Assistant Professor Scott Stern
Massachusetts Institute of Technology
This course provides an introduction to the economics of technical change as a foundation for building a deep understanding of technology strategy. The emphasis throughout is on the development and application of conceptual models which clarify the interactions between competition, patterns of technological change, and the structure and development of internal firm capabilities.
This is not a course in how to manage product or process development; the main focus is on the acquisition of a set of powerful analytical tools which are critical for the development of a technology strategy. These tools can provide the framework for insightful planning when deciding which technologies to invest in, how to structure those investments and how to anticipate and respond to the behaviour of competitors, suppliers, and customers. The course should be of particular interest to those interested in managing a business with significant technical content, and to those interested in consulting or venture capital.
The course utilizes lectures, case analyses, and independent reading. The readings are primarily drawn from theoretical and empirical economics, and from research in technological change and organizational theory. A few of the journal articles are quite difficult. Discussion and evaluation of these readings will be exclusively on the ideas and contributions; no one will be held responsible for mathematical or statistical details. The case studies provide an extensive opportunity to integrate and apply these abstract tools in a practical, business policy context.
COURSE REQUIREMENTS AND EXPECTATIONS
Grades will be determined by Class Participation, a Mid-Semester Group Project, and a Final Paper.
Grading
Class attendance and participation 40%
Mid-Semester Group Project (Due October 30) 20%
Final Paper (Due December 11) 40%
Attendance & Class Preparation
This is not an easy course. I have attempted to give you an in depth introduction to an extraordinarily complex subject, and as a result the course is unusually "rich." Cutting class will affect your grade - and, more importantly, - your own and your classmates' experience in the class. If you miss a session, it will be your responsibility to find out from classmates what materials were covered, what additional assignments were made, and what handouts you missed.
You should be prepared for every class. If for some reason you are not prepared, please let me know before the start of class. This saves us both the embarrassment of my calling on you. I will open every class by asking someone to summarize one of the readings briefly, or, in the case of a case analysis, to briefly summarize the case. In the case of a reading, you should beable to briefly outline the problem that the article addresses, describe the core points of the readings, and, most importantly, offer your analysis of the strengths and weaknesses of the reading's central argument. In the case of a case, you should be able to identify the key issues, problems and opportunities facing the central protagonists, to articulate and evaluate alternative approaches to the problems, and to describe the course of action that you recommend and the reasons for your recommendations.
Some of the readings are highly technical. I will NOT hold you responsible for the details of the formal models that they present, or for the details of mathematical proofs etc. However you should have a solid grasp of the problem that the paper attacks and of the conceptual structure that the author(s) develop. You should also think about the conditions under which the models described in the paper are likely to be relevant, and, in the best of all possible worlds, concrete examples that illustrate both the strengths and weaknesses of the model. Don't worry, this will get easier as the course progresses!
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CLASS # |
TECHNOLOGY STRATEGY READINGS |
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CLASS 1 Introduction: What is Technology Strategy? |
Foster, R. (1986). "The S-curve: A New Forecasting
Tool." Innovation, The Attacker's Advantage, Summit Books,
Simon and Schuster, New York (NY). pp. 88-111 (Chapter 4).
Supplementary Reading Nelson, R. (1962). "The Link Between Science and Invention: The Case of the Transitor," The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau of Economic Research, Princeton University Press, Princeton (NJ). pp. 549-586. |
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I. Patterns of Technological Change CLASS 2 General Purpose TechnologiesTechnological Trajectories |
Rosenberg, N. (1969). "Directions of Technological
Change: Inducement mechanisms and Focusing Devices," Economic
Development
and Cultural Change. pp. 1-24.
Dosi, G. (1982). "Technological Paradigms and Technological Trajectories," Research Policy, Vol. 11. pp. 147-62. |
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CLASS 3 Dominant Designs and the Economics of Shake-Out |
Abernathy, W. and J. Utterback (1978). "Patterns
of Industrial Innovation," Technology Review. pp. 40-47.
Tushman, M. and L.Rosenkopf (1992). "Organizational Determinants of Technological Change," Research in Organizational Behavior, Vol. 14. Read pages 311-325 only. |
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CLASS 4 General Purpose Technologies |
Bresnahan, T. and M. Trajtenberg (1995), "General Purpose Technologies: Engines of Growth?" Journal of Econometrics, Vol. 65. pp. 83-108. Hatsopoulos, G. (1996), "A Perpetual Idea Machine," Daedalus, Vol. 125(2). pp. 81-94. David, P. (1990), "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, Vol. 80(2). pp. 355-361. |
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II. Competition in Technology-Intensive Markets and Industries CLASS 5 Appropriability: Profiting from Technological Innovation |
Arrow, K. (1962). "Economic Welfare and the
Allocation of Resources for Invention," The Rate and Direction
of Inventive Activity: Economic and Social Factors, National Bureau of
Economic Research, Princeton University Press, Princeton (NJ). Read
pages 609-619 only.
Teece, D.J. (1987). "Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy." The Competitive Challenge, ed. D. Teece, Ballinger Publishing, Cambridge (MA). pp. 185-219 (Chapter 9).. Supplementary Reading Seabrook, J. (1993), "The Flash of Genius" The New Yorker. Jan. 11. pp. 38-52. |
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CLASS 6 Market Power and the Incentives for Innovation: The Schumpeterian Hypothesis |
Schumpter, Joseph (1943). Capitalism, Socialism,
and Democracy, Second Edition, George Allen & Unwin, Ltd., London
(GB). pp. 61, 81-86 (Prologue and Chapter 7).
Arrow, K. (1962). "Economic Welfare and the Allocation of Resources for Invention," The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau of Economic Research, Princeton University Press, Princeton (NJ). Read pages 619-625 only. Gilbert, R.J. and D. M. Newbery (1982). "Preemptive Patenting and the Persistence of Monopoly." American Economic Review, Vol 72(3). pp. 314-26. Reinganum, J.F. (1983). "Uncertain Innovation and the Persistence of Monopoly." American Economic Review, Vol. 73. pp. 741-48. |
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CLASS 7 The Schumpeterian Hypothesis |
Case: Bell-Western Union Patent Agreement of 1879
Smith, G.D. (1988). "The Bell-Western Union Patent Agreement of 1879: A Study in Corporate Imagination," Readings in the Management of Innovation, Second Edition, ed. M. Tushman and W. Moore, pp. 88-100. |
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CLASS 8 The Economics of Standards and the Competitive Effects of Uncertainty |
David, P. (1985). "Clio and the Economics
of QWERTY." American Economic Review, Vol. 75(2). pp. 332-37.
Arthur, W.B. (1988). "Competing Technologies: An Overview," Technical Change and Economic Theory, ed. Dosi, et al., Columbia University Press, New York (NY). pp. 590-607 (Chapter 26). Tushman, M. and L.Rosenkopf (1992). "Organizational Determinants of Technological Change," Research in Organizational Behavior, Vol. 14, Read pages 325-347 only. |
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CLASS 9 The Economics of Technology Racing |
Case: Race to Develop Synthetic Insulin (HBS
#9-191-121).
Stern, Scott (1994). "Incentives and focus in University and Industrial Research: The Case of Synthetic Insulin" The University-Industry Interface and Medical Innovation, ed. A. Gelijns and N. Rosenberg, National Academy Press. pp. 157-187 (Chapter 7). |
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III. Organizational Design and the Management of Innovation CLASS 10 The Management of Organizational Competence |
Abernathy, W. and K. Clark (1985), "Mapping
the Winds of Creative Destruction," Research Policy, Vol. 14.
pp. 3-22.
Athey, S. and A. Schmutzler (1995), "Product and Process Flexibility in an Innovative Environment," Rand Journal of Economics, Vol. 26(4), pp. 557-574. |
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CLASS 11 Research Productivity and Organizational Design |
Cohen, W. and D. Levinthal (1990). "Absorptive
Capacity: A New Perspective on Learning and Innovation," Administrative
Science Quarterly, Vol. 35. pp. 128-152.
Henderson, R. (1994). "Managing Innovation in the Information Age," Harvard Business Review, January-February, pp. 100-105. |
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CLASS 12 Architectural Innovation: Understanding the Failure of Established Firms |
Henderson, R.M. and K. Clark (1990). "Architectural
Innovation: The Reconfiguration of Existing Product Technologies and the
Failure of Established Firms," Administrative Science Quarterly,
Vol. 35. pp. 9-30.
Tushman, M.L. and P. Anderson (1986). "Technological Discontinuities and Organizational Environments," Administrative Science Quarterly, Vol. 31. pp. 439-465. |
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CLASS 13 Competence Destroying Innovation |
Case: NEC (HBS #9-693-095) |
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CLASS 14 Authority, Responsibility, and Reward: Encouraging Initiative in Large Firms |
Aghion, P. and J. Tirole (1994), "The Management
of Innovation," Quarterly Journal of Economics. pp.
1185-1209.
Holmstrom, B. (1989). "Agency Costs and Innovation," Journal of Economic Behavior and Organization, Vol. 12(3). pp. 305-27. Supplementary Reading: Aoki, M. (1990). "Towards an Economic Model of the Japanese Firm," Journal of Economic Literature, Vol. 28(1). pp. 1-27. |
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CLASS 15 Make Versus Buy: Defining the Boundaries of the Firm |
Williamson, O. and Ouchi, W. (1981). "The
Markets and Hierarchies and Visible Hand Perspectives," Perspectives
on Organizational Design and Behavior, ed. A. Van de Ven and W. Joyce,
Wiley, New York (NY). pp. 347-371 (Chapter 8).
Teece, D. (1988). "Technological Change and the Nature of the Firm," Technical Change and Economic Theory, Columbia University Press, New York (NY). pp. 256-281. Supplementary Reading: Kogut, B. (1988). "Joint Ventures: Theoretical and Empirical Perspectives," Strategic Management Journal, Vol. 9. pp. 319-332. Byrne, J. (1993), "The Virtual Corporation," Business Week, Feburary 8. pp. 98-103. |
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IV. APPLICATIONS IN THE PRIVATE ECONOMY CLASS 16 Diffusion |
Case: EMI & CT Scanner (HBS #9-383-194) |
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CLASS 17 Entrepreneurship |
Case: Sun Microsystems (HBS #9-390-049) |
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CLASS 18 The Economics of Cooperative R&D |
Case: Carnegie Group (HBS #9-690-033)
Supplementary Reading Katz, M. (1986). "An Analysis of Cooperative Research and Development," Rand Journal of Economics, Vol. 17(4). pp. 527-43. |
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CLASS 19 Internal Venturing |
Case: Xerox Technology Ventures: March 1995 (HBS #9-295-127) |
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CLASS 20 Acquiring New Capabilities I |
Ciba-Geigy/ALZA (A) Case (ECCH #394-033-1)
****** OUT-OF-CLASS GROUP NEGOTIATION EXERCISE ***** |
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CLASS 21 Acquiring New Capabilities II |
Case: Ciba-Geigy/ALZA |
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V. APPLICATIONS IN THE PUBLIC SECTOR CLASS 22 Vannevar Bush's Legacy: The Federal R&D Infrastructure |
Bush, V. (1945). "Science: The Endless
Frontier"
National Science Foundation, Washington (DC). pp. 1-40.
Committee on Criteria for Federal Support of Research and Development (1995). "Allocating Federal Funds for Science and Technology," National Academy Press, Washington (DC). Nelson R. and R. Langlois (1988). "Industrial Innovation Policy: Lessons from American History," Readings in the Management of Innovation, Second Edition, ed. M. Tushman and W. Moore. pp. 661-669. |
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CLASS 23 Technology Pork Barrels |
Case: Synthetic Fuels
Cohen, L. and R. Noll (1991). The Technology Pork Barrel, The Brookings Institution, Washington (DC). pp. 259-319 (Chapter 10). |
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CLASS 25 Public Perceptions of Research and Development |
Cases: Scripps Cases (HBS # 9-295-068 & 2-295-083) |
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VI. WRAP-UP AND REVIEW |
Wheelwright, S. and Clark, K. (1992). "The
Concept of a Development Strategy," Revolutionizing Product
Development, The Free Press, New York (NY). pp. 28-56 (Chapter 2).
** FINAL PAPERS DUE TODAY!! ** |