Appropriating the benefits from innovation
Some of the factors that enable a firm to benefit commercially from its own technological lead can be strongly shaped by its management: for example, the provision of complementary assets to exploit the lead. Other factors can be influenced only slightly by the firm’s management and depend much more on the general nature of the technology, the product market and the regime of the intellectual property rights: for example, the strength of the patent protection. Seven factors which influence the firm’s capacity to benefit commercially from its innovation are below:
- Secrecy is considered an effective form of protection, especially for process innovations. However it is unlikely to provide absolute protection, because some process characteristics can be identified from an analysis of the final product and information and knowledge will inevitably leak out.
- Accumulated tacit knowledge can be long and difficult to imitate, especially when it is closely integrated in specific businesses and regions. Examples include product design skills linked to Rolls Royce aircraft engines.
- Lead time and after-sales service are considered by practitioners as major sources of protection against imitation, especially for product innovations. Taken together with a strong commitment to product development, they can establish brand loyalty and credibility, accelerate the feedback from customer use to product improvement, generate leading curve cost advantages and therefore increase the costs of entry for imitators.
- The learning curve in production generates both lower costs, and a particular and powerful form of accumulated and largely tacit knowledge that is well recognised by practitioners. In certain industries first mover advantages are potentially large given the possibilities for reducing unit costs with cumulative production.
- Complementary assets. The effective commercialisation of an innovation very often depends on assets (or competencies) in production, marketing and after-sales to complement those in technology.
- Pioneering radical new products. It is not necessarily a great advantage to be a technological leader in the early stages of development of radically new products, when the performance characteristics, and features valued by users, are not always clear, either to the producers or to the users themselves. Especially for consumer products, valued features only emerge gradually through a process of dynamic competition that involves a considerable amount or trial, error and learning by both producers and users. New features valued by users in one product can be easily recognised by competitors and incorporated in subsequent products.
- Strength of patent protection, can be a strong determinant of the relative commercial benefits to innovators and imitators.