Capabilities, Innovation and Industry Dynamics

Transcription

1 Capabilities, Innovation and Industry Dynamics Fredrik Tell KITE Research Group Department of Management and Engineering Linköping University

2 Research problem Dynamics in complex capital goods industries Relationship between firm capabilities, innovation and performance Impact of firm capabilities on responses to technical change

3 Technological capabilities and industrial dynamics in mature industries Technological capabilities and late shakeouts in the advanced gas turbine industry (Bergek, Tell, Berggren and Watson, 2008) Integrating knowledge why established firms may shying away from entering distributed generation (Magnusson, Tell and Watson, 2005)

4 Technological capabilities and discontinuous innovation The example of CCGTs (Bergek, A., F. Tell, C. Berggren and J. Watson, (2008), Technological capabilities and late shakeouts: Industrial dynamics in the advanced gas turbine industry, , Industrial and Corporate Change, 17(2): ) Steam Generator Steam Steam turbine Generator ~ Fuel gas in Exhaust gases Intake Air Compressor Fuel Power Combustor turbine ~ Electricity Generator Advanced Turbine System

5 Combined Cycle Gas Turbines (CCGT)

6 Global trends in power generation Capacity (MW) CCGT Orders Total Orders

7 CCGT market growth Market development MW (yearly) GE 7F MW (cumulative) Market orders (yearly) Cumulative orders

8 Pre GE Frame F market shares Cumulative orders (MW) GE ABB Siemens Westinghouse Other

9 Market share development GE 28 % 26% 22% 54% GEC-Alsthom /Alstom a 9% 14% 6% 15% ABB 18% 12% 17% Siemens 19% 24% 21% 22% Westinghouse 5% 7% 13% Mitsubishi b 13% 8% 12% 8% Other 8% 9% 9% 1% a GE licensee in the first three phases. In the fourth phase, Alstom acquired ABB s Power Generation Business. [i] b Westinghouse licensee in the first phases. [i] In 1989, the energy and transport businesses of Alsthom merged with GEC, forming GEC-Alsthom.

10 Research questions What were the characteristics of technological capabilities of the four major firms competing in CCGT? How did technological capabilities affect rates of innovation and, eventually, chances for survival in this segment of the electrical engineering industry?

11 Product life cycles

12 Industry life cycles (Klepper, 2002)

13 How to explain? Industry life cycles? No exogeneous shock (Jovanovic and MacDonald, 1994) No product/process innovation pattern, (Abernathy and Utterback, 1978) All firms were old and large (Klepper, 1996) Complex Products and Systems (CoPS) industries may remain in fluid phase, due to the architectural character of the product (Davies, 1997) Specific technological capabilities (including intregration of new knowledge) pertaining to systems integrating (CoPS) firms (partly in line with Klepper)

14 Methodology Multiple measures and sources of data Annual reports Product launches and Relative market shares SPRU CCGT database on Power Plant orders Patents USPTO database (Linköping): Industry experts Thomson Derwent databases: Keyword search + manual code search Interviews and publicly available material (e.g., on sourcing and problem-solving)

15 Technological capabilities Technology strategies Technology leadership Cost focus Broad scope Technology sourcing Technology activities Patenting Problem-solving Product launching

16 TECHNOLOGY LEADERSHIP GE SIEMENS ABB WESTINGHOUSE 1987 X - Not available 1988 X X X Not available 1989 X x X X 1990 X x X - X X - X X 1993 X X X X X X X 1995 X X X X X X X - X X X X 1999 X X - Not available Not available 2001 X X - X = segment level statements; x = corporate level statements

17 BROAD TECHNOLOGY SCOPE GE SIEMENS ABB WESTINGHOUSE (4) X (8) Not available (4) X (8) X (7) Not available (4) - (6) X (7) - (6) (4) - (7) X (7) - (6) (3) X (4) X (7) X (6) (3) - (6) X (8) - (5) (3) X (8) - (8) X (4) (4) - (6) X (8) - (4) (4) - (6) X (8) - (3) (5) - (5) X (8) - (4) 1997 X (4) - (5) X (7) - (4) 1998 X (4) X (7) - (9) 1999 X (2) - (6) (5) X (5) Not available Not available (3) X (5) (4) - (3) Note: All statements refer to the power generation segment. Numbers refer to the number of technology categories mentioned of 13 in total (see Appendix C).

18 COST FOCUS GE SIEMENS ABB WESTINGHOUSE 1987 X x Not available X Not available X X X x x X x - X 1995 X - X X x X Not available Not available

19 Product launch and sales impact Phase I Phase II Phase III Phase IV Siemens V94.3 W.house/MHI 701F ABB 13E2 ABB GT24 GE 7G, 9G, 9H (announced) W.house/MHI 501G Siemens V84.3A Orders (MW) GE Frame 7F W.house 501F GE GE licencees Siemens ABB Westinghouse MHI Other

20 Generation F and responses COMPANY TURBINE MODEL CAPACITIES EFFICIENCIES KEY DATES GT CCGT GT CCGT Announced First order GE Frame 7F 150 MW 230 MW. 34.2% 53% Westinghouse 501F 150MW 230 MW 35.4% 54% Siemens V MW 300 MW 35.7% 54% ABB GT13E2 164 MW 250 MW 35.7% 54.7% GT MW 250 MW 37.5% 57.5%

21 Next generation COMPANY TURBINE MODEL CAPACITIES EFFICIENCIES KEY DATES GT CCGT GT CCGT Announced First order ABB GT MW 250 MW 37.5% 57.5% Westinghouse 501G 230MW 345MW 38.5% 58% Siemens V84.3A 170 MW 245 MW 38% 58% GE Frame 7G 240 MW 350 MW 39.5% 58% 1995 none Frame 7H n/a 400 MW n.a. 60% Frame 9H n/a 480 MW n.a. 60%

22 Total patenting Total number of patents, all searches combined (per application date) ABB GE Siemens Westinghouse

23 Technological capabilities: selected patents GE Siemens ABB Westinghouse Combined cycle ab 78 (5.2) 35 (2.3) 43 (2.9) 15 (1.0) Gas turbine engine (incl. measuring and testing) bc 865 (3.9) 685 (3.0) 220 (1.0) 227 (1.0) Gas turbines b 1031 (5.1) 293 (1.4) 204 (1.0) 217 (1.1) Numbers in brackets show the ratio of the number of patents of a particular firm in a certain category and the lowest number of patents of all firms in that category. For example, in the first category ABB s ratio (2.9) equals 43 (the number of patents of ABB) over 15 (the number of patents of Westinghouse, which has the lowest number of patents in that category of all the firms).

24 Problems and the ability to solve them All manufacturers experienced serious problems in their installed plants, but they reacted quite differently.

25 Technological capabilities and knowledge integration strategies and activities STRATEGIES ACTIVITIES Technology leadership Technology scope Cost focus Technology sourcing GE SIEMENS ABB WESTINGHOUSE Segment & Segment level Segment level - technology level Narrow Medium Broad Medium - Competitiveness (segment level) Internal (cross-divisional) Internal External alliances Leadership - Internal (External alliances) Internal External alliances Patenting Strong Medium Weak Weak Product launching Problemsolving Launched several turbines Quick Concentrated efforts Launched several turbines Slow Extensive efforts Launched several turbines Slow Failed efforts Launched several turbines Slow Unclear efforts; lack of resources

26 Some findings The importance of having a large and relevant capability base, built up by R&D activities, as a foundation for product development in complex technology fields. The study emphasizes the importance of integrating knowledge from several different technology fields in order to develop new architectural solutions on a sub-system level. A focused technology strategy on the segment level seems to be positively related to performance. Companies that focused on a limited number of technologies on the segment level were more successful than companies having a broad technology scope. The study shows that the development and launching of new products may not be as important as implicitly assumed in much of the capabilities literature, but rather solving after-launch problems proved more decisive for competitive outcomes.

27 Power generation again Thousands of Internal combustion engines Microturbines Fuel Cells or one Combined Cycle Gas Turbine (CCGT) plant? Magnusson, T., F. Tell & J. Watson (2005), From CoPS to Mass production? Capabilities and innovation in power generation equipment manufacturing, Industrial and Corporate Change, 14(1): 1-26

28 From CoPS to mass-manufacturing Products Markets Manufacturing CoPS Mass production CoPS Mass production CoPS Mass production Many components Few components Oligopoly Competition High unit cost Low unit cost Systemic relationships Many alternative architectures Software/ control systems Analyzable relationships Few alternative architectures No component coordination Monopsony/ politicized purchasing Government regulation User-producer interaction Sophisticated buyer/operators Multitude of individual buyers Free markets Arms-length Relationship Non-professional buyers Customization Intensive technology Project-based organization Systems integration/ Breadth and depth Standardized Long-linked technology Functional organization Design-modularity/ Specialization

29 In which technologies were the established manufacturers active? Internal combustion engines none Microturbines (the most similar technology) very few (ABB JV) Fuel cells Most of them

30 (Tushman and Anderson, 1986)

31 Why? Distributed generation is plug and play modularized and mass produced Traditional power technologies require systems integration and CoPS manufacturing Traditional manufacturers specialized in advanced systems integration distributed generation is hence competence-destroying Fuel cells are in this respect the most similar, not microturbines