Capabilities, Innovation and Industry Dynamics Fredrik Tell KITE Research Group Department of Management and Engineering Linköping University fredrik.tell@liu.se
Research problem Dynamics in complex capital goods industries Relationship between firm capabilities, innovation and performance Impact of firm capabilities on responses to technical change
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)
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, 1986-2002, Industrial and Corporate Change, 17(2): 335-392 ) Steam Generator Steam Steam turbine Generator ~ Fuel gas in Exhaust gases Intake Air Compressor Fuel Power Combustor turbine ~ Electricity Generator Advanced Turbine System
Combined Cycle Gas Turbines (CCGT)
2004 2000 2002 Global trends in power generation 200000 150000 100000 50000 Capacity (MW) 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 CCGT Orders Total Orders
CCGT market growth Market development 1970-2002 MW (yearly) 100 000 80 000 60 000 40 000 GE 7F 450 000 400 000 350 000 300 000 250 000 200 000 150 000 MW (cumulative) 20 000 100 000 50 000 0 1970 1972 1974 1976 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 0 Market orders (yearly) Cumulative orders
Pre GE Frame F market shares 30000 25000 Cumulative orders (MW) 20000 15000 10000 5000 0 1970 1971 1972 1973 1974 1975 1976 1977 1979 1980 1981 1982 1983 1984 1985 1986 GE ABB Siemens Westinghouse Other
Market share development 1987-1991 1992-1994 1995-1998 1999-2002 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.
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?
Product life cycles
Industry life cycles (Klepper, 2002)
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)
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)
Technological capabilities Technology strategies Technology leadership Cost focus Broad scope Technology sourcing Technology activities Patenting Problem-solving Product launching
TECHNOLOGY LEADERSHIP GE SIEMENS ABB WESTINGHOUSE 1987 X - Not available 1988 X X X Not available 1989 X x X X 1990 X x - - 1991 X - X - 1992 X - X X 1993 X X X - 1994 X X X X 1995 X X X - 1996 X X X - 1997 X - X - 1998 X X X 1999 X - 2000 X - Not available Not available 2001 X - 2002 X - X = segment level statements; x = corporate level statements
BROAD TECHNOLOGY SCOPE GE SIEMENS ABB WESTINGHOUSE 1987 - (4) X (8) Not available 1988 - (4) X (8) X (7) Not available 1989 - (4) - (6) X (7) - (6) 1990 - (4) - (7) X (7) - (6) 1991 - (3) X (4) X (7) X (6) 1992 - (3) - (6) X (8) - (5) 1993 - (3) X (8) - (8) X (4) 1994 - (4) - (6) X (8) - (4) 1995 - (4) - (6) X (8) - (3) 1996 - (5) - (5) X (8) - (4) 1997 X (4) - (5) X (7) - (4) 1998 X (4) X (7) - (9) 1999 X (2) - (6) 2000 - (5) X (5) Not available Not available 2001 - (3) X (5) 2002 - (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).
COST FOCUS GE SIEMENS ABB WESTINGHOUSE 1987 X x Not available 1988 - - X Not available 1989 - - X - 1990 - - - - 1991 - - X X 1992 - x - - 1993 x X - - 1994 - x - X 1995 X - X - 1996 - - X - 1997 - x X - 1998 - - - 1999 - - 2000 - - Not available Not available 2001 - - 2002 - -
Product launch and sales impact Phase I Phase II Phase III Phase IV 70000 60000 50000 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) 40000 30000 20000 10000 GE Frame 7F W.house 501F 0 1986 1990 1994 1998 2002 GE GE licencees Siemens ABB Westinghouse MHI Other
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% 1987 1987 Westinghouse 501F 150MW 230 MW 35.4% 54% 1989 1989 Siemens V94.3 200 MW 300 MW 35.7% 54% 1990 1992 ABB GT13E2 164 MW 250 MW 35.7% 54.7% 1992 1992 GT24 165 MW 250 MW 37.5% 57.5% 1993 1993
Next generation COMPANY TURBINE MODEL CAPACITIES EFFICIENCIES KEY DATES GT CCGT GT CCGT Announced First order ABB GT24 165 MW 250 MW 37.5% 57.5% 1993 1993 Westinghouse 501G 230MW 345MW 38.5% 58% 1994 1997 Siemens V84.3A 170 MW 245 MW 38% 58% 1995 1995 GE Frame 7G 240 MW 350 MW 39.5% 58% 1995 none Frame 7H n/a 400 MW n.a. 60% 1995 2004 Frame 9H n/a 480 MW n.a. 60% 1995 1998
Total patenting Total number of patents, all searches combined (per application date) 350 300 250 200 150 100 50 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ABB GE Siemens Westinghouse
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).
Problems and the ability to solve them All manufacturers experienced serious problems in their installed plants, but they reacted quite differently.
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
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.
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
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
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
(Tushman and Anderson, 1986)
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