Teece Model - Profiting From Innovation
Use this framework to work out how to get a competitive advantage with your innovation
It is always good to be first to market with a new product. However this doesn't guarantee success. Imitators are quick to recognise a good thing and copy it. In 1986, the economist, David Teece wrote an article published by the School of Business Administration, University of California, entitled Profiting From Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy. It laid out a framework for building profits from innovations.
David Teece argues that there are winners and losers in the innovation game. He quotes companies such as Pilkington with its float glass and GD Searle with its artificial sweetener as innovators who were first to market and have profited significantly from their innovations.
However, we sometimes forget that there are innovators who can be overtaken. Teece uses the example of RC Cola. RC Cola, short for Royal Crown Cola, competed with Coca-Cola and Pepsi Cola for many years in the US. It was the first to introduce a diet cola in 1962. However, the drink was easily copied by Coca-Cola and Pepsi Cola who quickly took market share using their huge complimentary assets (distribution channels and brands).
In a similar vein, Xerox went through a highly innovative phase which included inventing personal computers. Their focus on other technologies meant that they were quickly overtaken by the likes of IBM.
The framework for making money from innovation has three stages according Teece. The first stage he calls The Regime Of Appropriability. This is the time when the inventor must secure the invention from impersonators, so far as it is possible. Teece makes the point that patents should be applied but you can't always rely on them. There may be other means of securing the invention such as making it technically hard to manufacture (therefore hard to copy) for one reason or another.
Having secured the invention the next task is to get it established, especially to the point where it can be produced in volume. This is the Dominant Design Paradigm. The aim here is to gain benefits of scale. It isn't always the case that the best invention will win. Teece points out that there are often alternatives and they can steal a lead if they have another advantage – as was the case with VHS, a cheaper alternative to Betamax.
The third phase of the framework he called Complimentary Assets. Here Teece was pointing out that just because you have a better mousetrap, the world may not beat a path to your door. Good marketing, a good channel to market, good suppliers and licensees could play a part in building profitability. These complimentary assets can also be important in maintaining a market dominance with the invention.
In his later publications, Teece recognised that this important and seminal paper on making money from innovations did not cover how to arrive at a great innovation in the first place. For this you should use other frameworks such as Stage Gate New Product Development, Blue Ocean Strategy, or Edward de Bono's Six Thinking Hats.