful challenge by a third party.
What rights do patent owners have?

A patent owner has the right to decide who may or may not use the patented
invention for the period during which it is protected. Patent owners may give permission to, or
license, other parties to use their inventions on mutually agreed terms. Owners may also sell
their invention rights to someone else, who then becomes the new owner of the patent. Once
a patent expires, protection ends and the invention enters the public domain. This is also
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known as becoming off patent, meaning the owner no longer holds exclusive rights to the
invention, and it becomes available for commercial exploitation by others.
What role do patents play in everyday life?
Patented inventions have pervaded every aspect of human life, from electric lighting
(patents held by Edison and Swan) and sewing machines (patents held by Howe and Singer), to
magnetic resonance imaging (MRI) (patents held by Damadian) and the iPhone (patents held
by Apple).
In return for patent protection, all patent owners are obliged to publicly disclose
information on their inventions in order to enrich the total body of technical knowledge in the
world. This ever- increasing body of public knowledge promotes further creativity and
innovation. Patents therefore provide not only protection for their owners but also valuable
information and inspiration for future generations of researchers and inventors.
How is a patent granted?
The first step in securing a patent is to file a patent application. The application generally
contains the title of the invention, as well as an indication of its technical field. It must include the
background and a description of the invention, in clear language and enough detail that an
individual with an average understanding of the field could use or reproduce the invention.
Such descriptions are usually accompanied by visual materials drawings, plans or diagrams
that describe the invention in greater detail. The application also contains various claims, that
is, information to help determine the extent of protection to be granted by the patent.
What kind of inventions can be protected?
An invention must, in general, fulfill the following conditions to be protected by a patent.
It must be of practical use; it must show an element of novelty, meaning some new
characteristic that is not part of the body of existing knowledge in its particular technical field.
That body of existing knowledge is called prior art. The invention must show an inventive
step that could not be deduced by a person with average knowledge of the technical field.
Its subject matter must be accepted as patentable under law. In many countries, scientific
theories, mathematical methods, plant or animal varieties, discoveries of natural substances,
commercial methods or methods of medical treatment (as opposed to medical products) are not
generally patentable.
Your mark will not be registered if it is:
DESCRIPTIVE
These are marks that describe the characteristics of the goods or services. Examples
are DURABLE for shoes (describes the quality), A LITER for cooking oil (quantity), and so is
KITCHEN for cooking utensils (intended purpose).
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MISLEADING
Marks that are likely to deceive or have the tendency to misinform the consumers about
the actual characteristics of the goods or services like BOLPENS for pencils, COLA for
alcoholic beverages, BULAKAN for sweets not originating from or produced in Bulacan.
GENERIC and customary to trade

Generic marks are names of products they seek to identify. For instance, KAP KEYK
for cupcakes, CAFFE for coffee and MAKINAH for machines.
Marks and indications that have become common in everyday language or usage can
not be registered. They no longer distinguish the goods and services because they are used so
often to refer to the goods and services. Example of this is VCO for virgin coconut oil,
DIAMOND PEEL for services involving cosmetic procedure.
Contrary to Public Order or Morality
Marks that are against the common standard of morality. An example is PROTERRORISM for clothing.
CONSISTS OF NAMES, PORTRAITS OF PERSONS, MAPS, FLAGS AND OTHER
POLITICAL SYMBOLS
Marks that contain names or portraits of living individuals may be rejected unless the
individual gives written consent. For instance, no one can use the picture of Manny Pacquiao as
a trademark unless he is Mr. Pacquiao himself or he was duly authorized by Mr. Pacquiao.
SHAPE AND COLOR
Shapes must be distinctive from the usual shape of goods or containers of the goods, in
order to be considered a trademark. One classic example is the COKE BOTTLE.
Color alone is not accepted unless it is defined by a given form.
PATENTABLE INVENTIONS
A Technical Solution to a Problem
In any field of human activity
It must be NEW
It must involve an INVENTIVE STEP
It must be INDUSTRIALLY
APPLICABLE
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Statutory Classes of Invention
1. A useful machine
2. A product or composition
3. A method or process, or
4. An improvement of any of the foregoing
5. Microorganism
6. Non-biological & microbiological process
Non-Patentable Inventions
Discovery
Scientific theory
Mathematical methods
Scheme, rule and method of performing mental act
playing games
doing business
program for computer
Method for treatment human or animal body by surgery or therapy & diagnostic
method
Plant variety or animal breed or essentially biological processes for the production of
plants and animals
Aesthetic creation
Contrary to public order or morality
MARKS THAT MAY CAUSE CONFUSION

Your mark cannot be registered if it is identical with or similar to a registered mark or a mark with
earlier filing date for goods and services that are exactly the same or for goods and services
that are related. Consumers should not confuse your mark with the marks of others.
Identical with, or confusingly similar to WELL-KNOWN MARKS
Marks that are identical with or similar to marks that are known internationally and in the
Philippines will be refused registration.
What are the requirements to apply for registration?
1. A duly filled out trademark application form [there should be a link here]
2. Drawing of the mark
3. Payment of fees
TRADEMARK
What is a trademark?
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A trademark is a distinctive sign that identifies certain goods or services produced or
provided by an individual or a company. Its origin dates back to ancient times when craftsmen
reproduced their signatures, or marks, on their artistic works or products of a functional or
practical nature.
Over the years, these marks have evolved into todays system of trademark registration
and protection. The system helps consumers to identify and purchase a product or service
based on whether its specific characteristics and quality as indicated by its unique
trademark meet their needs.
A trademark is a tool used that differentiates goods and services from each other. It is a
very important marketing tool that makes the public identify goods and services. A trademark
can be one word, a group of words, sign, symbol, logo, or a combination of any of these.
Generally, a trademark refers to both trademark and service mark, although a service mark is
used to identify those marks used for services only.
Trademark is a very effective tool that makes the public remember the quality of goods
and services. Once a trademark becomes known, the public will keep on patronizing the product
and services.
Utilized properly, a trademark can become the most valuable business asset of an
enterprise. In addition to making goods and services distinctive, the owner of a mark may earn
revenues from the use of the mark by licensing its use by another or though franchising
agreements.
What do trademarks do?
Trademark protection ensures that the owners of marks have the exclusive right to use
them to identify goods or services, or to authorize others to use them in return for payment.
The period of protection varies, but a trademark can be renewed indefinitely upon payment of
the corresponding fees. Trademark protection is legally enforced by courts that, in most
systems, have the authority to stop trademark infringement.
In a larger sense, trademarks promote initiative and enterprise worldwide by rewarding
their owners with recognition and financial profit. Trademark protection also hinders the efforts
of unfair competitors, such as counterfeiters, to use similar distinctive signs to market inferior or
different products or services. The system enables people with skill and enterprise to produce
and market goods and services in the fairest possible conditions, thereby facilitating
international trade.
What kind of trademarks can be registered?
Trademarks may be one or a combination of words, letters and numerals. They may
consist of drawings, symbols or three- dimensional signs, such as the shape and packaging of
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goods. In some countries, non-traditional marks may be registered for distinguishing features
such as holograms, motion, color and non-visible signs (sound, smell or taste). In addition to
identifying the commercial source of goods or services, several other trademark categories
also exist.
Collective marks are owned by an association whose members use them to indicate
products with a certain level of quality and who agree to adhere to specific requirements set by
the association. Such associations might represent, for example, accountants, engineers or
architects. Certification marks are given for compliance with defined standards but are not
confined to any membership.
Your mark will not be registered if it is:
1. DESCRIPTIVE
These are marks that describe the characteristics of the goods or services. Examples are
DURABLE for shoes (describes the quality), A LITER for cooking oil (quantity), and so is
KITCHEN for cooking utensils (intended purpose).
2. MISLEADING
Marks that are likely to deceive or have the tendency to misinform the consumers about the
actual characteristics of the goods or services like BOLPENS for pencils, COLA for alcoholic
beverages, BULAKAN for sweets not originating from or produced in Bulacan.
3. GENERIC and customary to trade
Generic marks are names of products they seek to identify. For instance, KAP KEYK for
cupcakes, CAFFE for coffee and MAKINAH for machines.
Marks and indications that have become common in everyday language or usage can not be
registered. They no longer distinguish the goods and services because they are used so often
to refer to the goods and services. Example of this is VCO for virgin coconut oil, DIAMOND
PEEL for services involving cosmetic procedure.
4. Contrary to Public Order or Morality
Marks that are against the common standard of morality. An example is PRO-TERRORISM for
clothing.
5. CONSISTS OF NAMES, PORTRAITS OF PERSONS, MAPS, FLAGS AND OTHER
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POLITICAL SYMBOLS
Marks that contain names or portraits of living individuals may be rejected unless the individual
gives written consent. For instance, no one can use the picture of Manny Pacquiao as a
trademark unless he is Mr. Pacquiao himself or he was duly authorized by Mr. Pacquiao.
6. SHAPE AND COLOR
Shapes must be distinctive from the usual shape of goods or containers of the goods, in order to
be considered a trademark. One classic example is the COKE BOTTLE.
Color alone is not accepted unless it is defined by a given form.
HOW CAN YOU PROTECT YOUR MARK?

In the Philippines, a trademark can be protected through registration. Registration gives
the trademark owner the exclusive right to use the mark and to prevent others from using the
same or similar marks on identical or related goods and services.
The right to a trademark is granted to the one who first files a trademark application with
the IP Philippines. Before applying for trademark registration, it would help if you conduct a
search in the trademarks database to determine if there are identical or similar marks that would
prevent the registration of your mark. This is to prevent future conflicts with marks that are
already registered or with earlier filing dates.
The trademark protection granted by IP Philippines protects your mark only in the
Philippines. If you want your mark protected outside the country, you will need to file
applications in the countries where you want your mark registered.
COPYRIGHT
What is copyright?
Copyright is the legal protection extended to the owner of the rights in an original work.
Original work refers to every production in the literary, scientific and artistic domain. Among
the literary and artistic works enumerated in the IP Code includes books and other writings,
musical works, films, paintings and other works, and computer programs.
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Works are protected by the sole fact of their creation, irrespective of their mode or form of
expression, as well as their content, quality and purpose. Thus, it does not matter if, in the eyes
of some critics, a certain work has little artistic value. So long as it has been independently
created and has a minimum of creativity, the same enjoys copyright protection.
WHAT ARE THE WORKS COVERED BY COPYRIGHT PROTECTION UNDER THE
INTELLECTUAL PROPERTY CODE?
Works covered by copyright protection from the moment of their creation :
(a) Books, pamphlets, articles and other writings
(b) Periodicals and newspapers
(c) Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not
reduced in writing or other material form
(d) Letters
(e) Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb
shows
(f) Musical compositions, with or without words
(g) Works of drawing, painting, architecture, sculpture, engraving, lithography or other work of
art; models or designs for works of art
(h) Original ornamental designs or models for articles of manufacture, whether or not registrable
as an industrial design, and other works of applied art
(i) Illustrations, maps, plans, sketches, charts and three-dimensional works relative to
geography, topography, architecture or science
(j) Drawings or plastic works of a scientific or technical character
(k) Photographic works including works produced by a process analogous to photography;
lantern slides
(l) Audiovisual works and cinematographic works and works produced by a process analogous
to cinematography or any process for making audio-visual recordings
(m) Pictorial illustrations and advertisements
(n) Computer programs
(o) Other literary, scholarly, scientific and artistic works.
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WHAT ARE THE TWO TYPES OF RIGHTS UNDER COPYRIGHT?
There are two types of rights under copyright: (1) economic rights, so-called because
they enable the creator to obtain remuneration from the exploitation of his works by third parties,
and (2) moral rights, which makes it possible for the creator to undertake measures to maintain
and protect the personal connection between himself and the work.
A. ECONOMIC RIGHTS include:
1. Reproduction
a. Transformation First public distribution
b. Rental
c. Public display
d. Public performance
e. Other communication to the public of the work.
2. MORAL RIGHTS
Moral rights include:
a. Right of Attribution
b. Right of Alteration
c. Right of Integrity (object to any prejudicial distortion)
d. Right to restrain use of his name.
3. RESALE RIGHTS
In every sale or lease of an original work of painting or sculpture or of the
original manuscript of a writer or composer, subsequent to the first disposition thereof by the
author, the author or his heirs shall have an inalienable right to participate in the gross proceeds
of the sale or lease to the extent of five percent (5%). This right shall exist during the lifetime of
the author and for fifty (50) years after his death.
B. RELATED RIGHTS
Authors create works to disseminate them to as large an audience as possible.
Obviously, they cannot do the dissemination by themselves. They need the help of persons or
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entities who contribute substantial creative, technical or organizational skill in the process of
making the works available to the public and whose interests ought to be protected to
encourage them to continue with their work. Hence, their rights are referred to as related rights
or neighboring rights since they are related to or are neighboring on the authors copyright.
Thus, we have the related rights of: (a) performers; (b) producers of sound recordings; and (c)
broadcasting organizations.
Copyright ownership
Generally, the natural person who created the literary and artistic work owns the
copyright to the same.
For work created during or in the course of employment (works for hire):
Employee - if the work is not part of his regular duties, even if he used the time, facilities
and materials of the employer;
Employer - if the work is the result of the performance of his regularly assigned duties,
unless there is an express or implied agreement to the contrary.
For commissioned works: the person who commissioned the work owns the work but the
copyright thereto remains with the creator, unless there is a written agreement to the
contrary.
For audiovisual works: the producer, the author of the scenario, the composer of the
music, the film director, and the author of the work so adapted.
WHAT IS THE TERM OF PROTECTION OF COPYRIGHT?

In general, the term of protection of copyright for original and derivative works is the life
of the author plus fifty (50) years after his death. The Code specifies the terms of protection for
the different types of works.
In calculating the term of protection, the term of protection subsequent to the death of
the author shall run from the date of his death or of publication, but such terms shall always be
deemed to begin on the first day of January of the year following the event which gave rise to
them (i.e. death, publication, making).
WHAT ARE THE LIMITATIONS ON COPYRIGHT AND FAIR USE?

Copyright protection is not intended to give the copyright owner absolute control over all
possible exploitation of his work. The law provides for limitations (statutory fair uses) on the
economic rights of authors comprising of acts which do not constitute copyright infringement
even if done without the consent of the copyright holder, such as:
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o
The recitation or performance of a work, once it has been lawfully made

accessible to the public, if done privately and free of charge or if made strictly for a
charitable or religious institution or society; (Sec. 10(1), P.D. No.49)
The making of quotations from a published work if they are compatible with fair
use and only to the extent justified for the purpose, including quotations from
newspaper articles and periodicals in the form of press summaries: Provided, That the
source and the name of the author, if appearing on the work, are mentioned;
The reproduction or communication to the public by mass media of articles on

current political, social, economic, scientific or religious topic, lectures, addresses and
other works of the same nature, which are delivered in public if such use is for
information purposes and has not been expressly reserved: Provided, That the source
is clearly indicated;
The reproduction and communication to the public of literary, scientific or artistic

works as part of reports of current events by means of photography, cinematography
or broadcasting to the extent necessary for the purpose;
The inclusion of a work in a publication, broadcast, or other communication to the

public, sound recording or film, if such inclusion is made by way of illustration for
teaching purposes and is compatible with fair use: Provided, That the source and of
the name of the author, if appearing in the work, are mentioned;
The recording made in schools, universities, or educational institutions of a work

included in a broadcast for the use of such schools, universities or educational
institutions: Provided, That such recording must be deleted within a reasonable period
after they were first broadcast: Provided, further, That such recording may not be made
from audiovisual works which are part of the general cinema repertoire of feature films
except for brief excerpts of the work;
The making of ephemeral recordings by a broadcasting organization by means of

its own facilities and for use in its own broadcast;
The use made of a work by or under the direction or control of the Government,
by the National Library or by educational, scientific or professional institutions where
such use is in the public interest and is compatible with fair use;
The public performance or the communication to the public of a work, in a place

where no admission fee is charged in respect of such public performance or
communication, by a club or institution for charitable or educational purpose only,
whose aim is not profit making, subject to such other limitations as may be provided in
the Regulations;
Public display of the original or a copy of the work not made by means of a film,
slide, television image or otherwise on screen or by means of any other device or
process: Provided, That either the work has been published, or, that original or the
copy displayed has been sold, given away or otherwise transferred to another person
by the author or his successor in title; and
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o
Any use made of a work for the purpose of any judicial proceedings or for the
giving of professional advice by a legal practitioner.
These limitations, however, should be interpreted in such a way as to allow the work to
be used in a manner which does not conflict with the normal exploitation of the work and
does not unreasonably prejudice the right holders legitimate interest.
The fair use of a copyrighted work for criticism, comment, news reporting, teaching
including multiple copies for classroom use, scholarship, research, and similar purposes
are not an infringement of copyright. Decompilation, which is understood here to be the
reproduction of the code and translation of the forms of the computer program to achieve
the inter-operability of an independently created computer program with other programs
may also constitute fair use.
In determining whether the use made of a work in any particular case is fair use, the
factors to be considered shall include:
o
The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit education purposes;
The nature of the copyrighted work;
o
o
The amount and substantiality of the portion used in relation to the copyrighted
work as a whole; and
The effect of the use upon the potential market for or value of the copyrighted
work.
Aside from the provisions on the limitations on copyright and on fair use, the law allows
the following reproductions:
the private reproduction of a published work in a single copy, where the reproduction is
made by a natural person exclusively for research and private study, shall be permitted,
without the authorization of the owner of copyright in the work.
any library or archive whose activities are not for profit may, without the authorization of
the author of copyright owner, make a single copy of the work by reprographic
reproduction:
1. (a) Where the work by reason of its fragile character or rarity cannot be lent to
user in its original form;

2. (b) Where the works are isolated articles contained in composite works or brief
portions of other published works and the reproduction is necessary to supply

them; when this is considered expedient, to person requesting their loan for
purposes of research or study instead of lending the volumes or booklets which
contain them; and
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3. (c) Where the making of such a copy is in order to preserve and, if necessary in
the event that it is lost, destroyed or rendered unusable, replace a copy, or to

replace, in the permanent collection of another similar library or archive, a copy
which has been lost, destroyed or rendered unusable and copies are not
available with the publisher.
the reproduction in one (1) back-up copy or adaptation of a computer program shall be
permitted, without the authorization of the author of, or other owner of copyright in, a
computer program, by the lawful owner of that computer program: Provided, That the copy
or adaptation is necessary for:
1. (a) The use of the computer program in conjunction with a computer for the
purpose, and to the extent, for which the computer program has been obtained; and
2. (b) Archival purposes, and, for the replacement of the lawfully owned copy of the
computer program in the event that the lawfully obtained copy of the computer
program is lost, destroyed or rendered unusable.
WHAT CONSTITUTES INFRINGEMENT?
Under the IP Code

o
Copyright infringement consists in infringing any right secured or protected under
the Code. It may also consist in aiding or abetting such infringement. The law also
provides for the liability of a person who at the time when copyright subsists in a work
has in his possession an article which he knows, or ought to know, to be an infringing
copy of the work for the purpose of:
Selling or letting for hire, or by way of trade offering or exposing for sale
or hire, the article;
Distributing the article for the purpose of trade, or for any other purpose to
an extent that will prejudice the rights of the copyright owner in the work; or
Trade exhibit of the article in public.

INDUSTRIAL DESIGN
What is an Industrial Design?

An industrial design refers to the ornamental or aesthetic aspects of an article.
A design may consist of three-dimensional features, such as the shape or surface of an
article, or two-dimensional features, such as patterns, lines or color.
Industrial designs are applied to a wide variety of industrial products and handicrafts:
from technical and medical instruments to watches, jewelry and other luxury items; from
house wares and electrical appliances to vehicles and architectural structures; from
textile designs to leisure goods.
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To be protected under most national laws, an industrial design must be new or original
and non- functional. This means that an industrial design is primarily of an aesthetic
nature, and any technical features of the article to which it is applied are not protected by
the design registration. However, those features could be protected by a patent.
Why protect industrialdesigns?
Industrial designs are what make an article attractive and appealing; hence, they add to
the commercial value of a product and increase its marketability.
When an industrial design is protected, the owner the person or entity that has
registered the design is assured
an exclusive right and protection against
unauthorized copying or imitation of the design by third parties.
This helps to ensure a fair return on investment. An effective system of protection also
benefits consumers and the public at large, by promoting fair competition and honest
trade practices, encouraging creativity and promoting more aesthetically pleasing
products.
Protecting industrial designs helps to promote economic development by encouraging
creativity in the industrial and manufacturing sectors, as well as in traditional arts and
crafts. Designs contribute to the expansion of commercial activity and the export of
national products.
Industrial designs can be relatively simple and inexpensive to develop and protect. They
are reasonably accessible to small and medium-sized enterprises as well as to
individual artists and craftsmakers, in both developed and developing countries.
How can industrial designsbe protected?
In most countries, an industrial design must be registered in order to be protected
under industrial design law. As a rule, to be registrable, the design must be new or
original. Countries have varying definitions of such terms, as well as variations in the
registration process itself. Generally, new means that no identical or very similar design
is known to have previously existed. Once a design is registered, a registration certificate
is issued. Following that, the term of protection granted is generally five years, with the
possibility of further renewal, in most cases for a period of up to 15 years.
Hardly any other subject matter within the realm of intellectual property is as difficult
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to categorize as industrial designs. And this has significant implications for the means and
terms of its protection. Depending on the particular national law and the kind of design,
an industrial design may also be protected as a work of applied art under copyright law,
with a much longer term of protection than the standard 10 or
15 years under registered design law. In some countries, industrial design and copyright
protection can exist concurrently. In other countries, they are mutually exclusive: once
owners choose one kind of protection, they can no longer invoke the other.
Under certain circumstances an industrial design may also be protectable under
unfair competition law, although the conditions of protection and the rights and
remedies available can differ significantly.
What is a Geographical Indication?
A geographical indication is a sign used on goods that have a specific
geographical origin and possess qualities or a reputation due to that place of origin.
Most commonly, a geographical indication consists of the name of the place of origin of
the goods. Agricultural products typically have qualities that derive from their place of
production and are influenced by specific local geographical factors, such as climate and
soil. Whether a sign functions as a geographical indication is a matter of national law and
consumer perception. Geographical indications maybe used for a wide variety of
agricultural products, such as, for example, Tuscany for olive oil produced in a specific
area of Italy, or Roquefort for cheese produced in that region of France.
The use of geographical indications is not limited to agricultural products. They may
also highlight specific qualities of a product that are due to human factors found in the
products place of origin, such as specific manufacturing skills and traditions. The place of
origin may be a village or town, a region or a country. An example of the latter is
Switzerland or Swiss, perceived as a geographical indication in many countries for
products made in Switzerland and, in particular, for watches.
What is an appellation of origin?
An appellation of origin is a special kind of geographical indication used on
products that have a specific quality exclusively or essentially due to the geographical
environment in which the products are produced. The term geographical indication
encompasses appellations of origin.
Why do geographicalindications need protection?
Geographical indications are understood by consumers to denote the origin and
quality of products. Many of them have acquired valuable reputations which, if not
adequately protected, may be misrepresented by commercial operators. False use of
geographical indications by unauthorized parties, for example Darjeeling for tea that
was not grown in the tea gardens of Darjeeling, is detrimental to consumers and
legitimate producers. The former are deceived into believing they are buying a genuine
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product with specific qualities and characteristics, and the latter are deprived of valuable
business and suffer damage to the established reputation of their products.
What is the difference between a geographicalindication and
a trademark?
A trademark is a sign used by a company to distinguish its goods and services from
those produced by others. It gives its owner the right to prevent others from using the
trademark. A geographical indication guarantees to consumers that a product was
produced in a certain place and has certain characteristics that are due to that place of
production. It may be used by all producers who make products that share certain
qualities in the place designated by a geographical indication.
What is a genericgeographical indication?

If the name of a place is used to designate a particular type of product, rather than to
indicate its place of origin, the term no longer functions as a geographical indication. For
example, Dijon mustard, a kind of mustard that originated many years ago in the
French town of Dijon, has, over time, come to denote mustard of that kind made in
many places. Hence, Dijon mustard is now a generic indication and refers to a type of
product, rather than a place.
How are geographicalindications protected?
Geographical indications are protected in accordance with national laws and under a
wide range of concepts, such as laws against unfair competition, consumer protection
laws, laws for the protection of certification marks or special laws for the protection of
geographical indications or appellations of origin. In essence, unauthorized parties may
not use geographical indications if such use is likely to mislead the public as to the true
origin of the product. Applicable sanctions range from court injunctions preventing
unauthorized use to the payment
of damages and fines or, in serious cases, imprisonment.
What is WIPOs role in the protection of geographical indications?
WIPO administers a number of international agreements that deal partly or entirely
with the protection of geographical indications (in particular, the Paris Convention and
the Lisbon Agreement). WIPO meetings offer Member States and other interested parties
the opportunity to explore new ways of enhancing the international protection of
geographical indications.
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REFERENCES:
en.wikipedia.org/wiki/Intellectual_property
iprs.cbp.gov/
www.chanrobles.com/legal7.htm
www.w3.org/IPR/
http://www.engsc.ac.uk/resources/intellectual-property-rights
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SCIENTISTS AND ENGINEERS

Learning Objectives
Distinguish between scientists and engineers
Discuss how to manage creative people and nurture them
Discuss the new developments impacting the way scientists and engineers are managed
Discuss the implications for hiring scientists and engineers and the incentives within the
firm
Course Outline
Distinguishing Between Scientists and Engineers

How to Manage Creative People
New Developments Impacting the Way Scientists and Engineers are Managed
How to Hire for Creativity
How to Reward Great Ideas
DISTINGUISHING BETWEEN SCIENTISTS & ENGINEERS

In October 2010, when 33 Chilean miners who had been trapped a half-mile
underground for two months were brought safely to the surface, a headline in the Wall Street
Journal described the "rescue formula" as "75 percent science, 25 percent miracle." In fact, as a
participant in the feat was quoted in the story itself, the rescue was "75 percent engineering and
25 percent a miracle." It was engineers who had designed the advanced drill bit that enabled an
access shaft to be driven in record time; it was engineers who designed the rescue capsule that
was used to haul the miners out one-by-one; and it was engineers who had designed the
ancillary equipment that was necessary to carry out the rescue.
The most generous way to excuse the headline writer for substituting "science" for
"engineering" is to assume that he thought that the terms were synonymous. Headlines
obviously have to fit a limited space and so shorter words are often favored over longer ones.
But there is also another, less sanguine explanation for the substitution: newspaper people
seem to associate scientists and science with positive accomplishments and engineers and
engineering with negative ones. Thus, when the space race was young, it was common to read
in the newspaper a successful rocket launch described as a scientific achievement and an
unsuccessful one as an engineering failure.
Aerospace engineer and scientist Theodore von Krmn, who directed the Guggenheim
Aeronautical Laboratory at Caltech and was involved in founding NASA's Jet Propulsion
Laboratory, is credited with formulating a simple distinction between engineers and scientists. In
one of its many variant forms, his dictum says that scientists seek to understand what is, while
engineers seek to create what never was.
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This is a compelling dichotomy, and one that an engineer/scientist with the background
and experience of von Krmn was in a perfect position to formulate. What distinguishes the
two pursuits may be said to be: engineering is the design of new devices and systems that
serve a useful purpose that is not met by existing technology. The purest of scientists do not do
this; they seek knowledge for its own sake, with no particular application or design in mind.
Such individuals pursue science for science's sake, in much the way that some artists
engage in art for art's sake. If such scientists engage in design at all, it is through the
formulation of hypotheses and the concoction of experiments to test them. Such activity may be
useful to scientists and the scientific enterprise, but it does not necessarily benefit the larger
society.
Engineers, on the other hand, are most directly doing engineering when they are
engaged in the design of something for some particular purpose that does benefit society.
Whatever relevant scientific knowledge and understanding are available to help achieve the
goal will certainly be welcome, but in the absence of it, engineers forge ahead. Sometimes this
means doing science themselves, such as by devising experiments and collecting whatever
data might be necessary for design decisions to be made.
A classic example of this involves the Wright brothers and their pursuit of powered flight.
In working toward their goal, they contacted the Smithsonian Institution seeking whatever
scientific literature was available, but they found very little in the field of what we today know as
aerodynamics. Among the information they sought was scientific knowledge that would guide
them in determining what profile to give a propeller. In the absence of that essential information,
they conducted their own goal-specific wind tunnel experiments in order to proceed with the
engineering design.
Although, in their purest form, engineering and science may be distinct endeavors, in
many cases they are hybrid activities. In practice, engineering and science often work in
partnership: Engineers exploit scientific principles and discoveries, while scientists rely on
engineering and technology for sophisticated instruments and devices. This is certainly the case
in high-tech fields such as microelectronics and nanotechnology. It is also necessary in the
design and development of particle accelerators. Some students of science and technology
even go so far as to say that without engineering advances in measuring instruments and
detection devices, science itself could not advance.
HOW TO MANAGE CREATIVE PEOPLE
To manage creative people, the most important thing to keep in mind is that they are
happiest when they get little or no supervision. They like to be independent and autonomous.
Creative people intensely dislike doing routine, low-grade chores and paperwork. They work
best in an atmosphere of freedom--freedom to experiment and to make mistakes. Thus, a
favorable environment and the proper style of supervision are absolutely critical to creative
people's success. It is impossible to separate creative people from the environment in which
they operate. For managers to mold an environment that is maximally conducive to creativity,
they must be extremely careful about giving criticism.
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Criticism must be in the form of feedback that a creative person views as attempt to
help, to teach, and not in the form of anything approaching personal criticism. Criticism must be
done in an encouraging manner.
Amabile in The Social Psychology of Creativity writes that "Criticism and imparting
feelings of failure will destroy creativity--avoiding them are the keys to fostering creativity." The
author states that the "...work environments most conducive to the fulfillment of creative
potential may include a high level of worker responsibility for initiating new activities, a low level
of interference from administrative superiors, and a high stability in employment."
Thus, there are several don'ts in dealing with truly creative employees: Don't interfere,
don't criticize (give specific feedback), don't compare them to others, and don't threaten them
with the loss of their jobs (either love and support them to the hilt or fire them--there's virtually
no room in between).
It means in the case of creative people who have a great deal of administrative work to
do, that it is probably best to give them an assistant to help and to keep them away from
routinized, repetitive work. Avoiding the cost of an assistant is usually penny wise and pound
foolish with truly creative employees.
Nurturing Creative People
In a June 1994 Fortune article, titled "How to Nurture Creative Sparks," author Alan
Farnham gives several rules for nurturing creative people:
1. Accommodate: Creative people tend to be high maintenance. Managers must keep their
doors open and let creative people have access to them. Creative people usually need
constant stroking. So stroke. Also, creative people cannot choose when they create-ideas come to them at odd times. Accommodate to their schedules. Never, never, never
punish failure. Managers must learn to celebrate failures as learning experiences for
creatives.
2. Stimulate: Management must find ways to stimulate creative thinking: trips or green and
purple offices if creatives want them. Creatives must be encouraged to gaze out the
window. They do not always have to be doing something.
3. Recognize and reward--the right way: "Since creative people tend to be self-starters,
giving them greater autonomy can be a powerful reward," writes Farnham. The worst
type of incentive is for a manager to try to hog credit. Creatives want to be known for
their work and ideas--that is where they get their powerful intrinsic rewards. Creatives
care about what their peers think, so peer recognition is vitally important. Managers
should enter the output of their creative people in awards. Money, an extrinsic reward, is
not especially valued by creatives.
4. Direct (lightly) and give feedback: Creative people need deadlines; otherwise they will
stay in an exploration mode too long. On the other hand, they hate specific directions.
They need feedback on how they are progressing, but do not like to get feedback from
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managers. If they can see research, talk to audience members, or hear from their peers,
they take feedback better than from managers, who they feel try to control them.
5. Protect them: Managers have to protect creative people from dullards who do not
understand the creative process. Managers also have to protect creatives from
restrictive, corporate-mandated paperwork and rules.
TEN COMMANDMENTS FOR MANAGING CREATIVE PEOPLE
Of the 18 visionary companies about which they write in their new book, Built to Last,
Stanford business professors James Collins and Jerry Porras say, "If we had to bet our lives on
the continued success and adaptability of any single company in our study over the next 50 to
100 years, it would be 3M." 3M consistently ranks among the top ten in Fortune's annual list of
America's most admired corporations and consistently wrings more than a quarter of its sales
from products less than four years old. So what's the secret of the company that makes 66,000
products as diverse as fire hose linings, surgical gowns, bingo supplies, and Scotch tape?
For some clues, listen to the CEO. His name is Livio DeSimone, but everyone calls him
Desi. Son of Italian immigrants, he grew up in Montreal (English was his third language, after
Italian and French), got a chemical engineering degree from McGill University, and was hired by
3M in 1957 at 21 (he's now 58). He is much like the company itself: unpretentious, friendly,
smart, expansive, and plain as an old shoe. Ask Desi DeSimone how you keep the magic going,
and he'll come back with what amounts to Ten Commandments for managing and motivating
creative people:
1. Give folks time to follow their muse. The company fosters an environment where happy
accidents can happen. Technicians are famously free to devote 15% of their time to any
research project that they wish. That's how Post-it Notes were created. You know the
story: The co-inventor, Art Fry, wanted little adhesive papers to mark the hymns he was
going to sing at Sunday church services; he thought of co-inventor Spence Silver, who
had developed a light adhesive. The two got together and spent their free time perfecting
Post-its. Last year 3M sold more than $100 million of them. Some techies spend not just
15% but 50% of their time pursuing dream ideas; managers are encouraged to be liberal
about letting them do so. Says DeSimone: "A business of trying to do new things
doesn't lend itself to regimentation."
2.
Create a culture of cooperation. Everybody at 3M is encouraged to call up any other

employee and tap into that person's expertise. "We should always have people from as
many disciplines as possible talking to each other," says DeSimone. Like when you're
creating, say, a new kind of cup and you need to know something about the science of
surface morphology, or you're developing better sandpaper and you need to learn about
microreplication technology. Chances are that 3M employs one of the reigning experts in
such esoterica. And part of that person's job is to freely share such knowledge--on the
phone, by E-mail, in person, or any other way. This internal best-practices system
discourages "turfiness," breaks down the walls between business units, and goes far to
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stimulate creativity. Sounds simple, but few other companies use it. Their institutional
memories are short, and they are constantly wasting their time reinventing things.
3. Measure your results. The 3M Company has 45 business units and measures not only
their sales, earnings, market share, inventory turns, and the like but also what each has
done that's new. "If it isn't happening, then there's an issue," says DeSimone. Managers
have to find solutions, particularly since DeSimone has raised the bar and now is aiming
for new products to account for not just 25% but 30% of sales.
4. Stay ahead of the customer. "The most interesting products," says DeSimone, "are the
ones that people need but can't articulate that they need." So the salesperson has to
interact constantly with the customer to find out what may be missing and tell it to the St.
Paul development staff. For example, the company makes light- reflective guide rails for
highways. Even though customers seemed satisfied, some 3M techies concluded that
the guide rails weren't good enough, that there were still too many accidents. After much
trial and error, and countless visits to experts all around the company to draw on all
kinds of technical knowledge, they found a way to use light transmission technology to
convey a beam of light from a single bulb for 500 yards along a rail. Where the new
technology has been used, mainly on mountain roads in Europe, accidents are way
down.
5. Stage a lot of celebrations. Man does not live by stock options alone. The company
recognizes success not so much by giving shares or bonuses but by holding events
where peers cheer peers. Honorees get a certificate and a back pat from Desi, and
waves of applause. The top awards come once a year, 3M's Oscar night. With
considerable fanfare, three or four eminent innovators are inducted into the Carlton
Society, a hall of fame for company immortals. Call it corny, but it works.
6. Be honest and know when to say no. Managers at 3M listen to all ideas from employees
and respond to them. The ideas don't have to be for big businesses. As Collins and
Porras write, "3M understood that big things often evolve from little things; but since you
can't tell ahead of time which little things will turn into big things, you have to try lots of
little things, keep the ones that work, and discard the ones that don't." But you also have
to decide early if an idea just isn't going to make it commercially, even on a small scale.
In such cases--and there are many--you should promptly tell the person who came up
with it. The creator can then shop the idea to another part of the company, which might
pick it up.
7. Make the company a lifetime career. DeSimone derisively dismisses corporations that
chew up and spit out people, or job hoppers who switch employers every few years.
Most of 3M's managers have been there 25 years or more. "The Mafia gets more
resignations than 3M," says Minneapolis Star Tribune columnist Dale Dauten. DeSimone
argues that "your safest bet to be able to manage creativity is to have senior managers
who have been here a long enough time to be sensitive to our manner of management
and carry it through." And 3M rarely lays off people. True, the company has fewer
employees now (85,000) than ten years ago, when sales were only a third as big, but
most of that decline came about through attrition. DeSimone figures that it's tough to fire
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a lot of people and then ask the survivors to stick their necks out and be innovative. And
he questions the ability of managers who have had to cut their work forces deeply: "Why
did you get into a position that you had to lay off a bunch of people? How come you're so
smart now that you've laid off a bunch of people?"
8. Give your best managers assignments overseas. DeSimone doesn't buy the argument
that foreign postings are career graveyards. Fully 75% of 3M's top 135 executives have
lived abroad for at least three years, and usually more. DeSimone worked in Brazil for 14
years and in Australia for several more (with Portuguese and Spanish, he now has five
languages). Half the company's $14 billion in annual sales comes from outside the U.S.,
and 3M's philosophy is that you have to live abroad to learn that customers have
different tastes and values, that there are different ways of accomplishing jobs and
goals. A manager directing a foreign operation also learns many more things than does a
high executive back at headquarters. As DeSimone says, "The big manager sitting here
in St. Paul doesn't run a whole business: He doesn't have to go to the bank, he doesn't
set human resource policies, the legal department takes care of his law problems. But
when you're overseas, you learn to run your own little show."
9. Keep increasing R&D spending. The 3M Company has done that for 20 straight years,
including some tough ones. At times when business dropped, the company slowed the
increase in R&D but never cut it. As former CEO Richard P. Carlton, for whom the
Carlton Society was named, said in 1950: "Our Company has, indeed, stumbled onto
some of its new products. But you can only stumble if you're moving."
10. Don't heed everything Wall Street tells you. "I can remember back in the Eighties," says
DeSimone, "when every security analyst said, 'Geez, you ought to leverage your
company a lot more. You should borrow more money.' But we're sitting back in the
Midwest--you know, farmer types. And our answer is, 'We don't think that's a safe thing
to do.' And now we look back on it, and we see that a lot of companies that leveraged
the hell out of themselves are either not around anymore or have gone through
horrendous times." Play it prudently, says DeSimone, and you'll have a cushion of
money to let your technicians chase their dreams, to invest in R&D, to make decisions
on the basis of what you want and not what the bankers demand in order to pay down
your debt.
When you add it all up, it's clear that 3M is living very close to the precepts articulated 70
years ago by one of its early chiefs, William McKnight, who helped turn a failed corundum mine
into a flourishing sandpaper and grinding-wheel business that grew into 3M. McKnight told his
colleagues; listen to anyone with an original idea no matter how absurd it might sound at first.
Encourage; don't nitpick. Let people run with an idea. Hire good people, and leave them alone.
If you put fences around people, you get sheep. Give people the room that they need.
Encourage experimental doodling.
Give it a try--and quick. And what has all this wrought? Well, with the single exception of
1991, 3M's earnings have increased every year since 1985, and return on equity has averaged
a lofty 20%. They may be plain folks up there in St. Paul, creating practical products in their
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own unpretentious way. But as Desi DeSimone "We're going to be around for a long time and
we're going to be stable."
NEW DEVELOPMENTS IMPACTING THE WAY SCIENTISTS AND ENGINEERS ARE

MANAGED
Cross-functional Teams
Cross-functional teams have gained wide acceptance with R&D management because these
teams facilitate accomplishing product quality objectives, reduce the need for formal
reviews (gates), and reduce the cost and time required to develop new products. Moreover,
scientists and engineers are expected to welcome the use of these teams, because crossfunctional teams increase quality of work life.
Traditional new product development is divided among functional groups. Thus, scientists and
engineers assume responsibility for only the technical task. In cross-functional teams,
members of different functional groups work as a closely integrated cross-functional unit
Thus, in addition to responsibility for the technical task, scientists and engineers share
responsibility with other functions for the overall cross-functional team task. Moreover,
members are given enough autonomy to take ownership for the team task, have a clear
understanding of the other members interests, make decisions that take into account these
diverse interests, and produce collective outcomes that add to more than their individual
outcomes.
Leading Scientists and Engineers
Traditional technical managers managed scientists and engineers through command and
control systems: they provided direction, plans, procedures, and rules that defined work.
Moreover, they made sure scientists and engineers followed directions and complied with these
plans, procedures, and rules. In competitive R&D work, technical management is pushed down
and more is done by scientists and engineers individually or in teams. Thus, technical managers
lead scientists and engineers: they assign scientists and engineers broad objectives, and create
a work climate that helps them define and control their work.
Technical managers perform two important roles: the catalyst role and the captain role (Farris,
1988). Technical managers perform the catalyst role by providing scientists and engineers a
stimulating work environment that challenges and empowers scientists and engineers,
provides clear task objectives, and allows them to grow and develop. Technical managers
perform the captain role by directing the work of scientists and engineers. The more technical
managers act as catalysts, however, the less they are required to act as captains, because a
stimulating work environment substitutes for the need to direct the work of scientists and
engineers (Cordero et al., 2002).
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To succeed in todays highly competitive R&D environment, technical managers shift from the
command and control approach to the leadership approach (Hammer & Champy, 1993; James,
2002; Jassawalla & Sashittal, 2000). Thus, technical managers shift from the performance
of the captain role to the performance of the catalyst role.
Knowledge Management
Scientists and engineers are knowledge workers, and knowledge is a key source of competitive
advantage (Mandel and Hof, 2001). There are two types of knowledge: explicit knowledge and
tacit knowledge. Explicit knowledge can be transmitted verbally or through the written word; tacit
knowledge is personal and experiential and is better transmitted through joint activities.
Moreover, both types of knowledge can reside in the individual and the organization. In todays
business environment, R&D laboratories gain competitive advantage by managing both types of
knowledge, but in particular, tacit knowledge (Hitt et al., 2000).
Armbrecht et al. (2001) find that the two primary factors enabling knowledge management
in technical organizations are culture and structure, with information technology being the
secondary factor. These authors make several recommendations for harnessing culture and
structure. The most significant ones in our opinion being the development of a culture that
values sharing and creating knowledge, top management support for knowledge management,
and the development of measures that support knowledge management in conjunction with
tying incentives to high scores in these measures. They also recommend flat organizational
structures, large common areas that facilitate interactions, the use of cross-functional teams,
and the creation of full-time knowledge management positions.
Similarly, McDermott (1999) makes several useful suggestions for successful knowledge
management. A sample of these suggestions follows: help develop natural knowledge
communities that avoid operating as bureaucracies; allow these communities to determine what
information they need to share and the media they will use; allow them to use different media
such as on-line, face-to-face, telephone, regular mail, etc.; integrate these communities into the
natural flow of work; and create an organizational culture that supports sharing knowledge.
For example, Sakkab (2002) discusses how P&G has twenty chartered communities of
practices (natural knowledge communities) in areas such as biotechnology/life sciences, fiber,
microbiology, and robotics. Each of these communities is sponsored by an R&D vice-president,
has a budget, and uses different media to share knowledge. Some of the large communities
even have full time staff.
Demographic Diversity
Demographic diversity is sometimes the result of scientists and engineers involved in
multinational R&D programs. A recent study (Ohba, 1996) suggests several strategies for
facilitating the work of scientists and engineers temporarily in a foreign culture: showing signs of
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respect for their home culture, following home country labor regulations, and creating an
environment more like the home country.
Electronic and Other Technologies
The task of scientists and engineers relies heavily on the flow and analysis of
information, and electronic technology can be used to direct the flow of and to analyze
information.
The Internet is a new tool that dramatically increases the speed and dramatically lowers the cost
of communication (Mandel & Hof, 2001). Thus, the Internet has the potential to
dramatically increase the performance of scientists and engineers. A recent study argues that
scientists and engineers are already taking advantage of this tool. Scientist and engineers
spend an average of 66 minutes per day using the Internet to purchase and sell lab equipment,
to purchase business travel and accommodations (Rozgus, 2000; Studt, 2000), and for
other purposes discussed below.
They use the Internet to facilitate the product development process. For example, they use a
Web-based product development system to provide a central repository for all project- related
information and to provide different applications for the different stages and gates
(Dvorak, 2001; Hamilton, 2001; Howe et al., 2000). Moreover, they and other project members
(which may include customers and world-wide suppliers) can continually update and access
relevant information on a secure project extranet. Thus, a Web-based system allows for quickly
discovering and solving design problems with a minimum of travel before the final design is
completed (Keenan, 2001). As a result, the quality of new products increases, and their
development time and cost decrease (Beckert, 2000; Sweeney, 1999).
They use a Web-based database to enable knowledge management (Mandel, 2001). For
example, they use an online database to search for existing technical solutions to technical
problems in other areas of the organization (Echikson, 2001). Having such an on-line database,
however, is not sufficient to guarantee that scientists and engineers will exchange technical
knowledge successfully. Thus, an on-line database needs to be managed effectively. For
example, to promote posting solutions to technical problems in this database and to promote
searching and using these solutions, some organizations assign individuals to promote
the database and offer incentives to those who contribute knowledge to the database and to
those who use this knowledge (Ewing, 2001).
Scientists and engineers also use software systems such as computer-aided engineering (CAE)
and computer-aided design (CAD) in the product development process. These software
systems allow scientists and engineers to virtually test the performance of different designs,
eliminating the need for building physical models, and, therefore, reducing product development
time and cost (Schilling & Hill, 1998). Scientists and engineers, however, do not appear to use
these software systems very effectively (Eisenhardt & Tabrizi, 1995). For example, Kessler &
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Chakrabarti (1999) found that CAD systems tended to increase product development time,
especially for radical innovations that are more dependent on creativity than on
mathematical solutions and old designs. In contrast, Robertson & Allen (1993) have found a
positive relationship between the use of CAD systems communication facilities (i.e., to transfer
files) and engineering performance.
Some very recent developments help chemists, and pharmaceutical and material scientists
increase the number of compounds available and reduce development time and cost. For
example, to help these scientists decide what compounds to create and evaluate, molecular
modeling can be used (Holland & Mitchell, 1999). Then, combinatorial chemistry and highthroughput screening can be used to create and evaluate many different chemical and material
compounds in the laboratory (Anonymous, 2000; Holland & Mitchell, 1999). Moreover,
automation and robotics allow the creation and evaluation of these compounds to operate
unattended, and the use of advanced data handling techniques help keep track of all
the information generated by the creation and evaluation of these compounds (Jansen). These
new developments, however, are not without problems. Because these developments are
complex, a significant problem appears to be downtime (Jansen).
Outsourcing
R&D is increasingly being outsourced by contracting out projects in whole or in part, or by
bringing in contract scientists and engineers to work in teams with in-house staff (Anonymous,
1998; Rothstein, 1998). In this way, organizations that adequately develop their core technical
competencies and outsourcing management practices are able to innovate faster and less
expensively, particularly in those areas where they lack internal expertise (Quinn, 2000; Studt,
2001). Moreover, outsourcing allows in-house staff to become part of a wider invisible college
within the R&D community (Howells, 1999). Finally, Jarmon et al. (1998) have found that the
performance of contract scientists and engineers rivals that of permanent staff. Outsourcing,
however, prevents the experience and expertise acquired by contractors while working for the
organization from entering the organizations memory (Rothstein, 1998).
HOW TO HIRE FOR CREATIVITY
If you want to build an innovative company, you had better make it your business to find
employees who think outside the box.
So many companies profess to seek employees who "think outside the box" that the
expression has become one of the biggest clichs in business. But hiring innovative thinkers
poses big challenges. Technical skills and knowledge can be measured; experience, with some
persistence, can be verified; but creativity is more mysterious. There's not even complete
agreement on what it is.
In business, and for our purposes, let's say that creativity is simply finding new solutions to old
problems. In that sense, much work -- or at least much of the best work -- is creative work.
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Inventing a new product or technology certainly qualifies, but so does coming up with a fresh
marketing approach or opening a new sales category. Still, the potential field is not unlimited.
Jobs that are heavily structured, with a lot of repetition, generally don't require a lot of creativity,
and filling such positions with creative people can leave them, and you, frustrated.
FINDING INNOVATORS
1. Decide Which Kind of Creativity Counts. Successful hiring for creativity starts with
deciding just how much of it you can tolerate. Human resources consultants report that
many companies find it difficult to integrate true outside-the-box thinkers. Says Scott
Erker, of the Pittsburgh-based HR consultants Development Dimensions International:
"What you'll quickly get is a caveat: I need focused creativity, because creativity for
creativity's sake doesn't get you anywhere."
One useful way to think about it is to distinguish between what Williams calls breadth
creativity, which is the ability to see the big picture and draw connections between
seemingly disparate events or trends, and depth creativity, which is ingenuity within a
specific realm, such as one's job. Unless you are hiring a Disney Imagineer, chances are
you are looking for the latter.
Williams recommends reviewing your company's record of reacting to creative proposals
to define just how out of the box employees should think: "You want specific examples of
what's acceptable, what's not acceptable, what's too outlandish." If you find that the
record shows a limited appetite for welcoming creativity, it may be time to refurbish the
company culture.
Building a Creative Culture
Although companies are wise to loosen up a bit for people doing explicitly creative work
such as design, creative doesn't necessarily mean casual -- you don't need beanbag chairs and
foosball tables to nurture innovation. Still, you will have to find ways to inspire and motivate a
creative team and then be ready to embrace the results. "If you put those people in an
environment that squashes creativity, you'll go nowhere," says Scott Erker. "They'll be fired, or
they'll put their resum out and find somewhere else to be creative."
Inspire with work. For many creative people, the work itself is a powerful motivator -- they feel
passionate about it and are energized when they do it. Keep them busy, and, within prudent
bounds, let them do the work their way.
Compensate with care. In the creative environment, adding one-time financial incentives to the
mix can be a distraction -- or worse, if the employee feels manipulated by the program.
However, when creativity produces ongoing income for a company, the creator should share in
the long-term profits, says Katherine A. Lawrence, a lecturer and scholar with the University of
Michigan.
Create happiness. A study conducted by the Harvard Business School of people working on
creative projects found that they were least productive on days when they felt anger, anxiety, or
fear. They were more creative on days when they felt happy. And they were most likely to have
a breakthrough the day after a happy day.
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2. Attract the Brightest Lights
Market your company to prospects. Each way you introduce the company to potential
employees, starting with the career pages of your website, is an opportunity to convey
the organization's goals and values. The message should be delivered creatively, says
Libby Anderson, principal of the Naples, Florida, consulting firm Human Resources
Now. Cirque du Soleil, for example, which is widely regarded for a creative environment
in even its business operations, makes its case with employee testimonials on YouTube.
It also maintains a Facebook page and recently hosted a Twitter session to attract
physiotherapists, says Jacques Bergeron, the company's director of talent management.
Set the tone with the job description. Likewise, a job posting with flair is more likely to
draw inspired candidates than a standard notice. That was the experience of Viget Labs,
a Falls Church, Virginia, Web design company seeking an office manager. Viget
conducted an experiment by posting two job descriptions: one standard, the other an
impassioned and conversational call for talent. The latter drew fewer responses, but the
candidates were more ambitious.
You can also use the job description to filter for some kinds of creativity. When artistic
creativity is called for, ask candidates to submit a sample of their work. When other types
of ingenuity are required, ask that candidates include in their cover letter proposed
solutions to a specific challenge they might face on the job.
Seek adaptability. Being open to new experiences is important, says Erker, because "it's
through various experiences that I pick up the tools that I need to look at a problem from
different perspectives." So it's worth probing for experiences that aren't usually captured
in a resum, such as traveling or living abroad. Even frequently changing jobs can bring
value to an applicant if it reflects an eagerness to take on new challenges and
opportunities (as opposed to failing to master old ones).
Recruit from nontraditional sources. Ask your most creative employees for referrals. And
consider looking outside your industry. Expertise can be acquired; creativity generally
can't.
3. Put Candidates to the Test
The interview. Most HR professionals recommend asking candidates to describe on-thejob experiences that involved the skills and abilities the prospective job requires -- what's
known as behavioral interviewing. When the requirement is creativity, for example, a
question could go something like this: "Describe an experience when you were faced
with a new problem and how you handled it." A variation on this asks candidates to
respond to hypothetical situations. At Cirque du Soleil, "we usually have the manager
come up with a challenge or situation their team faced recently and have the candidate
come up with solutions," says Bergeron.
In either case, says Williams, who specializes in testing, it's crucial to evaluate the whole
answer, including the thought process involved, not just the result. "We pay attention to
how the person approaches and analyzes the situations, takes into consideration the
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different stakeholders, the tradeoffs they propose, and their implementation plan," says
Bergeron.
In the 1990s, many technology and other self-described innovative companies borrowed
a trick from Microsoft and began asking "puzzle questions" meant to probe faculties for
logic and creativity. (One example: How would you weigh a jet without using scales?)
However, in a provocative book, How Would You Move Mount Fuji?, author William
Poundstone cast doubt on the value of such questions: "They are too often mixed in with
tricks, traps, power games, and hazing stunts." Microsoft itself reportedly no longer uses
them. (There is, by the way, no single correct answer to the airplane question.)
Samples and simulations. For explicitly creative work (such as writing, art, or design),
you can ask a candidate to create sample work. Cirque du Soleil, for example, asks
designers to create acrobatic accessories online using its 3-D software. For many
positions, you can create a role-playing scenario -- dealing with an angry customer, say
-- or turn it into a written exercise. A marketing candidate, for instance, might be given 30
minutes to outline a campaign.
Intelligence and personality tests. There is no consensus on which written tests best
illuminate creative aptitude. Some experts correlate creativity with abstract intelligence,
which is the ability to see patterns in a given environment and from those discern new
trends and opportunities. Williams often favors abstract reasoning tests -- graphicsbased exams that require the taker to detect patterns in numbers or shapes. Others turn
to personality and preference assessments, such as the Myers-Briggs Type Indicator.
HOW TO REWARD GREAT IDEAS
Your employees may never say no to a bonus, but that doesn't mean it's the ideal way to credit
their work. Examples from Foursquare and other innovative companies show how to make your
rewards as creative as the ideas they're rewarding.
According to a study by employee motivation agency Maritz, 55 percent of employees strongly
agree that the quality of their company's recognition programs affects their performance, but
only 10 percent of those polled are satisfied with these efforts.
Especially at fast-growing small companies, ideas are king and should be acknowledged. But
rewarding great ideas should include much more than a token bonus. There are lots of
strategies for rewarding productive creativity; some are tangible, others are intellectual. Some
recognition is public, some private. Determining the best reward programs for your company
takes time and a profound understanding of your employees' motivations. But the right program
will not only recognize great ideas but also bring more to the table.
Before You Start Rewarding, Foster an Innovative Culture
Long before your company can reward the great ideas, you must first foster the creation of
those ideas. According to Maritz, driving performance requires companies to focus on their No.
1 asset: their employees. "What drives innovation?" Mark Barbee, COO at Maritz Loyalty and
Motivation asks. "It's not coming from technology or processes. It's coming from people."
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At Foursquare, the company behind the location-aware app of the same name, employees in
its New York City office are welcome to showcase ideas in the form of a venture capital pitch in
what the company calls Demo Days. They're held almost weekly. "People can show what
they're working on just to get a fresh set of eyes on something or to propose a major new
direction for the company," says Morgan Missen, Foursquare's head of talent. "Our employees
love the opportunity to share what they're thinking, and as a growing company we don't really
have a choice not to innovate. It's mutually beneficial."
Firstborn, a creative digital agency also based in New York City, also capitalizes on mutual
benefit, allowing its employees to work on side projects so long as present their findings at a
semi-regular open forum called Group Therapy. "It's not about giving people time to
experiment," says Firstborn's president Dan LaCivita. "It's transferring knowledge to the rest of
the company." When ideas are flowing, it's time to decide which ideas are worth rewarding. The
good ideasthe ideas that will improve, grow, or transform the companydeserve the most
plaudits. But, distinguishing these ideas, especially when they require time to mature, is
sometimes difficult. That's why produce delivery company The FruitGuys prefers a different
method. "We try to encourage and reward all ideas that come up," says CEO Chris Mittelstaedt.
You want a culture that celebrates almost the wackiest of the ideas for the bravery in putting it
out there."
7 Steps to a Culture of Innovation
We live in a business world accelerating at a dizzying speed and teeming with ruthless
competition. As most of the tangible advantages of the past have become commoditized,
creativity has become the currency of success. A 2010 study of 1,500 CEOs indicated that
leaders rank creativity as No. 1 leadership attribute needed for prosperity. It's the one thing that
can't be outsourced; the one thing that's the lifeblood of sustainable competitive advantage.
Unfortunately, most companies fail to unleash their most valuable resources: human creativity,
imagination, and original thinking. They lack a systematic approach to building a culture of
innovation, and then wonder why they keep getting beaten to the punch.
Hyper-growth companies such as Zappos, Groupon, and Zynga credit a culture of innovation as
their primary driver of success. They take a deliberate approach to fostering creativity at all
levels of their organizations, and deploy creative thinking to attack problems big and small.
Here's what you canand mustdo to develop a culture of innovation at your company:
1. Fuel Passion. "The most powerful weapon on earth is the human soul on fire,"
says Ferdinand Foch, the early 20th century French military theorist. Passion is the first
and most essentialingredient for building a creative culture. Every great invention,
every medical breakthrough, and every advance of humankind began with passion. A
passion for changefor making the world a better place. A passion to contributeto
make a difference. A passion to discover something new.
With a team full of passion, you can accomplish just about anything. Without it, your
employees become mere clock-punching automatons.
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One key is to realize that passion alone isn't quite enough: You must also focus that
passion into a sense of purpose. Steve Jobs wanted to "put a ding in the
universe."Whole Foods Market was founded with the goal of becoming the world's
leading natural and organic foods supermarket retailer. Pixar wanted to reinvent the
animated film industry. Pfizer is about saving lives. Your specific purpose must be your
own, but the bigger and more important your purpose is, the more passion it has the
potential to create within your team.
2. Celebrate Ideas. Social norms in any culture are established by what is celebrated and
what is punished. Consider more narrowly how they function within an institution. Nearly
every business's mission statement includes words about "innovation," yet risk-taking
and creativity are often punished instead of rewarded. Rewards come in many forms,
and often the monetary ones are the least important.
Celebrating creativity is not only about handing out bonus checks for great ideas
although that is a good start. It should also be celebrated with praise (both public and
private), career opportunities, and perks. In short, if you want your team to be creative,
you need to establish an environment that rewards them for doing so.
3. Foster Autonomy. We all want control over our own environments. According to a 2008
study by Harvard University, there is a direct correlation between people who have the
ability to call their own shots, and the value of their creative output. An employee who
has to run every tiny detail by her boss for approval will quickly become numb to the
creative process.
The act of creativity is one of self-expression. Imagine a typical manager hovering
over Picasso, barking orders, tapping his watch, questioning the return on investment,
and demanding a full report "for the file" on why he chose a certain brushstroke
technique. Picasso's creativity would shrivel.
Granting autonomy also involves extending trust. By definition, your team may make
decisions you would have made differently. The key is to provide a clear message of
what results you are looking for or what problem you want the team to solve. From
there, you need to extend trust and let them do their best work. Let them know you are
behind them and value their judgment and creativity. If you show your belief in them,
you will likely enjoy both the results you were seeking as well as a highly motivated and
more confident team.
4. Encourage Courage. Netflix as a company is known as much for its culture as for its
innovative business model. The company has built a business that is growing rapidly by
allowing individuals the freedom to take creative risks without that overwhelming sense
of fear or judgment. They tell their employees to "Say what you think, even if it is
controversial. Make tough decisions without agonizing excessively. Take smart risks.
Question actions inconsistent with our values."
Another great example: A software company in Bostongives each team member two
"corporate get-out-of-jail-free" cards each year. The cards allow the holder to take risks
and suffer no repercussions for mistakes associated with them. At annual reviews,
leaders question their team members if the cards are not used. It is a great way to
encourage risk taking and experimentation. Risky? Perhaps. Think this company comes
up with amazing ideas? Absolutely.
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5. Fail Forward. In most companies, people are so afraid of making mistakes that they
don't pursue their dreams. The simply follow the rules and keep their heads down, which
drives nothing but mediocrity. James Dyson, the inventor of the Dyson Vacuum cleaner,
"failed" at more than 5,100 prototypes before getting it just right. In fact, nearly every
breakthrough innovation in history came after countless setbacks, mistakes, and
"failures." The great innovators and achievers weren't necessarily smarter or inherently
more talented. They simply released their fear of failure and kept trying. They didn't let
setbacks or misfires extinguish their curiosity and imagination.
Failing forward means taking risks and increasing the rate of experimentation. Some
bets will pay off; some will fail. The key is to fail quickly. The speed of business has
increased dramatically and every minute counts. The best businesses try lots of ideas
and let the losers go quickly and with no remorse.
6. Think Small. ITW is a diversified manufacturing company that produces a wide array of
products from industrial packaging to power systems and electronics to food equipment
to construction products. It is a highly profitable $16-billion company that is nearly 100
years old. Yet this big, old company, which is nestled in a traditional industry, thinks
small.
The leaders at ITW believe that being nimble, hungry, and entrepreneurial are the
ingredients for business success. As a result, any time a business unit reaches $200
million in revenue, the division "mutates" into two $100 million units. Like an amoeba, the
unit subdivides so it stays small, hungry and nimble. The company would rather have 10
independently run and innovative $100 million units than a single, bureaucratic, and
clunky $1 billion unit. Guess what? It's working.
Smaller companies tend to be more curious and nimble. They have a stronger sense of
urgency and are not afraid to embrace change. In contrast, larger organizations often
exist to protect previous ideas rather than to create new ones.
7. Maximize Diversity. Ziba, a top innovation-consulting firm in Portland, maximizes the
value of a diverse workforce. The company's 120 employees are from 18 different
countries and speak 26 languages. According to Sohrab Vossoughi, the firm's founder
and president, "genetic diversity breeds creativity, much like it does with biology."
The company also has an "Ambassador Program," which allows employees to spend
three months working in other disciplines, known as "tribes." During that time, the
ambassador team member really participates as part of those teams. "This helps to
create an understanding of another world," according to Vossoughi. That diversity of
thought and perspective, in turn, can fuels creativity. It also translates to business
results. Ziba is one of the most prolific and successful innovation firms in the world.
Diversity in all its shapes, colors, and flavors helps build creative cultures. Diversity of
people and thought; diversity of work experiences, religions, nationalities, hobbies,
political beliefs, races, sexual preference, age, musical tastes, and even favorite sports
teams.
The magic really happens when diverse perspectives and experiences come together to
form something entirely new. One person's experience working as a college intern
onWall Street may fuse with another person's experience growing up in a small village
inItaly to generate a fresh idea that neither would have considered independently. This
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melting pot approach can drive some of the most creative cultures, thinking, and
ultimately business results.
Points, Prizes, and Other Perks
When great ideas emerge, bonuses are the most common solution for companies with a large
enough cash flow. Although an extra check is rarely unwelcome, many more creative options
exist to reward employees in a meaningful way.
While Projet Cratif stands to showcase major innovations, Frima also recognizes smaller ideas
with a rewards system call Frima Points. When an employee comes forward with a fresh idea,
they earn points which can later be traded for tangible gifts. Frima's gifts, such as payment for
babysitters, home repair services, and the like, emphasize work-family balancea core value
for Frimawhile also fostering productivity.
"We've found that if people spend more time at home with their families than doing household
chores on the weekends, they come back to work on Monday ready to do better work," Couture
says.
At RockYou, a social game developing and advertising company, great ideas are recognized
monthly with their You Rock Awards. Driven by peer nominations, RockYou awards employees
for solving a problem, designing a game or otherwise showing innovation. You Rock nominees
spin a wheel to choose an award such as concert tickets, an extra day off, or an iPad. All You
Rock recipients also receive a golden bobble-head cow trophy.
"I don't actually know the relevance of the cow," RockYou's CFO Steve van Horne admits. "But
it's a source of pride for employees to have on their desk."
At Firstborn, innovation is rewarded not by a trophy, but with a three-week vacation.
Recognizing that their employees put forth great ideas on a daily basis, their accomplishments
culminate in this extended paid time off after five years. "Whether you take a cooking class or go
to Europe or sit at home and play video games, it's realizing people want to have that break to
get a mental refresher," LaCivita says.
5 Typical Employee Benefits
1. Sabbaticalsboth Paid and Unpaid. A common trend among the 2010 winners of
the Top Small Company Workplaces was to offer employee benefits outside of the
typical package offerings. On such offering is providing time off to improve professional
skills: not so uncommon. However, many companies offer it with or without pay and vary
the weeks offered based on years of service. Outdoor clothing retailer Patagonia, based
in Ventura, California, provides 16-week, unpaid sabbaticals at every year of service.
Meanwhile, Pittsburgh-based technology consultancy MAYA Design offers six weeks of
paid leave at five years of service.
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2. Childcare beyond Assistance. A Yard & A Half Landscaping, based in Waltham,
Massachusetts, provides breastfeeding/pumping accommodations for mothers; and St.
Louis-based general contractor Tarlton Corporation, has a family room furnished with
books and games on their premises (pictured) where children can spend the
day. Patagoniaoffers adoption assistance of up to $5,000 per employee and has an onsite childcare center.
3. Ambitious Health and Wellness Programs. Air quality consultant All4 in Kimberton,
Pennsylvania, provides full meals, enlisting a vendor to deliver ready-to-eat healthy
dinners that employees can elect to purchase and take home to their families. San
Diego-based e-business strategy consultancy Red Door Interactive offers on-site
seminars on both stress and time management, and electronic ID technology
supplier Biomark, based in Boise, Idaho, went so far as to intentionally locate their
office in an area that would allow for a maximum number of workers to walk or bike to
work.
4. Unmatched Flexibility in Flex Work Arrangements. A Yard & A Half Landscaping lets
religiously-observant employees opt to work on a company holiday in exchange for
taking their own religious holiday off with pay. Daphne Utilities a water, natural gas, and
wastewater services provider in Daphne, Alabama, allows workers to work split duty in
divergent roles in order to satisfy their personal needs for challenging workor a little
sunshine. For example, a receptionist works part-time as a meter reader to get some
time outside the office.
5. Perks That Make Life a Little Easier. Dixon Schwabl, an advertising and marketing firm
based in Victor, New York, offers both a Defensive Driving Day for employees with an
auto insurance provider and a free financial consultation with representatives from
several financial services firms to encourage employees to invest in their future.
And Ginger Bay Salon & Spa in Kirkwood, Missouri, offers the extremely-uncommonfor-their-industry benefits of legal assistance and identity theft protection.
Create a Culture of Acknowledgement

In many small businesses, spending money on extraneous prizes is not feasible, but other
rewards options still stand. Especially in growing companies, employees are rewarded most
through verbal acknowledgement for a specific idea or simply being part of a team that daily
embraces innovation.
"In terms of traditional compensation rewards, it tends not to motivate our employees," says
Missen about Foursquare. "It's not why a lot of us joined. We have a lot of unmitigated stars in
the company that receive press and praise. Recognition and idea implementation are more
important."
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The FruitGuys, Mittelstaedt constantly reminds himself to call attention to those collaborating
under him. Inspired by the "five R philosophy" his company employs with their customers, he
makes sure his employees are remembered positively for their efforts. (The other R's include
being respectful, responsive, realistic and responsible.)
"A leader is not the greatest person in an organization, so they shouldn't be the one getting the
glory," he says. "Helping other people get the glory or acknowledge a success is in our unwritten
code of conduct."
For smaller companies, like The FruitGuys' 25-strong, such personal recognition is manageable.
Other alternatives like having employees nominate one another and training managers to
recognize ideas as they emerge prevents upper management from overlooking great ideas no
matter how small and also helps maintain a sense of intimacy no matter how large a company
grows.
No Two Employees Are Alike
From its research and experience with clients, Maritz postulates that the best reward programs
involve purposeful choice on the part of both employees and employers. Roughly only 30
percent of employees who want to be recognized in a certain way for instance with cash
bonuses, public recognition, or symbolic awards are recognized in that way. Communication
about what employees want versus what the company is able to provide helps determine the
best options.
"Rewards always need to be meaningful, memorable and motivating, but there's not a one size
fits all solution," Barbee says. "By offering choice to your employees you get much more
engagement and can drive the kind of results that they want."
Open and frequent communication with Firstborn's 70 employees is a key part of how the
agency determines its reward policies. "Some people need that time away more than others.
Others may want a nice bonus instead," LaCivita says. "As a company you employ individuals
and you are a team, but at your core you're still individuals with different feelings and different
needs. You really need to talk to everyone and know who they are as people to really know how
to reward them."
As important as honoring all your employees' accomplishments is, companies should be wary of
overcompensation. At ngmoco (stands for "Next Generation Mobile Company"), a free-to-play
gaming company, rewards are limited to those ideas that exemplify the core values of delight
and ownership.
"Delight means setting and exceeding expectations, ownership means carrying a project
through to its end," says Justin Hall, ngmoco's director of culture and communication. "If you just
reward people for working long hours you're rewarding them for being inefficient and if you
reward people for being on time, you're rewarding them for something expected. You have to
make sure your expectations permeate across the organization so that the great ideas have a
chance to be recognized."
With rewards and recognition natural sense of competition may arise, something healthy for
companies seeking a truly innovative culture. Companies should recognize a group with great
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ideas when merited, but LaCivita maintains that there's nothing wrong with recognizing an
individual doing something incredible.
"If a group comes to the table and one person has had the eureka moment that inspires
everyone else, I don't think it's wrong to tell or show that person how much his work mattered,"
he says. "That's how innovation works."
Give More to Get More out of Your Workers
With one critical eureka moment often comes the expectation that more great ideas will follow.
One of the easiest ways to both recognize innovation and guarantee more in the future is to let
your most creative employees take on more responsibility.
At Ngmoco, two engineers realized the benefits of creating a gaming platform that would allow
downloads both for android and iOS devices. Today ngmoco's efforts center on that platform.
The two engineers serve now as vice president of global technology and director of first-party
technology, respectively. Similarly, The FruitGuys' head of customer service worked her way up
from answering the phones thanks in part to her creativity in leading weekly meetings.
Added responsibilities do not necessarily translate to promotions, however. Given the freedom
to choose their next projects or assignments allows great innovators to work in the most
inspiring possible environments. "Foursquare's employees come in wanting to work on anything
they think they could help the company improve," says Missen. "It's the low fruit, the slow
gazelle, and they can fix it."
For Moss, Ravenmark has provided new opportunities for new creative projects. While Frima's
jury considered Ravenmark's future for a week before reaching a decision, Moss estimates
deliberations took ten minutes for his most recent pitch. "Just showing that level of trust and
confidence in the fact that I know what I'm doing, that's all I need," he says.
The employee loyalty built by Frima's recognition of innovation turns any short-term costs longterm investment. "It's important to find creative people, great resources," Couture says. "But it's
even more important to keep them when you have them. We keep them by rewarding them."
References:
http://www.designnews.com/document.asp?doc_id=233915
http://www.charleswarner.us/mgtcreat.html
http://cims.ncsu.edu/downloads/Research/67_Farris%20&%20Cordero-%20Managing
%20Scientists%20&%20Engineers.pdf
http://www.inc.com/magazine/20101001/guidebook-how-to-hire-for-creativity.html
http://www.inc.com/ss/5-atypical-employee-benefit-offerings
http://www.inc.com/articles/201106/josh-linkner-7-steps-to-a-culture-of-innovation.html
http://www.inc.com/magazine/201107/rethinking-employee-awards.html
http://www.inc.com/magazine/20090601/managing-unleashing-employee-creativity.html?
nav=next
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MANAGING RESEARCH AND DEVELOPMENT
Learning Objectives:
Define what is research and development.

Explain the importance of R & D in business.
Explain the commercial benefit of R & D.
Identify types of development.
How to manage the R & D effectively?
What are the risk in Research and development?
Distinguish the difference of R & D in mass production.
Explain the responsibility of R & D in the organization.
Research
The initial stage involves assessing the current and future needs of customers and
suppliers - asking for their views and feedback and carrying out market research.
Development
The process of testing these ideas, demonstrates whether they are achievable and
helps turn your ideas into reality.
It involves defining the specification and design of your product or service through
drawings, models or prototypes.
Research and Development
It is one of the means by which business can experience future growth by developing
new products or processes to improve and expand their operations.
According to the Organization for Economic Co-operation and Development, it
refers to "creative work undertaken on a systematic basis in order to increase the
stock of knowledge, including knowledge of man, culture and society, and the use of
this stock of knowledge to devise new application.
Value Chain
consists of the major business functions that add value to a companys products and
services
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Importance of Research and Development in Business
Redesigning your product to help you stand out from your competitors in competitive
markets.
Increasing productivity and profitability.
enhancing your brand and staying competitive in your marketplace
Commercial Benefit of R & D
boost sales
increase your profitability
open new markets
enhance your brand and gain a reputation as an innovative business
attract the best employees through your enhanced reputation
find new business partnerships
attract external finance
Types of Development
Market Pull
o Market needs create new product opportunities which in turn stimulate R&D to
determine if a solution is possible
o Market Need Marketing R&D Production
o Problem: Find new technology to fit need!
Technology Push
o New discovery triggering a sequence of events
o R&D Production Marketing Market Need
o Some innovations may have no market potential.
o Problem: Find or create a market!
Platform Products
o The firm assumes that the new product will be built around the same
technological subsystem as an existing product.
o Examples: consumer electronics, computer, printers
Process Intensive
o Both process and product must be developed together from the very beginning or
an existing production process must be specified from the beginning.
o Example: semiconductors, chemicals
Customization
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o
New products are slight variations of existing configuration
Managing R & D effectively you should:
Make sure staff involved in R&D understands the business' overall strategy.
Ensure these employees understand what is commercially realistic.
Assess the changing risks and potential of projects as they progress, continually
developing a rigorous business case.
Ensure that intellectual property ownership issues are resolved.
Understand the relative importance of different projects to your business.
Risk in Research and Development

new or modified products or services proving more difficult or costly to develop than
anticipated
developing a product or service that isn't commercially successful
initiating the development of a product that turns out to be unworkable
Research and Development Cycle
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Product Life Cycle:
Introduction Stage
Sales
Cost
Profit
Market Objectives
Product
Price
Distribution
Advertising
Growth Stage
Sales
Cost
Profit
Market Objectives
Product
Price
Distribution
Advertising
Maturity Stage
Sales
Cost
Profit
Market Objectives
Low Sales
High cost per customer
Negative
Create product awareness and trial
Offer basic product
Use cost plus
Build selective distribution
Build product awareness among early
adopters and dealers
Rapidly rising sales

Average cost per customer
Rising profile
Maximize market share
Offer product extension, service and
warranty
Place to penetrate market
Build intensive distribution
Build awareness and interest in the mass
market
Peak Sales
Low cost per customer
High profile
Maximize profit while defending market
share
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Product
Price
Distribution
Advertising
Decline Stage
Sales
Cost
Profit
Market Objectives
Product
Price
Distribution
Advertising
Diversity brand and models

Price to match or best competitors
Build more intensive distribution
Stress brand difference and benefits
Declining Sales
Low cost per customer
Declining profile
Reduce expenditure
Phase out weak items
Cut price
Go selective: phase
out unprofitable
outside
Reduce to level needed to retain hardcore
loyal customer
Difference between R & D and Mass Production
In R&D, many steps are being performed for the first time. Nothing is stable, and
changes and variations are not only permitted but necessary.
In R&D, the product consists of a few prototypes and a considerable amount of
information and documentation. Labor cost is much higher.
Personnel working in R&D are highly qualified and hold academic degrees
Responsibility of Research and Development
Ensuring the new product meets the product specification

Researching the product according to allocated budget
Checking if the product meets production costs
Delivering products in time and in full range
Developing the product to comply with regulatory requirements and specified quality
levels
References:
http://www.netmba.com/marketing/product/lifecycle/
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http://www.businesslink.gov.uk/bdotg/action/detail?
itemId=1073792338&r.i=1073792204&r.l1=1073858796&r.l2=1073859020&r.l3=1074003
278&r.s=m&r.t=RESOURCES&type=RESOURCES
http://www.wisegeek.com/what-is-research-and-development.htm
MANAGING CREATIVITY AND ORGANIZATIONAL LEARNING

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Learning Objectives
Describe what is Creativity
Understand how the creative mind works
Increase skills to increase creativity
How creativity leads to Organizational success
CREATIVITY AND INNOVATION
Creativity is the ability to combine ideas in a unique way or to make unusual associations
between ideas. Creative organizations develop novel approaches or unique solutions to
challenges and opportunities. Innovation is the process of turning a creative idea into a
marketable product, service, or operating method. Innovative organizations channel
creativity into useful outcomes.
While some believe that creativity is inborn, others believe that creativity can be stimulated
by using a fourfold process:
-
Perception;
Incubation;
Inspiration; and
Innovation.
Moving from creative perception to reality is not automatic. Instead, ideas go through an
incubation process. During incubation, employees collect, store, retrieve, study, and reshape
data until they create something new. This process can take years. Inspiration occurs when
all of your prior efforts successfully come together. Innovation means turning inspiration into
a useful product, service, or methodology.
There are three (3) sets of organizational variables stimulate innovation: structure, culture,
and human resource practices.
Structural variables affect innovation in three ways:
(1) organic structures promote innovation,
(2) plentiful resources stimulate innovation, and
(3) effective communication overcomes barriers to innovation.
Innovative organizations encourage experimentation and risk-taking behavior by rewarding
both successes and failures.
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Such organizations are likely to have the following seven characteristics:
1.
2.
3.
4.
5.
6.
7.
Acceptance of ambiguity
Tolerance of the impractical
Low external controls
Tolerance of risk
Tolerance of conflict
Focus on ends rather than on means
Open systems focus
Three (3) types of creativity

1.
2.
3.
Individual Creativity
Group/Team Creativity
Organizational Creativity
Innovative organizations train and develop their members to keep their knowledge, skills,
and abilities current; offer job security rather than the fear of being fired to promote risktaking; and encourage individuals to become champions of change. Once a new idea is
developed, champions of change promote the idea and build support. Then, they overcome
resistance to the idea and ensure that the innovation is completed. These persons are self
confident, energetic, persistent, risk-takers. In addition, they have the decision-making
discretion to induce and implement innovations.
I.
ORGANIZATIONAL DEVELOPMENT TECHNIQUES

The term organizational development refers to a collection of techniques for understanding,
changing, and developing work force effectiveness: process consultation, survey feedback,
team building, and intergroup development.
Intergroup development can change attitudes, stereotypes, and perceptions that groups
have of each other. One method emphasizes problem solving. Once problems have been
identified, team members can move to the integration phase of working together to develop
solutions to improve intergroup relations.
In process consultation, outside consultants help managers to perceive, understand, and act
upon events with which they must deal. Consultants are not there to solve problems. Rather,
they act as coaches to help managers diagnose which internal processes need
improvement.
Management can use the survey feedback approach to assess the attitudes of
organizational members in order to identify and address the discrepancies among their
perceptions.
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The following team building activities promote trust and openness between team members:
goal setting, interpersonal development, role analysis, and team process analysis.
Change is an alteration of an organizations environment, structure, technology, or people.

Because change is an organizational reality, handling it is an integral part of every
managers job.
Changing structure means altering authority relationships, coordination mechanisms,
centralization of authority, job design, or similar structural variables. Changing technology
means modifying methods and equipment used to complete work processes. Changing
people involves adjusting employee attitudes, expectations, perceptions, or behaviours.
Six tactics can be used by change agents to deal with resistance.
1.
2.
3.
4.
5.
6.
Education and communication can help employees to understand why change is

necessary.
Participation encourages individuals to support the changes that they decided upon.
Facilitation and support can be used to reduce resistance.
Negotiation means exchanging something of value for lessening resistance.
Manipulation involves covert influence attempts; cooptation uses participation and
manipulation.
Coercion is the application of direct threats or force on the resisters.
Managers make changes to increase the effectiveness of their organizations. Change,

however, can be a threat to managers and non-managers alike. So, organizations resist
change, even when it is beneficial.
People resist change for three reasons. In the first place, change substitutes ambiguity and
uncertainty for the known. Even if workers do not like the current system of management, at
least they know the ropes. People also resist change because they fear losing something
they already possess. The greater their investment in the status quo, the more they resist
change because they fear losing their position, money, friendships, or personal
conveniences. Finally, people will resist any changes they do not believe are in the
organizations best interests.
The white water rapids metaphor reflects uncertain, dynamic environments. The concepts of
stability and predictability are relics of days gone by. Disruptions in the status quo are no
longer occasional and temporary, only to be followed by smooth sailing and halcyon days.
Many managers today never get out of the rapids. They face constant, wrenching change
that boarders on chaos. These managers are playing a game that they have never played
before that is governed by rules which are created as the game progresses.
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Few organizations today can treat change as the occasional ripple in a still pool. Too much
is changing too fast! Complacency is a luxury because most competitive advantages last
less than eighteen months. According to Tom Peters, the old saying, If it aint broke, dont fix
it is no longer relevant. In its place, he suggests If it aint broke, you just havent looked
hard enough. Fix it anyway. Peters observation is consistent with current reengineering
trends. And, the quantum changes required to remain competitive in the global marketplace
cannot be overstated.
Internal forces originate from the operations of the organization or from the impact of
external changes: such as management redefining its strategies, new equipment entering
the workplace, and demographic changes in the organizations workforce. These forces lead
to changes in the policies and practices of management. The external forces of change
come from various sources. In recent years, the marketplace has affected firms by
introducing new competition.
Government laws and regulations are also an impetus for change. In 1990 the passage of
the Americans with Disabilities Act required businesses to widen doorways, reconfigure
restrooms, add ramps, and take other actions to improve accessibility.
Technology also causes change. In the new millennium, the e-commerce and the Internet
have changed how we sell products and access information.
Economic changes, of course, affect almost all organizations. Dramatic decreases in interest
rates in the late 1990s fostered significant growth in the housing market. This meant more
jobs, more people working, and more sales for other businesses that support the building
industry.
REFERENCE
Copyright 2010 by South-Western, a division of Cengage Learning
Copyright 2010 by Prentice Hall, a division of Cengage Learning
http://wikipedia.com
http://google.com
http://yahoo.com
http://slideshare.com
ALLIANCES, NETWORKS, RELATIONSHIPS

Learning Objectives:
To know the characteristics of a strategic alliance.
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Why companies around the world are forming strategic alliances.
The different broad types of strategic alliances.
The benefits and costs of entering into strategic alliances.
How to balance the need for cooperation with competition.
ALLIANCE
Is a cooperation or collaboration which aims for a synergy where each partner hopes
that the benefits from the alliance will be greater than those from individual efforts.
Often involves technology transfer (access to knowledge and expertise), economic
specialization, shared expenses and shared risk.
Strategic Alliance
Is a relationship between two or more parties to pursue a set of agreed upon goals or to
meet a critical business need while remaining independent organizations.
Partners may provide the strategic alliance with resources such as products, distribution
channels, manufacturing capability, project funding, capital equipment, knowledge,
expertise, or intellectual property.
Strategic alliances can be defined as purposive strategic relationships between independent
firms that share compatible goals, strive for mutual benefits and acknowledge a high level of
mutual dependence (Mohr and Spekman 1994).
Alliances are complex organizational forms that are usually viewed as incomplete contracts.
They typically involve the transfer of know-how between firms, a process that is fraught with
ambiguity. () Detailed interactions between the alliance partners can rarely be fully
prespecified (Anand&Khanna 2000).
Strategic Business Alliances (SBA) are qualitatively different from JV and distribution
agreements. SBAs are formed by rivalling companies to increase their respective capabilities
and competitive positions in non-competing lines of markets. SBAs comprise a wide range of
arrangements: multi-purpose JV, limited purpose JV etc. (Shiva 1997).
... A firm will form an alliance with another firm in order to bring together specific skills and
resources in such ways that may complement each other, without the complications and
expenses associated with a merger (Shiva Ramu 1997).
Alliances are thus characterised as co-operation based on incomplete contracts facilitating the
knowledge transfer and (re)combinations of resources.
Stages of Alliance Formation
A typical strategic alliance formation process involves these steps:
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Strategy Development: Strategy development involves studying the alliances feasibility,
objectives and rationale, focusing on the major issues and challenges and development of
resource strategies for production, technology, and people. It requires aligning alliance
objectives with the overall corporate strategy.
Partner Assessment: Partner assessment involves analyzing a potential partners strengths
and weaknesses, creating strategies for accommodating all partners management styles,
preparing appropriate partner selection criteria, understanding a partners motives for joining the
alliance and addressing resource capability gaps that may exist for a partner.
Contract Negotiation: Contract negotiations involves determining whether all parties have
realistic objectives, forming high caliber negotiating teams, defining each partners contributions
and rewards as well as protect any proprietary information, addressing termination clauses,
penalties for poor performance, and highlighting the degree to which arbitration procedures are
clearly stated and understood.
Alliance Operation: Alliance operations involves addressing senior managements
commitment, finding the caliber of resources devoted to the alliance, linking of budgets and
resources with strategic priorities, measuring and rewarding alliance performance, and
assessing the performance and results of the alliance.
Alliance Termination: Alliance termination involves winding down the alliance, for instance
when its objectives have been met or cannot be met, or when a partner adjusts priorities or reallocates resources elsewhere.
The advantages of strategic alliance include:
1. Allowing each partner to concentrate on activities that best match their capabilities.
2. Learning from partners & developing competences that may be more widely exploited
elsewhere.
3. Adequate suitability of the resources & competencies of an organization for it to survive.
FACTORS PROMOTING ALLIANCES

New market entry
Shaping of industry evolution
Learning and applying new technologies
Rounding out a product line
The Positive Impact of Professional Alliance Management
The benefits of professional alliance management can be seen in three primary
outcomes: Improved financial outcomes
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Improved alliance operating effectiveness
Improved risk mitigation
The following provides some specific examples of ways in which alliance management groups
create these outcomes.
Financial
Monitor company and partner performance and identify shortcomings. If the shortcoming
is due to the partner, consider and possibly negotiate compensation. If ones own
company is the cause, develop and implement risk mitigation strategy
Secure cost sharing agreements for significant unanticipated expenses
Highlight when assumptions underlying the financial terms have changed and lead the
evaluation and negotiation of restructuring or termination discussions and ensure the
appropriate operational plan is in place within each partner
Operating Effectiveness
Orchestrate alliance kick-off meetings, ensuring committee members have a common
understanding of the Collaboration Agreement; establish guiding principles for the
operation and management of the Collaboration (including operating norms);
communicate near term milestones and critical path activities; build relationships among
alliance team members
Provide input on governance structures and operations to business development
colleagues
Gain partner participation in alliance effectiveness measurement and improvement
process
Obtain needed resources for the alliance
Create joint processes that address the concerns of each partner and serve the interests
of the alliance
Risk Mitigation
Lead the internal analysis of a partners proposal to change rights or scope
Ensure partners are compliant with laws and regulations for which the Company could
be held responsible
Guide alliance team members in following and applying pre-determined governance
Monitor the use of intellectual property within the alliance and protect its pedigree
Identify competitive issues relative to the alliance that emerge
Increasingly, companies are developing collaboration-dependent strategies, with alliances
as key drivers of growth. It therefore becomes necessary for companies to be good at
collaborating and managing alliances. Managing more than a handful of alliances requires a
consistent alliance management methodology that can be shaped as needed. There must be
global principles that can be applied as the potential value and management complexity of each
alliance requires; along with specific criteria that determine how every alliance is individually
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managed, regardless of where it sits in the product pipeline and lifecycle, or the nature of the
partner. Alliances are a way of conducting business that cuts across functions and affiliates, as
well as engaging with a partner. Like any business, alliances need a professional manager to
achieve its objectives.
There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity
strategic alliance, and global strategic alliances.
Joint venture is a strategic alliance in which two or more firms create a legally independent
company to share some of their resources and capabilities to develop a competitive advantage.
JVs are (...) simultaneously contractual agreements between two or more organizations and a
separate legal (and usually organizational) entity with its own purpose. (Borys/Jemison 1989).
Partners retain organizational sovereignty, maintaining differentiation within the hybrid that may
hamper cooperation.
The close interfirm collaboration in JV requires that the JV develops its own corporate identity
and institutions. Too close partner involvement intended to control the venture (to help or to
restrict its activities) often threatens its ability to accomplish its purpose.
JVs are combinations of at least two firms into a "distinct" firm with shared equity investments.
Profits and losses accrue on the basis of investment (Shiva Ramu 1997).
JV can also be conceptualised as a separate business activity, formed and owned by two or
more parties (venturers). A JV may have both a separate legal and tax identity, and often a
separate management structure. The best of joint ventures are, above all, powerful strategic
alliances that have these strategic, structural, and operational characteristics: synergistic,
strategic, separate management and organization, tight operating linkages, beyond win-win,
reciprocal relationships (Morris 1998).
JV is a form of strong cooperation based on technology complementarity, reduction of time
span for innovation and market access (Shiva Ramu 1997).
JVs are a form of co-operation involving the setting up of a legal unit owned by two ore more
partners. It entails the development of a separate identity, institutions and new competencies.
Equity strategic alliance is an alliance in which two or more firms own different percentages of
the company they have formed by combining some of their resources and capabilities to create
a competitive advantage.
Non-equity strategic alliance is an alliance in which two or more firms develop a contractualrelationship to share some of their unique resources and capabilities to create a competitive
advantage.
Global Strategic Alliances working partnerships between companies (often more than two)
across national boundaries and increasingly across industries, sometimes formed between
company and a foreign government, or among companies and governments.
Networks
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Networks encompass a firms set of relationships, both horizontal and vertical, with other
organizations be they suppliers, customers, competitors, or other entities including
relationships across industries and countries. These networks are composed of interorganizational ties that are enduring, are of strategic significance for the firms entering them and
include strategic alliances, joint ventures, long term buyer-supplier partnerships and a host of
similar ties (Gulati/Nohria/Zaheer 2000).
Castells (1996) defines a network as a set of interconnected nodes. A node is the point at
which a curve intersects itself. What a node is () depends on the kind of concrete networks of
which we speak. The network topology defines the distance between the nodes.
() an economic network is the pattern of relationships among firms and institutions. () the
structure of a network implies principles of coordination that not only enhance the individual
capabilities of member firms, but themselves lead to capabilities that are not isolated to any one
firm (Kogu 2000).
Networks are dynamic, involve relational and embedded ties and can be beneficial but also
constraining (Doz/Olk/Ring (2000) and also Burt (1992), Ebers (1997), Gulati (1998), Nohria and
Eles (1992), Powell, Kogut and Smith-Doerr (1996)).
Networks result from the linking of different units (Tsai 2001) forming an intimate connection
versus hierarchical structure. Networks are arrangements between markets and hierarchies
(Thorelli 1986). Networks are relationships of power and trust through which organizations
either exchange influence and resources (Thorelli 1986), or take advantage of economic
efficiencies (Jarillo 1988).
Networks are sometimes viewed as an organizational actor, implying that strategic
management of the network yields benefits to be distributed among the network members
(Astley 1984).
The Benefits of Network Formation
Networks and alliances developed to generate value are primarily associated with two
distinct benefits for the firm employing them. First, increased access to otherwise scarce skills,
resources and physical assets, as well as new markets and new technologies, can be achieved.
Second, access to new channels of knowledge, know-how and information serves as a
platform for novel insight to problem solving and idea generation. In addition, new learning
capabilities can be developed and the firms existing absorptive capacity (its ability to
assimilate and learn from new knowledge) enhanced. Here, it is important to distinguish
knowhow from information, with know-how consisting of accumulated skills and expertise
that entails a significant tacit (or non-modifiable) element. Firms also use alliances to exploit
economies of scale, reduce operation costs and share risk or uncertainty with their partners.21
And of course if orchestrated appropriately, networks can provide the platform for improved
growth and innovation performance.
SUN MICROSYSTEMS LICENSING STRATEGY

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The Pursuit of a Network Alliance Strategy

Firms normally enter an alliance on the back of one basic assumption: that if two parties work
together, they will
achieve more than if they remain apart. But depending on scope, ownership and objectives,
there are many models of collaborative partnerships in use today. From basic subcontractor
agreements, through co-creation network clusters and alliance relationships, to full-blown joint
ventures, there are a large number of options available. As with any exploration into the pros
and cons of pursuing a particular strategy, uncertainty abounds at the initial decision stages. It
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can therefore be useful to provide some basic, broad definitions of alliance networks with which
to frame the question of why firms should pursue a collaborative strategy.
Some definitions of alliance networks include: A voluntary arrangement between organizations
to share skills and resources required to create and capture value from technology-based
innovation. Or indeed simply:
A formal agreement that establishes a relationship with two or more independent entities.
technologies permeate a turbulent market, a network alliance
An independently initiated inter firm link that involves exchange, sharing or co-development...
Motivating Factors
The motivations for deploying a network alliance strategy can generally be grouped across three
main categories: strategic transformation-related, transaction costs-related and learning/
knowledge-related. Taking each in turn, much of the prior research into these areas has focused
on the enhancement of a firms competitive positioning;16 the use of alliances as a means to
reduce the production and transaction costs for
partner firms; and to increase the learning capacity required to accumulate new skills or
capabilities from alliance partners. Additionally, motivations may also differ significantly between
those firms considered technology leaders in their field and those considered followers. With
the former, it is reasonable to expect leaders to want to remain solo and thereby protect the
know-how that facilitated their market dominance. Conversely, in the case of followers, such
firms may to want to forge alliances in order to move ahead of the leaders in the technologydevelopment stakes.
Guidelines for Structuring and Forming Value Network Alliances
This first part of a study on value network alliances has focused on the initial structuring and
forming of a network alliance strategy. Diverse issues across the fields of strategy, transaction
based economics and knowledge management were identified and drawn together into a
framework for capturing value from collaborative partnerships. Summarizing these research
findings into a series of guidelines can be useful to inform the executive decision-making
process on the adoption of an open business model strategy. These guidelines can be simply
summarized are as follows:
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Align on Strategy and Scope

It should go without saying but firms embarking on a network alliance strategy should be very
clear at the outset on the overall strategic goal behind the proposed collaboration. Aligning on
objectives and scope ensures opportunism and the potential for competitive risks can be
minimized. Companies should therefore be clear on the motivations for deploying a network
alliance strategy and should determine:
Whether the objectives of network alliance formation are primarily to build market share,
reduce operations costs or accumulate new skills and capabilities from partner firms
From this determination, the scope of the alliance must be carefully planned strategic
goals should always converge but competitive goals can differ
\Those partner firms with significant competitive overlap in technology development may
want to limit the alliance scope to control the level of knowledge shared without
jeopardizing the alliance goals
Get the Governance Right

Successful network alliance partnerships hinges on how fi rms operate and collaborate within
the boundaries of their alliance objectives. Selection of the appropriate governance mechanism
is critical to aid this process. Firms should therefore be mindful that:
Formal structures that are equity-based can have a positive effect on stabilizing the
network partnership resulting in more positive interaction between alliance partners
Shared equity alliances help align the interests of the partner firms. The mutual
hostage of equity eases the concerns of opportunism in a network partnership.
Informal structures can be a powerful pathway to alliance success and work best where
high levels of trust are in evidence between the partner firms. Collaboration can often be
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enhanced and productivity boosted when partner firms have enough confidence in each
other that formal governance structures are thought unnecessary.
Manage the Learning Dynamic
Network partnerships thrive on an open knowledge exchange between the partner fi rms. More
often than not, this means an imbalance in risk across the alliance membership when
proprietary technological knowledge is potentially up for grabs. How to maintain an open,
collaborative environment is crucial. Hence:
Be sure each of the network partner firms has similar learning capacities to each other.
Opportunism risks will be elevated if there is a mismatch in terms of each firms
capability to absorb new knowledge.
Minimize the potential for learning races to occur. The network hub firm should
carefully balance an open collaboration environment with controlled flows of knowledge
to avoid any valuable knowledge leaks occurring.
Focus on the scope of the network alliance at the outset of the partnership. This can
help provide more protection to exchange knowledge freely and limit opportunism.
Consider the use of equity-based partnerships when the scope of the alliance is broad.
This is an effective structure when promoting knowledge-sharing and ensuring
proprietary-knowledge protection.
Build Trust and Success will follow
In volatile market environments developing trust between network partners can offset the risks
of opportunism, reduce operational costs and help foster the creation of a successful alliance
strategy. One way of building social capital is to cultivate sufficiently deep ties between the
network players. Some steps on the way to a successful trust strategy include:
Selecting network partner firms on the basis of degree of compatibility of corporate
cultures and decision-making styles - an important first step in the trust process.
A focus on the prior relational quality attributes of the alliance partners can enhance the
comfort and confidence levels between each partner firm. This will then provide
opportunities for each firm to collaborate beyond the initial scope of the alliance
agreement.
Hub firms should astutely manage behavioral patterns within and outside the context of
the alliance. This will help strengthen attitudes on trustworthiness and reputation and
ease conflict resolution that may arise during the day-to-day running of the network
partnership.
The Discipline of Alliance Management
Alliance management is a way of thinking enabled by a set of policies, processes, and tools that
have been effective in addressing the unique challenges of managing an alliance. It is also a
profession and a corporate function, requiring a defined vision, structure, goals, ways of
working, and metrics.
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Members of Alliance Management Groups are typically referred to as Alliance Managers. Their
responsibility is to drive professional management of alliances and other collaborations in a
consistent manner, to ensure their effective governance, protect their companys assets, and
maximize long-term value for their company, its partners and customers.
Alliance Managers focus on the collaborative work of the alliance. This involves bridging the
partnering organizations and uniting independent functions within each partner to ensure
activities are coordinated, information flows, decisions are made, and resources are leveraged
to achieve the goals of the alliance more efficiently and effectively than could be achieved by
each partner acting alone. The technical work of the alliance carrying out the development
and commercial purposes of the alliance is conducted by individuals responsible for those
functions. Together, they allow each partner to realize its strategic intent in entering into the
alliance.
Alliance Managers act as choreographers or orchestrators of the alliance and are responsible
for:
1. Maintaining continuity of intentions, motivations and relationships Throughout the
alliance lifecycle, Alliance Managers must build relationships with key personnel from all
partners as well as within their own company and ensure that those relationships are
appropriately developed and maintained.
2. Coaching and guiding stakeholders in effective collaboration Alliance Managers must
be part mentor, part coach, part diplomat, part strategist, and part entrepreneur to enable the
success of alliances. Enabling others to collaborate effectively increases the likelihood that
intended outcomes and value will be achieved.
3. Maintaining a single, comprehensive view of the relationship A key role of Alliance
Managers is to ensure that alliance committees and line functions understand the
interdependencies among them and that the flow of communication is adequate to ensure
informed decision making.
4. Ensuring internal alignment and readiness before engaging partners Alliance
Managers ensure that governance committee members and working teams have reached
agreement on their companys view of what is in the best interest of the alliance prior to
engaging with the partner. Alignment also implies agreement on how to handle new information
that arises during discussions with partners, as well as how to handle conflict within teams.
5. Facilitating communication and decision making Alliance Managers are often brokers
and bridges; ensuring that conversations are candid, transparency is sufficient, and decisions
are made. Unless one is in the thick of an alliance, it is hard to appreciate the amount of time
and effort this most essential business activity takes.
6. Pre-empting issues, facilitating conflict resolution, and managing escalation Alliance
Managers must be engaged enough in the day-to-day operations of the alliance that they can
see potential issues and work to head them off and help resolve conflict. If conflict cannot be
resolved among the individuals who have the conflict, then Alliance Managers escalate
resolution of the conflict through the channels described by the alliance agreement.
7. Monitoring milestones and metrics Alliance Managers ensure that measurement occurs
as necessary, is reported as agreed, and is of sufficient quality and relevance to aid decision
making. They also ensure that milestone deadlines are factored into planning.
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8. Supporting alliance teams in operational and financial negotiations Alliances require
thousands of little negotiations. Alliance Managers ensure that working team members can
successfully engage in these negotiations, potentially leading them when they become more
substantial.
9. Managing governance structures and processes Alliance governance is so important, it
is one of three work streams involved in providing direct support to alliances.
10. Understanding partners interests and how that relates to their companys interests
Alliance Managers must understand what matters to partners and help internal stakeholders
(working team members) incorporate that understanding into their decision making and actions
to better achieve their companys interests.
The Alliance Management Group
(See Figure 1 Alliance Management Mission):
1. Realizing the strategic intent of alliances
2. Developing the collaborative ability of the organization
3. Continuously improving the management of alliances
Figure 1 Alliance Management Mission

Realizing Strategic Intent
It is important to distinguish the unifying purpose (the strategic intent) that brings partners
together in an alliance with the oft-stated view that partners need to be aligned strategically or
have common goals. This is simply not true. For example, in biopharmaceuticals, an alliance
often occurs between a smaller company that has a focus on discovering and/or developing
compounds to a certain stage and a larger company that has the capabilities to develop a
commercial strategy, guide the compound through registration trials, gain marketing
authorization, and take it to market on an appropriate scale. These two organizations have very
different strategies. Their organizational goals are quite different. What they share is a desire to
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achieve certain common goals (the strategic intent of the alliance) that provide value each uses
for achieving their individual objectives.
This distinction between strategic intent and common goals is not trivial and overlooking it may
lead to challenges in achieving the unifying purpose of an alliance. Each party enters into an
alliance to help it accomplish what it is trying to do. The implication of this reality is that alliance
team members must appreciate that their partner, their company, and their colleagues all have
reasons in addition to achieving the alliances unifying purpose that make participating in the
alliance a worthwhile endeavor. Take away this individually defined value and an essential part
of the rationale for the alliance is lost. For example, assume the strategic intent of an alliance is
to develop and commercialize an innovative product in a new technology of strategic importance
to a company. The head of that product area may see this as an opportunity to build up his or
her department and as long as that occurs, he or she is happy to collaborate. If head count is
frozen and working on the alliance is seen as additional work, there may not be as great a
level of collaboration.
Alliance management processes (which are often documented in an Alliance Management
Guidebook) typically emphasize three core responsibilities which focus on achieving the
strategic intent of individual alliances:
1. Alliance governance
2. Alignment of internal stakeholders
3. Maximizing value for all partners in the alliance
Alliance Governance
A core responsibility of alliance management is the governance of alliances. Alliances meld at
least two entities processes, policies, capabilities, people and other resources to achieve a
specific purpose or purposes and provide benefit for all concerned. The governance system of
any alliance has the task of organizing these resources and managing their activities to achieve
the alliances purpose.
As can be seen in Figure 2 Alliance Context, working towards achieving the intent of the
alliance and creating value for each partner implies managing certain strategic challenges. How
these manifest themselves is extremely contextual. Common challenges that must be managed
include:
Prioritization of the endeavour within each partner
Competency and continuity of staffing
Ongoing level of investment
To determine how to manage these challenges and the activities that lead to achieving the
purpose of collaborating, the three key questions that must be asked and answered are:
What should we do together?
What should we do individually?
What is the appropriate governance?
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For any action to be done together, a joint way of working must be devised and implemented.
One of the most common sources of difficulties in maximizing the value of alliances occurs
when the two parties cant come to agreement on how they will operate. Problems come about
when budgeting is done at different times of the year, authority for different types of decisions
rests at different levels in the organization, or Standard Operating Procedures (SOPs) for such
things as quality assurance are different. Alliance Managers work with their counterparts from
the partner company(ies) to develop and implement how this joint work is to be accomplished,
satisfying the requirements of each, but without wasting resources by duplicating work.
For work to be done individually, decisions must be made as to which partner takes the lead on
certain work. Usually the partner with the greater capability and capacity leads the work.
Decisions must then be made as to how that partner will inform the other(s) and the extent of
their individual authority. This requires a reasonable level of trust between the parties, as well as
a careful delineation of responsibilities. Without it, duplicate work or second guessing occurs
and the primary purpose of the alliance to leverage each others resources is undermined.
With knowledge of how the work of the alliance is to be shared, the governance system is
designed and implemented. The governance system is how the alliance manages its joint work.
Governance has both structural and behavioral components to it. Some of the structural
components, such as the governance committees, may be part of the alliance agreement. As
the alliance moves through its lifecycle, the design of the governance may have to change to
reflect needs at a particular point in the lifecycle. For example, if significant changes are made
in how work is shared in an on-going alliance (i.e., responsibility for billing and collection or
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distribution changes) the governance system may need to change. Thus it is important that any
governance framework established by contract be flexible enough to adapt as needed.
Alignment of internal stakeholders
Collaboration is a strategic way of working to achieve desired outcomes. It involves coordinating
activities, communicating information and building an environment of trust and transparency to
better leverage the resources of the partners in pursuit of their objectives. In order for one
company to collaborate effectively with another, it has to be aligned internally so that it can
speak with one voice to the partner. Anything else is confusing at best and potentially
damaging. To illustrate, suppose a partner is looking to reduce the number of people engaged in
a project, resulting in the likelihood the project could stall. The initial response may be, Dont
reduce headcount, it will hurt the project. Then someone else tells the partner the project wont
get hurt if resources are withdrawn. Clearly, the partner will want to proceed based on the more
favorable comment. The lack of a single aligned message to the partner means that either the
more favorable statement will have to be retracted (undermining the authority of the individual
who said it) or the project is put in jeopardy because resources are reduced.
The preceding illustration demonstrates that before two companies can collaborate effectively,
they must collaborate well within their respective companies. Thus an essential responsibility of
alliance management is to ensure that internal stakeholders are appropriately coordinated,
necessary information is properly communicated, and there is the requisite trust and
transparency. Even small organizations have functional silos. These functional silos have their
own objectives and goals to meet, which can cause issues of prioritization and resource
allocation, despite best intentions of achieving corporate objectives. Additionally, professional
people differ in what they perceive to be the most effective path towards a goal. Anyone with
alliance management responsibility must bridge these silos and bring people together in a
common understanding of how the unifying purpose of the alliance will be achieved.
Gaining alignment is easier when everyone sees how it is in his/her own best interest to go
about an activity in a certain way. This usually means individuals must understand how
engaging in requested behavior positively influences achieving his/her goals and performance
targets. If they dont have a similar perspective, then education, diplomacy, and negotiation may
be required to develop a common understanding. People with alliance management
responsibility spend much of their time building a common understanding and consensus
among internal stakeholders. It is not uncommon for Alliance Managers to spend 70% of their
time working with internal colleagues. This essential process is often invisible because it
happens in small increments, one conversation at a time. The challenge of having these
conversations is exacerbated by geographic distance and time zone differences. It often
requires difficult and frank discussions with people senior to the Alliance Manager, challenging
traditional hierarchies, lines of authority, and traditional ways of working. When geography and
time get in the way of face-to-face conversations, Alliance Managers must work exceptionally
hard to build relationships with others whom they must educate, persuade, and cajole. It is not
an exaggeration to think of alliance managers as needing to exercise a similar level of influence
without authority as senior diplomats negotiating international treaties.
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Maximizing Value
The value of an alliance is multi-faceted. Value is more than the financial exchange that
is defined in the alliance agreement. It also includes access to the capabilities, expertise, and
market reach of the partner one can only access within the context of a trusting, mutually
beneficial relationship. The role of alliance management is to ensure that value as originally
envisioned is realized and that opportunities to gain additional value are identified and pursued.
There are three primary ways in which alliance management maximizes value:
1. Monitoring contractual requirements to ensure all revenue opportunities are realized
2. Identifying and managing inherent risks
3. Evaluating, measuring, analyzing results and making necessary changes to alliance
operations
Monitoring contractual requirements
Alliance Managers must be fully versed in all aspects of the contract. The contract determines
the financial commitments of each partner and the events that trigger those commitments, as
well as how they are calculated. Often there is some ambiguity inherent in the timing and
calculation of financial obligations. For example, the definition of development costs to be
shared or how those costs are allocated across different products may leave room for
interpretation.
Identifying and managing risks
An Alliance Managers responsibility is to have a comprehensive view of alliance activities and
to have a good understanding of the partners business. In addition, an Alliance Manager must
be aware of the implications of events outside the alliance on the alliance. For example, many
companies are quite active in partnering with (or acquiring) other companies. What happens
when your partner announces a new relationship with a competitor?
In addition to risks caused by external events, alliance management processes exist to minimize
the management risks inherent within any particular alliance. Some of these risks come about
because of the nature of the partner, for example, the risk of a small company partner with
tenuous funding not being able to meet its commitments. Identifying and managing risks is
embodied in all of the specific alliance management processes.
Analysing results and making improvements
Using assessment tools to evaluate and analyze alliances is a proven approach to making them
more effective. Alliance management practices include a number of scorecards, assessments,
and other analysis tools to guide Alliance Managers in improving how alliances operate. The
evaluation process takes place both internally and with partners on individual alliances. It also
looks across alliances to identify trends, ways to leverage good practices, and looks for
company-wide issues; as well as ensuring that the alliance portfolio is sufficiently balanced to
make the best use of resources and achieve the intended strategic outcomes. Because
alliances are highly contextual and no two are the same, the process of analysis and
improvement is an essential component of maximizing the value of both individual alliances and
the overall portfolio.
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Believing in the adage If it cant be measured, it cant be managed, The Rhythm of Business
has invested considerable resource over the past decade in building a suite of metrics and
measurement approaches for evaluating the effectiveness of individual alliances (VitalSigns),
analyzing alliance portfolios (Look Up, Look Down), and collaborative ability (Collaborating to
Win).
Collaborative Ability
In most companies, the Alliance Management Group is quite small relative to the number of
alliances and other collaborations the company has. Yet, the Alliance Management Group is
responsible for the consistent management of alliances throughout a company. In order to
accomplish this, the Alliance Management Group must ensure that when required, functional
managers are able to access and utilize the tools of alliance management, understand the core
concepts, processes, and practices and appropriately apply them to the specific alliance. In
addition, alliances require coordinating activities, communicating relevant information, building
trust, and accessing and leveraging resources with those outside of the company, including
some who may compete with the Company in other endeavours. Thus, the Alliance
Management Group is also responsible for ensuring that company personnel know how to work
successfully in that complex environment.
Such support is provided through peer-to-peer conversations and leading the planning for
alliance governance meetings, as well as facilitating other alliance activities. This contextual
support is important and is often augmented through:
1. A library of alliance management tools that are accessible to functional managers who also
have alliance management responsibility
2. An ongoing program of information and communication to continue to grow the companys
ability to succeed in alliances
3. Formal training developed in conjunction with an organizations training and development
professionals
Alliance Management Excellence
The purpose of creating a company-wide approach to alliance management is to provide a
consistent, systematic way of managing the collaborations that are essential to business
strategy. Documenting and applying its guidance, processes, and tools provides the means to
learn what works well and what needs to be improved. As has been described previously with
respect to specific alliances, the Alliance Management Group has the responsibility for ensuring
that such learning explicitly occurs and is implemented.
In addition to what is learned within the conduct of alliances, members of the Alliance
Management Group partake of professional development opportunities, sharing their learning
with other company personnel, as appropriate, and incorporating it into the management
practices when relevant.
Alliance management is a relatively new management discipline and the practice of it
continuously evolves. The primary source of leading practices is the Association of Strategic
Alliance Professionals (ASAP). It is the only global professional membership association that
serves alliance management practitioners. ASAP provides knowledge and resources, education
and professional development, and a community for networking to alliance professionals at
every stage of business collaboration from partnership formation to alliance management after
a deal is signed all the way through to the dissolution of a relationship.
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References:
Hughes, J. and Weiss, E. (2007), Simple rules for making alliances

work, Harvard Business Review
www.iapmei.pt/.../coop/alliances_network.pdf
www.wikipedia.org
Janice Twombly and Jeffrey Shuman (2010), Strategic Alliance Management ,
CollaborativeBusiness
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HIGH TECHNOLOGY MARKETING VENTURE
Technology is Ubiquitous
Examples of traditional high-tech industries:
Computers and information technology
Biotechnology
Telecommunications
Internet
Examples of some industries where technological innovation is creating radical changes:

Waste management
Agriculture
Automotive
Oil and Gas
Consumer Products
Definition of Technology
The stock of relevant knowledge that allows new techniques to be derived
Product technology: ideas embodied in the product and its components
Process technology: ideas involved in the manufacture of a product; a manner of
accomplishing a task especially using technical processes, methods, or
knowledge
Definitions of High-Tech
Government perspective
Common underlying characteristics perspective
Government Perspective:
Defining High-Tech
Classify industries based on objective, measurable indicators:
the number of technical employees
$ spent on R&D
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# of patents filed in industry
Used by the Bureau of Labor Statistics, Organization for Economic Cooperation and
Development, and the National Science Foundation
Level 1 Industries: Technology-Intensive
Level II Industries: Technology Moderate

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% of High-Tech
Employment
2000
% Change in
Employment
2000-2010
Miscellaneous textile goods

Pulp mills
Miscellaneous converted paper products
0.5
1.8
2.1
6.2%
-11.5%
0.0%
Ordnance and accessories, n.e.c.

Engines and turbines
General industrial machinery
0.3
0.8
2.2
-8.4%
-2.2%
3.5%
Industrial machines, n.e.c.
3.3
10.0%
Household audio and video equipment

Miscellaneous electrical equipment and supplies
0.7
1.3
-3.3%
8.6%
Miscellaneous transportation equipment
0.7
19.0%
Shortcomings to the government classification approach:

Some industries are R&D intensive (i.e., high-tech), but new products are not
revolutionary
Ex: Cigarettes
May exclude industries who are technology-driven
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Ex: Textiles production
Some industries with standardized output produced in mass quantities
Ex: Some computing equipment
Definitions of High Technology: Common, Underlying Characteristics
Market Uncertainty
Technological Uncertainty
Competitive Volatility
Other Characteristics
Market Uncertainty: ambiguity about the type and extent of customer needs that can be
satisfied by a particular technology
Consumer fear, uncertainty and doubt (FUD)
Customer needs change rapidly and unpredictably
Customer anxiety over the lack of standards and dominant design
Uncertainty over the pace of adoption
Uncertainty over/inability to forecast market size
Technology Uncertainty:
not knowing whether the technology or the company can deliver on its promise
Uncertainty over whether the new innovation will function as promised
Uncertainty over timetable for new product development
Ambiguity over whether the supplier will be able to fix customer problems with the
technology
Concerns over unanticipated/unintended consequences
Competitive Volatility:
changes in competitors, offerings, strategies
Uncertainty over who will be future competitors
Uncertainty over the rules of the game (i.e., competitive strategies and tactics)
Uncertainty over product form competition
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competition between product classes vs. between different brands of the same
product
Implication: Creative destruction
Characterizing the High-Tech Environment
Market
Uncertainty
Marketing of
HighTechnology
Products &
Innovations
Technological
Uncertainty
Competitive
Volatility
Network Externalities
When the value of the product increases as more people adopt it
Also called demand-side increasing returns or bandwagon effects
Ex: portals on the Internet
Metcalfs Law: Value of the network = n2 (where n=# of users)
Implications of Network Externalities
Reliance on strategies to quickly grow the size of the installed base (or customers using
the particular product/technology)
May give away products for low price or even free
Work to develop industry standards
Development of Industry Standards
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Standards create a common, underlying architecture for products offered by different firms in
the market.
Why are industry standards important?
Customers gain compatibility
Lowers their perceived risk (FUD factorfear, uncertainty, and doubt)
Allows for seamless interface of product components.
Why are industry standards important? (Cont.)
Availability of complementary products determined by the size of the installed base of a
given product.
Therefore, standards help ensure greater availability of complementary products
by helping to ensure a larger size of the installed base.
Customers get more value from the base product as more complementary
products are available.
Self-reinforcing Nature of Standards
Implications from Standards

Originator of new technology can set standards
Even when technology standard may be inferior
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Ex: QWERTY keyboards
Critical success factor:
Grow installed base quickly
Antitrust implications when de facto standards become near monopolies
Strategies to Set Industry Standards
(1) Licensing/OEM Agreements
Pros:
Can ensure initial wide distribution
Can co-ops competitors from developing competing technology
Limits customer confusion over competing standards
Sends signal to complementors that installed base may be significant,
stimulating development of ancillary products
Cons:
Licensees may attempt minor technological alterations to bypass need to
pay licensing fees
Original developer creates competitors
(2) Strategic Alliances to jointly sponsor development of a particular technological standard
Pros:
Same four pros as the prior strategy, plus:
By combining skills, alliances may produce superior technologies than a
single company could.
Cons:
Partner might access and misuse other firms proprietary information
Need for close attention to structure and management of the
alliance
(3) Product Diversification: Create a standard by developing the necessary
complementary products to create more value for customers.
Pros:
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Can jump-start the market when no installed base of customers exists
and complementors have no incentive to develop products
Diversifies revenue base of the firm
Cons:
Commitment of resources
Potential incompatibility with core competencies
(4) Aggressive Product Positioning via penetration pricing, product proliferation, and
wide distribution.
Requires investments in production capacity, product development, and building
market share
Costs of failure are very high
Conditions That Affect the Choice of Standards-Setting Strategy:
Barriers to imitation
Via patents or copyrights, for example
Skills and resources
in technology, manufacturing, marketing, finances, and firm reputation
Existence of capable competitors
Potential suppliers of complementary products
Which Strategy Under Which Conditions?
Aggressive Sole Provider when:
Barriers to imitation are high
Firm possesses required skills and resources
Suppliers of complementary products exist
Apparent absence of capable competitors
Passive Multiple Licensing when:
Barriers to imitation are low
Firms lacks required skills and resources
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Presence of many capable competitors
Other Characteristics Common to High-Tech Markets:
Unit-one costs:
when the cost of producing the first unit is very high relative to the costs of
reproduction
Ex: development vs. reproduction of software
Tradability problems
Arise because it is difficult to value the know-how which forms the basis of the
underlying technology
Ex: How much to charge for licensing the rights to a waste-eating microbe?
Knowledge spillover:
Technological developments in one domain spur new developments and
innovations in other areas.
Ex: Human Genome Project
A Supply Chain Perspective of Technologya case of Auto Industry
Interwoven impacts on facing innovation
Critical ideas on a Supply Chain Perspective on Technology

Often, technological innovations occur at upstream (i.e., supplier) levels in the supply
chain
Such innovations may radically affect the manufacturing process or the inner workings of
a product, but
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End-user behavior may not be significantly affected
Examples: cars, food, computing, hair styling, Internet
Continuum of Innovations
Supplier vs. Customer Perceptions of Nature of Innovation
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2
Contingency Theory
Examples of Implications of
Contingency Theory
R&D/Marketing
Interaction
R&D leads; technology Marketing leads;

push
customer pull
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2
Type of Marketing
Research
Lead users; empathic

design
Surveys; focus groups
Role of Advertising
Primary demand;
customer education
Selective demand; build

image
May be premium
More competitive
Pricing
Framework for High-Tech Marketing Decisions
}
High-Tech Firm
Customers
Internal Considerations (Ch. 2, 3, 4)

Strategy Formation
Core Competencies/Core Rigidities
Funding Considerations
Market Orientation
Relationship Marketing
Job
R&D/Marketing Interactions
Understanding Customers (Ch. 5,6)

High-tech Research
Forecasting
Customer Decision-Making
Adoption Diffusion of Innovations
Target Marketing
Opportunities in
High-Tech
For non-technical backgrounds:

Societal,
and Regulatory
Concerns
(Ch.12)and language
Find temporary
workEthical,
or internships
to develop
knowledge
Read industry publications; join industry trade groups
Work for high-tech company customers or suppliers
Appendix: Outline of a Marketing Plan
Executive Summary
Market Analysis
Company Analysis
Objectives & Positioning
Value Proposition
Marketing Strategy
Budgeting and Control
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TECHNOLOGY FORECASTING
Technology forecasting attempts to predict the future characteristics of useful technological
machines, procedures or techniques.
Important aspects
Primarily, a technological forecast deals with the characteristics of technology, such as levels of
technical performance, like speed of a military aircraft, the power in watts of a particular future
engine, the accuracy or precision of a measuring instrument, the number of transistors in a chip
in the year 2015, etc. The forecast does not have to state how these characteristics will be
achieved.
Secondly, technological forecasting usually deals with only useful machines, procedures or
techniques. This is to exclude from the domain of technological forecasting those commodities,
services or techniques intended for luxury or amusement.
Rational and explicit methods
The whole purpose of the recitation of alternatives, is to show that there really is no alternative
to forecasting. If a decision maker has several alternatives open to him, he will choose among
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them on the basis of which provides him with the most desirable outcome. Thus his decision is
inevitably based on a forecast. His only choice is whether the forecast is obtained by rational
and explicit methods, or by intuitive means.
The virtues of the use of rational methods are as follows:
1. They can be taught and learned,
2. They can be described and explained,
3. They provide a procedure follow able by anyone who has absorbed the necessary
training, and in some cases,
4. These methods are even guaranteed to produce the same forecast regardless of who
uses them.
The virtue of the use of explicit methods is that they can be reviewed by others, and can be
checked for consistency. Furthermore, the forecast can be reviewed at any subsequent time.
Technology forecasting is not imagination.
Methods of technology forecasting
Commonly adopted methods of technology forecasting include the Delphi method, forecast by
analogy, growth curves and extrapolation. Normative methods of technology forecasting like
the relevance trees, morphological models, and mission flow diagrams are also commonly
used.
THE DELPHI METHOD: The Delphi method is a structured communication technique, originally
developed as a systematic, interactive forecasting method which relies on a panel of experts. In
the standard version, the experts answer questionnaires in two or more rounds. After each
round, a facilitator provides an anonymous summary of the experts forecasts from the previous
round as well as the reasons they provided for their judgments. Thus, experts are encouraged
to revise their earlier answers in light of the replies of other members of their panel. It is believed
that during this process the range of the answers will decrease and the group will converge
towards the "correct" answer. Finally, the process is stopped after a pre-defined stop criterion
(e.g. number of rounds, achievement of consensus, stability of results) and the mean or median
scores of the final rounds determine the results.
Combining forecasts
Studies of past forecasts have shown that one of the most frequent reasons why a forecast
goes wrong is that the forecaster ignores related fields.
A given technical approach may fail to achieve the level of capability forecast for it, because it is
superseded by another technical approach which the forecaster ignored.
Another problem is that of inconsistency between forecasts. Because of these problems, it is
often necessary to combine forecasts of different technologies. Therefore rather than to try to
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select the one method which is most appropriate, it may be better to try to combine the
forecasts obtained by different methods.
If this is done, the strengths of one method may help compensate for the weaknesses of
another.
Reasons for combining forecasts
The primary reason for combining forecasts of the same technology is to attempt to offset the
weaknesses of one forecasting method with the strengths of another. In addition, the use of
more than one forecasting method often gives the forecaster more insight into the processes at
work which are responsible for the growth of the technology being forecast.
Trend curve and growth curves
A frequently used combination is that of growth curves and a trend curve for some technology.
Here we see a succession of growth curves, each describing the level of functional capability
achieved by a specific technical approach.
An overall trend curve is also shown, fitted to those items of historical data which represent the
currently superior approach.
The use of growth curves and a trend curve in combination allows the forecaster to draw some
conclusions about the future growth of a technology which might not be possible, were either
method used alone.
With growth curves alone, the forecaster could not say anything about the time at which a given
technical approach is likely to be supplanted by a successor approach.
With the trend curve alone, the forecaster could not say anything about the ability of a specific
technical approach to meet the projected trend, or about the need to look for a successor
approach. Thus the need for combining forecasts.
Identification of consistent deviations
Another frequently used combination of forecasts is that of the trend curve and one or more
analogies.
We customarily consider the scatter of data points about a trend curve to be due to random
influences which we can neither control nor even measure. However, consistent deviations may
represent something other than just random influences.
Where such consistent deviations are identified, we may have an opportunity to apply an
analogy. Typical events which bring about deviations from a trend are wars and depressions.
Thus the purpose of combining analogies with a trend forecast is to predict deviations from the
trend deviations which are associated with or caused by external events or influences.
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As with other uses of analogy, it is important to determine the extent to which the analogy
between the event used as the basis for the forecast, and the historical model event, satisfies
the criteria for a valid analogy.
FORECASTING METHODS
Assessment of a company's current technology should drive the direction of the R&D planning
process. There needs to be a systematic process for assessing technology. [2, 5] There are
eight (non-TRIZ) forecasting methods to aid assessment:
1. Intuitive forecasts
2. Consensus methods
3. Delphi method
4. Application of a statistical model
5. Application of a causal model
6. Analogy method
7. Extrapolation
8. Structural modeling
Intuitive Forecasting
Intuitive forecasting is a very popular and widely applied methodology. "Asking the expert"
usually provides the information for the forecast. It is assumed that the experts' base of
experience and education is sufficient, in a particular field, to predict or forecast the vectors of
expansion or evaluation. Records indicate the pronounced fallibility of this forecasting method.
British author and inventor Arthur C. Clarke described some false predictions based on the
"expert" intuitive forecasting by unquestioned authorities in his book, Profiles of the Future,
including, for example, that in 1956 the Royal British Astronomical Society predicted that "space
travel is utter bilge." [1, 3, 4]
Consensus Method
A simple method of overcoming some of the disadvantage of intuitive forecasting is the use of a
"panel of experts." The presumption is that many experts are more likely to be accurate than
one. The U.S. Department of Defense has used this method successfully on projects including
the Strategic Defense Initiative program (more commonly known as "Star Wars" as well as
numerous weapon systems and vehicle platforms. The U.S. Air Forces Project Forecast was an
effort in the mid-1980s to characterize high-leverage future military technologies and is an
example of a large and successful application of the consensus method. Of course, the
shortcomings of the intuitive method can be compounded during the application of the
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consensus method (the possibility of a hidden bias being canceled by a hidden counter-bias
may not materialize).
Delphi Method
To improve on the intuitive and consensus methods, the Rand Corporation developed the
"Delphi Procedure" in which a panel of experts (like the consensus method) arrive at a
consensus but eliminate the regulating of committee bias by employing a series of
questionnaires. The first phase asks for the panel's forecasts. The replies are compounded. The
second phase requests comments on the Phase I compound forecast. Phase III is a derivative
of Phase I based on the results of Phase II. A typical process includes five or six phases. The
goal of this multi-phase process is a forecast convergence. Figure 1 shows the convergence of
a hypothetical date for a certain even based on a multi-phase Delphi process.
Figure 1: Delphi Forecasting Convergence Example
(A, B, C, E, F, G and H represent panel members. The data
converges as the panel of experts forecast phase-by-phase.)
Application of a Statistical Model

A statistical model is based on a series of observations of the phenomenon and it delineates the
pattern of the association between the various factors (or variables) of the phenomenon that are
of interest. Descriptive models used in forecasting are often quantitative, but qualitative ones
are used as well. Many events, such as descriptive phenomenon, are single occasion events
and as such they are a difficult phenomenon to model. Therefore, the application of a statistical
model necessitates a thorough understanding lengthening the forecasting process. (See
Figure 2.)
Figure 2: The Method of Prediction Based on a
Descriptive Model
Application of a Causal Model

A causal model is similar to a statistical model as it also describes (through research) the
development of a phenomenon to be predicted. It is an improvement on the statistical model as
it also provides the causative agent(s) for the occurrence of the phenomenon to be predicted.
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An understanding of the invariance of the phenomenon gives the forecaster good grounds for
forecasting as this invariance is believed to remain valid into the future. A causal model is
normally based on a population and is therefore valid only in that context. A causal model
limitation is the necessity to assume uniformitarianism (invariance as a function of time).
A famous example of a large causal model was fabricated by the Club of Rome and published in
the 1972 book, Limits to Growth. It consists of dozens of variables, including world population,
birth rate, industrial and agricultural production, non-renewable resources and pollution. In the
model, the levels, or physical quantities that can be measured directly, are indicated with
rectangles, rates that influence those levels with valves and auxiliary variables that influence the
rate equations with circles. Time delays are indicated by sections within rectangles. Real flows
of people, goods, money, etc. are shown by solid arrows and causal relationships with broken
arrows. Clouds represent sources or "sinks" (exits of material) that are not important to the
model behavior.
The Club of Rome think tank started building their "World Model" by first constructing five submodels. These concentrated on the five "basic quantities": population, capital, food, nonrenewable resources remaining (measured as remaining fractions of the 1900 reserves) and
pollution. One of the sub-systems included the causal relations and feedback loops between
population, capital, agriculture and pollution. Finally, the researchers combined all the five submodels and created the final World Model, part of which is illustrated in Figure 3.
Figure 3: Example of Large Causal Model [3]
Analogy Method
This method utilizes analogies between the phenomenon to be forecast and some historical
event, or popular physical or biological process. To the extent that the analogy is valid (all
analogies become invalid at a certain level), the initial event or process can be used to wake a
prediction about future developments of a technology. (See Figure 5.) The technological
forecaster uses the analogy method consciously and deliberately, examining the model situation
and the situation to be forecast in considerable detail to determine the extent to which the
analogy is valid. An example of this approach is delineated in the book The Railroads and the
Space Program: An Exploration in Historical Analogy edited by Bruce Mazlish. The forecasters
used 19th century railroad development as an analogous system to the U.S. space program. The
utilization of growth curves is used to predict the advance of some technologies (analogous to
biological or physical processes the "'S" curve, see Figure 4).
Figure 4: Growth Curves [4]
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Figure 5: Making Predictions

(If a foreign system consisting of
elements A, B and C produces
elements D and E, an analogous
system with elements A', B' and
C' can be predicted to produce
elements D' and E', where A', B',
C', D' and E' are elements in the
system to be predicted.)
Extrapolation Method
Trend extrapolation is one particular method of solving the prediction of the inflection problem
associated with the "S" curve of the analogy method (when is the curve going to change slope,
B). Instead of focusing on a single device and attempting to predict the future course of
development of that device, the trend extrapolation method considers a series of successive
devices while performing similar functions. These may be considered individual representations
of a broad area of technology. (See Figure 6.) The extrapolated trend will eventually reach a
physical limit and will lose its validity as the trend approaches this limit.
Figure 6: Extrapolation Method [4]
Figure 7: Approaching the

Physical
Limit (D
is
measured between t = -1
and t = 0 so that d can be
applied to t = 1 to
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extrapolate the trend value
at time t = 1. This can be
applied to t = any time as
long as the trend value
does not violate a physical
limit. [3])
Structural Modeling
Structural modeling is an attempt to develop a mathematical or analytical model of a
technology-generation process. As with mathematical models of any process, the purpose for
model construction is to identify certain key elements, identify the functional aspects of those
elements and express these functional aspects symbolically or mathematically. Structural
models tend to be abstract and reductionist in their approach in removing what are denied to be
non-essential functions. (See Figure 8.)
Figure 8: Structural Model of the Technology-generation Process

(Each block conceals a sub-model.)
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Forecasts of different technologies
Combining forecasts of different technologies may be even more important than combining the
forecasts of the same technology.
One reason for this is the fact that technologies may interact or be interrelated in some fashion.
Another reason for this is that of consistency in an overall picture or scenario. One of the
simplest examples of interacting trends is the projection to absurdity, i.e. simply projecting the
given data indefinitely without getting any specific result. For instance, if one simply projects
recent rates of growth of world population, one arrives at some fantastic conclusions about the
density of population in a particular place by various dates in the next millennium.
Some other trends which can confidently be expected to not continue indefinitely are:
1. Annual production of scientific papers.
2. Number of automobiles per capita.
3. Kilowatt hours of electricity generated annually.
Another instance of interacting trends was in the case of the number of scientists in the U.S.
growing faster than the overall population. Since 1940s through the 1960s, science as an
activity in the United States grew exponentially. The number of dollars spent on R&D was
growing faster than the GNP (in the 1960s).
If projected indefinitely, these two curves would give the result that eventually every person in
the U.S. would be working as a scientist and the entire GNP would be devoted to R&D alone,
which are however absurd conclusions. Thus it is clear that the scientific discipline of technology
forecasting is not mere trend extrapolation but also involves combining forecasts.
Uses in manufacturing
Almost all modern manufacturing firms utilize the services of a technological forecaster.
Nevertheless, there are a number of alternatives to the rational and explicit forecasting of
technology, such as 'no forecast', 'anything can happen' (i.e. relying on pure chance), 'windowblind forecasting', 'genius forecasting' and boasting of a 'glorious past' (i.e. adopting the same
old techniques).
Thus technological forecasting is not mere astrology or palmistry, but a scientific and well
defined procedure adopted by a technological forecaster or a consultancy for the forecasting of
a particular technology. Even though technological forecasting is a scientific discipline, some
experts are of the view that "the only certainty of a particular forecast is that it is wrong to some
degree."
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Summary
Each of the detailed eight methods is capable of forecasting
technological innovation and furthering the overall innovation
processes within a company.
References
1. Clark, Arthur C., Profiles of the Future, Indigo, 1962.
2. Gahide, Severine, Slocum, Dr. Michael S. and Clapp, Dr. Timothy G, "Application of
TRIZ to Technology Forecasting Case Study: Yarn Spinning Technology," The TRIZ
Journal, July 2000.
3. Routio, Pentti, Arteology: Forecasting, 1996.
4. Martino, Joseph P., An Introduction to Technological Forecasting, Gordon and Breach
Publishers, 1969.
5. Cowley, Michael and Domb, Ellen, Beyond Strategic Vision: Effective Corporate Action
with Hoshin Planning, Butterworth-Heinemann, 1997.
MANAGING RISK: SCENARIO PLANNING

Objectives
What Scenario Planning is ALL About

Difference of Scenario Planning to other planning tools of its kind
Using Scenarios
Describe the Process on How to Develop Scenarios
Scenario Planning @ an Ad Agency
Terms and Definitions
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an outline of the plot of a dramatic work, giving particulars as to the scenes, characters,
situations, etc.
is a method of business planning in which leaders consider a range of possible

scenarios and develop plans relevant for each scenario.
is a disciplined method for imagining possible futures that companies have applied to a
great range of issues
They Believe It Was,
Difference of Scenario Planning to other planning tools of its kind
Contingency Planning
It examines only one uncertainty, such as What if we dont get the
patent?
While Scenarios explore the joint impact of various uncertainties, which

stand side by side as equals.
Sensitivity Analysis
It examines the effect of a change in one variable, keeping all other

variables constant.
While Scenarios anticipate one or more variable changing in the same

period of time.
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Computer Simulation Model
Unlike simulation models scenarios interprets patterns.
Scenarios include elements that were not or cannot be formally modeled,

such as regulations, value shifts or innovations.
Scenario Planning allows us

To Divide our Knowledge into two areas
Things we believe we know something about.
Elements we consider uncertain or unknowable.
The overall purpose is to build a shared framework for strategic thinking that encourages
diversity and sharper perceptions about external changes and opportunities.
Using Scenario
Organizations facing the following conditions will especially benefit from the following scenarios:
Uncertainty is high relative to managers ability to predict or adjust.

Too many costly surprises have occurred in the past.
The company does not preceive or generate new opportunities.
The quality of strategic thinking is low.
The industry has experienced significant change or is about to
The company wants a common language framework , without stifling diversity.
There are strong differences of opinion, with multiple opinion having merit.
Your competitors are using scenario planning.
Constructing Scenarios
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Management of Technology 201

To have a wide understanding about technology according to the human needs;

To have better understanding about the development of technologies.

Stages of Technological Development

The first stage: the tool

Management of Technology 201

Management of Technology 201

Measuring Technological Progress

Management of Technology 201

The early Stone

During the Stone Age, all humans had a lifestyle which

Age is described as Epipaleolithic or Mesolithic. The former is generally used to describe

Management of Technology 201

The Iron Age involved the adoption of iron smelting

technology. It generally replaced bronze, and made it possible

Management of Technology 201

An illustration of the aeolipile, the earliest steam-powered device

Management of Technology 201

The compartmented water-wheel, here its overshot version,

Management of Technology 201

Management of Technology 201

Management of Technology 201

Management of Technology 201

Management of Technology 201

A Programming Language Evolves

Gaming, Mice, & the Internet

Management of Technology 201

Household PC's Emerge

The Competition Begins: Apple vs. Microsoft

Management of Technology 201

MANAGING TECHNOLOGICAL TRANSITIONS

Management of Technology 201

Management of Technology 201

Understanding Technology Risk

Management of Technology 201

Incubating: Nurturing the technology sufficiently to gauge whether it can be

Promoting: Persuading the market to adopt the innovation.

Management of Technology 201

While it is difficult to anticipate technological discontinuities, efforts must nevertheless

STANDARD AND NETWORK EXTERNALITIES

Management of Technology 201

Management of Technology 201

Management of Technology 201

Management of Technology 201

4. Standards for evolution

2. Standards for minimal admissible attributes

Figure 1 A layered architecture for technical standards.

Management of Technology 201

Management of Technology 201

Management of Technology 201

BENEFITS OF NETWORK EXTERNALITY

Management of Technology 201

Management of Technology 201

Management of Technology 201

Management of Technology 201

Baskin, E., Krechmer, K. and Sherif, M. H. (1998) "The Six Dimensions of

Mangematin, V. and Callon, M. (1991) Technological competition,: strategies

PROFITING FROM INNOVATION

Management of Technology 201

Possible Outcomes from Innovation

Table presents a simplified taxonomy of the possible outcomes from innovation.

Management of Technology 201

Appropriability - environmental factors that govern an innovators ability to capture

Profiting from innovation: Basic building blocks