Basic Concepts of Innovation and Innovation Management -Student Material- Manuel Lorenzo Hernández Head of Technology & Innovation, Ericsson España S.A. E-mail: [email protected]Last updated: 25 March 2010 With a big Thank You to Dr.Tony Davila and Dr. Rob Cooper
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Basic Concepts of Innovation and Innovation Management · Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-253 Introduction What is Innovation? •Innovation is
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Basic Concepts ofInnovation and
Innovation Management-Student Material-
Manuel Lorenzo HernándezHead of Technology & Innovation, Ericsson España S.A.
With a big Thank You to Dr.Tony Davila and Dr. Rob Cooper
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-252
Contents
Introduction 15’
Key Concepts 30’
Innovation Management 45’
Outlook & Trends 10’
Q & A 15’
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-253
IntroductionWhat is Innovation?
•Innovation is typically understood as the introduction of something newand useful
•Innovation is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes, or services
•Invention is the first occurrence of an idea for a new product or process, while innovation is the first attempt to carry it out into practice
•All innovation begins with creative ideas . . . We define innovation as the successful implementation of creative ideas within an organization. In this view, creativity by individuals and teams is a starting point for innovation;
the first is necessary but not sufficient condition for the second
Innovation is the lifeblood of any organization. Without it, not only is there no growth, but, inevitably, a slow death.
Innovation, like many business functions, is a management process that requires specific tools, rules, and discipline.
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-254
IntroductionWhat is Innovation?
An Innovation is anInvention that becomes Implemented and taken to the Market
NOVELTY EXECUTION PRODUCT
Key Decision Making Points
Creativity Know-How Marketing
The challenge is to cultivate and leverage innovation capabilitiesthat allow to continuously deliver innovations
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IntroductionWhy is Innovation so important?
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IntroductionWhy is Innovation so important?
Incremental Growth
New Productsin Development
New Business
Rev
enue
Core Business
Today 3-year 5-year Time
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-257
IntroductionWhy is Innovation so important NOW?
Increased Rate of Change in the environment
Globalization of the Economy+
• Big opportunities for innovating firms• Big threats for established firms
So, what side are you on?
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Key ConceptsTechnological Innovation
Can you give some examples of technologicalinnovation?
–––––
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-259
Key ConceptsBusiness Model Innovation
Can you give some examples of business modelinnovation?
–––––
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-2510
Key ConceptsProcess & Organizational Innovation
Can you give some examples of process andorganizational innovation?
–––––
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-2511
Key ConceptsInnovation Matrix
IncrementalInnovation
Technology-based
Semi-RadicalInnovation
Business Model -based
Semi-RadicalInnovation
RadicalInnovation
Business Model
Tech
nolo
gy
Close to Existing Radically New
Clo
se to
Exi
stin
gR
adic
ally
New
• Value Created• Target Market• Supply Chain Role
•Dev
elop
ed T
echn
olog
ies
•Pro
cess
Tec
hnol
ogie
s•E
nabl
ing
Tech
nolo
gies
Source: Davila et al (2005) – Making Innovation Work
Key ConceptsInnovation Matrix: Types of Innovations
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-2512
INCREMENTAL INNOVATION
TECHNOLOGYINNOVATION
BUSINESS MODEL
INNOVATION
RADICALINNOVATION
• Small improvements• Problem-solving skills, constrained creativity• Dominant form of innovation in established companies• Fights commoditization
• Significant technological changes delivering quantum leaps in performance or important architectural changes• Deep knowledge and specialized capabilities required• Intellectual Property (Patent) is a key tool
• Significant change in the business model dimension• Leverages existing or slightly change technology in a new way• Deep understanding of market dynamics and competition andout-of-the-box thinking required
• Significant changes in both technology and business model dimensions• “Game changers”
Source: Davila et al (2005) – Making Innovation Work
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Key ConceptsInnovation Matrix
Formulate improvements and changes to a mainstreamproduct:
––––
How many can be thought of?
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Key ConceptsInnovation Matrix: Change Levers
• Developed Technology
• Process Technologies
• Enabling Technologies
TECHNOLOGY CHANGE LEVERS
TECHNOLOGYExpected Change
Change Lever Moderate Significant
DevelopedTechnologies
ProcessTechnologies
EnablingTechnologies
BUSINESS MODEL
CHANGE LEVERS
• Value Created
• Target Market
• Supply Chain
Source: Davila et al (2005) – Making Innovation Work
A given Innovation is normally characterized by changes inboth technology and business model dimensions
Expected ChangeChange Lever
SupplyChain
TargetMarket
ValueCreated
SignificantModerate
BUSINESS MODEL
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Key ConceptsInnovation Matrix: Connected Innovations (II)
Business Model
Tech
nolo
gy
Close to Existing
The timely combination of:• A business-model dominant
an (Ersatz A+B ) radicalinnovation with much higher
value than its parts.
Innovation A
Innovation B
Innovation A+B
Clo
se to
Exi
stin
gR
adic
ally
New
Radically New
Source: Davila et al (2005) – Making Innovation Work
Basic Concepts of Innovation and Innovation Mgmt M.Lorenzo 2010-03-2516
Key ConceptsInnovation Funnel
External
First Releases
Internal
New Architectures
University Cell
Ongoing Projects
Finished E2E ProjectsFinished Projects
Ongoing Projects
RESEARCH EXPLORATION IMPLEMENTATION VALUECREATION
Out-licensing
Sales
The innovation funnel shows the progress and filtering, inside an innovating firm, across the path from Idea to Innovation
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Innovation ManagementThe Challenge
It is not only aboutwinning (Roland Garros) once …it is aboutwinning Roland Garros for the second time,and for the third time,and for the fourth time, …
For a established firm the challengeis leveraging and cultivatinginnovation capabilities that allowfor continued business growth
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Innovation ManagementThe Questions
Is it possible to manage innovation?
Can innovation be measured?
How do leading companies manage their innovation?
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Innovation ManagementThe Scope of Innovation Mgmt
NewProducts,Solutions
and Services
• Changes in Customers,
Industry, Technology Economy, Society,
InnovationManagement
From Idea to Commercialization
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Innovation ManagementThe framework for Innovation Mgmt
What are the elements of an innovation framework?––––––
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Innovation ManagementThe Framework for Innovation Mgmt
a. Innovation Strategy
b. Innovation Organization
c. Innovation Systems (Processes, Teams & Networks)
d. Innovation Metrics
e. Innovation Learning
f. Innovation Culture
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Innovation ManagementInnovation Strategy
How would you define and formulate an InnovationStrategy?
Portfolio management for new products is a dynamic decision process wherein the list of active new products and R&D projects
is constantly revised.
In this process, new projects are evaluated, selected and prioritized. Existing projects may be accelerated, killed, or de-prioritized and
resources are allocated and reallocated to the active projects.
The portfolio decision process is characterized by uncertain and changing information, dynamic opportunities, multiple goals and strategic considerations, interdependence among projects,
and multiple decision makers and locations.
Source: Cooper (2001) – Portfolio Management for New Products
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How much innovationof each type am I actually creating?
Checking the expected balances between these levers:
Balances & Levers
Value Capture
IncrementalInnovation
TechnologicalInnovation
InternalInnovation
Creativity
RadicalInnovation
BusinessInnovation
ExternalInnovation
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Innovation ManagementInnovation Systems: Teams & Networks
INNOVATIONPROCESS
TEAMS
• Management & Steering Teams defining, enforcing and following up the Innovation Strategy• Teams executing the process (surveillance, idea mgmt, steering, portfolio mgmt, …) and improving it
• Cross-functional teams executing innovation projects• External Partners• Project Steering Groups
INNOVATION PROJECTS
TEAMS
• Internal Organizations & Processes that promote and fund innovation activities• Also known as internal innovation market-places or Corporate Venture programs
• Universities and Research Institutions• Technology and Business Partners• Partner Customers• Private and Public Organizations
INTERNAL INNOVATION
ECOSYSTEMS
EXTERNALNETWORK
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Innovation ManagementInnovation Metrics
How would you measure Innovation?–––––––
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Process Improvements–On-time Delivery–Cost Reductions–…
Market Performance–Increased Sales–New Customers
Residual Income
Sales Growth
Profit Growth
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Innovation ManagementInnovation Learning
A number of technologies (most of them disruptive) proliferate. Different companies bet on different ones.
At the end a particular technology (e.g. gasoline engine in the car industry) dominates and the many companies that bet on a different technology disappear
Technologies
At this stage performance is measured primarily on a single dimension (e.g. image resolution). Competition is often focused solely on that single dimension
The competitive advantage goes to the company able to execute the learning cycles faster
Performance
Source: Davila et al (2005) – Making Innovation Work
As product performance improves, certain customer segments start valuing different product dimensions –price, availability, …
The winners are those companies that are able to read the market and understand the differences across market segments
Segmentation
As the technology market is becoming mature, competing players focus more and more in efficiency and sustaining technologies
Radical innovations may appear at this stage and force the start of a new lifecycle
Efficiency
The focus shifts to manage complementarities: synergies with other products and businesses, networks with partners, …
At this stage companies are most vulnerable to radical changes in their environment
Complementarities
Time
T P S E C
Lear
ning
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Innovation ManagementInnovation Culture
What are the elements of a strong innovation culture?––––––
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Innovation ManagementInnovation Culture
– Creativity
– Diversity
– Communication
– Cooperation
– Motivation
– Commitment
– Initiative
– Risk Taking
– Knowledge Sharing
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Innovation ManagementMoral
‘How you innovatedetermines
what you innovate’
Source: Davila et al (2005) – Making Innovation Work
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Outlook and TrendsOpen Innovation Model
Innovations
• More agility and effectiveness of R&D• Higher rate of new breakthroughs
CurrentMarket
InternalIdeas and
Technologies
License in
Spin inAcquire
External+
RESEARCH EXPLORATION IMPLEMENTATION VALUE CREATION
License out
Spin outDivest
Other Firms’Markets
NewMarkets
Picture from: Dr.Henry Chesbrough’s – Researching a New Paradigm 2007
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Outlook and TrendsInnovation Ecosystems
Innovation Ecosystems enable collaborative arrangements through which firms combine their individual
In an Innovation Ecosystem all contributing parties can:Validate their Strategy in advanceCreate higher value for their customers and customers’ customersSecure the right timing for launching new solutionsFocus their efforts on higher probability innovations
Innovation ecosystems allow companies to create value thatno one firm could have created alone
Inspired in Adner (2006) – Matching your innovation strategy and your innovation ecosystem
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Outlook and TrendsIncreasing Focus on Systemic Innovation
Stronger Innovation Culture company-wide
Contribution to innovation from all company’sdisciplines and organizations
Each and every employee is key in innovation
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References
• OECD (2005). Oslo Manual: Guidelines For Collecting And Interpreting Innovation Data, OECD Publishing, ISBN 926401308 Christensen, C. (1997).The Innovator’s dilemma. Collins Business EssentialsDavila, T. (2003). Making innovation work. Wharton School PublishingCooper, R. (1998, 2001). Portfolio Mgmt for New Products. Basic Books.Cooper, R. (2001). Winning at New Products. Accelerating the process from Idea to Launch. Basic Books