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The Handbook of Technology and Innovation Management by Scott Shane

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11.2. Appropriability and Firm Strategy

So, why do some firms profit from their innovation investments, whereas others do not? As Teece (1986) noted, the aim of his article was 'to explain why a fast second or even a slow third might outperform the innovator' (p. 285). Teece's answer to the question blended elements of technological characteristics (particularly the character of knowledge), the degree of appropriability conveyed through IP, and the nature of the complementary assets required to commercialize the innovation. Firm strategy, in turn, needed to take all these core parameters into account.

The story of EMI in medical CT scanners was the archetypal example in Teece (1986). Its initial successful entry into this new category demonstrated the utility of its innovation. Yet its subsequent failure revealed the company's inability to access the requisite complementary assets, and – importantly for our purposes – its failure effectively to leverage IP to stay ahead of the followers. The followers were able to move in, and take over the industry. 'By 1978, EMI has lost market leadership to Technicare which in turn was quickly overtaken by GE.... Though royalties continued to flow to EMI, the company had failed to capture the lion's share of the profits generated by the innovation it had pioneered and successfully commercialized.' (Teece, 1986, pp. 298–9). EMI and Technicare were replaced by GE, owing to the latter's superior marketing and sales channels, as well as GE's superior ...

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