“Managing New Technology using Malleable Profit Functions”
Tue - 20 Sep | 09:15 - 10:00 | Salon A
IEEE TEM Department Editor
IEEE Transactions on Engineering Management
Professor of Operations Management and Information Systems
CPA Ontario Chair in International Entrepreneurship
York University, Canada
Technological innovation drives economic growth, and the pioneering activity of scientists and engineers produce technological innovation. We provide a mathematical model of pioneering strategic choice by adopting a perspective familiar to micro-economics but less common in the engineering management literature. Instead of focusing on the specific features of a pioneer’s technology, we focus on the malleability of the profit equation involved. By considering the arguments of the profit function (i.e., entry and variable costs and potential market demand) as strategic levers, we derive propositions that identify the ranges of actions (lever-pulling) available to managers to protect (and even increase) entrepreneurial rents in a simple yet robust partial equilibrium case. For each lever, we show that there are several value ranges (intervals), and that the pioneer’s incentives vary across these intervals. In addition, for each lever, we identify the existence of non-trivial profit discontinuities that change the pioneer’s incentives in surprising ways and lead to counterintuitive strategic choices. Lastly, we show that for some range of each lever’s values, welfare-improving transfer payments are possible and, therefore, pioneers and policy-makers both have an incentive to bargain. As in the case of patents, these transfers encourage the introduction of new technologies.
Our contribution to practice consists in encouraging managers to build capabilities in lever-pulling – i.e., lowering or increasing entry or variable costs, or potential market penetration, especially if their firm is expected to pioneer often. Specifically, our arguments provide a comprehensive and intuitive way to think about profits and their determinants not simply as an outcome but as a malleable strategic tool capable of influencing the potential entry of competitors. When research, development and engineering (RD&E) functions are important, the strategic manipulation of entry cost, variable costs and market size (the parameters of the profit function) may allow pioneers to maintain a leadership position. While the strategic manipulation of each of these strategic ‘levers’ has been discusses in previous works, we provide managers with a way to think holistically about the conditions under which each of the three options should be preferred and why. Furthermore, we identify the range of each lever’s values that make welfare-improving transfer payments possible. That is, we provide managers with a way to think about how to create favorable conditions for potential lobbying efforts aimed at encouraging policy-makers to arrange for the support of pioneering RD&E activities.
About the Speaker
Moren Lévesque is Professor and the CPA Ontario Chair in International Entrepreneurship at York University’s Schulich School of Business. She holds a Ph.D. in Management Science from the University of British Columbia and M.Sc., B.Sc. in Mathematics from Université Laval. Moren has been on the faculty at Université Laval, Carnegie Mellon University, Rensselaer Polytechnic Institute, Humboldt Universität, Case Western Reserve University, and the University of Waterloo as a Canada Research Chair in Innovation & Technical Entrepreneurship. Her research applies the methodologies of analytical and quantitative disciplines to the study of decision making in new business formation. Her work appears in Entrepreneurship Theory and Practice, European Journal of Operational Research, IEEE Transactions on Engineering Management, Journal of Business Venturing, Journal of Management Studies, Long Range Planning, Organization Science, Production and Operations Management, Strategic Entrepreneurship Journal and Strategic Management Journal, among other research outlets. She has served the Academy of Management’s Entrepreneurship Division as a member of its Research Committee and its Midwest Regional Liaison, as well as the Chair of its Membership Committee. She has also served for a 5-year term as an officer for the Institute for Operations Research & Management Science’s (INFORMS) Technology, Innovation Management and Entrepreneurship Section. She is currently a Department Editor at the IEEE Transactions on Engineering Management and a senior editor at Production and Operations Management.