RESEARCHERS: Kenneth L. Kraemer, Jason Dedrick, Greg Linden


This research examines who profits from both product and business model innovation.

Product Innovation. Innovation is held to be the key to U.S. competitiveness, but there is little understanding of where the value of innovation is captured with respect to companies and countries. Therefore, this work examines who captures what value in global supply chains, and why. The research compares radical and incremental innovations, using the iPod and notebook computers as cases for analysis. Smart phones and flipvideo camcorders are also being studied. This research also examines the question of whether the location of production pulls knowledge work to the same location.

The methodology is novel in that it uses “teardown” reports from industry analysts to identify the key firms in each product supply chain from R&D to distribution and retail. It then calculates the value captured by each firm in terms of gross and operating margins. It also aggregates the firm data to the country level to compare value capture by country.

Using the iPod as an example, the research has important findings. First, while the iPod is manufactured offshore and has a global roster of suppliers, the greatest benefits go to Apple and the U.S. Moreover, overseas labor is mainly low skill and low wage whereas Apple keeps its product design, software development, product management, marketing and other high value functions in the U.S. Second, the producers of high value, critical and differentiated components capture a large share of the value of an innovative product. The greatest innovation, however, came from the lead firm, Apple. The next phase of research will examine the jobs and wages associated with the key firms in the iPod value chain.

The results are being published in Communications of the ACM and have been submitted to Industrial and Corporate Change. The research has been reported on in The New York Times, The International Herald Tribune, The Economist, Bloomberg Radio and other media.

Business Model Innovation. The research on business model innovation focuses on IT-enabled innovation in business models and their relation to firm strategy and performance in the computer industry. Case studies are used to describe the specific business models of each company, their use of IT, and joint impacts on firm performance and competitiveness in the industry. Completed cases include Acer, Apple, Cisco, Compaq, Dell, eMachines, Gateway, Google, Medion, and Sun. The case studies provided a basis for comparison of market making models in the PC industry and analysis of the relative success of these models. Several cases have been published in journals (e.g., The Information Society, Strategic Information Systems) and the web site pcic.merage.uci.edu; the comparison paper will appear in a book on Market Making Models from the University of Washington.