Benefiting from Innovation: Value Creation, Value Appropriation and the Role of Industry Architectures

Advanced Institute of Management Research Paper No. 040

68 Pages Posted: 1 Dec 2008

See all articles by Michael G. Jacobides

Michael G. Jacobides

London Business School

Thorbjorn Knudsen

University of Southern Denmark - Department of Marketing & Management - Strategic Organization Design Unit (SOD)

M. Augier

Stanford University

Date Written: June 1, 2006

Abstract

Extending Teece's landmark 1986 article, we consider how innovators benefit from value appropriation and creation. We elaborate on value appropriation, first by pointing out the importance of "industry architectures", i.e. sector-wide templates that circumscribe the division of labor; and second, by treating complementarity and factor mobility as distinctive components of cospecialization. This allows us to qualify Teece's prediction, by positing that firms can create an "architectural advantage" in terms of high levels of value appropriation without the need to engage in vertical integration. Such architectural advantage comes about when firms can enhance both complementarity and mobility in parts of the value chain where they are not active. We then elaborate on value creation by indicating how actors can benefit from investing in assets that appreciate because of innovation, which suggests that firms can benefit from encouraging imitation while investing in complementary assets. We also consider how investment in complementary assets changes the scope of the firm and thereby the development of capabilities that support future innovation. Finally, we provide an integrative guide that explains how firms should manage their position along the value chain to capture returns from innovation, thus extending and qualifying Teece's (1986) original predictions and prescriptions.

Suggested Citation

Jacobides, Michael G. and Knudsen, Thorbjorn and Augier, Mie-Sophia Elisabeth, Benefiting from Innovation: Value Creation, Value Appropriation and the Role of Industry Architectures (June 1, 2006). Advanced Institute of Management Research Paper No. 040, Available at SSRN: https://ssrn.com/abstract=1309509 or http://dx.doi.org/10.2139/ssrn.1309509

Michael G. Jacobides (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 20 7706 6725 (Phone)
+44 20 7724 7875 (Fax)

HOME PAGE: http://faculty.london.edu/mjacobides/

Thorbjorn Knudsen

University of Southern Denmark - Department of Marketing & Management - Strategic Organization Design Unit (SOD) ( email )

Faculty of Social Sciences
Campusvej 55
DK-5230 Odense
Denmark

HOME PAGE: http://www.sdu.dk/sod

Mie-Sophia Elisabeth Augier

Stanford University ( email )

Stanford, CA 94305
United States

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