Innovation Management

Module No.: U21783

Module Leader: Professor Paul Trott
Module value: 20 credits

Lecture and seminar programme 2021/22

Teaching Team

Emre Cinar
Sercan Ozcan
Paul Trott
Jamie Howard

September 2021

Lecture & Seminar schedule for Innovation Mgt Page 1 P Trott

 Innovation Management

1. Introduction
There are many roles in industry and commerce with the word innovation in the title such as:
Product Innovation Manager; Innovation Manager and Research & Innovation Director. These roles
vary considerably depending on the industry. In this unit we will explore the subject of innovation
management and examine the challenges faced by firms engaged in developing new products and
services. The management of innovation is not a functional activity, solely the preserve of a single
department. It is imperative to view innovation and product development as a management process
rather than as a functional activity. This is the view taken by this unit. Indeed, many would argue that
product innovation suffers seriously when it is subdivided into separate specialisations.

The objective of this unit is to present a contemporary view of innovation management that focuses on
the links and overlaps between groups rather than on a single perspective from, say, marketing or
research and development. It attempts to do this from a business management perspective, and aims
to provide students with the knowledge to understand how to manage innovation.

At the level of the firm, management research continues to confirm that innovative firms outperform
their competitors. Fundamental questions remain, however, such as:
1. How can firms best transform exciting technology into successful new products?
2. How can firms capture knowledge and creativity and develop successful new products?
3. How can firms improve the speed at which they get products into the market?
4. What organisational structures and systems are appropriate for innovation and npd?
5. How can incumbent firms overcome their difficulty with disruptive technologies and compete with
newcomers?

Good luck with your studies, and I hope you enjoy reading and exploring this exciting subject.
Remember to regulalrly check the Moodle site.

1.1 How does this field relate to other courses?

The answer depends on which perspective is taken: marketing, technology, legal, strategic
management, the commercialisation, or a multiple-perspective approach incorporating all of these. In
any event, the management of innovation in general, and the development of new products/services in
particular, requires the expertise of all areas- finance, manufacturing, human resources, marketing,
strategy and so on. Hence, in this undergraduate course we will look at the task of managing the
overall process.

2. Objectives of the course/unit

To provide an understanding of the issues and factors involved in the management of innovation and
development of new products. To recognise how the successful management of innovation can lead to
sustainable corporate success.

2.1 Feedback and developments

Last year we received feedback from students and we have made changes. We have tried to explicitly
show how content in lectures and seminars is linked to recommended reading. We have replaced two
case studies. We also have four new lectures.

2.3 Moodle Site

We have set up a Moodle site for this module. Important information relating to this module will be
communicated via the Moodle site. This will include [lecture slides / seminar materials etc. Tutors will
also post additional reading and other resources on this site, which you will be expected to read.

Access to the Moodle site is essential. Please contact the module co-ordinator as soon as possible if
you are unable to access the site.

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3. Recommended text book

Trott P (2021) Managing innovation and new product development 7th edition, Pearson.
Student Link: http://www.readinglists.co.uk/rsl/student/sviewlist.dfp?id=35721

3.1 Additional reading texts

Trott P, Van dur Duin P, Hartman D, Scholten V and Ortt R (2016) Managing Technological
Entrepreneurship and Innovation, London, Routledge.
Tidd J, and Bessant J (2015) Managing innovation 5th ed., Wiley.

4. Structure of unit
The subject covered during the lecture will be the topic of discussion in the seminar one week later.
This should enable the students to reflect on the lectures and to guide their reading and research for
the seminar. The seminar will be based on a case study, for which you are all expected to read and to
prepare answers beforehand.

4.2 Assessment of unit

1. Coursework 1: Preparation for seminars Sept-Jan 20%
2. Coursework 2: Individual essay November 20%
3. End of module examination: Jan 2022 60%

The coursework for this unit forms part of the students preparation for the examination. The first
involves preparation and participation in seminars. Attendance, preparation and participation in the
seminars will ensure that students give themselves the best opportunity to perform well in the exam.
Students are expected to upload their answers to the case studies prior to the seminar (by 9:00am)
Monday of the week of the seminar. These will be added together and a final grade assigned (see page
44).

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The second coursework requires students to write a short essay. This will help students revise and
prepare for the end of unit examination. The essay should be no more than 1000 words in length. A
copy should be submitted via Moodle and the deadline for submission of the course work is
Wednesday November 17th 14:00hrs.

The examination will consist of 2 parts (50% each). Part A will contain 50 multiple-choice style
questions. Part B will contain two essay style questions. All the questions will be based upon the
material covered in the lectures and the seminars, including multiple-choice style questions on the
cases studied during the seminars. The format is 2 hours open book exam. It will be completed on-line
using the Moodle quiz function (week beginning January 3rd 2022).

TO PASS THIS UNIT

If students achieve less than 40% for the combined total of assessments they will be referred in the
unit. Students who achieve less than 40% will be given the opportunity to re-sit the examination, and
will be awarded 40% if successful.

Grade Criteria
0 Absent
D • Tries to respond when called on but does not offer much.
<40% • Demonstrates very infrequent involvement in discussion.
• Demonstrates adequate preparation: knows basic case facts, but does not
show evidence of trying to interpret or analyse them.
• Offers straightforward information (e.g., straight from the case), without
C
elaboration or very infrequently (perhaps once a class).
41%-55%
• Does not offer to contribute to discussion, but contributes to a moderate
degree when called on.
• Demonstrates sporadic involvement.
• Demonstrates good preparation: has good knowledge of the case, has
thought through implications of them.
• Offers interpretations and analysis of case material (more than just facts)
to class.
B
• Contributes well to discussion in an ongoing way: responds to other
56%-65%
students’ points, thinks through own points, questions others in a
constructive way, offers and supports suggestions that may be counter to
the majority opinion.
• Demonstrates consistent ongoing involvement.
• Demonstrates excellent preparation: has analysed the case exceptionally
well, relating it to readings and other material (e.g., readings, course
material, discussions, experiences, etc.).
• Offers analysis, synthesis, and evaluation of case material, e.g., puts
together pieces of the discussion to develop new approaches that take the
A class further.
>66% • Contributes in a very significant way to ongoing discussion: keeps analysis
focused, responds very thoughtfully to other students’ comments,
contributes to the cooperative argument-building, suggests alternative
ways of approaching material and helps class analyse which approaches
are appropriate, etc.
• Demonstrates ongoing very active involvement.

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5. Lecture & seminar programme

Week wbeg Lecture 1: Tuesday Lecturer Lecture 2: Friday Lecturer Seminar Seminar led by
00 04/10/21 Induction
01 11/10/21 An introduction to Innovation P Trott Innovation concepts & theories P Trott Introduction to programme Lecturer
management
02 18/10/21 The management of innovation P Trott Process Innovation Emre Cinar Case Study: Kodak Lecturer
within firms
03 25/10/21 Diffusion of innovation Emre Cinar R&D Management Online Case study: Cork industry Lecturer
04 01/11/21 Innovation and the role of national Emre Cinar Entrepreneurship & innovation Emre Cinar Coursework preparation; Lecturer
governments systems Writing your essay
05 08/11/21 Consolidation week
06 15/11/21 Unicorns & Innovation P Trott Public sector innovation Emre Cinar Case study: Dyson Lecturer
07 22/11/21 Innovation strategies in dynamic Sercan Strategic alliances Sercan Case study Diapers Lecturer
environments Ozcan Ozcan
08 29/11/21 Crowd sourcing Sercan Open innovation & Technology Sercan Case study Apple Lecturer
Ozcan transfer Ozcan
09 06/12/21 Market research and innovation Sercan Business model innovation Sercan Driverless cars scenarios Lecturer
Ozcan Ozcan
13/01/21 Vacation
20/01/21 Vacation
27/01/21 Vacation
10 03/01/22 Frugal & social innovation Emre Cinar Responsible innovation Emre Cinar Worksheet 1 Lecturer
Multiple choice questions
11 10/01/22 Managing Intellectual property Sercan Tech mining & patent analysis Sercan Case study: Israel & water Lecturer
Ozcan Ozcan
12 17/12/22 Technology trajectories P Trott Review and Revision Online Revision and review Online

13 24/01/22 Assessment
14 31/01/22

Second Attempt/Defer Exam Period: Monday 09 July – Friday 26 July 2022

Second Attempt Coursework Submission Date: Friday 26 July 2022

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Readings for lectures
The figure below shows how the cases we look at link to the lectures.

Lecture 1 The management of innovation

Readings: Chp 1, Trott (2021).

Lecture 2 Innovation Management theory

Readings Chps 1 and 2, Trott (2021).

Lecture 3 The management of innovation within firms

Readings Chps 1, 4 and 17 Trott (2021).

Lecture 4 Process innovations

Readings Chp 5, Trott (2021)

Lecture 5 The management of research and development

Readings: Chp 10 Trott (2021).

Lecture 6 Diffusion and adoption of innovations

Readings Chp 3 Trott (2021); Moore G (2004) Crossing the chasm, Capstone, New York.

Lecture 7 Innovation and the role of national governments

Readings: Chps 1 and 2, Trott (2021).

Lecture 8 Entrepreneurship & innovation systems

Readings: Chp 1, 2 & 3, Trott (2021).

Lecture 9 Unicorns & innovation

Readings: Trott (2021).

Lecture 10 Public Sector innovation

Readings: Chp 2 & 3, Trott (2021).

Lecture 11 Innovation strategies & Dynamic environments

Readings: Chp 1, 2, 3 Trott (2021)

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Lecture 12 Strategic Alliances
Readings: Chp 8 Trott (2021).

Lecture 13 Crowdsourcing
Readings: Chp 2, Trott (2021).

Lecture 14 Open Innovation and Technology Transfer

Readings: Chp 11 Trott (2021).

Lecture 15 Market research & innovation

Readings: Chp 15, Trott (2021).

Lecture 16 Business Models

Readings: Chp 12, Trott (2021).

Lecture 17 Social & frugal innovation

Readings Trott (2021).

Lecture 18 Responsible innovation

Readings Trott (2021).

Lecture 19 Intellectual property

Readings Chp 6 Trott (2021).

Lecture 20 Tech mining & patent analysis

Readings: Chp 6 & 9, 10 Trott (2021).

Lecture 21 Technology trajectories

Readings Trott chp 7, 8 (2021).

Lecture 22 Revision
Readings Trott (2021).

Further reading

At the end of each chapter a list of further reading is available.

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Seminars (discussions of case studies)

For each case study your Lecturer will lead the discussion and explore the case with you.
You should read the case beforehand and undertake analysis (this is best done in small
groups with your friends). Within the seminar you will be asked questions about the case from
the Lecturer. The seminar sessions are intended to be interactive, with participation from
students. Indeed, this is your opportunity to discuss the subject with your peers and
Lecturer. You will have received lectures on related topics and the lecturer will encourage you
to to make linkages between concepts within lectures and the cases.

Bear in mind that the exam will have questions on the case studies. Seminar Leaders have
the responsibility of ensuring that the whole group have understood the subject area and that
they can refer to their notes for revision purposes.

A series of questions accompany each case; these help guide discussions and exploration of
the case.

The coursework for this unit forms part of the students preparation for the examination.
Part One involves preparation and participation in seminars. Preparation and participation in
the seminars will ensure that students give themselves the best opportunity to perform well in
the exam. Your submissions for the seminars will be added together at the end of 12 weeks
for a final grade.

N.B.

The overall aims are

1. To answer the questions accompanying the case study

2. To show evidence of wider reading and learning
3. To identify the key issues
4. To encourage group participation

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Seminar 1: Get to know your friends and colleagues

INNOVATION MANAGEMENT

1. Everyone: 30 seconds to introduce themselves and say what they think innovation
management is.
2. Go through this unit schedule slowly with the class, read each page (1-8) carefully.
Start with the image on the cover page: how does this image represent the unit?
3. Note the lecture and timetable schedule (you should have a lecture and a seminar
every week).
4. Please note: Attendance, preparation and participation at the seminars is
necessary to pass this unit (see Page 9).
5. Ensure everyone is clear of the aims of the unit;
6. Ensure everyone is clear that the cases are to be used as the basis for discussion;
7. Seminar discussions should link to lectures;
8. Look at the introduction for each of the cases;
9. Remember there will be questions on the case studies in the exam.

__________________________________

For next week:

Read this booklet and familarise yourself with the programme and what is required of you.
Look at all the cases, you will need to read each case before the appropriate seminar.
You will be asked questions on the case.

In Seminar 6 three actors are required plus a narrator to present the case to the class.
Those volunteering for this case may want to start rehearsals soon.
This is a clear demonstration of participation.

In Worksheet 1 everyone has to develop their own multiple choice question and present to the
class.

Enjoy.

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Seminar 2: The end of Kodak?
Victim of the perennial gale of creative destruction
Capitalists quite often invent the technology that destroys their own business. Eastman Kodak is a
picture-perfect example. It built one of the first digital cameras in 1975. That technology, followed by the
development of smartphones that double as cameras, has battered Kodak’s old film- and camera-
making business almost to death.

Strange to recall, Kodak was the Google of its

day. Founded in 1880, it was known for its
pioneering technology and innovative
marketing. “You press the button, we do the
rest,” was its slogan in 1888.

By 1976 Kodak accounted for 90% of film and

85% of camera sales in America. Until the
1990s it was regularly rated one of the world’s
five most valuable brands.

Then came digital photography to replace film, and smartphones to replace cameras. Kodak’s revenues
peaked at nearly $16 billion in 1996 and its profits at $2.5 billion in 1999. The consensus forecast by
analysts is that its revenues in 2011 were $6.2 billion. It recently reported a third-quarter loss of $222m,
the ninth quarterly loss in three years. In 1988, Kodak employed over 145,000 workers worldwide; at
the last count, barely one-tenth as many. Its share price has fallen by nearly 90% in the past year (see
chart).

For weeks, rumours have swirled around Rochester, the company town that Kodak still dominates, that
unless the firm quickly sells its portfolio of intellectual property, it will go bust. Two announcements on
January 10th—that it is restructuring into two business units and suing Apple and HTC over various
alleged patent infringements—gave hope to optimists. But the restructuring could be in preparation for
Chapter 11 bankruptcy.

Larry Matteson, a former Kodak executive who now teaches at the University of Rochester’s Simon
School of Business, recalls writing a report in 1979 detailing, fairly accurately, how different parts of the
market would switch from film to digital, starting with government reconnaissance, then professional
photography and finally the mass market, all by 2010. He was only a few years out.

A culture of complacency

Its culture did not help. Despite its strengths—hefty investment in research, a rigorous approach to
manufacturing and good relations with its local community—Kodak had become a complacent
monopolist. Fujifilm exposed this weakness by bagging the sponsorship of the 1984 Olympics in Los
Angeles while Kodak dithered. The publicity helped Fujifilm’s far cheaper film invade Kodak’s home
market.

Another reason why Kodak was slow to change was that its executives “suffered from a mentality of
perfect products, rather than the high-tech mindset of make it, launch it, fix it,” says Rosabeth Moss
Kanter of Harvard Business School, who has advised the firm. Working in a one-company town did not
help, either. Kodak’s bosses in Rochester seldom heard much criticism of the firm, she says. Even
when Kodak decided to diversify, it took years to make its first acquisition. It created a widely admired
venture-capital arm, but never made big enough bets to create breakthroughs, says Ms Kanter.

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Bad luck played a role, too. Kodak thought that the thousands of chemicals its researchers had created
for use in film might instead be turned into drugs. But its pharmaceutical operations fizzled, and were
sold in the 1990s.

George Fisher, who served as Kodak’s boss from 1993 until 1999, decided that its expertise lay not in
chemicals but in imaging. He cranked out digital cameras and offered customers the ability to post and
share pictures online.

A brilliant boss might have turned this idea into

something like Facebook, but Mr Fisher was not that
boss. He failed to outsource much production, which
might have made Kodak more nimble and creative. He
struggled, too, to adapt Kodak’s “razor blade” business
model. Kodak sold cheap cameras and relied on
customers buying lots of expensive film. (Just as
Gillette makes money on the blades, not the razors.)
That model obviously does not work with digital
cameras. Still, Kodak did eventually build a hefty
business out of digital cameras—but it lasted only a
few years before camera phones scuppered it.

Kodak also failed to read emerging markets correctly.

It hoped that the new Chinese middle class would buy
lots of film. They did for a short while, but then decided
that digital cameras were cooler. Many leap-frogged
from no camera straight to a digital one.

Kodak’s leadership has been inconsistent. Its strategy changed with each of several new chief
executives. The latest, Antonio Perez, who took charge in 2005, has focused on turning the firm into a
powerhouse of digital printing (something he learnt about at his old firm, Hewlett-Packard, and which
Kodak still insists will save it). He has also tried to make money from the firm’s huge portfolio of
intellectual property—hence the lawsuit against Apple. Most analysts feel Kodak was complacent, even
when its troubles were obvious. The firm was so confident about its marketing and brand that it tried to
take the easy way out.

In the 2000s it tried to buy ready-made businesses, instead of taking the time and expense to develop
technologies in-house. And it failed to diversify enough, says Mr Komori: “Kodak aimed to be a digital
company, but that is a small business and not enough to support a big company.”

Perhaps the challenge was simply too great. “It is a very hard problem. I’ve not seen any other firm that
had such a massive gulf to get across,” says Clay Christensen, author of “The Innovator’s Dilemma”, an
influential business book. “It was such a fundamentally different technology that came in, so there was
no way to use the old technology to meet the challenge.”

Could Kodak have avoided its current misfortunes? Some say it could have become the equivalent of
“Intel Inside” for the smartphone camera—a brand that consumers trust. But Canon and Sony were
better placed to achieve that, given their superior intellectual property, and neither has succeeded in
doing so.

Unlike people, companies can in theory live for ever. But most die young, because the corporate world,
unlike society at large, is a fight to the death. Kodak, along with many a great company before it,
appears simply to have run its course. After 132 years it is poised, like an old photo, to fade away.

Fuji
While Kodak suffers, its long-time rival Fuji is doing rather well.

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Joseph Schumpeter argued that innovation is at the heart of economic
progress.

Joseph Schumpeter was one of the few intellectuals who saw business straight. He regarded business
people as unsung heroes: men and women who create new enterprises through the sheer force of their
wills and imaginations, and, in so doing, are responsible for the most benign development in human
history, the spread of mass affluence. “Queen Elizabeth [I] owned silk stockings,” he once observed.
“The capitalist achievement does not typically consist in providing more silk stockings for queens but in
bringing them within the reach of factory girls in return for steadily decreasing amounts of effort…The
capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard
of life of the masses.” But Schumpeter knew far too much about the history of business to be a
cheerleader. He recognised that business people are often ruthless monomaniacs, obsessed by their
dreams of building “private kingdoms” and willing to do anything to crush their rivals.

Schumpeter's ability rested on a broader philosophy of capitalism. He argued that innovation is at the
heart of economic progress. It gives new businesses a chance to replace old ones, but it also dooms
those new businesses to fail unless they can keep on innovating (or find a powerful government
patron). In his most famous phrase he likened capitalism to a “perennial gale of creative destruction”.

For Schumpeter the people who kept this gale blowing were entrepreneurs. He was responsible for
popularising the word itself, and for identifying the entrepreneur's central function: of moving resources,
however painfully, to areas where they can be used more productively. But he also recognised that big
businesses can be as innovative as small ones, and that entrepreneurs can arise from middle
management as well as college dorm-rooms.

Schumpeter was born in 1883, a citizen of the Austro-Hungarian empire. During the 18 years he spent
at Harvard he never learned to drive and took the subway that links Cambridge to Boston only once.
Obsessed by the idea of being a gentleman, he spent an hour every morning dressing himself. Yet his
writing has an astonishingly contemporary ring; indeed, he seems to have felt the future in his bones.
The gale of creative destruction blew ever harder after his death in 1950, particularly after the
stagflation of the 1970s. Corporate raiders and financial engineers tore apart underperforming
companies. Governments relaxed their hold on the economy. The venture-capital industry exploded,
the computer industry boomed and corporate lifespans shortened dramatically. In 1956-81 an average
of 24 firms dropped out of the Fortune 500 list every year. In 1982-2006 that number jumped to 40.
Larry Summers, Barack Obama's chief economic adviser, argues that Schumpeter may prove to be the
most important economist of the 21st century.

Two cyber-gurus take a second look at how the internet is changing the world

Don Tapscott and Anthony Williams coined the term “wikinomics” in their 2006 tome of that name. Their
central insight was that collaboration is getting rapidly cheaper and easier. The web gives amateurs
access to world-class communications tools and worldwide markets. It makes it easy for large groups of
people who have never met to work together. And it super-charges innovation: crowds of people can
develop new ideas faster than isolated geniuses and disseminate them even faster.

In their new book they look at how it is shaking up some of the core institutions of modern society: the
media, universities, government and so on. It is a Schumpeterian story of creative destruction.

Two of the most abject victims of wikinomics are the newspaper and music industries. Since 2000, 72
American newspapers have folded. Circulation has fallen by a quarter since 2007. By some measures
the music industry is doing even worse: 95% of all music downloads are illegal and the industry that
brought the world Elvis and the Beatles is reviled by the young. Why buy newspapers when you can get

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up-to-the-minute news on the web? Why buy the latest Eminem CD when you can watch him on
YouTube for free? Or, as a teenager might put it: what's a CD?

Other industries are just beginning to be transformed by wikinomics. The car industry is a model of
vertical integration; yet some entrepreneurs plot its disintegration. Local Motors produces bespoke cars
for enthusiasts using a network of 4,500 designers (who compete to produce designs) and dozens of
microfactories (which purchase parts on the open market and then assemble them). Universities are
some of the most conservative institutions on the planet, but the Massachusetts Institute of Technology
has now put all of its courses online. Such a threat to the old way of teaching has doubtless made
professors everywhere spit sherry onto the common-room carpet. Yet more than 200 institutions have
followed suit.

Wikinomics is even rejuvenating the fusty old state. The Estonian government approved a remarkable
attempt to rid the country of unsightly junk: volunteers used GPS devices to locate over 10,000 illegal
dumps and then unleashed an army of 50,000 people to clean them up. Other governments are
beginning to listen to more entrepreneurial employees. Vivek Kundra, now Barack Obama's IT guru,
designed various web-based public services for Washington, DC, when he worked for the mayor. Steve
Ressler, another American, created a group of web-enthusiasts called Young Government Leaders and
a website called GovLoop.

FixTheState.com

How can organisations profit from the power of the web rather than being gobbled up by it? Messrs
Tapscott and Williams endorse the familiar wiki-mantras about openness and “co-creation”. But they
are less starry-eyed than some. They not only recognise the importance of profits and incentives. They
also argue that monetary rewards can be used to improve the public and voluntary sectors.
NetSquared, a non-profit group, introduced prizes for the best ideas about social entrepreneurship.
Public-sector entrepreneurs such as Mr Kundra are excited by the idea of creating “app stores” for the
public sector.

Messrs Tapscott and Williams sometimes get carried away with their enthusiasm for the web. Great
innovators often need the courage to ignore the crowd. (Henry Ford was fond of saying that if he had
listened to his customers he would have produced a better horse and buggy.) Great organisations need
time to cook up world-changing ideas. Hierarchies can be just as valuable to the process of creative
destruction as networks. But the authors are nevertheless right to argue that the web is the most radical
force of our time. And they are surely also right to predict that it has only just begun to work its magic.

Questions

1. Why was Kodak so big and so profitable (it was the Google of the 1980s)?
2. What was the single most significant reason why Kodak failed?
3. Is Kodak simply a victim of creative destructionism?
4. What do you conclude when you compare Kodak and Fuji strategies?
5. Who were the entrepreneurs who generated the gale of destruction for Kodak?
6. Name two other firms not mentioned above that have experienced creative destruction in their
industry and survived?

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Seminar 3: Case study: The cork industry, the wine industry and
the need for closure.
Introduction
This case study explores the use of cork as a way of sealing wine in a
bottle; referred to as a closure in the wine industry. This 400 year old
industry with all its associated working practices has continued largely
unaffected by technology changes in almost all other industries- until that
was the 1990s when synthetic plastic closures were used by some wine
producers instead of natural cork. With a requirement of over 17 billion
wine bottle closures a year the cork industry could arguably afford a little
competition, but it seems the cork industry had not recognised the
significant changes taking place in the wine industry to which it acts as a
supplier (Cole, 2006). The wine industry was experiencing a revolution
where new producers from Australia, California and Chile had new and different requirements. In a matter of a
few years the industry had changed completely.

The wine industry

The Portuguese cork industry is facing an environmental and economic disaster as wine makers and large grocery
chains defect from natural cork closures to modern synthetic closures, such as rubber or plastic. Portugal supplies
more than half of the world’s cork and has been experiencing a slow move away from cork since the mid 1990s.
More recently the trickle has turned into a flood as changes in the wine industry and buying behaviours contribute
to the rise in demand for modern closures. The cork industry accounts for
nearly 3% of Portugal’s GDP. Its cork forests, and workers, are under
threat from innovation in one of the oldest industries in the world. For
hundreds of years cork was the accepted method of closure for bottles,
especially wine, but a wide range of closures for bottles have existed for
many years including screw caps and re-sealable plastic caps. Few in the
wine industry believed that vine yards, bottlers and wine drinkers would
ever wish to use anything other than natural cork. However, the wine
industry has changed significantly over the past twenty years. The
historical dominant producers of Europe: France, Germany, Italy and Spain are being challenged by new wine
producers such as California, Australia, New Zealand, South Africa, Chile, etc. Moreover, these new producers
have developed international wine brands such as Jacobs Creek and Blossom Hill, which have fundamentally
changed the wine market. This is because the international brands have demanded a consistent product that has
little variation. This is in complete contrast to the traditional wine products which have always had a degree of
variety dependent on the grape, the climate and production. Furthermore the buyers of wine were changing too-
the supermarket chains such as Tesco, Sainsbury, Carrefour, Wall Mart, had become the biggest buyers and they
now have enormous power in the industry and are able to offer wine producers access to millions of consumers
and correspondingly millions of sales of wine.

Farming cork
Cork is harvested exclusively from the Cork Oak, found predominantly
in the Mediterranean region. Though the tree can flourish in many
climates, the conditions that favour commercial use are fairly narrow.
The major cork producing nations are listed below in Table 1. Cork is
harvested in a steady cycle that promotes healthy growth to the tree over
its expected lifespan of over 200 years. Typically, virgin cork is not
removed from saplings until the 25th year, and reproduction cork (the
first cycle) may not be extracted for another 9-12 years. Cork suitable for
wine stoppers is not harvested until the following 9-12 year cycle, so
farmers have invested over 40 years before natural wine corks are
produced.

The cork forests, owing to the mutual efforts of the European Union (EU) and various environmental groups, is
expected to increase due to the active efforts to protect existing forests and sponsorship of significant new
plantings. Cork bark is removed from trees in spring or summer. At this time of year the cork comes away easily
from the trunk because the tree is growing, the new, tender cork cells being generated break easily. Harvest
difficulties occur if the process is not carried out when the tree is in full growth. To keep the trees in good

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productive health, there are laws which regulate the harvest of cork oaks. In Portugal, trees are harvested every 9
years and on the island of Sardinia (Italy) the harvest occurs every 12 years. (Numbers are painted onto the bark to
keep track of when a tree was stripped.) Therefore, harvest forecasting is based on 9 or 12 year cycles, i.e.
projections for the 2006 Portuguese cork harvest are based on the kilos harvested in 1997. It is in the forests where
the management of cork quality begins.

Cork production has shown significant expansion in recent years - reflecting the impact of approximately 120,000
hectares of highly productive, new cork forests in Spain and Portugal (see Table 1).

Table 1: Cork Production

Forest Area % of Worlds Production % of World's
Country
Hectares Forest Area Tons(000) Production
Portugal 725,000 33% 175 52%
Spain 510,000 23% 110 32%
Italy 225,000 10% 20 6%
Morocco 198,000 9% 15 4%
Algeria 460,000 21% 6 2%
Tunisia 60,000 3% 9 3%
France 22,000 1% 5 1%
TOTAL 2,200,000 100% 340 100%

Applications of Natural Cork

Cork is used in a wide variety of products - from construction materials to gaskets and most importantly - as a
stopper for wines. The cork industry employs an estimated 30,000 workers in a variety of jobs. Wine corks are the
most visible and most profitable of the many products derived from cork. They account for approximately 15% of
total production by weight and two thirds of cork revenues. Table 2 displays a comparison of the different
segments of the cork industry as measured by revenue generated (Corkindustry.com, 2006). The wine industry is
by far the most important customer of the cork industry, the dominant cork producer being Amorim. More than
13bn wine bottle closures are needed each year and the market is growing.

Table 2: Applications of cork

Industry Segment Value in Eurodollars (000) Value in %
Wine Stoppers $1,000,000 66%
Floor & Wall Coverings $300,000 20%
Expanded Agglomerated Cork $100,000 7%
Other Products $100,000 7%
Total Cork Products $1,500,000 100%

The wine industry

Wine consumption in the UK has grown dramatically over the past five years and
this has been the case in the US too. Research from the International Organisation
of Vine and Wine (OIV) claims that French wine consumption dropped 2% between
2004 and 2005, while British wine consumption rose 5% in 2005. Britain and the
United States are the world's two fastest growing wine markets. Consumption in the
United States grew 3% in 2005 and if this trend continues, the US will oust France
from the top spot within three years. French wine exports fell 11% between 2002
and 2005, while Global consumption grew by 0.1% to 23.56bn litres between 2004
and 2005. The study highlights growth in the popularity of imported wine amongst
drinkers in their 20's and heightened recognition of the health benefits of drinking
wine as the primary causes of the increase (Cole, 2006).
Wine has become a fixture on the weekly grocery list of UK consumers, alongside
bread and eggs. This has meant that the UK multiples (Tesco, Sainsbury, M&S,
Morrison’s, ASDA) have become some of the largest buyers of wine in the world.
With this buying power has come the ability to make demands on suppliers. In

Lecture & Seminar schedule for Innovation Mgt Page 15 P Trott

particular, a homogenous product free from fault. The world of wine has changed considerably over the last
couple of decades, and while many of the changes have been for the better, some are giving cause for concern.
One area of considerable change is the growth in branded wines or so called “modern” wine by traditionalists.

According to the traditionalists wine may be divided simply into two categories: the first is a commodity: that is
grapes are grown, crushed and made into wine, which is then sold cheaply and consumed uncritically. In this case,
as long as the quality is adequate and the price is right, consumers aren’t too worried about the source. This first
category accounts for the majority of wine across the world. This is the “modern” approach to wine production
and distribution. The second type of wine is “traditional” wine that is purchased and consumed not because of low
price, but because of interest. This interest stems from the fact that there exists a diversity of wine types that are
each able to express elements of their cultural and geographical origins in the finished product. Crucial here is the
importance of the starting material- the grapes. Unlike lager or whisky, where the agricultural input (wheat or
barley) is minimal and the human input is dominant, this kind of winemaking is best viewed as a process of
stewardship rather than one of manufacturing.

The diversity of wine is vast. Not only are hundreds of different grape varieties in relatively common use, but
there are also the complex influences of soil types, climate, viticulture (the study and production of grapes) and
winemaking practices. There’s also a rich traditional heritage in the more established wine-producing countries,
whereby cultural and viticultural influences collude to produce a variety of wine classifications (appellations in
France) that is, geographical areas where grapes for certain wines were grown.. According to the traditionalists it
is this diversity that makes wine so interesting. They argue that, divorced from its geographical origins, wine is
only marginally more interesting than fruit juice, lager or gin. And you don't get people naming either of these
three beverage types as one of their interests or hobbies.

These two genres of wine –have coexisted quite happily, and there’s no reason that they can’t continue to do so,
sitting side-by-side on the shelf. They serve different functions, and are consumed in different situations, and
often by different groups of consumers. These two genres may also be labelled ‘branded’ and ‘estate bottled’ (see
Table 3).

Table 3: Modern and Traditional wine

Branded (modern) Estate (traditional)

• Volume of production is managed • made from grapes grown in one vineyard, or
• typically made from bought-in grapes several neighbouring vineyards
• often ‘international’ in style, lacking a sense • vineyards supplying the grapes are usually
of place owned by the company making the wine, or
• usually defined by winemaking style are supplied by growers on long-term
• made to a style and to fit a price point contracts
• because production limited only by the • limited production, subject to vintage
supply of suitable purchased grapes, these variation
wines are often widely available • typically display regional influences or a
• heavily marketed ‘sense of place’
• lack diversity • availability is sometimes a problem, because
of the limited production
• marketing is often minimal
• hugely diverse

The modern retailing environment

The traditionalists argue that estate bottled wine doesn’t sit well with the modern retail environment (see Figure
1). They argue that because wine is an agricultural product, not a manufactured one in the eyes of the big retailer
this is a bad thing. The way the modern multi-outlet branded/franchised shop is configured, continuity of supply
and economies of scale are hugely important. This is not something the traditional wine producers, most notably
in France, have been willing to embrace. It is the diversity within wine that the traditionalists want to celebrate:
vintage variation – at times a frustrating reality, but one which adds an extra level of interest – and typically the
limited production of each producer mean that wine is not an easy product to deal with. It usually comes in small

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parcels, and the production level changes each year. Modern retailing, however, is big business. To survive in the
modern retailing environment you need to be big, highly visible, and with lots of outlets. Effective marketing in
this modern environment is an expensive business and you can only really make use of it if you are a big player.
This automatically rules out almost all estate wines, leaving the market open to the international brands.

Breaking into the UK wine market

Consider the lot of a wine producer looking to break into the UK market. With 75% of wine sales in the UK going
through supermarkets, you might want to target them first. So you approach the supermarket buyers. If you are
from a relatively unfashionable country like Portugal, you’ll probably be talking to a 22 year old junior buyer
fresh out of college who has, perhaps, two slots to fill at a £3.99–4.99 price point. They want serious volumes, a
fresh, fruity style, and the cheaper the better. If you are from Australia, you may have better luck, but the volumes
required will be huge and the price points will be very keen. Even at the higher price points, the continuity of
supply and volume issues favour the branders very heavily. If you are selling wine from recognized appellations
such as Chablis or St Emilion, then the buyers will be looking for the best Chablis at the entry-level price point
for this wine, effectively ruling out the estate wines here also. A supermarket would much rather have a vaguely
palatable Chablis at £5.99 – which will fly out of the door – than a really good one at £8.99. That’s life . . . its
hard.

Source: (Wine Anorak.com, 2006).

The illusion of choice

Supermarkets and other multiple outlets don’t like dealing with the diversity and
complexity of wine, but they are quite attached to the ‘idea’ of diversity. So
typically they will stock hundreds of different lines, giving the consumer the
impression of a broad portfolio of wines. The problem here is that this diversity is
actually an illusory one. The wines are almost always industrially produced, in
large quantities, and to a formula. For example, you may have in your minds the
romantic notion that all wine is discovered by a dedicated wine hound who has
trekked across remote parts of the world stopping at cellar after cellar searching
out a wine that will give your tastebuds a treat. The truth is very different. Most
wine purchased by the supermarkets today is led by financial motives, which are
driven by cost sheets and market forecasts. Remember also, that wines that appear
on recipe cards or in magazines have been paid for. Waitrose charges suppliers a
nominal fee of £300 for a mention in its Wine List magazine (Moore, 2007).
According to the traditionalists while customers now experience far less risk of
picking a bad bottle, they also have far less chance of picking a wine that is at all
interesting. Traditionalists argue that while high quality is desirable a uniformity
of style is disastrous. They maintain that branded wines, with their manufactured,
processed character and lack of connection with the soil hinders complete choice and diversity. Worst of all, they
argue, their growing dominance of the marketplace threatens the very existence of the traditional article: estate
wines.

Wine bottle closures

Cork has been used as a closure for bottles for hundreds of years. Indeed, one might reasonably ask why it has
survived so long? It is partly because it is a natural product that breathes, which is a quality required for some
wines. For most wine drinkers the pop of the cork from the bottle is an intrinsic part of the wine drinking
experience, and they love it. Wine producers, on the other hand, view natural corks with deep suspicion. Largely
due to the rogue chemical 2-4-6 trichloranisole (TCA, a compound created by the interplay of a cork-borne

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fungus, the chlorine used to sanitize wine corks, and plant phenols), often referred to as cork taint that makes wine
taste anything from slightly muted to very mouldy. Although it is harmless if swallowed by humans, TCA
imparts a musty, wet cardboard smell and taste to the wine it affects. TCA is detectable in wine at concentrations
as low as four parts per trillion, and although some wine drinkers are more sensitive to it than others, the taste and
smell of a "corked" wine are as unforgettable as the disappointment a sommelier (trained wine professional) or
host feels upon the discovery of a tainted bottle. The wine industry argues that this had risen to an unacceptable
level. Estimates of this level vary wildly, as do different people's sensitivity to and awareness of TCA. The cork
industry quotes less than 2 per cent. Some wine producers claim it is as high as 15 per cent. Whatever the precise
figure, wine producers are deeply worried that a significant proportion of their customers experience a
substandard form of the liquid they originally put in the bottle. And they are almost more worried by a light
incidence of TCA which simply flattens the aroma and fruit of their wines than by TCA at its most obvious,
virtually undrinkable extreme. In the first case, the consumer will probably think, wrongly, that the fault lies with
the wine rather than the cork. The cork industry has been working hard to introduce new techniques that minimise
the incidence of TCA taint in their products, and to demonstrate that TCA can arise not just from corks but other
sources such as wooden pallets. Because of all this uncertainty, wine producers have been seeking alternative
bottle stoppers, or closures, with much lower or minimal risks of TCA taint, and closure manufacturers have
identified this business opportunity that demands more than 13bn wine bottle closures and is a growing market.
But they risk alienating their customers who love cork or at least the “pop” of the closure.

It is wider changes in the wine industry that has led to innovation in wine bottle closures, and suitable remedial
activity in the natural cork industry itself, even though this problem/ opportunity has been obvious to all in the
wine business for at least 15 years. The first generation of alternatives to natural cork were synthetic copies of the
real thing, cylinders of various oil-industry-derived materials, "plastic corks" which, though improved, can still be
difficult to get out of a bottle neck, and even more difficult to put back in. They retain natural cork's disadvantage
of needing a special tool to extract them. In 1999 the synthetic cork was dealt a significant blow by the Australian
Wine Research Institute (regarded by the industry as the most important impartial research project) comparing the
technical performance of different closures. This showed that synthetic corks started to let in dangerous amounts
of oxygen after about 18 months, which means they are really suitable only for the most basic wines for early
consumption.

In terms of costs synthetic was initially more expensive than natural cork, but fierce competition between different
manufacturers and economies of scale have brought synthetic cork prices down, rising oil prices has put pressure
on this, but generally, a plastic cork costs considerably less than a natural one - well under 3p each, when a good
quality cork can easily cost more than 10p. Cork and synthetic require a foil capsule over the top, which costs
0.8p. Synthetic corks have several more big drawbacks such as they are non biodegradable, unlike natural cork.
Furthermore, the ecosystem of southern Portugal depends on our continuing to buy natural corks - an argument
that is questionable given that the cork forests of Alentejo were planted expressly for the cork industry.

Screwcaps

Both natural and synthetic are cheaper than the next most obvious
alternative, screwcaps, which are currently the favourite closure for
many a wine technician (anyone who has to open a lot of bottles),
although the special bottles needed for screwcaps are expected to
become cheaper as screwcaps become more common - and there is no
need to pay for a foil capsule over a screwcap.

Unlike synthetic corks, screwcaps are extremely good at keeping

wine's enemy, oxygen, out of the bottle - almost too good in fact. It is
becoming increasingly clear that screwcaps are associated with the
opposite of oxidation: reduction, which can suppress wine's all-
important aroma and even imbue it with a downright nasty one. This
problem particularly affects Sauvignon Blanc, a grape that tends
naturally to reduction, but not Riesling.

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For the moment these two grapes are those most frequently found under screwcap, because their bright, aromatic,
unoaked wines have so far seemed to respond best to this particular seal.

In New Zealand and Australia, an estimated 30 per cent of all wines, red and white, are already bottled under
screwcaps, which are gradually spreading throughout the northern hemisphere. But the jury is still out on the
effect of screwcaps on oaked whites and reds, which may actually need more oxygen during the ageing process
than screwcaps allow.

But not all consumers are as thrilled by screwcaps as producers. They still carry the stigma of being associated
with cheap wines and spirits - and, unlike the natural cork, they involve precious little theatre of cork screw and
pop. Furthermore, screwcap application requires the installation of a completely new set of machinery from the
old cork insertion kit. This has discouraged many smaller producers from adopting the screwcap, or Stelvin as it is
known in many markets after the market leader. It has also made plastic corks seem a much more attractive
alternative.

In Australia and New Zealand there is near total acceptance that the screwcap is the preferable closure. In the UK
they are now commonplace in mass market wines; UK wine bottlers report that the proportion of all wine they
stopper with a screwcap has risen to 85 per cent in the past three years. But in much of mainland Europe and
certainly in the US there is still considerable consumer resistance to this innovation.

More innovative alternatives now include the Vino-lok, a glass stopper reminiscent of an old-fashioned pharmacy,
currently being trialled in Germany; Gardner Technologies' MetaCork, a US stopper which can be screwed off but
is lined with a natural cork for re-sealing; and more recently from Australia the Zork, a plastic, peel-off stopper
which so far seems good at keeping oxygen out and also provides the vital "pop" when being extracted.

Zork has the disadvantage for producers of being a relatively late arrival on the scene and, initially at least, being
more expensive than any other closure. But it is extremely easy to use and may well find favour with consumers
because of what the manufacturers describe as "the sex appeal of the cork".

ZORK
According to its manufacturer, Zork is a revolutionary new wine closure product that combines the benefits of
cork and screwcap. They humorously suggest that Zork is Australian for cork. Similar to synthetic and screwcap
closures, Zork offers the winemaker a competitively priced, quality-controlled consistent barrier to oxygen, that
will not taint the wine or scalp its flavour. Unlike synthetic, however, it is made from a durable, food-grade
polymers, and is fully recyclable

Zork was developed and manufactured in Adelaide, South Australia, that seals like a screw cap and pops like a
cork. The ZORK snaps onto a standard cork mouth wine bottle and after simple, low cost modification can be
applied at high speed using industry standard capping equipment.

The ZORK closure consists of three parts; a robust outer cap that provides a tamper evident clamp that locks onto
the European CETIE band of a standard cork mouth bottle, an inner metal foil which provides an oxygen barrier
similar to a screw cap, and an inner plunger which creates the ‘pop’ on extraction and reseals after use. The
closure is easy to remove by hand and simple to reseal.

To open the bottle, peel the seal to remove the tamper evident tab. The closure can then be pulled out like a cork
and pop. After pouring the bottle can be resealed by pushing it back in. according to the advertising copy: ZORK
delivers a superior technical seal but retains the sense of celebration associated with traditional closures.
No cork screw, no crumbling, no cork taint, no worries.

The cork industry fights back

The cork industry has launched its own offensive against synthetic closures. Firstly the cork industry via the Cork
Quality Council (CQC) is sponsoring ongoing research into the relationships between TCA, cork and bottled
wine. The following research has been carried out by ETS Laboratories over the past two years. It involves the use
of chemical tests to quantify TCA content in individual corks and in cork harvests. The results have shown several
interesting characteristics of TCA in cork soaks (cork soaking is the process prior to putting the cork in the bottle).

Lecture & Seminar schedule for Innovation Mgt Page 19 P Trott

It has also demonstrated a direct relationship between the level of TCA found in a cork soak and TCA that is
transmitted to bottled wine. Testing has proven to be more quick, sensitive and accurate than previous analysis
available to the industry. The procedure offers an immediate improvement in cork quality control procedures
involving screening manufactured corks. Further value is seen in other research projects designed to eliminate
TCA prior to the completion of cork manufacture. The chemical test is now being used by CQC member
companies to supplement sensory analysis of incoming cork shipments.

Secondly, Cork manufacturers have invested $200m in the past five years in new plants and supply chain
integration, says APCOR (Association of Portuguese Cork producers). The industry passed a self-regulatory code
in 2000 to standardise manufacturing practices. Currently, 190 Portuguese cork makers have been certified. Cork
producers have also vertically integrated their distribution channels. For example Amorin Cork, the largest
producer of natural corks, has taken over supply and distribution lines it once contracted out.

Marketing the benefits of cork

Thirdly, in 2003 the Portuguese government and APCOR members launched a 12-month $6.5m marketing
campaign to turn consumers against synthetic closures (Almond, 2003). One of the tactics has been to stress the
dangers of switching to synthetic and the environmental disasters that could result. Another has been to gain
support from wildlife groups to stress their concerns to wildlife is the cork forests are lost. In 2004 WWF, the
conservation group, urged wine drinkers to avoid bottles sealed with plastic "corks" or screw tops. It said that
falling demand for traditional corks was threatening the habitat of the Iberian lynx, the world's rarest big cat. The
latest figures from the IUCN, the World Conservation Union, show that there are only 150 lynx left, prompting
the IUCN to upgrade its status to "critically endangered" (Houlder, 2002).

A slightly more sophisticated tactic has been to focus on the consumer. For example, surveys show that wine
drinkers dislike synthetic closures, long associated with cheap wine. Yet the synthetic market share is growing,
mainly from medium-end wines from "new world" markets: Argentina, Chile and Australia. Synthetics account
for 7-8 per cent of a worldwide market of an estimated 17bn bottle stoppers, growing at a rate of 10-30 per cent a
year, according to US-based Supreme Corq, the largest synthetic cork maker. The challenge for the cork industry
is to try to nurture the consumers’ love of natural cork.

The use by some wine brands of the flanged bottle (roll top rim) first introduced in 1999 to try to convey a
premium product, is now being replaced by the standard shaped bottle. This is partly in response to consumer
research which reveals that premium quality is no longer associated with the flanged bottle largely because the
design became almost universal amongst the international wine brands. A similar argument could be made with
the use of screwcaps, where there may be a consumer backlash because people may associate screwcaps with
mass market wines which would result in enormous damage to the premium labels (Almond, 2003).

Conclusions
This case study has explored some of the issues surrounding changes in the wine industry and impact on one of
the world’s oldest industry cork wine closures. The issues stir strong emotions and there are powerful lobby
groups at work trying to influence consumers and government officials. Environmentalists say that undercutting
demand for natural cork will render cork forests less profitable, and spark an ecological and economic disaster.
Such arguments while they play well with certain consumer groups are hard to sustain when many of the forests
have been specifically planted to harvest cork.

It seems the switch to screwcap has been made for the benefit of the Wine, not just the image or for reduced costs.
The cork industry’s response has been to invest in research to address the issue of cork taint and to increase
promotional campaigns about the benefits of cork. This however, has largely been through the use of fear arguing
that the cork forests of Portugal will be lost, along with all the associated wildlife if the move from cork as a
closure continues and to suggest that consumers will reject wine from a screwcap bottle. The evidence for this last
claim is not there certainly in many parts of the world.

According to wine industry figures; faults attributable to the use of cork as a seal run between 3-7% depending on
who you ask, this is high and would be labelled a disaster in any other industry, especially for food and beverage.
It's particularly so when there are ways the industry can directly address the issue, by looking at alternative seals,
as they are now doing. The decision to change closure however has to include consideration of costs and
consumer preference. At present a plastic cork costs considerably less than a natural one - well under 3p each,
when a good quality cork can easily cost more than 10p. With regards consumer preference, this is more difficult
to gauge. In some countries most notably Australia and New Zealand consumers, it seems have readily embraced

Lecture & Seminar schedule for Innovation Mgt Page 20 P Trott

the screwcap. Indeed, the corkscrew is rapidly becoming redundant in both countries. When even Kay Brothers of
McLaren Vale, the dusty old winery that has hardly changed since the eponymous brothers bought it in 1890, is
using screwcaps exclusively, the time for a cork revival maybe too late.

According to the cork industry more than one in two wineries are considering using screwcap. However, many in
the industry will continue to use natural cork for higher-priced bottles largely they say because of cork's ability to
facilitate the proper aging of wine and overall consumer acceptance. The new synthetic corks have succeeded in
getting the natural cork producers to take quality control far more seriously, and as a result the quality of cork
closures has improved. But many wine-makers and retailers remain unimpressed and argue that the cork industry
has not yet eliminated cork taint.

While the battle over closures rages, the so called traditionalists argue that the wine industry is merely exploiting
profits in the short-term by producing large volume homogenised wine and that this may harm the wine industry
in the long term because consumers will grow bored with the uniformity of style.

Questions
1. Sketch out the supply chain for wine (from vin yard to store shelf).
2. To what extent is the cork industry guilty of complacency and a lack of innovation?
3. If consumers love corks why are the producers not providing what their customers want?
4. What role have the wine buyers (end users and others in the supply chain) played in contributing to the
fall in demand for cork as a closure?
5. Is it wine quality or costs that have driven producers to synthetic closures?
6. How could technology forecasting have helped the cork industry?
7. What level of R&D investment would be required to help the industry diversify and develop new
opportunities for its materials?
8. What portfolio of R&D projects would you establish for the cork industry?
9. Discuss the issues of sustainability and innovation in this ancient industry of the production of cork wine
bottle closures.
10. Will the cork industry have to concede defeat to the Zork?

References
Robinson J (2004) A question of closure, FT.com site, Jun 11.
Almond M (2003) The Cork Industry Spins out the Fear Factor, 23 March.
Houlder V (2002) Wildlife body takes a pop at plastic corks, Financial Times, Dec 27.
Randolph N (2002) COMMODITIES & AGRICULTURE: Cork industry fights off taint, Aug 27.
Cole E (2006) Americans set to overtake French in wine consumption, Decanter, vol, 8, No 4, April 28.
Corkindustry.com (2006) www.corkindustry.com
Wine Anorak (2006) www.wineanorak.com
Moore V (2007) The great wine rip-off, Guardian, G2, April 5, p4-7.

Lecture & Seminar schedule for Innovation Mgt Page 21 P Trott

Seminar 4: Coursework preparation
The coursework for this unit forms part of the students preparation for the examination. Part One
involves preparation and participation in seminars. Attendance, preparation and participation in the
seminars will ensure that students give themselves the best opportunity to perform well in the exam.

Part Two requires students to write an essay. This will help students revise and prepare for the end of
unit examination. The essay should be no more than 1000 words in length. This will help students
revise and prepare for the end of unit examination. A copy should be submitted via Moodle and the
deadline for submission of the course work is Wednesday November 17th 14:00hrs.

1. Using the Cork Industry case study covered in this unit illustrate how cork lost market share to
screw-cap closures. You should discuss the role played by the wine producers and the wine
retailers. Develop a R&D strategy for the cork industry to help it respond to this challenge.

Reading list for this question:

1. Trott P (2021) Chapter 9, Managing innovation and new product development 7 th edition,
Pearson.
2. Trott P (2021) Chapter 7, Managing innovation and new product development 7 th edition,
Pearson.
3. Heij, C. V., Volberda, H. W., Van den Bosch, F. A., & Hollen, R. M. (2020). How to leverage the
impact of R&D on product innovation? The moderating effect of management innovation. R&D
Management, 50(2), 277-294.
4. Branco, A., & Parejo, F. M. (2011). The creation of a competitive advantage in the portuguese
cork industry: the contribution of an industrial district.

The Step-by-Step Process to Writing a Great Essay

1. Remember your essay is just a story.
2. Before you start writing, ask yourself, “How can I have the most fun writing this?”

• Research the most surprising or outrageous fact about the topic and use it as your hook.
• Use a thesaurus to research the topic’s key words. Get crazy with your vocabulary as you write,
working in each key word synonym as much as possible.
• Play devil’s advocate and take the opposing or immoral side of the issue. See where the
discussion takes you as you write.

3. As you research, ask yourself, “What surprises me about this subject?”

4. Overwhelmed? Write five original sentences.
5. Be “source heavy.”

It’s good to keep in mind that using anyone else’s words, even when morphed into your own phrasing,
requires citation. While the definition of plagiarism is shifting with the rise of online collaboration and
cooperative learning environments, always err on the side of excessive citation to be safe.

6. Write the body first, the introduction second, and the conclusion last.
7. Most essays answer the question, “What?” Good essays answer the “Why?” The best essays answer
the “How?”

Source: https://thewritepractice.com/writing-an-essay/

Lecture & Seminar schedule for Innovation Mgt Page 22 P Trott

Essay assessment criteria

The following Table provides a simple overview of how the teaching team will assess your essay.
Your essay will be marked by one of the team and then the team will moderate all the essays to ensure
grading consistency. An External Examiner (from another university) also reviews the Team’s marking
and assessment for accuracy and consistency.

Lecture & Seminar schedule for Innovation Mgt Page 23 P Trott

Seminar 5: Dyson and the bagless vacuum cleaner: a case study1

With a growth rate of 300%, the capture of more than 50% of the UK vacuum cleaner
market in less than 4 years, and a new £15 million R&D facility the success of the
Dyson bagless vacuum cleaner is clear. What is not so well understood is the story
preceding this success. This case study challenges much of the previously accepted
approach to conducting business. For example, the product in question used new
technology that was initially rejected by existing manufacturers; it was priced at more
than double that of existing products; virtually nothing was spent on marketing or
advertising, instead, the company relied primarily on its own efforts to enlist retailers,
on publicity generated by the occasional newspaper article about the product, and on
word of mouth.

Introduction
Conventional wisdom would surely suggest that Dyson Appliances Ltd. would fail
within a few months. After all it appeared to be a small company with an eccentric
manager at its helm, trying to sell an overpriced product of limited appeal in a very
competitive market with less expensive, conventional, mass-market products made by
respected manufacturers whose names were, quite literally, household words. The
result was very different. The story of the Dyson bagless vacuum cleaner is not a
classic tale of “rags to riches”. The charismatic inventor James Dyson was afforded
many privileges and opportunities not available to most. It is, nonetheless, a
fascinating story and illustrates many of the difficulties and problems faced by small
businesses and “lone inventors”; and demonstrates the determination, hard work and
sacrifices necessary in order to succeed. The cliché against the odds, which Dyson used as the title of his autobiography
(Dyson, 1998), is certainly appropriate and tells the story of the development and launch of the first bagless vacuum cleaner-
the Dyson DC01. This case raises several significant research questions in the field of innovation management. Firstly, how
and why did senior executives at leading appliance manufacturers across Europe, such as Electrolux, Bosch and Miele,
decide not to utilise the technology offered to them by Dyson. Secondly, how and why did senior buyers for many retail chains
across the UK fail to recognise the potential for the DC01. Thirdly, Technology Transfer experts would point out that the
Dyson case is a classic case of technology transfer- a technology developed for one industry, i.e. dust extraction from saw
mills, is applied to a different use in a new industry. Hence, it is technology transfer that needs to be championed and
supported further by governments. Fourthly, as a mechanism for protecting intellectual property, it seems that patents depend
on the depth of your pocket. That is, they are prohibitively expensive and are almost exclusively for the benefit of large multi-
national organisations. What can be done to help small businesses without such large pockets and unlimited financial
resources? And finally, many commentators would argue Dyson was successful partly because he had some influential
contacts that he had established- he was fortunate. But there may be 100 failed Mr Dysons, littering the business highways
who did not have such contacts. How can governments try to facilitate inventors like Dyson and ensure that more innovations
succeed? And thereby developing the economic base of their country.

Reaping the rewards from technological innovation

Since Dyson’s entry into the domestic appliance market two of the largest world players in the vacuum cleaner market have
responded to the challenge laid down by James Dyson’s bagless vacuum cleaner, launched in the UK in 1993. Dyson now
accounts for a third of all vacuum cleaner sales in the UK. In 1998 Dyson Appliances sold nearly 1.4 million units worldwide.
Revenues for the year were £190 million but surprisingly net income was £29 million- 15% of sales (see Table 1.1).

1 This case has been written as a basis for class discussion rather than to illustrate effective or ineffective
managerial or administrative behaviour. It has been prepared from a variety of published sources, as indicated, and
from observations.

Lecture & Seminar schedule for Innovation Mgt Page 24 P Trott

Table 1.1
Sales
(value of
units sold
£000’s)
The spectacular growth of Dyson
1400
Dyson

1200

100

100

80

60 Electrolux
Hoover

40

Panasonic

20 Vax
Goblin
Miele

0
time
1994 1995 1996

File: cyctable2

Background
Prior to the development of the bagless vacuum cleaner James Dyson had already demonstrated his prowess as a designer
and businessman. He was responsible for the “ballbarrow”. A wheelbarrow that revolutionised that market by using a ball
rather than a wheel. This was to provide the financial foundation for the development of the bagless vacuum cleaner. That
particular experience taught James Dyson many lessons. One in particular is worth mentioning. The patents for the
ballbarrow were owned by the company that James Dyson helped set up. He eventually parted with this company but
unfortunately lost all control of the patents as they belonged to the company and not to himself. Dyson was determined that
any future patent would personally belong to him and not a company.

For those of you who may not recall their British social and economic history, Hubert Booth developed the first vacuum cleaner
at the end of the nineteenth century. Vacuum technology uses the principle of a vacuum (the absence of everything, even
air). Vacuum cleaners actually create a partial vacuum, or more accurately, an area of reduced air pressure as air moves
outward within the fan. Airflow is created as air with normal air pressure moves toward the area with the reduced air pressure.
A few years later in 1902 the British Vacuum Cleaner Company was offering a vacuum cleaning service to the homes of the
affluent and wealthy. A large horse drawn 5-hp engine would pull up outside your home and a hose would be fed into the
house where it would begin to suck out all the dust. By 1904 a more mobile machine was available for use and was operated
by domestic servants. As popularity of the technology increased additional manufacturers began entering the market.
Electrolux introduced a cylinder and hose vacuum cleaner in 1913 and in 1936 Hoover introduced an upright cleaner with

Lecture & Seminar schedule for Innovation Mgt Page 25 P Trott

rotating brushes. This was known as the Hoover junior and was the best selling vacuum cleaner in the UK. Indeed, virtually
all vacuum cleaners since this time are variations on that Hoover Junior design. That was until the late 1970s and early 1980s
when James Dyson developed a vacuum cleaner using cyclonic forces and did away with the need for a bag to collect dust.

When it comes to cleaning performance, there is a tendency to look primarily at the power of the suction motor and the
amount of bristles on the brush roll. While these are important considerations, the quality and size of the paper bag are very
important factors as well. The paper bag in a vacuum cleaner consists of a special paper enclosure into which the dirt and air
are directed as part of the filtering system. The paper used is specially processed to permit the air to pass through it while
retaining as much of the dust and dirt as possible. The quality of the bag's filter media effects both its ability to retain the fine
dust and allergens and its ability to allow air to easily flow through it. The size of the bag will also affect how easily the airflows
through it. A good quality paper bag is a very important vacuum cleaner component, which needs to be regularly replaced.
The Dyson vacuum cleaner maintains its performance during the vacuuming process because it has no bag, hence there is no
reduction in suction due to clogging of the pores of the bag. A feature that is characteristic of the bagged cleaners.

The development of a bagless vacuum cleaner

It is the bag component of a vacuum cleaner that Dyson focussed on to
revolutionise the vacuum cleaner appliance industry. Put simply he tackled
the key dilemma for vacuum cleaners- how to collect dirt and dust, yet at the
same time allow clean air to pass through. This was achieved by abandoning
the use of bags to collect dirt. Instead he adapted the use of centrifugal
forces. Many of us will have enjoyed cyclonic forces personally. One of the
oldest fun rides at fairgrounds involves a large drum in which people stand
with their backs against the outer wall. When the drum spins the floor is
lowered and people remain pressed against the outer wall. The exhilaration
and excitement clearly is being forced against a wall unable to move ones
head or arms due to the huge forces that are created. Yet, the fascinating
aspect here is that the drum’s speed is no more than 33kpm (20 mph).

It is this principle that is used to separate the heavy dust particles from the air
allowing the clean air to continue through the machine. The air, which has no
mass, is not forced against the side walls of the container and takes the
easiest route in the centre and thus out through the hole at the bottom (see
Figure 1). This approach had been used in a variety of industries to collect
dust, for example, in sawmills, but this was on a large scale (30M by 10M) and involved substantial pieces of equipment. The
difficulty was applying this technology to a small domestic appliance.

If anyone still thinks that innovation is about waking up in the morning with a bright idea and shouting eureka they should
consider carefully James Dyson’s difficult road to success. Between 1978 and 1982 he built over 1000 prototype vacuum
cleaners, spent over £2 million pounds and experienced many years of sweat and headaches before eventually developing a
successful prototype. But this was merely the start of an even longer project to get manufacturers to buy the licence to
manufacture. Indeed, over ten years later Dyson decided to mass produce the product for the UK market himself.

The story begins in 1978 with James Dyson at home with his young family helping with some of the chores around the home.
Like many families at the time the Dysons owned a Hoover upright Junior vacuum cleaner. Dyson noticed that when a new
bag is fitted to the vacuum cleaner it works well, but quickly loses much of its suction. James Dyson soon had the vacuum
cleaner in pieces on his workbench and was amazed to realise that the standard vacuum cleaner technology relied on holes in
the bag to allow clean air to pass through. As soon as these clogged up (which starts to occur immediately) suction begins to
deteriorate. Moreover, he quickly discovered that all bagged vacuum cleaners operate on the same principle. How then can
this limitation be overcome? The idea came to Dyson while he was investigating a problem at his ballbarrow factory. To
improve toughness the product was powder coated and then heated. This involved spraying the powder coating, which was
messy. To overcome this problem an industrial vacuum cleaner was required. The suppliers of the powder coating informed
Dyson that most of their larger customers use cyclones to collect the powder. Such cyclones are also used in a variety of
industrial settings such as sawmills, to extract dust from the air. This information was the beginning of what turned out to be a
fifteen-year project.

Cyclonic cleaning systems separate the dust particles from the airflow by spinning the air within a separation chamber. The
Dyson system operates as follows:
Any dirt and air enters the nozzle near the floor and travels through the hose toward the separation chambers. It first enters
the primary dirt separation chamber where the larger dirt particles are deposited. From there the air with the remaining fine

Lecture & Seminar schedule for Innovation Mgt Page 26 P Trott

dirt and dust travels to the cyclonic chamber. Once in the cyclonic chamber, the spinning action separates most of the fine dirt
and dust particles from the airflow. The spinning causes centrifugal force to act upon the dust particles, moving them outward
while the air exits from the inner part of the chamber (see Figure 1).

Figure 1: Basic operating principle of Dyson bagless vacuum cleaner

clean air
forced out
air flow
with debris and dust
sucked into cone

cylone effect
created, with
particles being
forced to outside
and then down
the sides of the
cone

Vacuum forces
clean air up and out
through central funnel

debris & dust particles collect at bottom

of cone in a detachable container which is
then emptied when required

The Dyson vacuum cleaner uses two cyclones and several filters to capture dirt and dust. While the first cyclonic chamber
captured large dust particles some fine dust particles were escaping with the air. The answer was a second smaller cyclone to
capture the fine dust particles. Dyson spent many months developing this idea. The key problem was in the application of the
theory. That is, having dust pass through one cyclone and then another all in a small domestic appliance. After months, and
eventually years, of further trials and errors the development of a cyclone within a cyclone was born (the dual cyclone). As dirt
and air is sucked into the machine the first cyclone separates the large dust particles and these come to rest at the bottom of
the canister. The remaining air and fine dust (including cigarette smoke) is then carried into a second cyclone which
separates the even finer dust particles from the air.

The technology also uses several replaceable filters to remove even smaller particles of dust. Since the air is quite clean, it is
then allowed to flow through the motor to cool it. After leaving the motor the air is filtered by an HEPA exhaust filter to remove
even more fine particles and carbon from the motor brushes before it leaves the vacuum cleaner.

In search of a manufacturer- “don’t let the bastards get you down”

Thanks to experience gained with other products, most notably the ballbarrow, Dyson was able to ensure that patent
applications were in place prior to negotiations. This is essential if you wish to ensure that large multi-national companies are
not going to steal your intellectual property. From Dyson’s experience he would argue that they would probably try to steal it
regardless of any protection one held.

Dyson was offering a licence to manufacturing companies that included exclusive rights to his patents. In return Dyson would
receive a percentage of their profits from the sale of the manufactured product. Dyson was looking for a five to ten year
licence with a royalty of 5% of the wholesale price and £40,000 up front. In addition he was offering his help in the
development of the product from its prototype form. Unfortunately Hoover, Electrolux, Goblin, Black and Decker, AEG, Vax,
and many others all said no. There were many different reasons given. Sometimes the companies appeared to be arrogant

Lecture & Seminar schedule for Innovation Mgt Page 27 P Trott

and dismissed Dyson as a ‘loony crank’. What was surprising was that throughout companies appeared to be obsessed with
finding fault with the product. On other occasions the company expected Dyson to hand over the patents for very little
financial reward. Frequently there were difficulties in agreeing to meet; this was due to problems of protecting the intellectual
property that would flow from a meeting between the R&D experts of the company in question and Dyson.

Many of the objections, limitations and problems with the prototype may have been justified. One may even argue that the
agreement sought by Dyson was ambitious. There is also one other key issue- the bags. The Dyson product was proposing
to eliminate vacuum bags, this was a very profitable business for vacuum cleaner manufacturers. They were unlikely to relish
this prospect.

Breaking through in Japan

If things were not going well in the UK and Europe fortunately Dyson had a breakthrough in Japan. Apex Inc. agreed, after
several arduous weeks of negotiations, to a licence to manufacture and sell in Japan. The product was to be called G-Force.
The successful licensing of the technology to a Japanese
manufacturer in the late 1980s helped Dyson secure much
needed revenue at a time when he was beginning to consider
throwing in the towel. This small level of income also provided the
encouragement he needed to start planning the establishment of
manufacturing facilities in the UK. What is interesting about the
licensing arrangement in question, is that Dyson was uncertain
that licensing revenues received reflect the true sales figures. As
with all licensing and royalty agreements there is a significant
element of trust required. For example, authors trust their
publishers that sales of their book will be accurately recorded and
appropriate royalties paid. There is, however, the small matter of
who establishes the level of sales? This of course is taken by the
publisher who then pays the royalties to authors. This “high-trust”
relationship also operates with other licensing agreements where
royalties are paid per item sold.

Entering the UK market and manufacturing in the UK

With a small amount of revenue starting to trickle in Dyson decided that it was time to start in the UK. The existing appliance
manufacturers had expressed no interest hence, Dyson planned to manufacture the product in the UK by offering the product
to existing contract manufacturers. Essentially Dyson decided to offer a series of contracts to two existing manufacturing
companies. One to mould the component parts and another to assemble. For the existing moulding and assembly companies
it was additional capacity. Unfortunately the companies selected by Dyson caused further problems. Firstly, the quality of the
completed product was not acceptable to Dyson. Secondly the companies seemed to be squeezing Dyson’s work in between
existing long standing contracts. In the end Dyson decided that he would prefer to manufacture and assemble the product
himself. He purchased the moulds from the plastic moulding company and attempted to establish a factory in the UK. The
rationale being that this would at least ensure that he was in control of his own destiny and will not have to rely on others.
Further difficulties, however, were encountered by Dyson. Firstly, he found that it is extremely difficult to borrow money- even
with a proven successful product. Dyson explored the possibility of setting up a factory in an area where Government
development grants are available. For example, he tried South Wales but David Hunt, the then Welsh Office Minister, refused
his application for a grant.

The project has now consumed 12 years of his life and cost £2million. Once again Dyson was forced to consider whether it
was all worth it?
After months of negotiations Dyson’s local bank manager agreed to lend Dyson some more money and he was able to set up
his manufacturing factory in Wiltshire. Soon Dyson was producing his own product in his own factory and the first Dyson
bagless vacuum cleaner rolled off the production line in 1992.

Trying to sell to the retailers

Armed with a shinny new DC01 under his arm James Dyson began visiting the large UK white goods retailers such as Currys,
Dixons and Comet to arrange sales orders. Unfortunately Dyson was disappointed at their reaction. Quite simply the retailers

Lecture & Seminar schedule for Innovation Mgt Page 28 P Trott

were not convinced that the UK consumer would be willing to pay possibly three times as much for a vacuum cleaner.
Moreover, Dyson’s bagless product was twice the price of the brand leader. The response was almost universal:

Consumers are very happy with this one- why should they pay twice as much for yours? And anyway, if your idea was any
good Hoover or Electrolux would have thought of it years ago.

Eventually, several of the home catalogue companies agreed to feature the product. In addition an electricity board shop in
the Midlands also agreed to stock a few products. Initially, sales were slow but gradually they increase. Eventually John
Lewis the national department store agreed to take the product. From here sales began to take off.

In terms of marketing and promoting the product what is interesting is that todate, the company has spent virtually nothing on
promotion. Dyson has always adopted a strong product orientation and has believed that if a product is good enough it should
require very little promotion. It is this approach which Dyson adopted for the bagless vacuum cleaner. Despite the use of
revolutionary technology Dyson decided against large advertising budgets and instead relied upon a few press releases and
features in newspapers.

The competition responds

With Dyson beginning to challenge the once comfortable dominant position of Electrolux and Hoover both companies mounted
a strong defence of their products technology, claiming that their traditional vacuum cleaning technology was more effective
than the Dyson. Much of the debate, usually via press advertisements, centred on cleaning effectiveness. Hoover and
Electrolux were able to make some headline grabbing claims. In particular, that their products had more suction power, and
hence, were better. Certainly the traditional vacuum cleaner with bag had an initial high level of suction power, but this was
necessary because the bag soon clogged-up reducing the level of suction. There are two different ways of viewing cleaning
effectiveness. The most common use has to do with the ability of a vacuum cleaner to pick up dirt from the surface being
cleaned. The other has to do with the ability of the filtering system to clean the air so a minimum amount of dirt and allergens
is recirculated back into the home. The variable that is significant in a vacuum cleaner, however, is the flow of air and is
measured in cubic metres per minute (C.M.M.). It is one of the most important aspects of vacuum cleaner performance.
Airflow in a vacuum cleaner is inversely proportional to the total resistance within the system and directly proportional to the
suction created by the suction motor.

The chart below depicts cleaning performance after vacuuming 100 grams of ASTM Test Dirt. You will see that the Dyson
machine maintains a steady airflow other “bagged” machines lose airflow (see Table 1.2).

Table 1.2: Cleaning performance

% of airflow lost

70
Cleaning performance of five
vacuum cleaners
60

50

40 Dyson

30 Upright A

20 Upright B
Canister D
10
Upright C
0
Grams
0 200 400 600 800 1000 vacuumed

File: cyctable1

Lecture & Seminar schedule for Innovation Mgt Page 29 P Trott

Hoover’s bagless vacuum cleaner
With sales and market share continuing to decline (see Table 1.3) Miele and Hoover have attempted to fight Dyson in the
vacuum cleaner market by developing similar bagless vacuum technologies. Hoover embarked on a technology transfer
exercise to utilise technology first developed for the oil industry. The centrifugal force technology (similar to the technology
used by Dyson) was used to separate gas or sand from crude oil. This technology has now been applied to Hoover’s range of
vacuum cleaners (Triple Vortex vacuum cleaners) in attempt to compete with Dyson’s own patented centrifugal force
technology (see Hoover.co.uk, 2000). Interestingly Hoover’s technology dispenses with the need for any filters. This may
provide the advantage Hoover requires to re-establish itself as a key player in the vacuum cleaner market. Dyson is claiming,
however, that Hoover’s technology infringes his patents and is currently fighting this lawsuit.

Dyson has had several legal battles with his competitors over patent infringement and advertising standards. In January 2000
the Advertising Standards Association (ASA) ruled in favour of Dyson regarding an advertisement from Electrolux that claimed
its vacuum cleaner was the most powerful. The ASA ruled that power of the motor was no indication of vacuum cleaner
effectiveness (Sunday Times, 2000).

Table1.3 With sales declining Miele and Hoover have attempted to

take on Dyson in the vacuum cleaner market

Dyson Volume (%) Value (%)

Total market 33.5 53.5
Upright 51.6 66.9
cylinder 13.6 29.8
Hoover
Total market 12.3 9.2
Upright 16.5 10.2
Cylinder 8.2 7.1
Miele
Total market 2.1 2.6
Cylinder 6.1 10.4
Source: Guardian March 16, 1999

Hitting the big time

In 2002 Dyson entered the US market. In 2004 sales reached almost 1million units. This contributed to a surge in profits at
Dyson, which were £102.9m in 2004, more than double 2003's figure. Sales efforts have continued and in 2006 Dyson was
the brand leader in the US. This has been achieved with no intellectual property protection in the US. Unusually Dyson
decided to enter the US market without
any patent protection. He relied on the
brand’s strength that had been built and
developed over the previous ten years.
Sales in 2006 were 1.5 million units.
Dyson revealed that success in the US
was partly down to a very successful
$30 million ad campaign. This was a
very different strategy to that used in the
UK/Europe.

More recently Dyson Appliances has

been enjoying continued and improved
success in one of the most fiercest
markets of all- Japan. Indeed, in 2006
Dyson overtook Toshiba to become the
third biggest vacuum brand in Japan.
This success is due to the Dyson DC12
a small digital machine designed especially for Japanese consumers. For Dyson Appliances ltd success continues largely due
to success in overseas markets. In Japan, the hand-held DC12 was the biggest selling carpet cleaner last year, outdoing such
Japanese brands as Sharp and Sanyo. This helped push profits in 2006 past the £100m barrier for the first time. The group's

Lecture & Seminar schedule for Innovation Mgt Page 30 P Trott

annual report reveals that the inventor awarded himself a £30m dividend on top of his £29m salary following a 9% rise in
annual sales and 19% pre-tax profits boost, to £115m. Profits have almost trebled in four years, when the group made pre-tax
profits of £43m. This is largely because of success in the US and Japan. Turnover has rocketed from £2.4m in 1993 to £515m
last year. Its exports have increased three-fold in the past three years, now accounting for 80% of turnover (see Figure 2).

Figure 2: Profits at Dyson

Conclusions
James Dyson certainly believes it was worth it in the end. But during the fifteen-year period there were probably many
occasions when he felt like giving up or more likely would have sold out for a few hundred thousand pounds. From 1980 to
1992 was a very difficult period, not just for himself but for his family, and enormous pressures were placed on them.
Fortunately they survived, arguably, someone without the background, resources and contacts would have failed. Many
people have great ideas but only a few achieve success. Very often it is due to the determination of the individual involved,
sometimes events seem to conspire against even the best efforts of the individual.

Dyson invests heavily in R&D and believes that this is the key to success. Not all firms support this view. The level of
investment in R&D varies considerably. The high value he places on creativity sets Dyson apart from other firms and helps
explain his insistence on maintaining what in Britain are considered insanely large annual investments in research and
development. Nearly 17% of revenues regularly goes to supporting the company's R&D efforts, a figure some 10 times
greater than the average in the UK. As a result of these ongoing research expenditures, a company that started with just one
product now offers more than a dozen- all either upright or canister vacuum cleaners, each a more refined and technologically
advanced model than its predecessors (Wallop, 2006).

Questions for discussion

1. Explore the key problems Dyson had to overcome?

2. Characterise the type of innovation and new product development in the mature vacuum cleaner market prior to
Dyson. Are there other industries in this situation?
3. Manufacturing the product has turned out to be hugely profitable, yet this was not the original plan; why not?
4. Explain the rationale behind Electrolux and Hoover’s decision not to purchase the licence from Dyson. Given
Hoover’s recent development of the Triple Vortex how do you assess this decision? What level of royalty would
have been reasonable for both parties, that is, Dyson and Hoover?
5. Why is negotiating a licence for a new product so difficult (so many firms/people get it wrong)?
6. How can businesses try to ensure that their senior managers (both buyers and new business development
managers) do not dismiss exciting technology and with it potentially profitable business?
7. What is the role of patents? To what extent is it an effective system for protecting intellectual property?
8. Not all firms invest in R&D. What should be the level of expenditure on R&D for a firm?
9. Discuss Dyson’s new patent applications for a hairdryer.

References
Dyson J (1998) Against the odds, Orion Books, London.
Guardian (1999) March 16, p22.
Hoover.co.uk (2000) www.hoover.co.uk
Sunday Times (2000) Dyson bags ruling on Electrolux, Sec 3, p3.
Wallop H (2006) Dyson cleans up with £31m payday, Daily Telegraph, Nov, 1, Business Section, P4.

Lecture & Seminar schedule for Innovation Mgt Page 31 P Trott

Seminar 6: How developments in electronic sensors create
destruction in the disposable diaper industry: a case study2

Paul Trott

This case study illustrates how a mature, well established

industry is faces potential radical changes as new
technology is used to develop improved performance
products. Sales of disposable diapers have benefited
from the practice of people replacing diapers at regular
intervals rather than only when they need changing. The
result, of course, is increased sales as well as increased
environmental concerns about the disposal of millions of
diapers. Falling costs of electronic sensors have created
an opportunity for a moisture sensor to be incorporated
into the disposable diaper that indicates accurately when
a diaper should be changed. This delivers reduced costs,
reduced waste and improved care.

Introduction
A meeting is taking place at Paper Products Ltd, one of the world’s largest consumer goods
companies. It has been called by Thomas Williams, Marketing Manager. At the meeting with him are
Margaret Spilling, Brand Manager for the company’s diaper brand and Dr Henry Walker, R&D Manager
for Paper Products.
“So what are we going to do about this patent?” said Thomas Williams, Marketing Manager for
Paper Products and one of the world’s largest consumer products firms. “And, more importantly, what
am I going to say to the MD when I meet with him next month to discuss our quarterly performance and
outlook? I don’t want to look like a complete fool when he says: ‘What about this new diaper with
sensors from your major competitor?”
“I agree. This could be the beginning of the end of our very lucrative business”, said Margaret
Spilling, Brand Manager for ‘Contented’, Paper Product’s diaper brand and the world’s leading diaper
brand. Their eyes were fixed upon Dr Henry Walker, R&D Manager for Paper Products. This meeting
had been called by Thomas Williams following an email from Henry Walker informing him about a new
patent application that one of Thomas’ Patent Agents had passed to him.
“It wouldn’t have been so bad if this patent was from a small start up in Amsterdam or
Cambridge”, said Margaret. “But it’s from our number one competitor: ConsumerGlobal. I am amazed
that we didn’t know about this. I thought we knew exactly what ConsumerGlobal were up to even before
they knew what they did?”
“I am surprised that you are all so surprised”, said Walker. ”This is not the first patent application for a
diaper with a sensor for detecting wetness. If you have a look at the patent databases you will see
many more from all sorts of companies.
“Well this is the first time I have heard about it”, said Thomas Williams.

2 This case has been written as a basis for class discussion rather than to illustrate effective or ineffective
managerial or administrative behaviour. It has been prepared from a variety of published sources, as indicated, and
from observations.

Lecture & Seminar schedule for Innovation Mgt Page 32 P Trott

 “I have only been here six months Thomas, so I can’t comment on what went on before, but I
would have thought that you should have received regular updates from the R&D Manager on such
matters”.
“Well, I didn’t ,but I am glad we appointed you, Henry”, said Thomas Williams. “Now go and use
all those university degrees that you have and tell us what we should do now to ensure that we all have
jobs this time next year!”

The R&D Manager for Paper Products took his colleagues through a number of options which included
doing nothing, embracing the technology into their own products through licencing, and intensive
applied R&D to see if they could invent around the patent.
“What remains unclear”, he said, “is whether anyone would want to buy the product. The cost of
it may be so high that few would be willing to pay for it”.
“Look”, said Margaret Spilling. “I am disappointed that it’s not us with this patent, rather than
our major competitor. There is a chance that ConsumerGlobal is currently planning a massive
advertising campaign to launch this new moisture sensor diaper and steal 20 or 30% of our business. If
that happens I don’t think any of us will be in a job. We will have been caught asleep at the wheel. This
is serious”.
“Yes, I agree”, said Thomas. “But there is also another issue we need to consider. Not only are
we likely to lose business to our number one competitor but surely we are all likely to be selling fewer
diapers if this product succeeds”.
“How do you mean?” said Henry.
“Well people will no longer be changing clean diapers for clean diapers. They will now only
change them when they are wet or dirty. So sales will be much lower”.
“Which begs the question, said Margaret. “Of why ConsumerGlobal is launching this product in
the first place. If they know it will result in less cash for them?”
“Unless of course they have developed a business plan”, said Thomas. “Which takes account
of fewer sales of diapers but with a larger margin on the new electronic diaper that may offset the
decrease in volume”.
“Ok”, said Thomas Williams. “This is what we do. Henry do as much as you can in the next
month. Investigate this technology. Put together a small team and spend the next four weeks on this
project and nothing else. Margaret, can you do as much market research as is possible in the next four
weeks. Find out who would buy this and what they would be willing to pay. Let’s meet again here in four
weeks. We will then need to decide what to do”.

The world diaper market

Research indicates that babies each use between 3700
and 4200 diapers during the entire life of a baby. This is
based on an average of 4 diapers per day, although
there are many regions of the world that use fewer
diapers than Europe/USA. China and Russia are good
examples as they are probably the very best at toilet
training. They are able to achieve this goal before the
age of 20 months, instead of the 33 or more required in
Europe/USA. The rest of the world is somewhere in the
middle. A good estimate for the total global potential
market for baby diapers in the world is to add the total
number of babies between the ages of 0 to 2.5 years and
multiply by 4.2 diapers per day and a total of 365 days
per year. The number 4.2 may seem small, but you
have to take into account that it is the average over the
“whole life” of the baby and not the typical consumption
in the first twelve months. For example, babies use more diapers per day when they are small and far
fewer when they grow older. In 2005 there were 321 million babies in the world with ages in the range

Lecture & Seminar schedule for Innovation Mgt Page 33 P Trott

of 0 to 2.5. This means the world requires 15,600 diapers per second if every single baby used
disposable diapers. This is a very lucrative business when you consider that a weekly pack of diapers
costs approximately €10.00. The two leading brands of diapers in the world maintain a healthy 75%
market share between them. Procter & Gamble own the Pampers brand and Unilever own the Huggies
brand. Over the past thirty years these companies have invested huge sums of money into their brands
and this has helped them grow the market. Industry analysts argue that they were successful in
different ways. For example, Pampers sold the best diaper money could buy, while Huggies sold the
concept of a "Good Mother". Marketing experts have suggested that Huggies built a brand and
Pampers built a great category.

Private Label diapers

The idea behind private label products is to follow the market leaders as closely as possible, at a lower
cost. In the baby diaper market private labels are continuing to produce ever more sophisticated
products and are becoming more of a threat to the big brands like Pampers and Huggies. For example,
World Hygenic Products (WHP) manufactures, markets and sells private label baby diapers, training
pants, and youth pants for the majority of the largest food and drug retailers. The company says
corporate branded products, also known as private label or store brands, offer consumers a better
value, with great quality and significant savings over national brands. On average the company says it’s
possible to spend up to £2000 or more on disposable diapers and training pants per child and with its
products consumers can save 25% by switching to private label brands without sacrificing product
quality and performance.

The ageing population

The one other significant market segment that consumes diapers is the elderly. While population aging
is a global phenomenon, the Asian-Pacific region is expected to see a particularly drastic demographic
change over the next few decades (according to the United Nations Economic and Social Commission
for Asia and the Pacific). The number of elderly persons in the region—already home to more than half
of the world's population aged 60 and over—is expected to triple to more than 1.2 billion by 2050, when
one in four people in the region will be over 60 years old. Other parts of Asia, such as China, Taiwan,
Hong Kong, South Korea and Singapore, are also anticipating a surge in the percentage of elderly
citizens. In China, people over the age of 60 now account for 13.3% of the country's population of 1.34
billion, up from 10.3% in 2000. The rapid aging of Asia's population creates challenges for governments
and societies. It also creates new opportunities for businesses serving the needs of the elderly and their
carers. Across Asia, large corporations and entrepreneurs in various industries are racing to come up
with new products and services for the elderly, while health-care related businesses are seeing soaring
demand. Among various fields of health care for the elderly, nursing homes represent one of the
fastest-growing sectors.

Lecture & Seminar schedule for Innovation Mgt Page 34 P Trott

Four weeks later: Meeting to discuss diaper sensor business opportunity
Thomas Williams turned to his team and said: “I keep six honest serving‐men; they taught me all I
knew. Their names are what and why and when; And how and where and who. From The Elephant’s
Child by Rudyard Kipling. “
“Very good, Thomas, you should be on the stage”, said Henry.
Thomas ignored the jibe and said: “So are you two going to tell me all I need to know about diapers and
sensors? Are we going to have to start making diapers with in-built sensors?
How much will they cost to produce? How much can we sell them for? Will we still have jobs in a few
weeks?”

Margaret stood up and began. “As

usual we uncovered some typical
reactions from the laggards and
those who seem to be against any
form of change. Things like an
association problem in that the
baby will associate a siren sound
with peeing? There was laughter
all around. “Some people
suggested a flashing LED rather
than a siren We also uncovered a
few more ideas such as the use of
a negative sound may be of use in
the diaper around potty training
time. And the possibility of a
sensor in a potty that has a positive sound. While this was useful we have some specific findings from
our mainstream consumers on the diaper sensor concept. Market research reveals that mothers would
not pay more for a diaper with a sensor. They just say they change them when they have to. The smell
tells me when it’s time to change. Anyway some mothers like changing the diaper. It gives them quality
time with their baby. After all that’s what one of the world’s leading brands has spent millions convincing
mothers that they are being a good mother when they change the diaper. It is purely a male orientated
perspective that diaper changing is unpleasant.”
“At last”, added Margaret. “So now you know, your male understanding of the world is limited,
and it means that alone you may be unable to recognise some business opportunities.”
Thomas stepped in: “Joking aside this is an important point and shows the need for a joint male and
female perspective in our decision making.”
“Maybe”, said Margaret. “It also seems to show that there isn’t much interest or demand from
mothers for such a product. So we don’t need to start looking for new jobs. Our research revealed that
a product launched in this category will have limited appeal because of the combination of high initial
cost of the product and we will be up against the inertia of many years of the constant message that:
loving mothers change diapers. We would now have to promote the idea that loving mothers don’t
change diapers!”
Thomas leaned back and put his hands behind his head: “Interesting. So we conclude that despite the
good technology and a potentially new product that could deliver genuine performance benefits, market
entry is precluded due to the installed base effect of twenty years of advertising propaganda.”
“Their advertising has created an entry barrier” said Margaret.
“All this jargon is beginning to sound like a business studies seminar,” said Henry. “Can we turn to the
technology?”

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The technology
Henry stood up and began: “Firstly, as I thought, this technology is not new. Many different firms have
secured patents in the field of sensors and diapers. Some of these firms are indeed our competitors,
but it seems, for whatever reason, they did not develop the technology or a new product. If you have a
look at the Table on the slide you can see some of the details (see Table 1). This shows that many
different firms have been aware of the use of sensors to indicate wetness”.

Table 1: Patent search results for diapers and sensors

Citing Patent Issue date Original Assignee Title
1 USD326423 May 26, 1992 Breitkopf Norbert Moisture sensing alarm for a diaper
2 US5389093 Feb 14, 1995 Knobbe, Martens, Olson & Wetness indicating diaper
Bear, LLP
3 US5468236 Nov 21, 1995 Kimberly-Clark Corporation Disposable absorbent product
incorporating chemically reactive
substance
4 US5760694 Jun 2, 1998 Knox Security Engineering Moisture detecting devices such as for
Corporation diapers and diapers having such
devices
5 US5838240 Nov 17, 1998 Johnson Research & Wet diaper detector
Development Company, Inc.
6 US6603403 Aug 5, 2003 Kimberly-Clark Worldwide, Inc. Remote, wetness signalling system
7 US7250547 Jul 31, 2007 RF Technologies, Inc. Wetness monitoring system
8 US7956754 Jun 7, 2011 Kimberly-Clark Worldwide, Inc. Connection mechanisms in absorbent
articles for body fluid signalling devices

“It could have been a cost issue”, said Margaret. “And maybe now that the costs of sensors have fallen
the product is now viable?”
“Possibly”, said Henry. “But I think there are others things we need to consider. Let’s look at the
technology a bit more closely. Using low cost moisture sensing technology it is now possible to produce
a disposable diaper with an in-built sensor. A small clip-on sensor device attached to the diaper detects
moisture through special carbon ink prints on the diaper's inner surface and sends the information
wirelessly to PCs and mobile phones. Please note the clip-on device isn't disposable. The most recent
technology can detect wetness at three different levels, eliminating the need for repeated checks of
diapers just to see whether they need to be replaced. And this is the key to unlocking the business
opportunity. The sensor is made of carbon material printed on a 50-micrometer-thick sensor tape that is
run along the inside of an adult diaper or absorptive pad and connected to a small transmitter. The
sensor does not respond to sweat or very small amounts of urine, but will pick up large volume
emissions, and send a signal to a wireless receiver. Previously the sensors tended to indicate whether
the diaper was wet or not. A technology that merely informs you that a diaper is wet has limited appeal.
Indeed, parents can do this themselves. Just ask any parent and they will have developed an additional
sense that tells them their baby’s diaper is full. This can be through odour or simply how their baby
struggles to move because of the weight of the full diaper! Let’s be clear here; the utility of this product
lies not in the simple moisture sensor, but in the technology that enables it to detect different levels of
moisture. It is this sensitivity that makes it so attractive to customers and the adult market in particular.
To be informed that a diaper is wet is useful. To be informed when a diaper is wet and then very wet is
much more useful. This could be the innovative step forward. If you combine this with a mobile device
or PC a product concept begins to emerge that enables the user to monitor several diapers at once, as
this table (Figure 1 below) shows.”
The team studied the table and questioned Henry about the system developed for nursing and care
homes.

Lecture & Seminar schedule for Innovation Mgt Page 36 P Trott

Figure 1: A diaper patient moisture monitoring system
Diaper patient monitoring system
Patient Moisture Display on
Room No. indicator monitor
1 Dry

2 Saturated

3 Wet

4 Dry

5 Saturated

6 Wet

7 Very wet

Henry continued “Each disposable diaper costs €1.20 or less, but customers also need to purchase or
lease the wireless system including the clip-on devices. This limits its appeal to certain customers and
also makes it even less attractive for the baby market. Indeed, I think the manufacturing and product
costs rules out the diaper sensor for the baby market segment.”

_________________________________
PART TWO- supplied in class

Questions for discussion?

1. Explain why baby diaper producers such as P&G and Unilever may have dismissed this product idea?
And then explain why this may have been short sighted?
2. What made Thomas decide to take this opportunity to the Board?
3. Discuss the different types of services that can be developed around the core technology concept.
4. Sketch the range of business models available and their advantages.
5. What changes in the external environment has led to this new business opportunity?
6. Use the cyclic model of innovation to show how key decisions led to this product innovation.
7. Why did the team dismiss an alliance with a pharma firm and what potential strategic alliances should the
business explore?
8. Was the team correct to dismiss the baby diaper market so readily?
9. Explain why you would or would not invest €10,000 of your own money in this new business?

Lecture & Seminar schedule for Innovation Mgt Page 37 P Trott

Seminar 7: Case Study: Has the Apple innovation machine
stalled?

This case study examines the success and failure of new products from Apple. Many analysts have
argued that the death of Steve Jobs has had a significant impact on Apple’s innovation ability. What is
more likely is that competition has increased and profits have been reduced; but did Apple make
mistakes? Difficult times may lie ahead, but the case shows that Apple has faced even worse times in
the 1990s. Jonathan Ives, Head of Design at Apple, argues Apple is more than one man. High levels of
investment seem to suggest a good future.

Apple, Innovation and market vision

Stiffer competition in smartphones and tablets from the likes of Samsung has raised concerns over
whether the party is over for Apple. One should not be surprised. Apple’s fantastic profit margins—
38.6% on sales have attracted attract many competitors. The iPhones and iPads still generate huge
profits. But margins are being eroded by clever competitors like Samsung (see Figure 1). Apple needs
another disruptive innovation.

Apple made $42 billion in 2012. This was a record for Apple and among the all-time records for
corporations everywhere. Under Tim Cook, Apple has introduced the iPad Mini — a 7-inch tablet (a
category Jobs dismissed as pointless) — which has preserved the iPad’s leadership in tablets. This is
in addition to Tim Cooks exceptional management of Apple’s supply chain. When Cook initially took
over Apple's supply chain, he cut down the number of component suppliers from 100 to 24, forcing
companies to compete for Apple's business. More
recently Apple has adopted even stricter management
over its supply chain than before. The changes include
more frequent inspections, greater time spent on
inspections, and a renewed focus on managing costs
and product quality.

The ipod, iphone and ipad have all shown Apple’s great
skill in bringing disruptive innovations to the market.
Disruptive innovation explains the dichotomy of
sustaining and disruptive innovation. A sustaining
innovation improves the performance of existing
products along the dimensions that mainstream
customers’ value. It results in limited change for
established companies. Disruptive innovations, on the
other hand, will often have characteristics that traditional
customer segments may not want, at least initially. Such innovations will appear as cheaper, simpler
and even with inferior quality if compared to existing products, but some new segment will value it.

The ipod, iphone and ipad also demonstrates Apple’s great skill in Market Vision. Disruptive innovations
require a greater change in existing patterns of behaviour and thinking; thus consumers would perceive
a higher level of risk and uncertainty in their adoption decisions relative to continuous innovations that
depend on established behavioural patterns and perceptions.

This ability has been at the heart of Apple’s success. Its ability in ‘Market vision’ or the ability to look
into the future and picture products and services that will be successful is a fundamental requirement
for those firms wishing to engage in innovation. It involves assessing one’s own technological capability
and present or future market needs and visioning a market offering that people will want to buy.

Apple needs more new products. One of these new products is likely to be a much cheaper iPhone
aimed at emerging markets. Apple sold 2m of its top-of-the-range iphone devices in 2013. However,
most Chinese shoppers can’t afford the things. Barclays, an investment bank, reckons Apple could
produce an iPhone for less than $150 to broaden its appeal. This would certainly generate revenues by
appealing to mass markets. But Apple has rarely targeted the mainstream. A review of its past may

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point the way for the future.

The rise and fall and rise of Apple Corp Inc.

Apple computers began in 1977 when Steven Wozniak and Steven Jobs designed and offered the
Apple I to the personal computer field. It was designed over a period of years, and was only built in
printed circuit-board form. It debuted in April 1976 at the Homebrew Computer Club in Palo Alto, but
few took it seriously. Continual product improvements and wider technological developments including
microprocessor improvements led to the launch of the Apple Macintosh in 1984.
The Macintosh computer was different, because it used a mouse driven operating system, all other PCs
used the keyboard driven system known as MS DOS (Microsoft Disc operating system). Early in the
1980s Microsoft licensed its operating system to all PC manufacturers, but Apple decided against this
approach opting instead to stay in control of its system. The 1980s was a period of dramatic growth for
personal computers as virtually every office and home began to buy into the PC world. Slowly Microsoft
became the dominant standard, not because its technology was better, but largely because its system
became the dominant standard. As people bought PCs so with it they would buy the operating system:
MS Windows, hence it became the de-facto dominant standard. The Apple operating system was only
available if you bought an Apple PC. Consequently Apple’s market share plummeted. By the mid 1990s
Apple had grown to a $12 billion company twice the size of Microsoft; but Microsoft was powering
ahead on the back of the launch of Windows it would soon become the dominant tech firm.
In 1993 Apple launched the Newton; its first completely new product in many years. Indeed, it
represented Apple's entry into (and perhaps creation of) an entirely new market: Personal Digital
Assistants (PDAs). The PDA market was barely present when the Newton was released, but other
companies were working on similar devices. The Newton
Message Pad featured a variety of personal-organization
applications, such as an address book, a calendar, notes,
along with communications capabilities such as faxing and
email. It featured a pen-based interface, which used a
word-based, trainable handwriting recognition engine.
Unfortunately, this engine had been developed by a third
party, and was notoriously difficult to use and was partly
responsible for the product’s failure. This was to represent
a low point in Apple’s fortunes. In February 1996 Business
Week put Apple on its front cover with the headline: the fall
of an icon.

With so much success currently washing around the firm it is sometimes difficult to recall all of Apple’s
failures. So I have listed them in Table 2. Some of them were very bad. But learning from your mistakes
is an important lesson in every aspect of life and it seems that Apple has learnt well.

Table 1: Apple’s new product failures

Apple Product Why it failed
Macintosh The 16-pound monster had many cutting-edge technologies for the
Portable (1989- time, such as its active matrix LCD screen, but its weight and the fact
1991) that it often would not turn on even when plugged in due to its battery
design kept it off users' desks. In 1989 Toshiba and others were
shipping the 6-pound notebook form we still use today, making the
Macintosh Portable a whale in a market of dolphins.
Apple Newton The Newton MessagePad, a tablet-PDA hybrid with handwriting
MessagePad recognition. There was nothing else like it, but its ungainly size,
(1993-1998) woeful battery life, and hard-to-read screen relegated it to technology-
cult status.
Macintosh In the 1990s Apple was facing increased competition from DOS- and
Performa series Windows-based PC makers, Apple's then-CEO Michael Spindler
(1992-1997) decided to sell a line of cheap Macs, called the Performa. They were
cheap: flimsy, prone to failure, and underpowered -- yet still costlier
than a cheap PC. Worse, they cannibalized the sales of pricier Macs
for a while, rather than expand the market.
Pippin (1995- The Pippin was a multimedia PC aimed more at gaming and CD

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 1996) playback than traditional computing -- more like what a PlayStation or
Xbox is today. PlayStation, Nintendo, and Sega consoles were
already out and more popular, so game developers and users ignored
the Pippin.
Macintosh In the mid-1990s, Apple was falling struggling. Apple decided to let
clones (1995- other companies make and sell Macs. The main clone maker was
1997) Power Computing. Power Computing's clones cost less and soon
surpassed Apple's own Macs in ratings.
Steve Jobs returned to Apple in 2007 and quickly killed the clone
experiment by releasing Mac OS 9. Apple bought Power Computing
and shut it down that year.
Apple USB After taking back control of Apple in 1997, Steve Jobs went about
Mouse (1998- redefining the look and feel of the Mac itself, and his design team
2000) created the candy-colored iMac line that contrasted dramatically with
the traditional beige box. It also decided to reinvent the look and feel
of the mouse. The new disc design certainly got attention, but for the
wrong reasons: It was hard to hold, as it didn't fit most people's
hands. In 2000, the company released the soapbar-shaped Apple Pro
mouse, whose elongated yet still-simple curves could be held
comfortably and securely by humans.
Apple TV (2007- Apple's networked media player box was supposed to be the new
present) TiVo, but it's not even as well liked as Windows-based media-center
PCs. Apple TV is fairly limited: Apple TV isn't connected to the vast
video libraries of Netflix or Blockbuster (BBI), so you're stuck with the
iTunes Store's offerings, which many television and movie studios
have avoided supporting for fear of suffering the same loss of control
as the music industry experienced with iTunes. In other words, Apple
TV isn't that innovative or that capable.

In the mid 1990s Apple’s future in the computer technology industry looked bleak, with a diversified
product portfolio and a low market share within the PC market of only 3%. Many were therefore
surprised when Steven Jobs returned to the company as Chief Executive in 1997. He quickly set about
culling many product lines and much of its operations and decided to focus on only a few products
including the new looking imac. This coincided with the economic boom in the late 1990s and allowed
Apple to generate cash very quickly. This provided revenue for the development of the iPod, which was
to transform the fortunes of Apple. Table 1 shows the Apple and Steve Jobs relationship.

Table 1: Steve Jobs and Apple

Year Event Year Event
1976 Co-founds Apple with Steve 2001 Laucnhes ipod
Wozniak
1976 Apple launches first computer 2003 Itunes launched
1984 Launch of Apple Mac 2007 Iphone lauched
1985 Jobs ousted in Boardroom battle 2010 Ipad launched
1986 Co-founds Pixar 2010 Apple overtakes
Microsoft
1997 Returns to Apple 2011 Icloud launched
1998 Launch of iMac 2011 Steve Jobs dies
2001 First Apple store opens

Jonathan Ive and life without Steve Jobs

Jonathan Ive is the British designer behind Apple's iconic iPods, iPads and iPhones. It's hard to over-
estimate the influence of Jonathan Ive. He is due to receive $25million (£15.5million) in shares, which
he was able to buy for £7million. The money will contribute to his fortune of more than £80million. In
September 2012, Ive seems to have committed himself to Apple when he bought a $17 million house in
San Francisco. In 2012 Ive was promoted to a bigger role at Apple where he now oversees all product
design, hardware and software. This follows news that Apple is parting with mobile software chief Scott
Forstall. Ive will fill some of the vacuum left by Forstall. Apple announced the following:

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 “Jony Ive will provide leadership and direction for Human Interface (HI) across the company
in addition to his role as the leader of Industrial Design. His incredible design aesthetic has
been the driving force behind the look and feel of Apple’s products for more than a decade.”

Ive is softly spoken, and has worked at Apple in California since 1992, and since 1997 has been in
charge of its designs. This may well make him the most influential designer in the world. In creating the
imac he helped save Apple. With the iPod he unleashed a product that profoundly altered the music
industry, while the iPhone is doing the same to the mobile phone industry. The most recent product
from his team, the iPad, is setting the standard for an entirely new category of computer.

He studied design at Newcastle Polytechnic, now Northumbria University, where he still returns
frequently to give guest lectures. Ive emphasises the teamwork involved in producing products such as
the iMac, the candy-coloured computer that re-launched Apple on the path to success, or the iPad. Ive
and his team don’t just design the products that Apple makes. The ideas are often so different that
frequently they have to design the entire production process that the factories will use to make them.

In interviews Ive has said that ‘we don't really talk about design, we talk about developing ideas and
making products. The simplicity that is found in the hardware has not always been matched in the
software, which since the rise of iOS - the operating system for iPad, iPhone and iPod touch - has been
marked by something known as skeuomorphism, a tendency for new designs to retain ornamental
features of the old design.

There have also been unsuccessful products (see Table 2). But Ive says that most of the company's
failures are kept far behind the scenes. He goes on: "And there have
been times when we've been working on a program and
when we are at a very mature stage and we do have
solutions and you have that sinking feeling because
you're trying to articulate the values to yourself and to
others just a little bit too loudly. This is probably
indicative of the fact that actually it's not good
enough. On a number of occasions we've actually all
been honest with ourselves and said 'you know, this
isn't good enough, we need to stop'. And that's very
difficult." Knowing when to call a halt to a project is
an important part of his role.

There is within Apple a strong belief in people focusing on their area of expertise, says Ive, but when a
product is being developed the process can be quite fluid. He says: "As we're sitting together to develop
a product you would struggle to identify who the electrical engineer was, who's the mechanical
engineer, who's the industrial designer." Teamwork is an important part of the process.

"One of the things that is particularly precious about working at Apple is that many of us on the design
team have worked together for 15-plus years and there's a wonderful thing about learning as a group. A
fundamental part of that is making mistakes together. There's no learning without trying lots of ideas
and failing lots of times."

In interviews Ive has said that the absence of Jobs has not affect the way Apple develops products. He
says they will do it in exactly the same way because there is a large group of people that work in the
same way. That team is the reason that Ive believes Apple will continue to succeed. "We have become
rather addicted to learning as a group of people and trying to solve very difficult problems as a team.
And we get enormous satisfaction from doing that. In 2012 and very unusually, Apple flew in its entire
design team from San Francisco in recognition of the importance of the Design & Art Direction Awards
– all 16 of them, accompanied Sir Jonathan Ives on stage to collect the award for best design studio.

Troubles ahead?
An area of criticism levelled against Apple inc. that has also received considerable media coverage is
the issue of excessive secrecy and obsessive control exerted by Apple on its suppliers. One of these

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suppliers is Foxconn, the world’s biggest contract maker of IT goods including the iPhone. It is far less
well known than the brands it assembles, but it is one of Taiwan’s largest companies. Reuters news
agency reported in 2010 that Apple goes to "extreme lengths" to protect even the smallest details of its
new products under development (Pomfret and Soh, 2010). At Foxconn’s assembly plant in Longhua,
South China, workers swipe security cards at the gate and guards check the occupants of each vehicle
with fingerprint recognition scanners. It resembles a fortress- so much for open innovation! Many of
Apple's finished gadgets, from iPods to iPads, are assembled at industrial compounds like the one in
Longhua. Many of Apples’s tactics seem like they have emerged from a James Bond film: information is
assiduously guarded and handed out only on a need-to-know basis; employees suspected of leaks may
be investigated by the contractor; and the company makes it clear that it will not hesitate to sue if
secrets are spilled. To try to control information, Apple will give contract manufacturers different
products, just to try them out. That way, the source of any leaks becomes immediately obvious. Apple's
obsession with secrecy is the stuff of legend in Silicon Valley. Over the years, it has fired executives
over leaks and sued bloggers to stop trade secrets from being exposed. Apple also helps keep its
components out of the mainstream by insisting on custom designs rather than off-the-shelf parts -- a
practice that leaves many suppliers frustrated. Not surprisingly, landing a contract with Apple will
always include a confidentiality clause. And they usually come with stiff penalties in the event that a
breach is discovered. Such agreements often come on top of unannounced checks by Apple officials to
maintain standards. However, the difficulty lies in proving the source of a leak. In the absence of solid
evidence, the most Apple can do is to switch suppliers once the contract runs out. At times all of this
secrecy seems to run out of control. In a case that made global headlines, an employee in China for
Foxconn was believed to have jumped to his death after being interrogated by his employer. According
to local press reports, he was under suspicion of taking an iPhone prototype -- to which he had access -
- out of the factory (Watts, 2010).

Outsourcing and the danger of creating a competitor

The benefits of outsourcing seem to have been demonstrated clearly by Apple as it has masterfully
used its supply chain to deliver low cost components and thereby enabling it to create large margins for
itself. Table 1 shows the key components that go into the iphone. One of the on-going challenges when
a firm outsources is the ever present threat that one of your partners decides that it can make for itself
what it makes for you. This has been demonstrated time and again across a variety of industries. Acer
is a good example. For Apple Samsung has turned from partner to competitor as it learnt from Apple
and then developed further the technologies it was supplying.

Table 1: Assembling the component parts to make an iPhone

Company Country Part

1. Samsung S Korea cpu video processing chips

2. Infineon Singapore Baseband communications

hardware

3.Primax electronics Taiwan Digital Camera modules

3. ARM UK Microprocessor designs

4. Foxconn International Taiwan internal circuitry

5. Entery Industrial Taiwan connectors

6. Cambridge Silicon Taiwan bluetooth chip sets

7. Umicron Tech. Taiwan printed circuit boards

8. Catcher technology Taiwan stainless metal casings

9. Broadcomm US touch screen controllers

10. Marvell US 802.11 specific parts

11Apple Shenzhen Assembly; stocks; packs; ships.

China

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The way foreword?
The best way for the company to prove it is not past its prime would be for it to disrupt another big
market. Since Jobs’s death in 2011 Apple has concentrated on sprucing up its existing products. Now
investors want to see it conjure up entirely new ones. All eyes are on television. Mr Cook says
television is an area of “intense interest”. He told interviewers that when he switches on the TV in his
living room, he feels like he has “gone backwards in time by 20 or 30 years.” This fuels expectations
that Apple will launch an iTV. The iTV, which may be controlled via iPads and iPhones, could be a
digital hub for the home. It would let people check whether their washing machine has finished its cycle
while they gossip on Facebook and watch their favourite soap. Peter Misek of Jefferies, an investment
bank, says sales of it should also boost purchases of iPads and other Apple gear, as more people get
sucked into the firm’s “ecosystem” of linked devices and software.

But the iTV is no surefire blockbuster. For one thing, persuading cable and broadcast outfits to make
programming available over the internet on demand will be tricky. They have already seen how such a
model crushed music companies. For another, iTVs are likely to be pretty expensive, limiting their
mass-market appeal.

Apple will also, as usual, face stiff competition from Samsung.

The South Korean firm is one of several that already sell smart
TVs. Indeed, Samsung seems to be churning out more and
more groundbreaking devices while Apple has produced only
incremental innovations of late. Apple’s court battles with
Samsung over smartphone patents have reinforced the
impression that it is on the defensive.

However, Horace Dediu of Asymco, a research firm, says it

would be a mistake to think Apple is resting on its laurels. He
notes that its capital expenditure has soared in recent quarters,
reaching levels typically seen at firms with huge manufacturing
operations, such as Intel (see Figure 2). Some of this money is
going into data centres to support cloud services like iTunes.
But Mr Dediu reckons much of it is being spent on dedicated
production equipment at suppliers. This could give Apple an
edge in producing new gadgets.

Conclusions
The ipod was not the first digital music player, nor was the iPhone the first smartphone or the iPad the
first tablet. Apple imitated others products, but they appeal to us on a human level because they are so
aesthetically pleasing and intuitive to use. One of the reasons that Apple is so revered by designers is
because it isn’t obsessed by technology for technology’s sake.

Apple, once best known for its Macintosh computers, and now known for its iPod, iPhone and its iTune
online Music Store is as last making up for its lack of market gains in the highly competitive PC market.
It is necessary to remind students of business that ultimately this is about money and Apple was twice
the size of Microsoft in 1992 and for ten years it failed to deliver growth for its shareholders. It is only in
the last ten years that Apple has started to repay investors, reaching an equivalent market value of
Microsoft in 2010. Fortunes change quickly in technology intensive industries, but they change even
quicker in the world of fashion.

One of Mr Jobs's greatest skills was being able to decide which projects the firm should not undertake.
For example, it is said that engineers at Apple were urging its boss to create a tablet computer in early
2000/2. But Mr Jobs turned a deaf ear to their entreaties and instead insisted that the company focus
on producing a smartphone. The result was the iPhone, which transformed yet another market and is
still minting money. In a creative cauldron like Apple, ideas are rarely in short supply. But the skill of
choosing the right ones to focus on at the right time is rare.

Lecture & Seminar schedule for Innovation Mgt Page 43 P Trott

Yet even if it produces a cheaper iPhone, pushes deep into China and wows the world with a smart TV,
competition is now tougher in its core markets. Rivals will not let it disrupt new ones so easily. Has the
firm’s great innovation engine has stalled? The figure below shows competitors are stealing market
share.

Questions
1. The return on investment delivered by Apple has fallen considerably. Explain why?
2. Steve Jobs impact on Apple is without question. Surely a company of over 100,000 employees
is not reliant on one person? How might his death affect Apple?
3. Apple’s fortunes have ebbed and flowed over the past 40 years. The past few has seen growth;
in your assessment will the next few years see decline?
4. Explain how Jonathan Ive may be responsible for much of Apple’s past success and future
fortune?
5. Discuss whether Apple has shunned open innovation and adopted a very closed innovation
model.
6. Samsung seems to be nibbling away at Apple’s market share. Has Apple mismanaged its
outsourcing?
7. How might Apple be able to capture value from the rise of Apple as a lifestyle brand?
8. Discuss how on the one hand Apple seems to very good at Disruptive Innovation yet it is also
accused of copying others.

Lecture & Seminar schedule for Innovation Mgt Page 44 P Trott

Seminar 8: Driverless cars

Scenario 1
AV Dashcam Exploit – 23/11/20273
Police today issued a warning following the discovery of a zero-day exploit in the firmware of the recent
line of Wu Ming autonomous vehicles. The exploit came to light with hackers’ release of data giving the
location of reality TV star Emma Dale’s vehicle, which was uploaded to several social networks last
night. Ms Dale, who is currently married is rumoured to be having an affair with celebrity superstar,
Justin Rees and the allegation from the hackers is that she was headed to his home. Wu Ming has, as
yet, not provided an update for the insecure software. Solicitors for Ms Dale announced that they are
suing Wu Ming for facilitating what they call a ‘gross invasion of privacy’. Representing Ms Dale, Penny
Rose, said “this is a violation of her rights to privacy. We are troubled by the cavalier way in which the
essential expectation of privacy has been treated.” A spokesman for Wu Ming said “we naturally take
any breach of customer privacy very seriously and are looking into the precise nature of the breach.
Beyond that, we have no comment for the moment.” Note: “A zero-day vulnerability is a disclosed
computer-software vulnerability that hackers can exploit to adversely affect computer programs, data,
additional computers or a network. It is known as a "zero-day" because once the flaw becomes known,
the software's author has zero days in which to plan and advise any mitigation against its exploitation.”
(https://en.wikipedia.org/wiki/Zeroday_% 28computing%29)

Immediate (Scene) questions

1) Upon whom does any liability fall?
2) What steps could the manufacturer take to deflect liability for any breach?
3) How might this particular scene play out in the short term? What steps are likely to be demanded or
taken in response to the breach?

Wider (Sectoral) questions

1) What balance should there be between the needs for notification of misbehaviour and the reasonable
expectation of privacy in an AV?
2) Supposing an AV would be broadcasting its location at all time, where would the public mood lie on
the questions of privacy surrounding the use of an AV?
3) To what extent are breaches like this, should they occur, going to affect the demand for and use of
AVs?
4) How can a system be built that is trusted, safe and balanced for all stakeholders? What
compromises might there be?
5) Assuming that to some extent breaches of AV software take place, what is the order of priority for
dealing with risks? What protocols ought to be in place to deal with such breaches should they occur?

Scenario 2
IT SHOULD NEVER HAVE HAPPENED-TV NEWS 24/11/20244

WENDY
“We cross live now to our transport correspondent, Richard Westplot, who is in central Surbiton.
Richard…?”

RICHARD
“Thanks Wendy. You join me in Surbiton, an ordinary London suburb if it’s fair to use that term. Two
days ago, right where I’m standing, something that should never have happened, happened.
Thirteenyear old Peter Leicester was struck by one of the new wave of fully autonomous cars of which

3This material is from the report by: Cohen, T., Jones, P. & Cavoli, C., 2017. Social and behavioural questions
associated with automated vehicles. Scoping study by UCL Transport Institute. Final report, London: Department
for Transport.
4 This material is from the report by: Cohen, T., Jones, P. & Cavoli, C., 2017. Social and behavioural questions
associated with automated vehicles. Scoping study by UCL Transport Institute. Final report, London: Department
for Transport.

Lecture & Seminar schedule for Innovation Mgt Page 45 P Trott

we’ve heard so much. The vehicle’s user had passed control to the onboard Robodriver. Witnesses say
that Peter and friends had been playing “chicken”, each taking turns to step out in front of an
autonomous vehicle in order to force an emergency stop. In fact, there have been three airbag injuries
to vehicle users arising from pedestrian-related stops in this area over the past month. What happened
in Peter’s case? Did he step out so late that the vehicle was unable to stop? Did the vehicle suffer a
failure of some kind? The user was operating the vehicle on a section of highway rated for self-driving
so appears to be in the clear.
Police will say no more than that they are investigating and in touch with Wu Ming, the vehicle’s
manufacturer.
This is the first UK accident involving an autonomous vehicle that’s led to hospitalisation and it’s a
mercy that Peter is in a stable condition. But his parents are unlikely to be impressed by claims of an
80% fall in accidents thanks to this technology. Back to you,
Wendy.”

QUESTIONS?
1 Is this something that we would get used to? What if such collisions did indeed happen a great deal
less frequently than in the days of human-operated vehicles?
2 What difference, if any, does the suggestion that the pedestrian had been playing “chicken” make and
why?
3 Would full automation ever be permitted on roads shared with vulnerable users?
4 At this stage in the technology’s development, autonomous vehicles will be comparatively expensive,
implying a wealth gap between the vehicle user and the pedestrian. How relevant is this?

Scenario 3
AUTOMATED MUGGING5

Local Transport Today, Issue 13227, February 4-17 2026

Transport Select Committee announces inquiry on personal security and autonomous vehicles

The Transport Select Committee yesterday announced the launch of a new inquiry on personal security
and autonomous vehicles, reflecting serious concerns raised by a wide range of motoring and
consumer group organisations (see LTT passim). These relate to the vulnerability of occupants of fully
autonomous vehicles following a series of high profile vehicle-jackings and personal muggings in
wealthy, low-density areas at night – throwing into question the whole idea of ‘hands-free’ driving. AVs
travelling down residential streets have been suddenly surrounded by groups of young men, wielding
bars and bats. The vehicles come to a halt, to avoid causing injury, and then remain immobile while
windows are smashed and occupants are threatened. Having suffered the fear and humiliation of the
attack, the occupants are further angered by the vehicle’s monitoring systems identifying damage and
thereby refusing to restart so they can resume their journey.

The Mail on Sunday has added its weight to the campaign for action. As it reported last month, Sue
Brown was returning home from a night out with friends and while her vehicle was passing a local park
something was thrown in front of her car, which made an emergency stop. Immediately she was
surrounded by four youths; one smashed a side window and demanded her necklace, watch and purse.
“What could I do?” she recalls. “If I’d had my old manual car I’d have driven at them and they would
have soon scattered! We bought this car as we were told it was a lot safer – my husband had an
accident a few years ago and injured a cyclist – but this is just exchanging one type of danger for
another. We traded it in the next day for a ‘proper’ car.”

The inquiry is open to written submissions until 31st May

QUESTIONS
Immediate (Scene) questions
1) Is this likely to be a serious enough problem to change public sentiment and halt the AV expansion?
How could public fears be assuaged?

5 This material is from the report by: Cohen, T., Jones, P. & Cavoli, C., 2017. Social and behavioural questions
associated with automated vehicles. Scoping study by UCL Transport Institute. Final report, London: Department
for Transport.

Lecture & Seminar schedule for Innovation Mgt Page 46 P Trott

2) Could algorithms be modified to override normal obstruction avoidance strategies if, for example, a
panic button was activated? But, if this led to a collision, what would be the legal situation?
3) Vehicles could be designed to withstand such low level attack, but at the expense of weight and cost
– does this stack up commercially?

Wider (Sectoral) questions

1) How might we deal with moral dilemmas, where personal safety is at odds with personal security?
2) Does it make sense to give type approval where the occupant has no control over the actions – or
inactions – of the vehicle?

Scenario 4: ETHICAL DILEMMAS6

Jilly Toynbee writes in the Guardian on 31/01/2029:

Who would have thought that the application of philosophy to public policy would become so
acrimonious?
We remember the so-called Star Chamber consisting of the world’s most renowned moral philosophers
that held a three-year inquiry to support the development of ISO94622. Their brief: to agree on
principles that would determine how autonomous vehicles would deal in real time with a series of
ethical dilemmas. This most public of inquiries not only took evidence from a host of eminent experts
but was played out on social media. So we should perhaps have been amazed that any decisions were
reached at all.

But now, Professor Harry Stottle who, as chair of the Chamber, became something of a celebrity during
the early 20s, has lately been the subject of anonymous death threats, culminating last week in the
firebombing of his home in Summertown, north Oxford. And why? Because Belinda Graham, a 78-year-
old with 13 grandchildren, was the loser as the behavioural algorithm of a Wu Ming X42 decided in
favour of a four-year old boy with a degenerative disease that is likely to mean he will die before the
age of ten.

We can only speculate about why this example has ignited the tinder of public opinion; there have, after
all, been similar cases over the five years since ISO94622 gained approval and vehicles rolled onto our
highways. Perhaps it’s the sense that the standard’s inevitably simplistic decision-making heuristics
ignored the additional details that would, many argue, have reversed the standard prioritisation in
favour of a woman whose life was, on balance, more valuable. But Pandora’s Box has truly been
opened now: the Campaign for a Cyber-Free Environment has renewed its calls for the standard to be
revoked and all vehicles operating its algorithms to be recalled. The New Saboteurs are claiming
responsibility for increasing numbers of “AV-cides”, where vehicles are put beyond use in sometimes
rather spectacular ways. This movement seems to enjoy increasing cross-party support. As for
Professor Stottle, he might be forgiven for wishing that he’d stayed in the world of tutorials, papers and
conferences.

QUESTIONS:
1) Can we ever get used to the notion of setting rules that place higher value on some lives than
others?
2) If we did, could we accept that such rules, as generalisations, would inevitably mean the “wrong”
decision was sometimes made?
3) Given that we expect many fewer people would be dying than is currently the case without
autonomous vehicles, would that make a difference?
4) What might be a reasonable response to the public outcry described here?
5) The natural alternative to addressing these so-called “trolley problems” is to place AVs in a closed
system. Is that viable? Is it desirable?

6 This material is from the report by: Cohen, T., Jones, P. & Cavoli, C., 2017. Social and behavioural questions
associated with automated vehicles. Scoping study by UCL Transport Institute. Final report, London: Department
for Transport.

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SCENE 5: EMERGENCY MEETING CALLED BY MINISTER7
Local Transport Today, Issue 2338, April 12-23, 2028

Minister announces new legislation requiring compatible AV responses to emergency vehicles

A meeting took place at the Department for Transport’s headquarters last week, called by a reportedly
“angry” Selwyn James, Minister for Roads, with the heads of the UK emergency services and the
leading car manufacturers and distributors. This followed a leading article in the Daily Mail which, after
a ‘Freedom of Information’ request, had found that emergency vehicle response times had increased in
cities pioneering the introduction of AVs. The paper estimated that, in the previous 12 months, these
delays had led to several ‘unnecessary deaths’ and hundreds of millions of pounds in extra fire
damage.

An industry source, who asked not to be named, said that the problem arose from two factors. First, the
software on some imported AVs cannot identify signals sent out ahead of them by emergency vehicles
in the UK, as there is no international standard. And, second, each company has developed its own
automated response algorithms to deal with the presence of an emergency vehicle; some come to a
safe halt, some pull as far as possible to the left, others pull as far as possible to the right.
As the spokesperson noted: “Each of these strategies is fine if there is only one AV impeding the path
of an emergency vehicle, but when a busy road is full of AVs each adopting a different response, it can
lead to a total road blockage.”

The minister has since announced that new legislation will be introduced, as a matter of urgency, to
ensure that all AVs sold in this country have compatible vehicle emergency recognition and avoidance
strategies – although the car industry is likely to argue as to which maker’s standards are the ones to
be universally adopted.
Academics have been contracted to use the latest micro simulation traffic assignment models to see
which would be the optimal strategy, at a network level.
As one frustrated political adviser noted, on condition of anonymity: “we were led to believe that it was
best to ‘leave it to the market’ and that any regulation would hinder not help. That might be true for the
individual vehicle user, but when it comes to running a road network with thousands of interacting
vehicles of all shapes and sizes, this approach has clearly failed – I dread to think what other problems
might lie in wait!”.

QUESTIONS
Immediate (Scene) questions
1) How might we go about identifying vehicles with priority use on the road network?
2) Would it be simple to identify a set of agreed autonomous responses for conflict or emergency
situations?
3) What ‘other problems might lie in wait?’
Wider (Sectoral) questions
1) Does this mark the death knell for the fully autonomous vehicle?
2) How might we identify situations where ‘connectedness’ overrides the individually optimised
autonomous performance of AVs?
3) What other areas might raise issues about standardisation?’
4) ‘How will the authorities manage a road network with thousands of different interacting vehicles of
different types?’

7 This material is from the report by: Cohen, T., Jones, P. & Cavoli, C., 2017. Social and behavioural questions
associated with automated vehicles. Scoping study by UCL Transport Institute. Final report, London: Department
for Transport.

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Seminar 9: Worksheet 1 for end of year exam and revision

Multiple choice questions to be discussed by seminar group.

Each student to develop and present their own multiple choice question. The recommended text book
should be used as a resource for developing questions.

Below are two examples:

1. Which of the following best describes Innovation

(a) The thinking of novel ideas;
(b) The successful development of a new product;
(c) The process of conception, development and commercialisation;
(d) The development of a technical idea
(e) The management process of invention;
(f) None of the above.

2. In the world automotive industry the average expenditure on R&D as expressed as a % of sales
is approximately:
(a) 5%
(b) 10%
(c) 15%
(d) 20%
(e) 25%

My proposed multiple choice question is:

……………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………

a). ……………….…..
b). ……………………
c). ……………………
d). ……………………
e). ……………………

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Seminar 10: Case study

Water in the desert: How technology advanced Israel became water self-
sufficient

One of the driest countries on Earth now makes more fresh water than it needs. This case study
examines how Israel used its technological research to solve a societal problem. Global rankings of the
top innovation ecosystems in the world consistently find Israel to be one of the world's top locations for
entrepreneurs and venture capitalists. It is frequently placed alongside Silicon Valley in California and
the economic capitals of Europe. Indeed, Israel's self-proclaimed "Startup Nation" title often comes as a
surprise due to the country's small size, relatively young economy and culturally diverse population.

Israel and the Mediterranean

Israel is located on the south-eastern shore of the Mediterranean Sea and the northern shore of the
Red Sea. In Israel when you open a tap and drink a cup of cold clear water it is likely that the water was
in the Mediterranean Sea 40 minutes ago.

Israel has land borders with Lebanon to the north, Syria to the northeast, Jordan on the east, the
Palestinian territories of the West Bank and Gaza Strip to the east and west, respectively, and Egypt to
the southwest. In 1947, the United Nations (UN) adopted a Partition Plan for Palestine recommending
the creation of independent Arab and Jewish states and an internationalized Jerusalem. This new
country attracted many immigrants. The ‘Kibbutzim' also helped bond differences between immigrants
from over 130 nations experimenting with new agricultural methods and social structures. Developing a
knack for innovating and risk-taking, Israelis soon ventured into other sectors, contributing their
knowledge and skills to create Israel's first industries. Because they were immigrants, they had the
courage to experiment, learning the value of "chutzpah," which has encouraged the country's
generations of entrepreneurs to pursue new endeavours. Team-work, problem-solving and technical
skills learned during military service have also contributed to the success of Israeli entrepreneurs on a
global scale. The founders of ebay and Tesla are from Israel.
Israel is a highly attractive location for venture capital investment as a result of government institutions
that encourage and support innovation, such as the Office of the Chief Scientist. Israel has also made
efforts to attract international technological companies prompting major multinational companies like
IBM, Intel, Motorola and Philips to establish research and development centers in the country.

Lecture & Seminar schedule for Innovation Mgt Page 50 P Trott

Draughts and deserts
Israel is located in one of the driest parts of the world. Since its creation in 1948 Israel has consistently
faced life-killing draughts. Problems reached a peak in 2008 following a decade-long drought. The
Fertile Crescent, and Israel’s largest source of freshwater, the Sea of Galilee, had dropped to within
inches of the “black line” at which irreversible salt infiltration would flood the lake and ruin it forever.
Water restrictions were imposed, and many farmers were ruined by crop failures. In neighbouring
countries the problems caused by draught were even worse. In Syria farmers attempted to drill wells for
water. They dug deeper and deeper wells in an attempt to find water. Eventually going more than 500
meters deep to find water. Eventually, the wells ran dry and Syria’s farmland collapsed. More than a
million farmers joined massive shantytowns on the outskirts of Aleppo, Homs, Damascus and other
cities in a futile attempt to find work and purpose. This population movement problem became the
cause of deep unrest within these settlements mainly because the Assed government did little to help
(Kelly et al., 2015).

Government investments to save water and to harvest it from desalination deliver results
Except Israel. Amazingly, Israel has more water than it needs. The turnaround started in 2007, when
low-flow toilets and showerheads were installed nationwide and the national water authority built
innovative water treatment systems that recapture 86 percent of the water that goes down the drain and
use it for irrigation — vastly more than the second-most-efficient country in the world, Spain, which
recycles 19 percent.

But even with those measures, Israel still needed about 1.9 billion cubic meters (2.5 billion cubic yards)
of freshwater per year and was getting just 1.4 billion cubic meters (1.8 billion cubic yards) from natural
sources. That 500-million-cubic-meter (650-million-cubic-yard) shortfall was why the Sea of Galilee was
draining like an unplugged tub and why the country was about to lose its farms.

The transformation came following investments in desalination. The Ashkelon plant built in 2005,
provided 127 million cubic meters of water. Hadera, in 2009, put out another 140 million cubic meters.
More recently, Sorek, is the largest reverse-osmosis desalination facility in the world, and delivers 150
million cubic meters. In total desalination plants provide 600 million cubic meters of water a year. The
country faces a strange question: What to do with its extra water?

Desalination technology

Desalination used to be an expensive energy activity used only by countries with excess energy such
as Saudi Arabia and Kuwait. Recent advances in new desalination technology has changed the
industry. Water produced by the desalination plant at Sorek costs just a third of what it did in the 1990s.
Sorek can produce a thousand liters of drinking water for 36p, Israeli households pay about £20 a
month for their water — similar to households in most U.S. cities, and far less than Las Vegas £35 or
Los Angeles £42. Essentially desalination works by pushing saltwater into membranes containing
microscopic pores. The water gets through, while the larger salt molecules are left behind. The new
technology at Sorek uses 50,000 membranes enclosed in vertical white 1meter cylinders. The cylinders
contain sheets of plastic membranes wrapped around a central pipe, and the membranes have tiny
pores less than a hundredth the diameter of a human hair. High pressure water is pushed through the
membranes, while the remaining brine is returned to the sea.

The Zuckerberg Institute for Water Research

The Zuckerberg Institute for Water Research at Ben-Gurion University carries out cutting-edge
interdisciplinary research in hydrology and water engineering, and is a leader in graduate education in
water sciences. Its guiding mission is the improvement of human well-being, based on advanced
scientific technologies, innovation and the sound and sustainable management of water resources in
drylands. It has helped develop many new technologies to improve desalination effectiveness. The
biggest problem with desalination technology is microorganisms in seawater quickly colonize the
membranes and block the pores, and controlling them requires periodic costly and chemical-intensive
cleaning. A new technology uses a porous lava stone to capture capture the microorganisms before
they reach the membranes. It’s just one of many breakthroughs in membrane technology that have
made desalination much more efficient.

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Water Diplomacy

Water will likely be a source of conflict in the Middle East in the future. The International Desalination
Association claims that 300 million people get water from desalination, and that number is quickly
rising. IDE, the Israeli company that built Ashkelon, Hadera and Sorek, recently finished the Carlsbad
desalination plant in Southern California, a close cousin of its Israel plants. Drought has been a major
factor in the turmoil tearing apart the Middle East, Israel’s technology can help its parched neighbours,
and in the process, bring together old enemies in common cause.

Sources: Colin P. Kelley, Shahrzad Mohtadi, Mark A. Cane, Richard Seager, Yochanan Kushnir (2015),
Climate change and the recent Syrian drought, Proceedings of the National Academy of Sciences, 112
(11) 3241-3246;

Questions
1. Israel’s neighbours are suffering because of a lack of water, their farms are unable to deliver
crops and food for their citizens. What should be done?
2. Sketch out the causes of this water shortage, how much is this due to climate change?
3. How could water be used as a new weapon of diplomacy to help restore peace to the middle
east?
4. What is the new technology in this case how does it differ from the old technology?
5. Use the CIM (Figure 1.9) to illustrate the innovation process in this case.
6. What is the Zuckerberg Institute?
7. How has the state helped drive innovation?
8. Sketch out the National Innovation System (NIS) for Israel show how Israel has become an
example of a successful NIS.

Lecture & Seminar schedule for Innovation Mgt Page 52 P Trott

Seminar 11: Review and revision
In your seminar group discuss the readings and seminars from Term One.
Also discuss how the cases illustrate some of the concepts and theories within the lectures.

Coursework feedback

In this semninar we will also discuss the coursework and explain how high grades were achieved and why some
people scored low grades. This should help students prepare for the exam at the end of the unit.

Feedback

Lecture & Seminar schedule for Innovation Mgt Page 53 P Trott