Capturing Value from Innovation - Strategy Choices of R&D and Marketing Managers

Abstract

Profiting from technological innovation requires both the development of new products and the capture or appropriation of profits from them. For new product development, the interplay of marketing and R&D has been intensively researched. In contrast, on the issue of capturing value it has been largely neglected. To fill this gap, we study choices by marketing and R&D managers regarding activities aimed at appropriating profits from new products. We study, in detail, how managers perceive the effectiveness of product-related patents, overall patent portfolio size, marketing, sales and services quality, lead time, and contributions to open standards. We conducted discrete choice experiments with 143 managers working in R&D or marketing functions in upper and middle management in a leading communication equipment firm, and analyzed the resulting data by comparing marginal effects of rank-ordered mixed logit models between the two groups. We find that choices of R&D and marketing functions on how to capture the most value differ strongest on the mechanism that is perceived as most important by R&D managers, “lead time advantages.” Top management needs to consider and deal with these diverging perceptions when formulating business strategies on value capture.

Keywords: Profiting from Innovation, Value Appropriation, R&D/Marketing Interface, Strategy Formulation

JEL Classification: O32, C25, M31