Focusing on new product development, Ian McCarthy presents a framework that dispels this notion that speed always leads to business success. Ian explains that to simply characterize business environments as fast-changing or highly dynamic, is to overlook the fact that the velocity of an industry - its rate and direction of change - is composed of multiple factors, each with a distinct velocity of its own. These factors, or industry dimensions as we call them, include: technologies, products, competitors, demand and regulations. It is rare for an industry to be uniformly high-velocity in nature (i.e. all dimensions are changing rapidly and discontinuously). Instead, businesses typically face what we call “velocity regimes”, patterns of multiple velocities of all the different dimensions involved.

1. INDUSTRY DYNAMICS:
RETHINKING THE EFFECTS OF VELOCITY ON
PRODUCT INNOVATION
Ian P. McCarthy
Beedie School of Business
Simon Fraser University
Ian_mccarthy@sfu.ca

2. INTRODUCTION
• Background – speed and being fast
• What is environmental velocity?
• The eureka moment.
• What we did?
• The implications.
• Based on the following papers:
– McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity.
Academy of Management Review, 35(4), 604-626
– McCarthy I. P., Tsinopoulos C., Allen P.M & Rose-Anderssen C. 2006.
New Product Development as a Complex Adaptive System of
Decisions. Journal of Product Innovation Management, 23(5): 437-
456.
2

3. THE CASE FOR BEING FAST
Speed Demons
How smart companies are creating new
products -- and whole new businesses --
almost overnight

4. THE CASE FOR GOING SLOW
"Apple Goes Slow to Win Fast“
Paul Nunes & Tim Breene 2nd March 2011, HBR
“speed kills innovation”
and "slow is the new fast“
Holman W. Jenkins JR 26th Jan 2011, WSJ

5. BEING FAST IS GOOD FOR HIGH VELOCITY
ENVIRONMENTS
• High velocity environments:
– “those in which there is a rapid and discontinuous change in
demand, competitors, technology and/or regulation” (Bourgeois
and Eisenhardt 1988: 816)
– “market boundaries are blurred, successful business models are
unclear, and market players (i.e.
buyers, suppliers, competitors, complementers) are ambiguous
and shifting”. (Eisenhardt and Martin 2000: 1111)

6. SOME IMPLICATIONS OF HIGH VELOCITY
• You need to be fast.
• This is achieved by:
– rational and formal strategic decision-making (Bourgeois &
Eisenhardt 1988, Eisenhardt 1989, Judge & Miller 1991)
– rapid product development (Eisenhardt & Tabrizi, 1995)
– simple rules (Eisenhardt & Sull, 2001)
– heuristic reasoning (Oliver & Roos, 2005)
– team based decision-making (Nadkarni & Barr 2008)

7. HOWEVER, STUDIES SUGGEST THAT BIOTECH IS
A HIGH VELOCITY INDUSTRY
Is this really the
case?
7

8. SOME MORE OBSERVATIONS ABOUT RESEARCH ON
VELOCITY
• It seems that most industries have high-velocity environments. Can
this be true?
• Studies provide few industry specific definitions and substantiations
• It is incorrectly assumed that:
• high-velocity = high technology, and that velocity = speed
• We argue that the above occurs because studies have:
– treated velocity as single, latent descriptor i.e., a unidimensional
concept
– Ignored that velocity is a vector i.e., it has a rate and a direction
of change

9. ENVIRONMENTAL VELOCITY:
A MULTIDIMENSIONAL VECTOR
• Consider what is changing?
• Their rate of change (speed at which they move).
• Their direction of change?

10. OUR FRAMEWORK
• We conceptualize velocity in terms of:
– Multiple dimensions
(demand, competitors, technology, regulatory, a
nd products)
– Each dimension has a rate and direction of
change
– The degree to which different dimensions might
have different velocities (homology)
– The degree to which the velocities of different
dimensions might affect one another over time
(coupling)
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
Management Review, 35(4), 604-626

11. RATE AND DIRECTION
• The rate of change = the amount of change in a dimension of the
environment over a specified period of time (e.g. number of new
products, regulations, patents, etc. per year)
• The extent to which the changes are:
– continuous (innovations that are more of the same and head in
the same direction)
– or discontinuous (innovations that are different from the past
and go in a different direction)
• Discontinuities can, therefore, be represented by inflection points in
the trajectories that describe change in a dimension over time.
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
11 Management Review, 35(4), 604-626

12. TECHNOLOGICAL PRODUCT DEMAND REGULATORY COMPETITIVE
Velocity The rate and direction The rate and The rate and The rate and The rate and
Dimension of change in the direction of direction of direction of direction of
Definition production processes change in new change in the change in laws change in the
and component product willingness and and regulations structure of
technologies that introductions and ability of the that affect an competition
underlie a specific product market to pay for industry within an
industrial context. enhancements. goods and industry.
services.
Example The number of new The number of The change in The number of The change in
measures of patents and new products industry sales in a new and industry
the rate of copyrights granted in introduced in a given period. amended laws population size
change in the a given period. given period (i.e., and/or and density (i.e.,
dimension product regulations number and size
clockspeed). introduced in a of firms) in a
given period given period.
Example The changes in the The change in the The change in the The change in the The change in
measures of direction of the nature of product trend (e.g., nature and scope industry growth
the direction relationship between features as growth vs. of the control trends (e.g.,
of change in the price and perceived by the decline) and provided by new growth vs.
the technical market in a given nature (e.g., laws and decline) in a given
dimension performance of period. personal vs. regulations in a period.
technology in a given impersonal) of given period.
period. demand in a
given period.
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
Management Review, 35(4), 604-626

13. EXAMPLE: PRODUCT VELOCITY
2005
2010
Continuous
Discontinuous
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
13 Management Review, 35(4), 604-626

14. EXAMPLE: PRODUCT VELOCITY
2000 Xbox 2005 Xbox 360
Continuous
2006 Wii
Discontinuous
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
14 Management Review, 35(4), 604-626

15. VELOCITY HOMOLOGY AND VELOCITY COUPLING
• Velocity homology is the degree to which the rates and directions of
change of different velocity dimensions are similar to each other over a
period of time.
• Velocity coupling is the degree to which and the ways that velocity
dimensions interact over time.
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
15 Management Review, 35(4), 604-626

16. VELOCITY DIMENSIONS AND HOMOLOGY
D
Discontinuous
Direction of P
Change C
R D = demand
Low homology T P = products
Continuous C =competitive
T = technological
Low Rate of Change High R = regulatory
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
16 Management Review, 35(4), 604-626

17. VELOCITY DIMENSIONS AND HOMOLOGY
Discontinuous
P
Direction of
Change C R
D
T
High homology
D = demand
P = products
Continuous C =competitive
T = technological
Low Rate of Change High R = regulatory
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
17 Management Review, 35(4), 604-626

18. = tight coupling
VELOCITY COUPLING = loose coupling
D
Discontinuous
We suggest that
many firms
operate in
industries with a
Direction of P
Change C velocity regime
like this.
R T
Continuous D = demand
P = products
C =competitive
Low Rate of Change High T = technological
R = regulatory
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
18 Management Review, 35(4), 604-626

19. THIS IS HOW VELOCITY REGIMES CAN VARY
Conflicted Regime Integrated Regime
R D
R D
Direction C Direction
Tight of change of change C
T
P
T
P
Rate of change Rate of change
Coupling
Divergent Regime Simple Regime
R D
R D
Direction
Direction
of change C C
of change T
P
Loose T
P
Rate of change Rate of change
Low Homology High
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A Multidimensional
conceptualization of environmental velocity. Academy of Management Review, 35(4), 604-626

20. CONSEQUENTLY
• Effective decision-making and
operations is more about rhythm
and synchronization, rather than
being simply fast or slow.

21. THIS IS BECAUSE VELOCITY HOMOLOGY
IMPACTS HOW WE:
• Think about the relationship between an organization and the
temporal characteristics of its environment.
• Keeping in time with the environment (external entrainment) is still
important, but ….
• Synchronizing organizational activities (internal entrainment) to be
uniformly fast/slow might not be.
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
21 Management Review, 35(4), 604-626

22. AND VELOCITY COUPLING IMPACTS HOW WE
• think about the stability of velocity conditions and the impacts on
how organizations coordinate changes in the pace and direction of
their internal activities. For example:
– Scanning, coordination mechanisms, and boundary spanning
– Modularity of products, processes and organizations
– Temporal orientations: monochronic versus polychronic
– New product development frameworks: linear vs. recursive
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
22 Management Review, 35(4), 604-626

23. TEMPORAL ORIENTATIONS
Loose Coupling and Tight Coupling and
Monochronic Teams Polychronic Teams
Focus on one job at a time Focus on many jobs at once
View time as linear and fixed View time as tangible and
malleable
Hate missing deadlines Not too worried by deadlines
Guided by “clock time” Guided by “event time”
Time is money Time is information
(Ancona, Okhuysen & Perlow, 2001; Bluedorn & Denhardt, 1988; Hall, 1959).

24. NPD FRAMEWORKS
Loose Coupling and Linear Tight Coupling and Recursive
Frameworks Frameworks
Descriptive Relatively fixed, discrete and A process with concurrent and
Basis sequential stages. multiple feedback loops
Connections, flows and between stages that generate
outcomes are comparatively iterative behavior and
deterministic. outcomes that are more
difficult to predict.
Insights & Simple and effective The dynamic, nonlinear and
Outcomes representation of the fluid nature of the process.
structural logic and flows. Suited to more radical
Suited to incremental innovations.
innovations activity.

25. LINEAR FRAMEWORK
Waterfall model (Royce,1970)
The Stage Gate model (Cooper, 1990
The compression model (Eisenhardt & Tabrizi, 1995)
Strategic input and monitoring
Idea Product Prod’
Product Testing &
or Concept Launch & t
Design Validation
Need Ramp-up
S S S S
G G G G
1 2 3 4

26. RECURSIVE FRAMEWORKS
• Kline and Rosenberg (1986) “chain-linked model” – relationships
between stages described in terms of feedback loops and iterations.
• Leonard-Barton (1988) “adaptation cycles” - NPD as a series of
small and large recursive cycles that represent project set backs and
restarts.
• Schroeder et al.'s (1989) 'big bang' theory of innovation.
See: McCarthy I. P., Tsinopoulos C., Allen P.M & Rose-Anderssen C. 2006. New
Product Development as a Complex Adaptive System of Decisions. Journal of
Product Innovation Management, 23(5): 437-456

27. AN ALTERNATIVE VIEW OF NPD REALITY
Senior Marketing
Management Inputs
Injector Bureaucracy
Bends
Competitor
Boot
Product A Filter
Department Final
Changes Evaluation
Adapted from MacCormack 2001

28. GENERAL IMPLICATIONS
Existing View of Velocity Multidimensional View of Velocity
Measures of Scalar measures: rate only Vector measure: rate and direction
change
Construct An aggregation or Patterns (regimes) of velocity
Assumption unidimensional focus homology and velocity coupling
Fundamental The organization as a whole Organizational sub-units should be
implications – should be entrained with the entrained with the relevant
strategic and environment dimension of the environment
organizational
Organizational sub-units and Synchronization between
activities must be in organizational activities and sub-
synchrony with one another units depends on the level of
across the organization velocity homology and velocity
coupling.
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
28 Management Review, 35(4), 604-626

29. IMPLICATIONS FOR ORGANIZATIONAL PROCESSES
Existing View of Velocity Multidimensional View of Velocity
Activities must be uniformly Low homology = dissimilar unsynchronized process
entrained with the velocity activities (conflicted and divergent regimes)
of the environment.
For high velocity = fast, High homology = similar synchronized process activities
formal and rationale, team- (integrated and simple regimes)
based and the use of simple
rules.
Tight coupling = polychronic temporal orientation and
recursive management frameworks (conflicted and
integrated regimes)
Loose coupling = monochronic temporal orientation
and linear management frameworks (simple and
divergent regimes)
See: McCarthy, I.P., Lawrence, T.B., Wixted, B., and Gordon, B. 2010. A
Multidimensional conceptualization of environmental velocity. Academy of
29 Management Review, 35(4), 604-626