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Title:Analysis of company-level innovation process based on simulation of a percolation model
Author(s):Halloran, Michael John
Department / Program:Industrial&Enterprise Sys Eng
Discipline:Industrial Engineering
Degree Granting Institution:University of Illinois at Urbana-Champaign
Abstract:Innovation has become a key to success for many companies. By investing in research and development (R&D) activities, these companies create new products, processes, patents, and even ground-breaking theories. Innovations deliver the necessary fuel companies need to grow their revenues and profits. On the other hand, their investments are also subject to budget constraints and bear the risk of uncertain returns. It is important to understand how the innovation process will play out in various environments. This paper addresses this issue by modeling innovation as a percolation process and carrying out simulations of this model. Our percolation model is a generalization of the one in the existing literature. The original model represents the technology space by a lattice and formulates innovation as a search process that creates a connected path in that space. We generalize this model by introducing a revenue generation function, which differentiates R&D success (formation of a connected path in the technology space) and commercial success (the paths endpoint generating a varying amount of revenue), and imposing a self-financed wealth evolution process. We conduct simulations on this generalized model and analyze the subsequent evolution of the company's wealth. We perform multiple simulation runs in different parameter regions and under different company-determined decisions. These decisions include the monetary effort (from their budget) and scope (specific area of the technological field) of the company’s R&D search. Our findings can be summarized as follows. A company's wealth over time appears to follow a "takeoff" trend similar to sales of a new product. A company's wealth initially declines, there is then a period of rapid growth, and finally wealth levels off to a steady-state value. The model also reveals that very small companies are at a disadvantage when compared to larger ones. A smaller company's limited budget and narrower scope for R&D search leads to poorer performance. Lastly, introducing some variations to the model demonstrates that companies who pool their revenue together exhibit higher performance than companies who attempt to encourage competition by only giving an innovation's revenue to the R&D group that actually discovered it.
Issue Date:2016-04-27
Rights Information:Copyright 2016 Michael Halloran
Date Available in IDEALS:2016-07-07
Date Deposited:2016-05

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