Interview: Dynamic capabilities needed for company to profit from innovation: U.S. scholar

0 Comment(s)Print E-mail Xinhua, May 13, 2019
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SAN FRANCISCO, May 12 (Xinhua) -- For a company to profit from innovation, it needs complementary assets and dynamic capabilities, which includes "the capability to sense, seize and transform," according to an innovation expert.

David Teece, a professor with the Haas School of Business at the University of California at Berkeley (UC Berkeley), and one of the most cited scholars in economics and business, told Xinhua in a recent interview.

"In the past it was somewhat naively believed you are going to win if you come up with something inventive, different and better in a technical sense; but being inventive versus winning in the marketplace are two different things," said Teece.

The classical example is Xerox PARC, a research and development entity in Silicon Valley, he said.

Although Xerox PARC in the late 60s and into the 70s developed many key inventions contributing to the information industry, and in particular, the personal computer, including the Graphical User Interface, laser printers, the mouse and Ethernet, it did not become a significant player in the marketplace due to managerial mistakes and the unwillingness of its parent company Xerox to invest in commercialization until it was too late.

According to Teece, what separates winners from losers is their ability to access and orchestrate complementary assets and get the timing right.

In order to capture value from innovation, a company needs what he called "dynamic capabilities," including the ability to not only sense opportunities but to seize them too, and transform as necessary.

He cited Apple as an example, saying Apple didn't have a lot of resources in the early days but it put its money in the right place.

When Steve Jobs was ousted from Apple, the company lost focus and reached the point of near collapse. But when Jobs returned, he brought out the iPod as a pathway to the great success of iPhone, noted the UC Berkeley scholar.

"He cut more than 100 different research programs to just a few, including the iPod and focused on building core technological capabilities," said Teece. "This is where dynamic capabilities come in."

Teece said that Jobs focused a lot on the "sensing" and "seizing" activities while aligning the technologies that can enable new product development. He figured out for Apple what he called "the next big thing" (the iPhone), and discarded new product development distractions.

For established firms, embracing new opportunities also requires discarding old businesses, which is never easy, Teece said.

Based on the theory, Teece, who also has over 30 years of experience providing consulting services to businesses and governments around the world, said that while American companies are good at sensing opportunities, the Chinese companies are very good at seizing and mobilizing resources around opportunities.

This is one kind of innovation, and it often is financially very rewarding, he added.

However, the biggest challenge for older Chinese companies is the transformation part, since many of them have established bureaucratic structures that is strict and rigid, which leaves not much room for people lower down in the organization to be innovative, he suggested.

Teece said that he has observed some Chinese companies making great efforts to achieve continuous change, such as Haier, which has built a very decentralized organizational structure that allows them to be flexible and nimble and responsive to changing markets and technologies.

"The Chinese people are very entrepreneurial, and there is great determination to succeed," said Teece. "What they can learn from Silicon Valley is that there are three major components of dynamic capabilities, which is sensing, seizing, and transforming, and they need be good at all three." Enditem

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