Inclusive Innovation: Product Innovation in Technology Supply Chains

Problem definition: Managers introducing new innovative technological products frequently face the dual task of managing both revenues and profits. This task is made challenging in part because of the tendency of new technologies to traverse a sequentially downward path of gradually lowering costs and prices, which limits their initial availability and affordability, crimping market coverage and revenues. Academic/practical relevance: We focus on the product management challenge of juggling revenues and profits, show how it is amplified in a supply chain, and propose a new degree of freedom in a supply chain, namely innovation investment anchoring, that offers product managers and their firms the ability to expand market coverage and improve both revenues and profits. Methodology: We adopt a sequential game theory approach to analyze the investment anchor decision for various objectives from investments in innovation to market coverage to profit. Results: We find that the investment anchoring approach can lead to greater investments in innovation, revenues, and profits. We also compare the investment anchoring for two types of innovation, product quality improvement and cost reduction, and show that the investment anchoring is more effective for product quality improvement. Managerial implications: Our findings have subtle but important implications for firms launching innovative products and aspiring to expand product sales and profits. Specifically, innovating firms in a supply chain by broadening the quest for an investment anchor and offering them incentives to invest as well as fine tuning the level of innovation investment with the market context can make innovation more inclusive, alleviate supply chain distortions, and streamline revenues and profits. The online appendix is available at https://doi.org/10.1287/msom.2018.0746 . This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Value Chain Innovations in Developing Economies.