How to profit from innovation?

The most important aspects for successful implementation of innovation are complementary assets. Though, they have to be deployed at a correct time and appropriately protected.

.credits: David J. Teece

Discovering novel technologies, inventing new products or even obtaining patents may not be sufficient enough. An invention has to be successfully commercialised in order to be beneficial for the company. Even then, companies such as Google or Tesla, which did not invent an online search tool or electric cars, may profit at the expense of the innovator…

So how can companies capture the lion’s share from their innovation?

One of the best answers has been formulated by David J. Teece in 1986. He has introduced the basic building blocks which explain why the second or even third movers can outperform the innovators/inventors. The most important aspects are complementary assets which are crucial for successful implementation of innovation. Though, they have to be deployed at a correct time and appropriately protected. There are of course many additional factors which influence the outcome, though these three principles should help you understand the implementation process of technological innovation.

Appropriability regime

Complementary assets

Dominant design

Access to complementary assets and external resources is critical for successful innovation. Control of gate-keepers and high dependence on complementary assets could reduce innovator's profit share.

If imitation is relatively easy and complementary assets are controlled by gate-keepers, other companies may enter during the latter stage of the innovation process and/or capture the lion’s share of generated value for themselves. Moreover, it might be wise to already start looking for strategic partners and learn more about collaborative business models.

Though this model can be exploited also from the opposite perspective. Perhaps…. Could you benefit from someone else's innovation? Or capture their share of profit??

Conclusion

Companies have to take into consideration several limits for successful innovation and develop strategies and business models accordingly. Otherwise, it may be the competitors who benefit from your innovation and often it’s imitators and second movers who capture the lion’s share. Understanding and effective utilization of introduced concepts - Appropriability regime, Complementary assets and Dominant design - may be the difference between successful innovation and failed invention.

References

Teece, D.J. (1986), “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy,” Research Policy, 15(6): 285–305.
Teece, D.J. (2010), “Business Models, Business Strategy and Innovation,” Long Range Planning, 43(2/3): 172–194.