Johannes M. Pennings

MGMT 802, MW &TT, Quarter 4

Innovation & Entrepreneurship

(Revised, 3/3/2001)

www-management.wharton.upenn.edu/pennings

http://webcafe.wharton.upenn.edu/eRoom/mgmt802

pennings@wharton.upenn.edu

898 7755

Spring 2001

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Although we often hear cliches like ”today’s world is one of rapid technological change” we should not forget that rapid changes were also paramount in yesterday’s world—for example 1870-1890. So we have many historical lessons to minimize the innovation failures of today and tomorrow! The entrepreneurs and established firms have to respond to changes in their landscape to survive. But even more so, the changing landscape accords opportunities for new businesses and new streams of “rents.” This mini-course will expose you to a mix of approaches and techniques that promote innovation and entrepreneurial conduct in organizations. It explores how patterns of change in technologies and markets create both opportunities and threats for established and new firms.

Structure of Course:

The course has a two pronged approach in that we consider changes in the environment such as technology and markets as important aspects for coming to grips with innovation and entrepreneurship. But we also consider the internal structure, processes, resources and especially core competencies with which the firm is endowed. For example, innovations should be anchored in the core competencies of the firm, but those competencies might become core rigidities that prevent a firm from being competitive in a new landscape. The firm should then forget the old paradigm, and adopt a new paradigm.

The sequence of topics of this “mini course “ is as follows:

(1) Thee introductory classes for laying down the framework covering environment and firm. We contrast new firms, old firms and firms that are being created.

(2) Three classes on industry/technology evolution with discontinuities, fault lines and upheavals that are often devastating but also opportunities produce for firms. We have a visitor from Corning talking about glass and its discontinuities (e.g. tv tubes, fiber optics, DNA testing tools) with Corning’s ability to re-deploy its core competencies to stay in the game, together with cases on telecommunication (Western Union) and real estate (Studio Reality).

(3) Four classes on firms seeking to overcome inertia, and embracing the new “paradigm, getting locked into new landscapes. We welcome a visitor from Dupont, and we review several avenues that firms might follow in order to join the new play ground: Ely Lilly (diabetes), Hermes System (networks) and Cisco(routers).

The course ends with two sessions dedicated to group presentations where we combine Industry and Firm aspects of the management of innovation.

Materials:

We will use a bulk-pack and a reader, referred to as “Reader” in the syllabus: Managing Strategic Innovation and Change, edited by Michael Tushman and Philip Anderson, NY: Oxford, 1997, and available at the Penn Bookstore or at www.amazon.com. In the syllabus, below, the importance of the readings is indicated by an asterix, comparable to ratings in a Michelin restaurant guide. Three star readings are a must. One star readings are recommended; 2 star readings are quite important in class discussions and case preparation.

Grading:

Grading will be based of class participation (20%), three Concept Papers’ Critiques(30%) and Group Project (50 %). There will be no exam!

The project is described and details are provided in Appendix I.

Submit the Critique Papers mentioned below on the date of the syllabus to a special email address, and make sure you list first three words of title of CONCEPT PAPER in the subject heading. Limit these papers to one page (< 750 words) You might want to write down your reaction to the” concept paper question” designated on the syllabus that day, but you should feel free to generate your own question. The purpose of the critique is to invigorate your thinking in preparation for the class, and therefore they should be submitted before you come to class. Submit your work electronically to mgmt802@management.Wharton.upenn.edu. You should include your paper both in the body of the email message AND as an attachment. The three papers you pick are up to you. There are no papers for the first and the last two classes. They are graded by check, or a check plus. Typically, above check critiques go beyond simply describing the concepts and examples from the day’s readings and demonstrate a writer’s ability to make broader connections, synthesize new ideas, without exceeding the word limit.

Feedback:

Phone is 898 7755, fax 898 0401, email address is PENNINGS@WHARTON.UPENN.EDU and web site www-management.wharton.upenn.edu/pennings. The web site contains a copy of this syllabus, all overheads and other class materials, links to other web sites. My website is linked to our eRoom where you can also communicate with other students. For this course, you can always furnish feedback—whether verbally or electronically, on anything that concerns you is always appreciated. I will send you additional materials,, news, etc via eRoom or email. Your name should appear on the distribution list mgmt802-00*-01a@list.upenn.edu where the * refers to your section. Make sure that you are correctly listed on the list server.

Schedule of Classes.

DATE; Class Number	Topic	Readings	Questions: Assignments
19/20 March 2001:1	Innovation and the Dominant Design. Where do Technological Trajectories Begin and End?	1.Fassell , NYT (BP)* 2.Anderson & Tushman (Reader)** 3. The tale of Xerox (BP)* 4. The tale of Webvan (BP)*	1. The dominant design is dead: Long live the dominant design 2.Does discontinuity in market or technology pertain to new technologies or to new markets? 3.Give example of big innovation; and an example of the death of what was once a big innovation. 4. What watch do you wear?
21/22 March , 2001	Creativity and Schumpeter in very new firms, or how do (new) firms deal with market-technological discontinuities?	1.Gerry Sanders(BP) 2.One key or two for the car NYT (BP)*** 3. Lynn, Marone and Paulson Marketing and Discontinuous Innovation (Reader)* 4. Burt, Networks***	1. New firms start with a clean slate? What is the role of networking is crafting a new slate? 2.Schumper is associated with the slogan “creative destruction”; how do new (X-Cardia) vs old firms (GM) contend with “creative destruction?” 3. What is the role of networks in creative destruction? Concept Paper Question: Do you agree with Burt’s theory ? Does Jerry Sanders?
26/27 March 2001:3	Creativity and Schumpeter in rather old firms	1.Gunfire at Sea, Case (BP)*** 2.CONCEPT PAPER Core Capabilities and Core Rigidities (Reader)*	1.What is “continuous firing”? Differ from past? 2. What explains the development of the continuous aim process by Scott? 3. What is your opinion of Sims’ approach to change? 4. Is the innovation process as outlined here something that can be managed? 5> Can you think of examples from your experience where “core rigidities” inhibited innovation? Concept Paper Question: How is Barton’s article applicable to the US Navy ?
28/29 March 2001: 4 Note: Today and Tomorrow’s class is on 28 March from 4.30-6.00pm in SH 1206 or TBA	Technological trajectories, market evolution and its competency destroying effects.	Visitor: Don McConnell CKO Corning Inc 1. Bower and Christensen, Disruptive technologies: Catching the Wave (BP)**	How can a firm succeed in g on to a new S curve while leveraging its attachment to the old one? Concept Paper Question: Is Bower/Christensen’s paper useful for industrial, technological intelligence and corporate preparedness?
2/3 April 2001: 5	Innovation in the Established Firm: What is happening in our “ecology”?	1 The Bell-Western Union (Case)* 2. CONCEPT PAPER Cooper & Smith, (Reader)	1.What is WU’s landscape in 1870, 1894, 1998? 2.What are key dates in telecom’s evolution from 1850-1900? 3.What is telegraphy’s dominant design and how does it differ from telephony? 4.What caused WU’s myopia? 5. Is there any similarity between WU telephony response and AT&T dismissal of mobile telephony (A “toy” in 1990) Concept Paper Question: How can Cooper and Smith’s article account for WU’s inability to capitalize on telephone technology ? Where does their article fall short?
4/5 April 2001: 6	Innovation in the Fledgling Firm: What is the Landscape or Ecology we are in April 4, 4.30 pm in classroom, after class: QC Meeting! First part of paper (i.e., with “industry” analysis) is due 11.30 am on April 6, 2001!	1.Studio Reality (Case)* 2. Cold fish, Hot Data, New Profits (Fortune) 3. CONCEPT PAPER Cusamano, Mylonades & Rosenbloom, VCR (Reader)*	1.What is the Real Estate value chain? Who is caught in what paradigm? 2.Where does Studio Reality differ from SeaFax (Fortune article)? Why did it fail? Concept Paper Question: Does Cusamano and Rosenbloom story help you evaluate the situation at Studio Reality?
9/10 April 2001:7 April 9: 4.30 – 6.00pm Note: Today and Tomorrow’s class is on 9 April from 4.30-6.00pm in SH1206 , or TBA	Innovation and Technological Upheaval	Visitor: Terry Fadem, Director New Business Development, DuPont 1. CONCEPT PAPER: Chesbrough and Teece, When is a Virtual Virtuous (BP) ** 2. Learning to celebrate water cooler gossip, NYT * 3. Leifer (eds.) Radical Innovation (BP)*	Is DuPont well equipped to engage in radical innovation? Concept Paper Question: How does the Chesbrough and Teece paper address some of the deficits of earlier conceptual papers?
11/12 April 2001:8	Organizational restructuring and change	1. Eli Lilly (BP)*** 2. Tushman Anderson and O”Reilly, Managing Innovation Streams in Ambidextrous organizations.(Reader)*	1. Note exam questions, of last year’s MBA class Concept Paper Question: What are the strengths and weaknesses of the Tushman/Anderson/O’Reilly article ?
16/17 April 2001:9	Organizational venturing (because we cannot change?)	1. Merrifield, Intrapreneurial Corporate Renewal(BP)* 2.M, Post-It Note (Video) 3.The mass production of ideas, and other impossibilities(BP)* 4.HermesSystems(Case)(BP)***	Disregard the M&A issues in Hermes case. 1.Describe in specific detail the design of Entrepreneurial. Subsidiaries before and after the buy-out. Do you like what you see? 2.In what way is your approach different from that of Martell? Does your judgment depend on whether intrapreneurship exploits economies of scope?
18/19 April 2001: 10	Tools for Locking into New Design or Standard: Joint Ventures and M&A Second part of paper (i.e., whole document) is due on 20 April at 24.00 (0.00 am or 12.00pm)	1.CISCO (BP)* 2. The Encomist clipping on IP ”The Patents Wars” 3 CONCEPT PAPER.Teece, Capturing Value from Technological Innovation (Reader)*** 4. Scrivner, Strategic Alliances in the 1990s(BP)*	1When should a new venture sell out? When should an established firm acquire 2. What do you think about Cisco’s M&A strategy? - before M&A - after M&A(post acquisition integration with grafting of new technology onto Cisco’s? Concept Paper Question: What is the additional contribution of Teece’s work over the previous conceptual papers we have examined ?
23/24/25/26 April 2001:11&12 Group Project: Putting it Together through team Presentations. Wrap-up

Johannes M. Pennings

Spring 2001, Period 4, MW&TT

MGMT 802 Innovation and Entrepreneurship

Bulkpack, (in chronological sequence)

1. Fassel, “Why the best doesn’t always win” NYT

2. The Tale of Xerox May Provide Lessons for Highflying Netscape, WSJ

3. Webvan: Some Hard Lessons NYT

4. Gerry Sanders (HBS Case) 5-400-008

5. “One key or two for the car” NYT

6. Cold Fish, Hot Data, New Profits, Fortune

7. Burt, “Notes on Networks”, FT

8. Gunfire at sea (rewritten, strongly abridged narrative of same titled article in Reader)

9. Bower and Christensen, “Disruptive Technologies: Catching the Wave”HBR#95103

10. The Bell – Western Union Patent Agreement of 1879. (Case)

11. Leifer, “Radical Innovations” Ch 1 and 2

12. Chesbrough and Teece, “When is Virtual Virtuous?” HBR, 96103

13. Studio Realty, (HBSCase)9-697-036

14. Ely Lilly (HBSCase) 9-696-077

15. Merriefield, “Intrapreneurial Corporate Renewal”

16. The mass production of ideas, and other impossibilities, The Economist

17. Hermes (HBSCase) 380-072

18. Scrivner, “Strategic Alliances in the 1990s”

19. CISCO (Case) StanfordU case

20. The Economist on IP, “The Patent Wars”

Group Assignment

A key assignment in this course involves research on an industry and one of its firms which is a player in this industry. After you have formed teams, you begin to plan a topic, with a firm and its market.

The group paper should draw from the concepts and frameworks of the course. Regarding the industry analysis you should tell us key trends in markets and technologies that might destroy a prevailing dominant design, and /or the substitution by a new one. You might focus on process and/or product changes, together with the demise and or emergence of new markets. For example in tennis rackets, the dominant design is the composite, long body racket which gradually has replaced the graphite, wide-body racket but since the death of the wooden racket, there have been other dominant designs. In photography, the technology shows a substitution from gelatin based to digital imaging. In health care HMOs have replaced the conventional insurance-provider infrastructures, and managed care is increasingly becoming prominent now. New markets are replacing existing markets or redrawing their boundaries. Dramatic examples include Passbook savings accounts that have been killed by money markets, (off ) track betting is being replaced by virtual casinos and state lotteries. In other cases the product remains largely the same, but the functionality, convenience or price is undergoing a transformation. Well known examples are conventional photo versus Polaroid or silver gelatin versus digital pictures, the market for 5 1/5 inch disk drives and 3 ½ or even smaller disk-drives and combustion versus fuel cells . The more specific the case, the more narrow the definition of market or industry, the better. So it is better to focus on ‘commercial real estate” than on “building and construction industries”, on “digital imaging” than on printing, and better to deal with “bovine growth hormones” than pharmaceuticals.

So your challenge is to pick an industry/market and perform some historical examination of key trends that spell potential disaster for dominant designs in product or, process technology. It is helpful to spell out discontinuities in the industry (market/technology). For example, sales or product launches associated with different dominant designs during the period 1985-2001 can have a dramatic impact in making your point. One team might track the book retail sales through mom&pop stores, mall stores, superstores and internet and show the share of these channels to evolve considerably. Another team might plot product introductions by year with flat years sandwiched between bubbling years. Fault lines might be hidden or quite visible, but you better know where they are. Typically, in the first paper you describe the industry and the technology, much less, if at all, the firms that make up the industry. Industry analysis include a listing of firms, their size distribution and / or market shares, concentration ratio, but also a review of the value chain and the stage that is the focus of your inquiry. A standard or dominant design such as PalmV, credit card or “Wintel”is often shared by all stages of the value chain from the producers of micro-processors, software applications. In the second part, you should the give us some analysis of how the firm of your choice is coping with the trends, that are discernible in its industry. Include information on the firm’s structure, the presence of an idea champion, incentives, strategic moves or absence of any move (e.g, why did Microsoft dawdle when approaching the internet entry?). The more specific the better. For example, does your firm have a joint venture with firms whose technology might disrupt its industry/market conditions. Does Kodak have joint ventures with Canon, Agfa, Xerox, HP, Intel or Adobe, to name a few players who might join the digital imaging playground? How are these JVs doing? Do they give Kodak access to other people’s technologies? What does Kodak bring to the table, or does it expect a free lunch? Fear in losing proprietary knowledge and other intangible assets? In the second part, it is more important what you analyze, than what you describe: depth over superficiality is preferred!

Examples could include Motion Pictures, Book Retail, Electric Utilities, ZIP Drives and Publishing. Do not hesitate to aggressively surf the net, to obtain industry analysis reports from Wallstreet or consulting firms, Dow Jones retrieval services, etc. Sky is the limit. Identify trends, uncover “fault lines” in the landscape, or spell out discontinuities in technological trajectories, or markets. What new segments are emerging, and what challenges do they present? Examples of good papers can be found in the eRoom.

Begin your deliberations by March 25, 2001 when the class has settled down. Submit a one paragraph proposal before April 1, 2001, in the eRoom folder, called Innovation Audits. By April 6, midnight, submit first part of paper(about 1250 words) on the industry-market, and by 20 April 2001, midnight, you should have completed the write up regarding research on a specific firm (also up to 1250 words). The paper length limitation does not apply to appendices such as ARs, industry reports from Wallstreet firms, spreadsheets and excel charts, etc. Each team will critique another team’s paper, but also be the subject of another teams’ critique. You group paper must be furnished to all members of a peer team which will present your paper and a critique on the last day of the course—i.e., send a paper with attachments to all members of your peer team by the above mentioned date of 20 April 2001. The presentations are the apotheosis of the class!. The critiquing groups should only submit copies of their overheads, preferably 2 days before the presentations with one copy of overheads to me and one copy to the team whose paper is the target of their review. This gives the ”target team” a chance to prepare a response before on the last two days of classes when we listen to the presentations. The tams should plan download their paper into the eRoom, plus supporting spreadsheets, charts and pictures. They can inject these attachments into their ppt presentation.

With e-mail, the logistics of paired teams should not be difficult. I will act as matchmaker.

The paper will be graded on five, equally weighted, criteria: First how well to integrate concepts (e.g., technology cycle, dominant design, competency trap, inter-firm knowledge transfer, etc. ) into your analysis. Second you are able to make comparisons with other examples, such as cases we have used in class. Third, is the paper easy to follow, and does the reader have access to your ideas. Fourth is your analysis insightful? Does it go beyond merely describing what happened and speculate on why it happened? Finally, how relevant and useful are your recommendations.

The total length of the paper is 10 pages (5 pages each, or 1250 words each, so that the final total product does not exceed 10 pages), excluding figures, charts, and appendices. Try to be succinct, to the point, allocating your two times 1250 words to the stuff that really matters. I will give interim feedback (written or by email) on the first part of your output so that possible changes can be incorporated in your final total (part 1 and 2) paper. Include in your paper Excel charts, figures, tables so that the critiquing team can directly copy your exhibits into their Powerpoint presentation.

Have fun!

Brief Resume

2001

Received his BA and MA at the Universities of Utrecht and Leiden (Netherlands) and his Ph.D. in 1973 from the University of Michigan. Born in the Netherlands, he has resided in the US since 1970. Prior to his current status as professor of management at the Wharton School of the University of Pennsylvania, he was affiliated with Carnegie-Mellon University and Columbia University. He also maintains a visiting affiliation with the Department of Economics, Tilburg University, Netherlands. Recent visiting teaching assignments were at Bocconi University, Milan, LUISS Rome, the University of New South Wales (AGSM), Sydney, HKUST, HongKong, Seoul National University, Korea, Nayang Technological University, Singapore, and Universidad Carlos III, Getafe-Madrid.

He research has dealt with organizational innovation, executive compensation and organizational learning. He has published six books and numerous papers which were published in Academy of Management Journal, Administrative Science Quarterly, Organization Studies, Organization Science and numerous other journals.

His most recent books:

New Technology as Organizational Innovation published in 1988, by Ballinger and Innovating Successfully: Running Away From the Pack, Kluwer Publishing, 1994. He is currently completing a book, The Strategic Challenge of Innovation, Blackwell Publishers.

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Innovation & Entrepreneurship- course outline

MGMT 802 Innovation and Entrepreneurship

Group Assignment

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