Appropriating the value from innovation: inimitability and the effectiveness of isolating mechanisms

Abstract

Preventing the imitation of products and their underlying characteristics is a key source of competitive advantage. Isolating mechanisms, such as patents, brand name and speed to market, render an organisation's inventions imperfectly imitable by competitors, helping sustain the above-normal returns achieved from a new product innovation. A theoretical framework is developed whereby the characteristics of isolating mechanisms, namely causal ambiguity, asset stock effects and enforceability of property rights, are shown to be important determinants of appropriation effectiveness. Amultiple method research design, consisting of a survey of 238 large Australian organisations, and a further six case study organisations, is adopted. The results indicate that isolating mechanisms in the form of technological capabilities, market-based assets and knowledge protection positively moderate an organisation's returns from their innovation activities, while being first-to-market is found to negatively moderate the business returns achieved. Implications for managers in increasing the effectiveness of their appropriation regime, and future directions for research are proposed. R&D Management 42, 5, 2012.

Industry 4.0, global value chains and international business

“…What value chain activities will MNEs need to control, and what isolating mechanisms will they need to possess (Rumelt, 1984;Rumelt, 1987;Lawson et al, 2012) Business is based on a concept of geography that may be partially challenged in an Industry 4.0 scenario (Gress and Kalafski, 2015). Clearly the greater use of robotic systems will minimize the cost economies to be realized from locating manufacturing activities in low labour cost countries, such as the emerging economies.…”

Appropriation strategies and open innovation in SMEs

“…Both the creation of value and the appropriation of value are central to competitive advantage (Lawson et al, 2012). Yet, to the extent that openness entails disclosure (or exposure), this implies a tension with appropriation.…”

The Dynamics of the Outsourcing Relationship

“…Potential isolating mechanisms come in many forms and may usefully be grouped in four categories (Lawson et al, 2012). The first category consists of mechanisms to protect the knowledge embodied in the new products or processes, either through formal property rights allocated by the State (e.g., patents, trademarks, licenses) or by reducing the likelihood of knowledge leakage.…”

“…This capability to innovate has been fundamental to Apple's success but, as noted above by Lawson et al (2012), this ability to create value needs to be associated with an ability to appropriate value from its global value chains À and this depends upon the durability of Apple's isolating mechanisms. Chan et al (2013) report that Foxconn cut prices and margins on components and assembly during the 2008À2009 global financial crisis to retain high-volume orders and accommodated Apple's (and other corporate buyers) demands for lower prices by cutting labor wages and benefits.…”

“…These capabilities were well illustrated by Steve Jobs' demand for an unscratchable glass screen for the iPhone just weeks before the product launch in 2007, and by the subsequent willingness of Foxconn to assemble the products with the newly developed screens at very short notice (Duhigg & Bradsher, 2012). But the development of these capabilities has also enabled Foxconn to benefit from its own isolating mechanisms based on patents 9 and its own firm-specific technical knowledge (Lawson et al, 2012), to start to move away from just being a contract manufacturer (Lu¨thje, 2002), to develop its own range of products, and to pursue its own initiatives. Thus, Foxconn has teamed up with two TV manufacturers (Radioshack in China in 2013; Vizio in the United States in 2014) to manufacture and distribute television sets, though not under the Foxconn brand.…”