DDBA 8161 Week 5 Innovation Critique Example

Novel, but Available to Anyone on the Same Price List: An Innovation Critique of a Furniture Retailer's Licensed Room-Planning App, and the Part of It the Retailer Has Not Yet Built

Student Name

Walden University

DDBA 8161: Business Strategy and Innovation for Competitive Advantage

Instructor Name

Month Day, Year

Novel, but Available to Anyone on the Same Price List: An Innovation Critique of a Furniture Retailer's Licensed Room-Planning App, and the Part of It the Retailer Has Not Yet Built

The Claim Under Critique

In its spring announcement, Fairhaven Home, a composite chain of nine furniture stores in Ohio and western Pennsylvania, said its new room-planning app "will set us apart from every furniture store in the region." The app lets a customer photograph a room on a phone, place three-dimensional models of Fairhaven sofas, tables and beds into the image at true scale and send the plan to a store. Customers like it: in the first three months, about 11,000 plans were created and 9 percent led to a store visit.

The app is novel for a regional furniture retailer. The critique grants that in a sentence and turns to the question that matters: can Fairhaven keep the returns from it?

Who Owns the Innovation

Fairhaven did not build the app. It licensed it from a software company that sells the same platform to any furniture retailer willing to pay the annual fee and upload its product models. Two of Fairhaven's regional competitors are, according to the vendor's own client list, already in the onboarding process. Barney (1986) showed that a resource bought on an open market is priced close to its expected value; an app licensed on standard terms is about as open a market as exists. Whatever advantage the app offers now will be available to rivals within a year.

Appropriability

Levin et al. (1987), surveying research and development managers across many industries, found that most rated lead time and superior sales and service efforts as more effective protection than patents for product innovations. Teece (1986) added that when an innovation is easy to imitate, the returns tend to go to whoever controls the complementary assets needed to deliver it, such as distribution, service and manufacturing. The table applies both arguments.

Patents and secrecy offer nothing. Lead time is real but short: a rival that signs with the vendor in the summer could launch by autumn. Only the fourth mechanism offers lasting protection, and Fairhaven has not built it.

Table 1

Appropriability of the Room-Planning App

Mechanisms follow the categories in the survey by Levin and colleagues; assessments are for this case.

The Part Not Yet Built

Fairhaven employs 14 in-store design consultants who visit homes and help customers furnish rooms. They do not currently use the app. Plans sent from the app arrive at a store email inbox and are answered, on average, two days later by whichever salesperson is free. Fairhaven also runs its own delivery and assembly crews, which rivals in its region mostly contract out.

The defensible version of the app would connect it to those complementary assets: plans routed directly to a design consultant who calls within hours, a consultant's home visit scheduled from the plan, and delivery and assembly booked from the same record with a date guaranteed at checkout. A rival could license the same app tomorrow. It could not quickly replicate 14 trained consultants and its own delivery crews, built over a decade. In Teece's terms, Fairhaven's chance of keeping the returns lies in the assets around the innovation, not in the innovation itself.

What Fairhaven Should Do

Treat the app as necessary rather than distinctive. Spend the next six months building the connections: routing, consultant follow-up and delivery booking. Measure the share of app plans that become sales, by whether a consultant made contact within a day. If that share rises well above the current 9 percent store-visit rate, the advantage is coming from the system around the app, which is the part rivals cannot license.

Limits of the Critique

The critique assumes rivals will license the app; if the vendor's pricing deters them, Fairhaven's lead lasts longer. It also assumes the consultants and delivery crews can absorb more work without hurting service, which Fairhaven has not tested. A pilot in two stores, with plans routed to consultants there and handled as now elsewhere, would test both assumptions before the chain commits its full design staff to the app.

References

Barney, J. B. (1986). Strategic factor markets: Expectations, luck, and business strategy. Management Science, 32(10), 1231-1241. https://doi.org/10.1287/mnsc.32.10.1231

Levin, R. C., Klevorick, A. K., Nelson, R. R., & Winter, S. G. (1987). Appropriating the returns from industrial research and development. Brookings Papers on Economic Activity, 1987(3), 783-831. https://doi.org/10.2307/2534454

Teece, D. J. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, 15(6), 285-305. https://doi.org/10.1016/0048-7333(86)90027-2