Innovation management

INNOVATION MANAGEMENT

ByAnandBalajiManuMayurKowshikShariqueVidyashankar

CHARACTERISTICCHARACTERISTICSS OF SUCCESSFUL OF SUCCESSFUL INNOVATING COMPANIES INNOVATING COMPANIES - 1- 1 Systematic collection of all impulses that could lead to Systematic collection of all impulses that could lead to

innovationinnovation Creativity of employeesCreativity of employees Ability to evaluate the possibility of the innovation ideaAbility to evaluate the possibility of the innovation idea Good team workGood team work Project-based approach and ability to manage projectsProject-based approach and ability to manage projects

MAYUR

CHARACTERISTICCHARACTERISTICSS OF SUCCESSFUL OF SUCCESSFUL INNOVATING INNOVATING COMPANIES - 2- 2 Cooperation with external experts (universities, Cooperation with external experts (universities,

research laboratories…)research laboratories…) Proper rate of risk-takingProper rate of risk-taking Employees’ motivation (the employees are willing to Employees’ motivation (the employees are willing to

improve the product and the operation of the whole improve the product and the operation of the whole company)company)

Continued education of employees Continued education of employees Ability to finance the innovation activitiesAbility to finance the innovation activities

WHAT IS WHAT IS INNOVATIONINNOVATION

An innovation is considered performed if it is An innovation is considered performed if it is introduced to the market (introduced to the market (product innovationproduct innovation) ) or implemented in the production process or implemented in the production process ((process innovationprocess innovation). ).

Innovation includes many research, Innovation includes many research, technological, organizational, financial and technological, organizational, financial and commercial activities.commercial activities.

CLASSIFICATION OF INNOVATIONS

SYSTEM New series of cars, planes, computers, TV

New generation (MP3 and download as substitution of CD)

Steam engine, ICT, biotechnology, nanotechnology

COMPONENT

Improvement of components

New components for existing systems

Advanced materials improving component properties

INCREMENTAL

„do better what we already do“

„new for the company“

RADICAL

„new for the world“

INNOVATION CATEGORIES

SUSTAININGSUSTAINING – better products that can be sold with – better products that can be sold with higher margin to demanding customers; incumbents higher margin to demanding customers; incumbents winwin

DISRUPTIVEDISRUPTIVE – commercialization of simpler, more – commercialization of simpler, more user-friendly products, which are chepaer and user-friendly products, which are chepaer and targeted to new or less demanding customers; new targeted to new or less demanding customers; new entrants winentrants win

KEY ELEMENTS OF DISRUPTION

Customers at each market has limited absorption Customers at each market has limited absorption capacitycapacity

Technological progress usually is faster that the Technological progress usually is faster that the ability of the market to employ it. Companies focus ability of the market to employ it. Companies focus on better products to be sold with higher margin to on better products to be sold with higher margin to unsatisfied customers.unsatisfied customers.

SUSTAINING VS. DISRUPTIVE

SustainingSustaining: focused on demanding customers; : focused on demanding customers; both incremental and radical. Incumbents have both incremental and radical. Incumbents have resources and motivation.resources and motivation.

DisruptiveDisruptive: introduce products and services not : introduce products and services not as advanced as existing ones, but offering other as advanced as existing ones, but offering other advantages (simpler, cheaper, more user advantages (simpler, cheaper, more user friendly, ...) and focus on new or less demanding friendly, ...) and focus on new or less demanding customers.customers.

TWO TYPES OF DISRUPTION

New markets: compete with non-consumption: simpler, New markets: compete with non-consumption: simpler, more user frindly, can be used by less sophisticated more user frindly, can be used by less sophisticated customers (PC, transistor radio, desk copiers). customers (PC, transistor radio, desk copiers).

Low-end: focus on lower tiers of main markets Low-end: focus on lower tiers of main markets (minimills, discount stores, Korean auto-makers); (minimills, discount stores, Korean auto-makers); motivate incumbents to leave the marketmotivate incumbents to leave the market

SOURCES OF INNOVATION IMPULSESSOURCES OF INNOVATION IMPULSES InInternalternal environment environment

Own R&DOwn R&D Technical divisions – design, technologyTechnical divisions – design, technology Production divisions (production, provision of Production divisions (production, provision of

services)services) Marketing and salesMarketing and sales Logistics (purchase and supplies)Logistics (purchase and supplies) Guarantee and post-guarantee serviceGuarantee and post-guarantee service OwnersOwners

MANU

SOURCES OF INNOVATION IMPULSESSOURCES OF INNOVATION IMPULSES ExternalExternal environment environment

CustomersCustomers SuppliersSuppliers CompetitorsCompetitors Consultants, R&D Consultants, R&D

institutionsinstitutions Schools, universitiesSchools, universities Professional publications, Professional publications,

InternetInternet Exhibitions, fairs, Exhibitions, fairs,

specialized seminars and specialized seminars and conferencesconferences

Advertising agenciesAdvertising agencies InvestorsInvestors MediaMedia Authorized testing Authorized testing

laboratories, certification laboratories, certification agenciesagencies

State institutions, public State institutions, public sectorsector

LegislationLegislation GlobalizationGlobalization

MARKET PULLMARKET PULL - - R&DR&D PUSH PUSH

Market pullMarket pull– looking for the best way of satisfying a newly looking for the best way of satisfying a newly

emerging customer demandemerging customer demand– improvement of the existing products, extension of improvement of the existing products, extension of

the existing offer or decrease of pricethe existing offer or decrease of price– iimpulses for continuous, incremental innovations or mpulses for continuous, incremental innovations or

for process innovationsfor process innovations Research and Development pushResearch and Development push

– looking for commercial use of new impulses looking for commercial use of new impulses resulting from the R&D resultsresulting from the R&D results

– generating of new markets for conceptually different generating of new markets for conceptually different productsproducts

OPEN INNOVATION

Chesbrough, H., “Chesbrough, H., “Open InnovationOpen Innovation”, Harvard ”, Harvard Business School Publishing, Boston MA, 2003Business School Publishing, Boston MA, 2003

Closed innovationClosed innovation - requires control - requires control Open innovationOpen innovation

– companies use external as well as internal ideas companies use external as well as internal ideas and both external and internal ways to marketand both external and internal ways to market

– internal ideas can be taken to the market through internal ideas can be taken to the market through external channels to generate additional value external channels to generate additional value

COMPANY INNOVATION POTENTIALCOMPANY INNOVATION POTENTIAL

A company with high innovation potentialA company with high innovation potentialscores highscores high in the following in the following areasareas: : Strategy and planning Strategy and planning MarketingMarketing Technological processTechnological process Quality managementQuality management LogisticsLogistics Human resourcesHuman resources

KOWSHIK

INNOVATION POTENTIAL ASSESSMENT

For a company, it is important to know its innovation For a company, it is important to know its innovation potential. It can use the questionnairepotential. It can use the questionnaire

FFor every or every of the six areas, there are six question, each of the six areas, there are six question, each with four possible answers. with four possible answers. The answers are The answers are formulated so that they reflect the existing situation in formulated so that they reflect the existing situation in the company. the company.

A. STRATEGY AND PLANNING

1.1. Idea about the company futureIdea about the company future

2.2. Vision and employeesVision and employees

3.3. Company innovation programsCompany innovation programs

4.4. Plan modificationsPlan modifications

5.5. Financial indicators of the planFinancial indicators of the plan

6.6. Project managementProject management

B. MARKETING

1.1. Monitoring of current market trendsMonitoring of current market trends 2.2. Evaluation of the market competition positionEvaluation of the market competition position 3.3. Customer-orientationCustomer-orientation4.4. Monitoring of customers’ attitudes to the Monitoring of customers’ attitudes to the

company productcompany product 5.5. Market information flow inside the companyMarket information flow inside the company 6.6. Marketing and financial controlMarketing and financial control

C. TECHNOLOGICAL PROCESS

1.1. Future company’s competitiveness in the Future company’s competitiveness in the industryindustry

2.2. Changes of technologiesChanges of technologies

3.3. Collection of impulses for implementation Collection of impulses for implementation of technology changesof technology changes

4.4. Evaluation of the Evaluation of the return on return on investmentinvestment

5.5. CCalculation alculation of pof production costs and their roduction costs and their monitoringmonitoring

6.6. Creation of resources for developmentCreation of resources for development

D. D. QUALITY, ENVIRONMENTQUALITY, ENVIRONMENT

1.1. Monitoring of changes conditioning the quality Monitoring of changes conditioning the quality management in the companymanagement in the company

2.2. EEmployees’ personal contribution to the mployees’ personal contribution to the quality systemquality system

3.3. External quality audit in the companyExternal quality audit in the company 4.4. Monitoring of theMonitoring of the environmentenvironmentalal impact impact5.5. Impact of quality monitoring on the companyImpact of quality monitoring on the company

processprocesseses6.6. Covering of Covering of costs resulting from modifications costs resulting from modifications

of standards, regulations and legislation in the of standards, regulations and legislation in the sphere of quality and environmentsphere of quality and environment

EE. . LOGISTICSLOGISTICS

1.1. Organization of purchase and distribution Organization of purchase and distribution channels in the companychannels in the company

2.2. Optimization of the company logisticsOptimization of the company logistics 3.3. IInformation and communication nformation and communication flows flows

between the between the companycompany and it and its partnerss partners 4.4. Flexibility of logistics processes Flexibility of logistics processes 5.5. Introduction of innovations in logisticsIntroduction of innovations in logistics 6.6. Logistics and financial controlLogistics and financial control

FF. . ORGANIZATION AND HUMAN RESOURCESORGANIZATION AND HUMAN RESOURCES

1.1. Employees satisfactionEmployees satisfaction

2.2. Employees motivationEmployees motivation

3.3. Management and communicationManagement and communication

4.4. Conflict resolutionConflict resolution

5.5. Company information systemCompany information system

6.6. Company cultureCompany culture

AN EFFECTIVE INNOVATION AN EFFECTIVE INNOVATION STRATEGY ANSWERS THREE KEY STRATEGY ANSWERS THREE KEY QUESTIONS:QUESTIONS:

How will we Create value?

How will weDeliver value?

How will weCapture value?

VIDYASHANKAR

STEP 1: CREATING VALUESTEP 1: CREATING VALUE

How will the technology evolve?How will the technology evolve? How will the market change? How will the market change? How will consumer preferences and behavior change? How will consumer preferences and behavior change? Where will innovations come from?Where will innovations come from? What is our value proposition?What is our value proposition?

STEP 2: CAPTURING VALUESTEP 2: CAPTURING VALUE

How should we design the business model? How should we design the business model? Where should we compete in the value chain? Where should we compete in the value chain? How should we compete if standards are important? How should we compete if standards are important?

STEP 3: DELIVERING VALUESTEP 3: DELIVERING VALUE

How do we manage the core business and growth How do we manage the core business and growth simultaneously? simultaneously?

How do we use our strategy to drive real resource How do we use our strategy to drive real resource allocation? allocation?

What organizational structure, processes, measurements, What organizational structure, processes, measurements, and incentive mechanisms do we use?and incentive mechanisms do we use?

EXAMPLESEXAMPLES

Personal computersPersonal computers RetailRetail PhotographyPhotography Video gamesVideo games

A HARDER QUESTION:A HARDER QUESTION:

Can you think of an industry that Can you think of an industry that has has notnot gone through drastic gone through drastic changes in the past several changes in the past several decades in terms of technology, decades in terms of technology, business models, and major business models, and major players?players?

EXAMPLESEXAMPLES

Soft drinksSoft drinks Ready-to-eat breakfast cerealsReady-to-eat breakfast cereals Rough diamondsRough diamonds Business education?Business education?

THE TRADITIONAL MODEL OF INDUSTRY LIFE CYCLETHE TRADITIONAL MODEL OF INDUSTRY LIFE CYCLE

Time

Sa

les

volu

me

Fermentation Shakeout Maturity Decline

AN ALTERNATE MODEL OF INDUSTRY LIFE CYCLEAN ALTERNATE MODEL OF INDUSTRY LIFE CYCLE

Time

Sa

les

volu

me

Emergence Convergence Coexistence Dominance

Established Industry

Emerging Industry

SOURCES OF INNOVATION SOURCES OF INNOVATION

According to Peter F. DruckerAccording to Peter F. Drucker

Industry and market changesIndustry and market changes Demographic changesDemographic changes New knowledgeNew knowledge Changes in perceptionChanges in perception Unexpected occurrencesUnexpected occurrences IncongruitiesIncongruities Process needsProcess needs

INNOVATION MANAGEMENT TOOLSINNOVATION MANAGEMENT TOOLS

BALAJI

General Innovation ToolsGeneral Innovation Tools

BENCHMARKINGBENCHMARKING

BRAINSTORMINGBRAINSTORMING

CHANGE MANAGEMENTCHANGE MANAGEMENT

TECHNOLOGY AUDITTECHNOLOGY AUDIT

TECHNOLOGY FORECASTTECHNOLOGY FORECAST

Managerial Innovation ToolsManagerial Innovation Tools

SHARIQUE

PEER EVALUATIONPEER EVALUATION

TEAM BUILDINGTEAM BUILDING

ISO 9000ISO 9000

ISO14000ISO14000

refers to procedures for ensuring sustainable and refers to procedures for ensuring sustainable and environmentally friendly operationsenvironmentally friendly operations

EIA – Environmental Impact AssessmentEIA – Environmental Impact Assessment

JUST IN TIME (JIT)JUST IN TIME (JIT)

THE SECOND OF THREE KEY QUESTIONS...THE SECOND OF THREE KEY QUESTIONS...

How will we Create value?

How will weDeliver value?

How will weCapture value?

OR: OR: WHAT DETERMINES THE INNOVATOR’S WHAT DETERMINES THE INNOVATOR’S SHARE?SHARE?

Customers

Innovator

Suppliers

Imitators,followers

SOURCES OF UNIQUENESSSOURCES OF UNIQUENESS

Intellectual property protectionIntellectual property protection– PatentsPatents

• Finite lengthFinite length• The right to prohibit “producing”The right to prohibit “producing”

– CopyrightsCopyrights• The right to prohibit “copying”The right to prohibit “copying”

SecrecySecrecy– Trade secrets & non-compete clausesTrade secrets & non-compete clauses

– ““Tacit” knowledgeTacit” knowledge

– Causal ambiguityCausal ambiguity SpeedSpeed

UNIQUENESS IS POWERFUL BUT OFTEN UNIQUENESS IS POWERFUL BUT OFTEN DIFFICULT TO MAINTAINDIFFICULT TO MAINTAIN

Legal mechanisms can be costly to create, and then Legal mechanisms can be costly to create, and then even more costly to enforce: and sometimes they even more costly to enforce: and sometimes they require public disclosurerequire public disclosure

Secrecy may be difficult to maintainSecrecy may be difficult to maintain Speed is hard work, and sometimes imitableSpeed is hard work, and sometimes imitable

WHAT ARE COMPLEMENTARY ASSETS?WHAT ARE COMPLEMENTARY ASSETS?

Those assets that allow a firm to make money, even if Those assets that allow a firm to make money, even if the innovation is not unique.the innovation is not unique.

The answer to the question:The answer to the question:– If our innovations were instantly available to our If our innovations were instantly available to our

competitors, would we still make money? Why?competitors, would we still make money? Why?

ANAND

TYPES OF COMPLEMENTARY ASSETSTYPES OF COMPLEMENTARY ASSETS

Things One can doThings One can do– Manufacturing capabilitiesManufacturing capabilities– Sales and service expertiseSales and service expertise– Strategic alliancesStrategic alliances

Things One ownThings One own– Brand nameBrand name– Distribution channelsDistribution channels– Customer relationshipsCustomer relationships

COMPETENCIES

RESOURCES

Exercise:Exercise:

Complementary assets are:

Available Tightly held

Position:Soft drinks Windows OfficeBook publishingTravel agenciesYour industry/firm

Easy to maintain

Hard tomaintain

Uniqueness is:

AB

DC

Uniqueness & Complementary Assets Uniqueness & Complementary Assets over the Life Cycle:over the Life Cycle:

Ferment

Takeoff

Maturity

UniquenessComplementary

Assets

The last of three key questions...The last of three key questions...

How will we Create value?

How will weDeliver value?

How will weCapture value?

DISCONTINUOUS INNOVATION DISCONTINUOUS INNOVATION as a strategic problemas a strategic problem

Genuine uncertaintyGenuine uncertainty– It’s not going to happen – certainly not nowIt’s not going to happen – certainly not now

CannibalizationCannibalization– It will compete with our current productsIt will compete with our current products

Shifts in the customer baseShifts in the customer base– Our current customers don’t want itOur current customers don’t want it

Margin erosionMargin erosion– It will make less moneyIt will make less money

The new opportunity The new opportunity doesn’t meet our current doesn’t meet our current

customer’s needscustomer’s needs

The new opportunity The new opportunity doesn’t offer nearly the doesn’t offer nearly the

same margins and profit same margins and profit opportunityopportunity

Discontinuous Innovation Discontinuous Innovation as an as an

Organizational ProblemOrganizational Problem

My experience has been that creating My experience has been that creating a compelling new technology is so a compelling new technology is so much harder than you think it will be much harder than you think it will be that you're almost dead when you get that you're almost dead when you get to the other shore. to the other shore.

--Steve Jobs--Steve Jobs

Discontinuous InnovationDiscontinuous Innovationas an organizational problemas an organizational problem

Time horizons & IncentivesTime horizons & Incentives Fear of (individual) cannibalizationFear of (individual) cannibalization OverloadOverload Competency TrapsCompetency Traps

THANK YOU THANK YOU