Trott, Innovation Management and New Product Development, 5

th
Edition, Pearson Education Limited 2013
Slide 6.1

Chapter 6

Managing organisational
knowledge

Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.2

Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.3
Technology trajectories and the
dynamic capabilities of the firm
technology alone cannot deliver victory
technology coupled with a market opportunity and the
necessary organisational skills to deliver the product to
the market will help significantly
a firms opportunities are constrained by its current
position and current knowledge base
acquiring knowledge about technology takes time,
involves people and experiments and requires learning
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.4
Technology trajectories and the
dynamic capabilities of the firm
the choices available to the firm in terms of future
direction are dependent on its own capabilities, that is,
the firms level of technology, skills developed,
intellectual property, managerial processes and its
routines (David Teece and Gary Pisano, 1994)
firm must take place in a changing environment,
characterised by changing levels of technology,
changing market conditions and changing societal
demands
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.5
The acquisition of firm-specific
knowledge
it is not any knowledge that is required, it is firm-
specific knowledge; knowledge that is useful and
applicable

For example, 3M (Minnesota Mining and Manufacturing Company) is often
cited as having core competencies in coatings and
adhesives, hence one would expect the firm to have a
wide range of research projects related to these
technologies
is clearly dependent on the firms prior knowledge and
introduces the notion of absorptive capacity
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.6
Dynamic competence-based
theory of the firm
dynamic competence-based theory of the firm sees
both the external and internal environments as
dynamic
the external environment is constantly changing as
different players manoeuvre themselves and a
companys internal environment is also evolving
internal process of change together with an
understanding of the changes in the external
environment offers a more realistic explanation of the
challenges facing senior management
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.7
Dynamic competence-based
theory of the firm
a companys ability to compete in the future is
dependent on its past activities
companies see R&D expenditure as an investment in
an organisations absorptive capacity
an organisations ability to evaluate and utilise external
knowledge is related to its prior knowledge and
expertise and that this prior knowledge is, in turn,
driven by prior R&D investment
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.8
receptivity is defined as an organisations overall
ability to be aware of, identify and take effective
advantage of technology
innovative routines define a set of competencies that
the organisation is capable of doing confidently -
referred to as an organisations core capabilities
dynamic organisational routines are very often those
activities that are not easily identifiable and may be
dominated by tacit knowledge
Dynamic competence-based
theory of the firm
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.9
Figure 6.1 Tacit knowledge
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.10
over long periods organisations build up a body of
knowledge and skills through experience and learning-
by-doing
the external linkages that a company has developed
over time and the investment in this network of
relationships (generated from its past activities) form a
distinctive competitive capability
Dynamic competence-based
theory of the firm
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.11
Developing firm-specific
competencies
Increasingly economists are using the notion that
firms possess discrete sets of capabilities or
competencies as a way of explaining why firms are
different and how firms change over time
that competitive advantage resides not in a firms
products but in their competencies
these are defined as knowledge, skills, management
processes and routines acquired over time that are
difficult to replicate this may be because they are
constantly changing and updating them
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.12
Developing firm-specific
competencies
technology in itself does not mean success; firms must
be able to convert intellect, knowledge and technology
into things that customers want - this ability is
referred to as a firms competencies:
the ability to use its assets to perform value creating
activities
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.13
Competencies and profits
a firms ability to generate profits from its technology assets
depends on the level of protection it has over these assets
and the extent to which firms are able to imitate these
competencies
if companies are at the centre and difficult for firms to
imitate, then long-term profits are assured
Examples of other firms that have been cited as having core
competencies that are difficult to replicate:
Intels ability to develop microprocessors that exploit its
copyrighted microcode
Hondas ability to produce high quality and performance
engines
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.14
Core competencies, imitability and
profits
Figure 6.3 Core competencies, imitability and profits
Source: A. Afuah (2003) Innovation Management: Strategies, Implementation and Profit, p. 53, Fig. 3.5, Oxford University Press Inc., New York.
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.15
Core competencies, imitability and
profits
If a competence is non-core and imitability is high, then
one may not be able to make profits from it, all else being
equal
If it is non-core but imitable, the firm may be able to make
some negligible profits from it
If the competence is core but easily imitated, the firm can
make profits, but these are likely to be temporary as
competitors will soon imitate
Firms have been able to generate long-term profits based
on their core competencies and few firms have been able to
imitate their activities
No profit
Negligible
profits
Short-term
profits
Long term
profit
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.16
Technology development and
effort required
the rate of technological advance is dependent on the
amount of effort put into the development of the
technology (Foster, 1986 and Abernathy and Utterback, 1978)
Under normal circumstances, technological progress
starts off slowly then increases rapidly and finally
diminishes as the physical limits of the technology are
approached
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.17
Technology development and
effort required
S-curve: slow progress at the start equates to a horizontal line, rapid progress as
knowledge is acquired equates to a vertical line and slow progress towards the
end equates to a horizontal line and it is usually at this point that a new
technology replaces the existing one; indeed it is necessary if advances are to
continue

Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.18
The knowledge base of an
organisation
Key features of competencies are the ability to convert
technical competencies into effective innovation and
the generation of effective organisational learning (Pavitt
et al., 1991)
concept of the organisation retaining knowledge is
where an organisation itself, rather than the
individuals who pass through it, retains and generates
innovative capacity, even though individuals may be
identified who propagate learning (Willman, 1991)
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.19
The knowledge base of an
organisation
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.20
When the performance of the organisation
is greater than the abilities of individuals
firms organisational knowledge plays a significant role
in its firms ability to innovate and survive in the long
term
organisational knowledge represents internal systems,
routines, shared understanding and practices
several tangible representations of this knowledge,
such as minutes of meetings, research notebooks,
databanks of customers, operating procedures,
manufacturing quality control measures, as well as less
tangible representations such as tried and tested ways
of operating
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.21
When the performance of the organisation
is greater than the abilities of individuals
it is evident that the knowledge base of an organisation will be greater, in most
cases, than the sum total of the individual knowledge bases within it
knowledge is also embedded in social and organisational relationships
(Willman, 1991)
Figure 6.6 Knowledge embedded in relationships
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.22
Characterising the knowledge
base of an organisation
Adler and Shenhar (1990), who suggest that an
organisations knowledge base is made up of five
dimensions:
Individual assets
Technological assets
Administration assets
External assets
Projects
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.23
Characterising the knowledge
base of an organisation
Individual assets the skills and knowledge of the individuals that form the
organisation. It is the application of these that influences corporate success
Technological assets the most immediately visible elements of the technological base,
the set of reproducible capabilities in product, process and support areas
Administration assets the resources that enable the business to develop and deploy
individual and technological assets, which are specifically the skill profile of employees and
managers, the routines, procedures and systems for getting things done, the organisational
structure, the strategies that guide action and the culture that shapes shared assumptions
and values
External assets the relations that the firm establishes with current and potential allies,
rivals, suppliers, customers, political actors and local communities, e.g. joint ventures,
distribution channels, etc.
Projects the means by which technological, organisational and external assets are both
deployed and transformed
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.24
successful companies have an ability to acquire knowledge
and skills and apply them effectively, in much the same way
as human beings learn
however, organisations can be extremely bad at learning
where it is possible for organisations to lose the benefits of
experience and revert to old habits (Chris Argyris, 1977)
it is necessary to engage in double-loop rather than single-
loop learning, since the second loop reinforces
understanding:
single-loop learning would be the adoption of a new set of
rules to improve quality, productivity, etc.
double-loop learning occurs when those sets of rules are
continually questioned, altered and updated in line with
experience gained and the changing environment

The learning organisation
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.25
A process of knowledge accumulation
and application in innovative firms
accumulation of knowledge and the effective
assimilation and application of this knowledge are
appear to distinguish innovative firms from their less
successful counterparts - referred as organisational
learning


Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.26
The internal knowledge
accumulation process
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.27
Combining commercial and technological strengths:
a conceptual approach to the generation of new
business opportunities
In examining ways to generate new opportunities, the focus
has been on recognising the importance of external
organisational linkages, often called networks, as sources
of external knowledge, and the process of associating these
with the internal knowledge base of the company
It shows how these external linkages lower the threshold
level for the process of osmosis of external knowledge
(Cohen and Levinthal, 1990) highlights the role played by the
knowledge base of the company and the need to view this
as a dynamic entity made up of skills, know-how and
expertise, much of which is tacit, that is to say difficult to
articulate and capture, but none the less present in all
companies
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.28
Combining commercial and technological strengths:
a conceptual approach to the generation of new
business opportunities
Conceptual framework for generating genuine business opportunities
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.29
conceptual framework for generating genuine
business opportunities
a key activity is the continual external scanning
undertaken by the organisations commercial and
technical arms shown at the furthest right- and left-
hand sides
the centre of the diagram is the process of
assimilating internal knowledge from the
organisations knowledge bases - from the external
environment via the companys external linkages
with its internal capabilities that leads to new
business opportunities being created

Combining commercial and technological strengths:
a conceptual approach to the generation of new
business opportunities
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.30
The degree of innovativeness
any firms ability to survive is dependent on its
capability to adapt to this changing environment
the development of new products and processes has
enabled many firms to continue to grow
The four broad innovation strategies commonly found
in technology intensive firms (Freeman, 1982; Maidique and Patch, 1988)
are:
Leader/offensive
Fast follower/defensive
Cost minimisation/imitative
Market segmentation specialist/traditional
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.31
Leader/offensive
centres on the advantages to be gained from a monopoly
the aim is to try to ensure that the product is launched into the
market before the competition
should enable the company either to adopt a price-skimming
policy, or to adopt a penetration policy based on gaining a high
market share
(Price skimming is a pricing strategy in which a marketer sets a relatively high
price for a product or service at first, then lowers the price over time)
this strategy demands a significant R&D activity and is usually
accompanied by substantial marketing resources to enable the
company to promote the new product
Example: Apples personal computer
The degree of innovativeness
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.32
Fast follower/defensive


the company needs to be agile in manufacturing, design and
development and marketing - respond quickly to those
companies that are first into the market
without any in-house R&D their response would have been much
slower, as this would have involved substantially more learning
and understanding of the technology
very often both the first two strategies are followed by a company,
especially when it is operating in fierce competition with a rival -
commonly referred as healthy competition
The degree of innovativeness
this strategy requires a substantial technology base in
order that the company may develop improved
versions of the original, improved in terms of lower
cost, different design, additional features, etc.
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.33
Cost minimisation/imitative
This strategy is based on being a low-cost producer and success
is dependent on achieving economies of scale in manufacture
company requires exceptional skills and capabilities in
production and process engineering
similar to the defensive strategy, in that it involves following
another company, except that the technology base is not usually
as well developed as for the above two strategies
with lower labour costs these economies have offered companies
the opportunity to imitate existing products at lower prices,
helping them enter and gain a foothold in a market
The degree of innovativeness
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.34
Market segmentation specialist/traditional
This strategy is based on meeting the precise
requirements of a particular market segment or niche
Large-scale manufacture is not usually required and
the products tend to be characterised by few product
changes
often referred to as traditional products
some companies promote their products by stressing
the absence of any change
The degree of innovativeness
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.35
The degree of innovativeness
Trott, Innovation Management and New Product Development, 5
th
Edition, Pearson Education Limited 2013
Slide 6.36
A technology strategy provides a link between
innovation strategy and business strategy
the implementation of an innovation strategy is usually
achieved through the management of technology
many decisions regarding the choice of innovation strategy
will depend on the technology position of the firm with
respect to its competitors
in terms of resource expenditure, while the figures
themselves may be very similar it is where the money is
spent that will differ considerably, with the leader strategy
involving more internal R&D expenditure and the follower
strategy involving more emphasis on design or
manufacturing