Final Exam Review Innovation Management (ISMT 302) Time: 7 Dec 2005 Note: You will be allowed one A4 sized sheet of paper as a “ Cheat Sheet” for your.

Final Exam ReviewInnovation Management (ISMT 302)

Time: 7 Dec 2005

Note: You will be allowed one A4 sized sheet of paper as a “ Cheat Sheet” for your reference during the ISMT302 Final Exam. You can fill out both sides, and there are no limits on handwriting, font, or techniques for the information you place on the page. No other materials will be allowed during the exam

Logical Structure of the Course

O p p o r tu n ityR eg is ter

In v en tio n s

Ide a

s

Com

mercial O

pportunities

Inno va tio n

C o re C o m p etences :A ssessm ent & Investm ent

M ark et E ntra nce &C o m p etitive S tra teg y

A d ap tiveE x ecutio n

Classes of Things You have Learned

Concepts: Things you need to know before you think about innovating. These include:

Knowledge about previous successful and unsuccessful innovators (people and companies)

Theories and frameworks Facts

All of these underlie and motivate your activities.

Activities and Tasks: Things you (as an entrepreneur or intrepreneur) need to do in developing innovative products. These occur on both sides of the equation: Innovation = Invention + Commercialization Activities can either ‘Invent’ or they can ‘Commercialize’

Tools: Used to make decisions about ‘Inventing’ or ‘Commercializing’ These are the tangible mental exercises, models, spreadsheets, documentation, etc.

that support innovation activities and tasks.

Fundamentals

Definition: ‘Innovation’

An ‘Innovation’ is: Invention + Commercialization

Freeman, The Economics of Industrial Innovation A new way of doing things that is commercialized

Porter

The new knowledge in an innovation can be either Technological, or Market related

Elements of Product Innovation

Ne w Pro du ct :

L o w c o s tI m p r o v ed q u alit iesN ew q u alit ies

C o m pe te n ce sa n d

A s s e t s

Ne wTe ch n o lo g ica l

k n o wle dg e

Ne w M a rk e tK n o wle dg e

The Purpose of a Business is to Create a Customer

-- Peter Drucker

Even if you create marvelous inventions Your customers won’t care Unless that is exactly what they need

Business customers are especially impatient With any product that doesn’t help them gain competitive

advantage

Yet your firm wants to build products that take advantage Of their Core Competences

What makes each of these companies Innovative?

Invention Generation

The opportunity register (OR) should be seen as a repository of ideas that can be pulled up at any time. If a particular idea isn’t working, you have the option

to switch to another OR Entry (i.e., another innovation) You can actually plan these milestones in

advance Hedging your bets By running many innovation projects

Simultaneously, or Sequentially

Inv e s t

D o n 't In v e s t

G o o d N e w s

B ad N ew s

G o o d N e w s

B ad N ew s

Sources of Innovation

How innovation arises Functional:

Innovations arise from thinking about the functional relationships between groups and individuals e.g., customer or manufacturer

Attribute Maps and Quizzing help identify Innovations arising functional relationships

Circumstantial: Innovations arise from thinking about the circumstances in which a product

(innovation) will be encountered e.g., a cooking innovation when it is consumed in a restaurant

Consumption Chain Analysis helps identify circumstantial Innovations

Where innovations arise Internal R&D External Markets (Customers) Competitors & related industries University, government & private labs Other nations / regions

The last two sources are strongly influenced by society and governments

Sources of Innovation

1. Internal R&D2. External Markets (Customers)3. Competitors & related industries4. University, government & private labs5. Other nations / regions

The last two sources are strongly influenced by society and governments

‘Complementarity of several sources may amplify and accelerate innovation

Innovation at the National level

Success in societies which: operate, manage and build instruments of production create, adapt and master new technologies impart expertise and knowledge to the young choose people for jobs by competence and relative merit promote and demote on basis of performance encourage initiative, competition and emulation let people to enjoy and employ the fruits of their labor, enterprise and creativity

Success where government does the following: encourage saving and investment enforce rights of contract secure rights of personal liberty against tyranny and crime provide stable government, though not necessarily democratic provide responsive government provide no rents or favors for government position have governments that are moderate, efficient and ungreedy

Science & TechnologyWhat are they? How are they related?

S c ien c e

T ec h n o lo g y

I n f lu en c e / f eed b ac k

I n f lu en c e / f eed b ac k

Ver b allyE n c o d edI n f o r m atio n

Ver b allyE n c o d edI n f o r m atio n

Ver b ally E n c o d edI n f o r m atio n * p u b lic a tio n s * p a ten ts

P h y s ic a lly & Ver b ally E n c o d edI n f o r m atio n * p r o d u c ts & s er v ic es * d o c u m en ta tio m * p u b lic a tio n s * p a ten ts

ComplementarityWhat other products are needed to complete your Commercialization?

Most economically significant modern products have little value on their own They require complementary

products from many firms to be of value Petroleum has little use without

internal combustion engines Or Cars without Roads (US Road

costs are around $5-10 per gallon of gasoline)

Or Electricity without Electric Motors

Or iPods without MP3s … you get the idea

What are your ‘Killer Apps’? The complements that sell your

product

In v en to ry o r p arty w ithb arg a in in g p ow er

In v en to r

H o ld er o fco m p lem en ta ry a ssets

P ro f it is D if f icu lt Hig h

L o w

F r ee o r Un im p o r tan t T ig h tly h e ld

C o m ple m e n ta ry A s s e t s

I m ita bility

Life cycle of an Innovation Development Determines Optimal Market Entry Strategy

Fluid phase Mainly lab based or custom applications of technology

Transitional phase Standardization of components, and consumer-producer interaction lead to dominant

design Specific phase

Products built around the dominant design proliferate; innovation is incremental

N ear C erta in tyN on techn ica l f acto rs

m ay be igno red

L ittle U n certa in tyL o w in f luence o f

non techn ica l f acto rs

M ed ium U ncerta in tyH ig h in f luence o f


H ig h U ncerta in tyH ig h in f luence o f


Hig h

L o w

E r a o f F er m en t E r a o f I n c r em en ta l C h an g e

S ta te o f Ev o lu t io n o f Te ch

C o m ple x ity

What sort of people are Innovators?

Idea Generators Can sift through large quantities of technological and market data to identify

‘innovations’ Gatekeepers & Boundary Spanners

Conduits for knowledge from other firms and labs Champions (Entrepreneurs, Evangelists)

Sell the innovation to the firm Sponsors (Coach, Mentor)

Senior level manager who provides behind the scenes support, access to resources, and protection from political foes

Project Managers Planners with discipline; one-stop decision making shop

Market side innovation


In v e ntio n s

Ide a

s

Com

mercial O

pportunities

Inno va tio n




The Opportunity ‘Register’ Concept: Always keep an inventory of possible opportunities

so that you are unlikely to run out of ideas for making the next competitive move or capturing the next prospect for growth

Fields:

1. Business concept2. Relevant trends3. Key industry data4. Obstacles and barriers5. Company position6. Competition and Substitutes7. Sources for your information 8. What type of opportunity is this?9. Timing of proposed actions

•CommercializationDefines your market

Who is the target customer for the company’s product (age, income, medical history, and other demographics)

Support this with Attribute Maps and Consumption Chains

What will differentiate your innovation from competitors’ in the customer’s minds?

Quizzing

Detailed look at target customer usage and decision making regarding your product

Looks at the customers “stream of consciousness” Through a series of questions

Looks for ideas to Change the Customer’s Experience (i.e., redifferentiate your product)

Remember: Experience is dynamic So are the questions in quizzing

Over a time period prior to the first time customer is exposed to the product

To a time well after the customer has stopped using it

QuizzingWho?

… is with customers while hey use the product How much influence do they have

If we could arrange it, who would we want the customer to be with …

What? … Do our customers experience when the use the product … needs provoked our offering

What else? … might customers have on their minds When? … do our customers use this .. Where? … are our customers when they use this How? … do customers learn to use the product ..

Toolsets

Organize Answers with a Mind Map

Summarize your Quizzing by the Attributes of the Innovation that are important to the Customer

Basic Discriminator Energizer

Positive Nonnegotiable Differentiator Exciter

Negative Tolerable Dissatisfier Enrager

Neutral So What? Parallel

This provides a heuristic for ‘Functional Innovation’ (Eric von Hippel)

Consumption Chain Analysis

Aw ar en es so f n eed

S to r ag e an dtr as p o r t

In s ta lla t io na n d A s s e mb ly

R ec eip t

F in an c in g

P ay m en t

D eliv er y

O r d er an dp u r c h as e

S e lec tio nS ear c h

F in a l d is p o s a l

R ep air s an dR etu r n s

S er v ic e

Us e

Function of Consumption Chain Analysis A complement to quizzing …

And (perhaps) quizzing done from a different (more graphical) perspective

Consumption Chain Analysis Works from the premise that

opportunities for redifferentiation lurk at every step and decision that your customers take From the time they first become aware of their need for your

product or service To the time thy finally dispose of the remnants of the used up

product Rather than ‘stream of consciousness’

It is time-sequential

Consumption Chain Analysis A complement to quizzing …

And (perhaps) quizzing done from a different (more graphical) perspective

Consumption Chain Analysis Works from the premise that

opportunities for redifferentiation lurk at every step and decision that your customers take From the time they first become aware of their need for your product or

service To the time thy finally dispose of the remnants of the used up product

Rather than ‘stream of consciousness’ It is time-sequential It provides a Heuristic for ‘Circumstantial Innovation’ (Eric von Hippel)

Every Link in the Consumption Chain has its Own Attribute Map

The Attribute Map compares your product to those of others





Toolsets

Consumption Chain Analysis Determine the main steps in

consumption

Each step on the consumption chain has an attribute map

You should only list the 3 or 4 most important steps

These will determine whether the potential customer proceeds to the next step (good)

Or leaves the consumption process (not good)

Aw ar en es so f n eed

S to r ag e an dtr as p o r t

In s ta lla t io na n d A s s e mb ly

R ec eip t

F in an c in g

P ay m en t

D eliv er y

O r d er an dp u r c h as e

S elec tio nS ear c h

F in a l d is p o s a l

R ep air s an dR etu r n s

S er v ic e

Us e

C o n tin u e

Lea

ve

Toolsets

Overview of Feature Set

Prioritize and choose the major features of your innovation from the main branches of the Mind Map

Review the main innovation features with a feature-attribute map for the entire innovation





Toolsets

Feature-Attribute Map the 3-4 Key Steps in the Consumption and Manage those 3-4 Steps

Identify Discriminators and Energizers Describe how you will manage each of these

features of the consumption process





C o n tin u e

Lea

ve

What To Do with the Opportunity Register

When Competences start to matter

Assuming you’ve been religiously adding to your Opportunity Register

You should by this time have a lot of different ideas for new and marketable products

Then the question becomes:Which projects should you take on; emphasize; continue?

The answer depends on your competences

This is the point where Demand and Supply side of Innovation Meet

Business Models Matter

Telling a good story Part of selling your strategy / investment

Tying Narrative to Numbers Strategy becomes less philosophy More performance and outcome

When business models don’t work It’s because the fail either

The ‘Narrative’ test Or the ‘Story’ test

Business Models Matter A business model is not strategy

It doesn’t describe external forces: Competition Environment Scaling

It only depicts the systems that will be put into place to achieve a strategic objective

A good model is not enough The boxes on the value map need to be

understood in depth In order to develop a good strategy

R & D

C u s to m erR elat io n s h ipM an ag em en t

L ab o r C u s to m er s

F act o ry

W o r k

Production

Framing the Challenge Targets and Goals If I were to do something in the next 3-5 years

That I, my boss and my company’s investors would regard as a major win What would this performance record have to look like?

If I were to do something in the next 3-5 years That my customers would regard as a major (disruptive) innovation How would I change their lives?

How would my relation with customers affect my performance?

GoalsInnovation Year +1 + 2 + 3 +4 + 5 + 6

Profits 200 220.00 242.00 266.20 292.82 322.10 354.31 10% annual increaseReturn on Sales 10% 10% 10% 10% 10% 10% 10%Return on Assets 15% 15% 15% 15% 15% 15% 15%Assets 1333 1466.667 1613.333 1774.667 1952.133 2147.347 2362.081New asset investment at current utilization 133.67 280.33 441.67 619.13 814.35 1029.08Sales 2000 2200 2420 2662 2928.2 3221.02 3543.122New Sales 200.00 420.00 662.00 928.20 1221.02 1543.12

Projections

Framing the Challenge: Strategy Drivers

E.g., Lucent’s Performance Targets Sales from 1% growth to the high teens R&D from 8% to 11% if Sales Reduce SGA from 27% to 19% Reduce tax rate 4% points Lift ROA from 0% to 1%

E n tr ep r en eu r ia lAc tiv ity

P er f o r m an c e( c u s to m er s , in v es to r s ,

e tc . )D r iv es

New Life from Old Competences

Redifferentiating and resegmenting

Redifferentiating Products The Dialectic

Innovation involves a dialectic: On the one-side are arguments about what the customer

wants (demand-side) Remember that the customer doesn’t care about us or our

products We have to make them care

On the other-side are arguments about what we can do (supply-side) These are determined by our core competences Which are to some extent determined by Mission and

Vision statements, and our Business Models

Resegmenting and Reconfiguring

Resegmenting Focusing on and better serving existing market segment

Reconfiguring Completely changing the existing basis for segmentations By reconfiguring existing value maps Or introducing entirely new kinds of solutions

Reconfiguring your Market

Reconfiguration is about Breaking down the Barriers (technological, regulatory or

organizational) That set limits on the Attributes you can offer Or on the way that Consumption Chains can be

configured It builds on your insights from the Consumption Chain

Analysis and Attribute Map Looking to remove the Limitations imposed by your existing

Core Competences

How to Resegment

Resegmentation addresses the Dynamics of Customer Usage of a Product It builds on your insights from the Consumption Chain Analysis

and Attribute Map Looking for new Segments to market to

Observe behavior To Uncover existing Customer’s Needs To find new Customer Groups within your existing customers Keep them from moving to competitors’ products

Market-side Practicums

Prac·ti·cum (prăk-tĭ-kəm)

Topic Practicum

Business Needs: Framing the Challenge

False Faces (perceptual reversals)

Building Blockbuster Innovations

Slice and Dice (Attribute Maps pp. 24-35)

Redifferentiating Products: New Technology or New Uses

Think Bubbles (Quizzing to understand the customers’ experiential context pp. 50-56)

False Faces:An Escape from Looking at Problems in the Traditional Way

BLUEPRINT

State your challenge. List your assumptions. Challenge your fundamental

assumptions. Reverse each assumption. Write

down the opposite of each one. Record differing viewpoints that

might prove useful to you. Ask yourself how to accomplish

each reversal. List as many useful viewpoints and ideas as you can.

Which line is longer, AB or CD?

Link the nine dots below with no more than three straight lines which will cross through all nine dots, without lifting your pencil (think outside the box)

Slice and Dice Which figure is the widest?

Consider the bicycle: Frame. Handlebars. Pedals. Brakes. Tires. Chain. Drive sprocket.

Improved attributes: Lightweight frames made out of new materials. Racing handlebars replacing traditional handlebars. Pedals with straps and grips. Hand brakes replacing axle brakes. Lightweight, solid tires replacing inflatable ones. Chains with clamps to make changing them easier. Sprockets that provided ten gears.

?

BLUEPRINT

1. State your challenge.2. Analyze the challenge and

list as many attributes as you can.

3. Take each attribute, one at a time, and try thinking of ways to change or improve it. Ask "How else can this be accom plished?" and "Why does this have to be this way?"

4. Strive to make your thinking both fluent and flexible.

Think Bubbles: an aid to Quizzing Mind mapping is an idea generator. It does not supply raw material, so your map

may show areas where you need to collect more information Mind Maps to Recognize the Potential of an Innovation share five basic

characteristics: 1.Organization. Mapping presents information organized in the way you think it.

It displays the way your mind works, complete with patterns and interrelationships, and has an amazing capacity to convey precise information, no matter how crudely drawn.

2. Key words. Ignore all irrelevant words and phrases and concentrate only on expressing the essentials, and what associations these "essences" excite in your mind.

3.Association. Make connections, links, and relationships between seemingly isolated and unconnected pieces of information. These connections open the door to more possibilities. You can feel free to make any association you wish, without worrying whether or not others will understand you.

4.Clustering. The map's organization comes close to the way your mind clusters concepts, making the mapped infor mation more accessible to the brain. Once your ideas are clustered, try to adopt the viewpoint of a critic seeing the ideas for the first time. This allows you to test your asso ciations, spot missing information, and pinpoint areas where you need more and better ideas..

5.Conscious involvement. Making the map requires you to concentrate on your challenge, which helps get informa tion about it transfered from short-term to long-term memory. In addition, continuous conscious involvement allows you to group and regroup concepts, encouraging comparisons. Moving think bubbles around into new jux tapositions often provokes new ideas.

Production Side of Innovation

Resource based perspective of Strategy


In v e ntio n s

Ide a

s

Com

mercial O

pportunities

Inno va tio n




Resource-based view (RBV) of firmsDominant approach to business strategy today Basis for Core Competences

The resource-based view suggests that a firm's unique resources and capabilities provide the basis for a strategy.

The strategy chosen should allow the firm to best exploit its core competencies relative to opportunities in the external environment.

E n v ir o n m en t 'sR es o u r c e S u p p ly C u r v e

& C o n s tr a in ts

O w n er o fS tr a teg y

( R - P - V S o u r c eo f C o m p etit iv e

Ad v an tag e )

E n v ir o n m en t 's D em an dC u r v e & C o n s tr a in ts

Valu eF lo w

{ v alu e t , v o lu m e t}

Valu eF lo w

{ v alu e t , v o lu m e t}

Valu e Ad d ed b y S tr a teg y( d if f e r en c e b e tw een tw o v a lu e f lo w s )

Core Competences

These are the things that the firm does That they do better than other firms That are the source of their competitive advantage

Firms establish their core competences by: Investing in people Investing in assets, plant and land Identifying and focusing their mission

The Firm’s core competences are often those of its CEO and management

Competences

You best (perhaps your only) opportunities to compete

are Where Product Market

Needs Cross with Competences

Y o u rC o m p eten ces

P ro d u ct M a rk etO p p o r tu n ities

C o m pe ti to r A'sC o m pe te nc e s

C o m pe ti to r B 'sC o m pe te nc e s

C o m pe ti to r C 'sC o m pe te nc e s

Yo u r C o m p eten c e

Delivering on 7-10 critical ‘Key Ratios’

This is what Investors and Venture Capitalists will look for The particular accounting statement measures That indicate whether your strategy is succeeding or not

The exact set of measures depends on your business model and your strategy

Competences:

Hyper-efficient supply chain

Dell is relentless in negotiating the best prices from suppliers, and

driving those savings through the supply-chain.

To do that, Dell replaces inventory with information.

Competences:

The FedEx Way

Compete for customers

Using new technologies

i.e., the increasing size and speed of jets

That restructure the geography of space

time

money

Competences:

Overnight Delivery

Smith reasoned that he could turn Post Office economics upside-down

Post Office delivery optimized distance traveled

time was not a critical value,

package handling was cheap.

Smith saw that new air technology could let him ignore distance traveled

… and instead, optimize speed and handling to create new market value

What is an Innovation Worth?

Value ‘Happens’ in the Future Your ‘Vision’ of the Innovation Firm is the best source of information about this

future value From the ‘Vision’ you derive your ‘Business Plan’ From your ‘Business Plan’ you derive your ‘Strategies’ ‘Strategies’ comprise ‘Real Options’ which are conditional particular ‘Events’ occurring

in the future The feasibility of each ‘Event’ is ultimately ‘Discovered’ at some point in the future

Finance and accounting are geared towards measuring the past Strategy is designed to plan and control the future

To select the correct innovations from our opportunity register We need to assess how good our strategy will be

This is why Strategy Drivers The basis of our key ratios Are the basis of value as well

The move towards A Resource Based View of Strategy

O u tco m es

P ro cesses

P r o f it- m ax im iz in g

E m er g en tD elib er a te

P lu r a l

C la ssica lE v o lu tio n a ry

S ystem ic P ro cessu a l

1970 s

1980 s

1 9 9 0 s

C lassica l M ilitary S tra tegy

Key Ratios in Practice

F in a n cia l A cco u n tin g

T im eP a st (B eh a vio ra l E stim a tio n P erio d ) F u tu re (F o reca st P erio d )

Presen

t

Forecast H

orizonK n o w led g e a b o u tA ssets & V a lu e

1 0 0 % P h ysica l A ssets

1 0 0 % In ta n g ib leA ssets

C erta inV a lu e

C o n tin g en tV a lu e

C o st A cco u n tin g

M a n a g eria lA cco u n tin g

D isco u n ted C a sh F lo w

R esid u a l In co m e

L ev's In ta n g ib les A cco u n tin g

B ra n d V a lu e F o rm u la s R ea l O p tio n s

S cen a rio a n d D ecisio n A n a lysis

Easy and Difficult Industries

Deciding on investments in core competences for the future is easy as you move to the left on the line below

It is nearly impossible as you move to the right

W h e r e to u s e F in a n c ia l D y n a m ic s(a n d w ha t k in d s of corp ora te a ssets or serv i ces g en era te v a lu e)

P roperty,M ortg ages,M in in g & E x tractiveIn du stries

U tilities &V oice T eleph on y

In su ran ce,E lectron ic M arkets& R isk M an agem en t

S of tw are,V ideo gam es,C in em a , M u sic,N ew s

D ata T eleph on y,G loba l N etw orkS ervices (e.g . , sh ipp in g )

C om m odityM an u factu rin g(e.g . , paper)

C om p lexM an u factu rin g(e.g . , ca rs, ch ip s)

L oca l S ervices(e.g . , L ega l,G overn m en t)

R eta ilin g ,E du ca tion &P u re R & D

B ran ded-L u xu ryM erch an d ise

M a in ly Ta n g ible A s s e t s M a in ly K n o wle dg e - I n ta n g ible A s s e t s

D C F & Tra dit io n a lV a lu a t io n M e th o ds a re A ccu ra te

Fin a n cia l D y n a m ics is Ne ce s s a ryfo r A ccu ra te V a lu a t io n

Uncertainty and Decision Milestones

The Real Options decision tree (left) assumes that the manager makes a decision, then finds out what happens

Where this fails is when the manager finds out what happens (or at least guesses what might happen) prior to making a decision

In this case, scenario analysis (right) is better suited for the task of dealing with uncertainty.

G o o d New s

B ad N ew s

In v e s t

D o n 't In v e s t

In v e s t

D o n 't In v e s t

Inv e s t

D o n 't In v e s t

G o o d N e w s

B ad N ew s

G o o d N e w s

B ad N ew s

Business Models:Tying Narrative to Numbers

What activities, operations and products are within the ‘scope’ of the valuation analysis? (Bubbles: depends on audience)

What are the significant environmental influences? (Boxes: major competitive forces outside management control)

How does value flow through the relevant scope of the analysis? (Arrows: value metric)

R & D

C u s to m erR elat io n s h ipM an ag em en t

Lab o r C u s to m er s

F act o ry

W o r k

Production

Market Entry Strategy Model

What are the major competitive forces molding managerial strategy which add to, or take away from ‘Value’?

What ‘levers’ (strategy drivers) can management pull to influence value added?

What is the functional relationship between value and the strategy drivers? (Define the ‘Strategy Model’)

Technology Choice Technology is shared across all competitors. It offers:

Efficiency (improved performance at the same cost) Quality Novelty Substitutes

What are the major technologies relevant to managerial strategy which add to, or take away from ‘Value’?

What ‘levers’ (strategy drivers) can management pull to incorporate technology or react to the threat of technology?

What is the functional relationship over time of technological trends on value? (Define the ‘Technology Choice Model’)

Technology Choice Models will be implemented in the same manner as strategy models.

What you need to assess

P resent

B ehavioral M odel

E mbe ds s tra te gy in h is to rica lo u tco me s to de te rmine be ha vio r o f the

firm

F irm be ha vio r is a p ro duct o fco rpo ra te cu ltu re , impo rta nce o f

time line s s , a nd ma na ge ria l tra its a nde xpe rtis e

F orecast M odel

E mbe ds s ce na rio s a nd re a l o p tio ns in a p ro je c tio n o fh is to rica l tre nds in to the fu tu re

H is to rica l d is po s itio ns o f co rpo ra te cu ltu re , impo rta nce o ftime line s s , a nd ma na ge ria l tra its a nd e xpe rtis e a re

a s s ume d to ca rry o n in to the fu tu re

F o re c a s ts o f V a lue A d d e d a re d is co u n te d ba c k to

p re s e n t, a t a d is c o u n t ra te c o n s is te n t w ith h is to ric a l

be ha vio r o f m a na ge m e n t

V alue

F utureP ast

Predicting the Future from the Past

$

t i m e

Present

Es ti m ati on Pe ri od

Fore cas t Pe ri od

The Value Cone

$

t i m eP

resent


Fore cas t Pe ri od

T h e V a lu e C o n e

$

t i m e

Present


Fore cas t Pe ri od

T h e V a lu e C o n e

Value andStrategy Choices

$

t i m e

Pr

ese

nt

Fore cas t Pe ri odEs ti m ati on Pe ri od

$

t i m e

Presen

t


$

t i m e

Presen

t


$

t i m e

Presen

t


Easy and Difficult Industries

Deciding on investments in core competences for the future is easy as you move to the left on the line below

It is nearly impossible as you move to the right The ‘Innovator's Dilemma’ is a serious problem in

managing industries on the right

W h e r e to u s e F in a n c ia l D y n a m ic s(a n d w ha t k in d s of corp ora te a ssets or serv i ces g en era te v a lu e)

P roperty,M ortg ages,M in in g & E x tractiveIn du stries

U tilities &V oice T eleph on y

In su ran ce,E lectron ic M arkets& R isk M an agem en t

S of tw are,V ideo gam es,C in em a , M u sic,N ew s

D ata T eleph on y,G loba l N etw orkS ervices (e.g . , sh ipp in g )

C om m odityM an u factu rin g(e.g . , paper)

C om p lexM an u factu rin g(e.g . , ca rs, ch ip s)

L oca l S ervices(e.g . , L ega l,G overn m en t)

R eta ilin g ,E du ca tion &P u re R & D

B ran ded-L u xu ryM erch an d ise

M a in ly Ta n g ible A s s e t s M a in ly K n o wle dg e - I n ta n g ible A s s e t s

D C F & Tra dit io n a lV a lu a t io n M e th o ds a re A ccu ra te

Fin a n cia l D y n a m ics is Ne ce s s a ryfo r A ccu ra te V a lu a t io n

Production-side Practicums


Topic Practicum

Building Breakthrough Competences

The Idea Box (Dr. Fritz Zwicky’s morphological box)

Selecting Your Competitive Terrain

Hall of Fame (forced connection)

Assembling Your Opportunity Portfolio

Cherry Split (fractionation)

Idea Box BLUEPRINT Specify your challenge. Select the parameters of your challenge. To determine

whether a parameter is important enough to add, ask yourself, “Would the challenge still exist without the parameter I’m considering adding to the box?”

List variations. Below each parameter, list as many varia tions as you wish for that parameter. The number of parameters and variations will determine the box’s com plexity. Generally, it is easier to find new ideas within a simple framework than a complex one. For instance, a box with ten parameters, each of which has ten variations, pro duces 10 billion potential combinations.

Try different combinations. When the box is finished, make random runs through th.e parameters and variations, selecting one or more from each column and then combin ing them into entirely new forms. You can examine all of the combinations in the box to see how they affect your challenge. If you are working with a box that contains ten or more parameters, you may find it helpful to randomly examine the entire box, and then gradually restrict yourself to portions that appear particularly fruitful. It’s like hunting for stars in a box.

Situation: I’m a marketing director for a company that produces laundry hampers. The market has matured, and the company needs a new design to capture the customer’s imagination. My challenge is: “In what ways might I improve the design of laundry hampers?”

Description: I analyze laundry hampers and list their basic parameters. I decide to work with four parameters (material, shape, finish, and position) and plan to use five variations for each.

Idea Box: I construct my box with the parameters on top, leaving five boxes beneath each parameter for the variations.

To generate the variations, I ask myself: What materials could be used to make hampers? What shapes can hampers be made in? What finishes can be used on hampers? What are the positions for hampers?

Hall of Fame:Famous Friends

BLUEPRINT

1. Create your personal Hall of Fame. Select those people, liv ing or dead, real or fictional, who appeal to you for one rea son or another. For example, here are some people from my personal ‘Hall of Fame’: Ben Franklin, Sherlock Holmes, Diogenes, Mark Twain, Ralph Waldo Emerson, Plato, William Shakespeare, Sigmund Freud, Aristotle, Robert Frost, John F. Kennedy, Aldous Huxley, W. Somerset Maugham, Adlai Stevenson, Sun Tzu, Albert Schweitzer, Thomas Jefferson, and Winston Churchill. In addition, I have posted to our class website a list of chéngyǔ 成语 or 成語 , literally "to become (part of) the language"; these are four character Chinese idioms embodying traditional wisdom that I often find more inspiring simply because they can be interpreted so many ways while holding forth an important truth.

2. When you have a challenge, consult your Hall of Fame, select an adviser, choose a favorite quotation.3. Ponder the quotation. Write down your thoughts, regardless of appropriateness to the challenge. If you

think it, write it, and try to use these thoughts to generate more rel evant thoughts. The basic rules are: Strive for quantity.Defer judgment.Freewheel (think freely, perhaps even aimlessly or irresponsibly; independently and free of restraints)Seek to combine and improve your thoughts.

4. Choose the thought or combination of thoughts that holds the most promise. Then restate it.5. Allow yourself five to ten minutes to come up with new ideas. If you produce nothing significant, select

another quote or go to another adviser. Keep consulting your Hall of Fame until a quote or passage provokes a train of usable ideas.

Cherry SplitSplitting the Difference

Challenge #1: "In what ways might we improve the methodology of picking cherries?"

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BLUEPRINT

State the essence of your challenge in two words. For instance, if your challenge is "In what ways might I improve my sales of Canon copiers?" the two-word phrase that captures the essence of your challenge is: "Selling copiers." In the example that follows, the challenge is "In what ways might we improve the methodology of picking cherries?"; the two-word phrase is "Cherry picking."

Split the challenge into two separate units. In the diagram note how "cherry" and "picking" are handled.

Split each attribute into two mor/e attributes. For instance, "cherry" is split into "delicate" and "separate," "picking" is split into "remove" and "transport."

Do not worry about the correctness of the split; no two people will split attributes in the same way. One person will look down a street and see an indescribable beauty in the shadows, the light, the brick walls, the dark porches, and the grayed snow banks. Another person will see only rubble. You have to define attributes for yourself, taking your clues where you find them.

Continue splitting the attributes until you feel that you have enough to work with. In the cherry example, I split "deli cate" into "damaged" and "blemished," "separate" into "selecting" and "closeness to each other," "remove" into "touch and hold" and "picking," and "transport" into "ground" and "boxes."

Examine each attribute for ideas. The wonder of this method is that big ideas can dwell in the most insignificant attribute just as the flavor of an entire ocean is contained in one drop.

Try reassembling the attributes. New combinations can induce new perspectives and new ideas. Splitting a chal lenge into several attributes is like removing a dividing panel from between chambers of very hot and very cold air: New forces rush together, creating new ideas./

C h er r y

Blem is h ed

D am ag ed

S ep ar a te

D elic a te

C lo se n e ss t o E a c hO t h e r

S elec tin g

P ic k in g

P ic k in g

T o u c h an d Ho ld

T r an s p o r t

R em o v e

Bo x es

G r o u n d

Entry Strategy


In v e ntio n s

Ide a

s

Com

mercial O

pportunities

Inno va tio n




CompetitionWho is competing in this product market?

1. How you will measure the usefulness or attractiveness of your prodict’s Attributes to the target customer.

This performance metric should be a numerical measure

2. Who are your innovation’s top competitor in each of these three Attributes

a company marketing a competitive product or service Are these companies profitable? How big (approximately) is their business?

Think: Low-cost or Differentiated Products?

Every product or service has multiple competitors … there are no exceptions

Two Realities

Competitors simply cannot allow you to go unchallenged and must try to erode your position

Understanding where to create a competitive position that cannot easily overcome is thus essential

You are not only competing with other organizations in customer markets You are also competing with them in the capital markets for

critical funds that you need to build future competitive position

You Convince Competitors and Financiers By … Proving that your ideas can perform on Key Metrics (e.g., Profit)

Show me the money!

This raises the question: “What are the important Metrics?”

The answer is complex … and is not necessarily “Profit” Accounting metrics like Profit

Measure the Past Competitors and Financiers are interested in your future!

Future Profits, Revenues, etc. are Unknown

Thus Other Measures both needed and More Important than Profit!

Competitive ResponsesThink War

3 Questions Is this area important to them? Have they been increasing

their commitment here? Have they invested heavily in

this area?

Capacity Capacity HighHigh

Capacity LowCapacity Low

Commitment Commitment LowLow

Sleeping Dogs(track them)

Bystanders(monitor)

Commitment Commitment HighHigh

Combatants(Your main focus)

Skirmishers(selective in their responses due to resource limits; monitor)

Tactics

feint (fānt) noun

1. A feigned attack designed to draw defensive action away from an intended target. 2. A deceptive action calculated to divert attention from one's real purpose. See synonyms at artifice.

gam·bit (gămʹbĭt) noun

1. Games. An opening in chess in which a minor piece, or pieces, usually a pawn, is offered in exchange for a favorable position.

2. A maneuver, stratagem, or ploy, especially one used at an initial stage. 3. A remark intended to open a conversation.

on·slaught (ŏnʹslôt´, ônʹ-) noun

1. A violent attack. 2. An overwhelming outpouring: an onslaught of third-class mail.

gue·ril·la (gə-rĭlʹə) noun (warfare)

A member of an irregular, usually indigenous military or paramilitary unit operating in small bands in occupied territory to harass and undermine the enemy, as by surprise raids.

noun, attributive.Often used to modify another noun: guerrilla warfare; guerrilla tactics.

The CompetitorsThe Ralston Case in the Text

Commitments The Ralston Case in the Text

Categories and Products The Ralston Case in the Text

Competitive Positions The Ralston Case in the Text

Ralston vs. Mars (importance) The Ralston Case in the Text

Ralston vs. Mars (Attractiveness) The Ralston Case in the Text

Adaptive ExecutionDiscovery Driven Planning

Decide on an entry strategyAnticipating competitive behavior and response

Planning to learn when uncertainty is highRather than meeting objectives set in advanceAssessing your project as it unfolds

You can’t sell 10 until you sell 1Each of the early sales is an opportunity:

To test your attribute map and consumption chainTo learn about your product and customerTo innovate again and again

Where are your Customers? Lead-steer customers

Opinion leaders in their industries Highly regarded by peers Customers with blogs, review or other sites

Use these customers’ enthusiasm to: Test your assumptions about attribute maps and consumption chains Use their success with your offering to sell others

Customer Risks

Learning (experience) curve Opportunity costs Failure or uncertain operation Employee resistance Legal and Environmental Quality & Perception

No Sales until ‘First 5 Sales’prioritizing the first few sales

Risk LowRisk Low Risk HighRisk High

Benefit LowBenefit Low 2nd Priority(make risk of not buying higher than of buying)

Forget it!

(postpone until

value or risk

Benefit HighBenefit High 1st Priority(easy sell)

3rd Priority(‘if it doesn’t work, send me the bill’)

3M’s Model for adaptive execution

"Give it a try—and quick!"

When in doubt, vary, change, solve the problem, seize the opportunity, experiment, try something new (consistent, of course, with the core ideology) even if you can't predict precisely how things will turn out

Do something. If one thing fails, try another. Fix. Try.

Do. Adjust. Move. Act. No matter what, don't sit still.

3M’s Model for adaptive execution"Accept that mistakes will be made"

Darwin's key phrase: "Multiply, vary, let the strongest live, and the weakest die."

In order to have healthy evolution, you have to try enough experiments (multiply) of different types (vary), keep the ones that work (let the strongest live), and discard the ones that don’t (let the weakest die).

You cannot have a vibrant self-mutating system—you cannot have a 3M—without lots of failed ex periments.

Even the flops are valuable in certain ways.... You can learn from success, but you have to work at it;

A visionary company tolerates mistakes, but not "sins," that is, breaches of the core ideology.


"Take small steps."

It's easier to tolerate failed experiments when they are just that—experiments, not massive corporate failures.

small incremental steps can form the basis of significant strategic shifts.

If you want to create a major strategic shift in a company, you might try becoming an "incremental revolutionary"

harnessing the power of small, visible successes to influence overall corporate strategy.


“Give people the room they need."

A key step that enabled unplanned variation.

When you give people a lot of room to act, you can't predict precisely what they'll do

This is good.

Visionary companies decentralized more and provided greater operational autonomy than the comparison companies in twelve out of eighteen of Porros and Collins cases. (Five were indistinguishable.)

Corollary: Allow people to be persistent.

Entry Strategy Practicums


Topic Practicum

Executing Your Entrance Strategy

Tug-of-War (force-field analysis)

Putting Discovery-Driven Planning to Work

Ideatoons (pattern language)

Managing Under Uncertainty

Future Fruit (rationalizing future uncertainty)

Tug of War:Accentuate the Positive

Positive and negative forces define your challenge.

Identify strengths you can maximize. Identify weaknesses you can minimize.

Blueprint Write the challenge you are trying to solve.

Describe the best-case scenario and the worst-case scenario; the best that can happen and the worst.

List the conditions of the situation. Conditions are anything that modifies or restricts the nature or existence of your subject. They are whatever requirements you perceive to be essential to solving a particular challenge.

Note the "tug-of-war." As you list the conditions, you will find the forces pushing you to the best case and those pull ing you toward catastrophe. Pit each condition against its opposite on the continuum by specifying its push and pull powers.

IdeatoonsGraphic Musings

visual and verbal thinking

Divide your challenge into attributes. Describe each attribute by drawing an abstract graphic sym bol. Each drawing should represent

a specific attribute and be on a separate index card. Draw whatever feels right for you. Allow the image of the attribute to emerge in its own way—to state what it wants to say. On the back of the card, write the attribute.

You can make pattern language as simple or as complex as you wish. One possible technique is to use a different color for each parameter of the challenge in addition to the graphic symbols that describe the attributes. For instance, in marketing a product you might have four parameters: packaging, distribution, promotion, and selling. You could draw the appropriate graphics on red cards for packaging, yellow for distribution, blue for marketing, and white for selling.

Place all of the file cards on a table with the graphic symbols facing up. Group and regroup the symbols randomly into various relationships. Try letting the cards arrange themselves without conscious direction, as if they were telling you where they wanted to be. Mix and match the symbols to provoke ideas.

Look for ideas and thoughts that you can link to your chal lenge. Try to force relationships. Try free-associating. Record the most idea-provoking arrangements.

When stalemated, you may want to add other Ideatoons or even start an entirely new set. A New Hampshire banker who wanted to solve the problem of stolen checks used sev eral different sets of Ideatoons to search for a solution. Finally, the act of using pictures itself prompted him to think of the answer. The idea: He invented a system that lets banks print customer's pictures on their checks.

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Future FruitThermonuclear thinking

BLUEPRINT

The procedures for preparing for the future are: Identify a particular problem in your business. State a particular decision that has to be made. Identify the forces (economic, technological, product lines, competition, and so on) that have an impact on the

decision. Build four or five future scenarios based on the principal forces. Use all the available information and develop sce

narios that will give you as many different and plausible possibilities as a pinball in play. Develop the scenarios into stories or narratives by varying the forces that impact the decision. Change the forces

(interest rates escalate, a key performer quits, need for your product or service disappears, etc.) and combine them into different patterns to describe the possible conse quences of your decision over the next five years.

Search for business opportunities within each scenario. Then explore the links between opportunities across the range of your scenarios, and actively search for new ideas.

Final Exam Review Innovation Management (ISMT 302) Time: 7 Dec 2005 Note: You will be allowed one A4 sized sheet of paper as a “ Cheat Sheet” for your.

Documents

sources of innovation

innovation projects

cooking innovation

exam slide

support innovation activities

course slide

market related slide

circumstantial innovations