Mid-term Exam Review Slides Innovation Management (ISMT 302) Time & Venue: 17 Oct 2006, 13:30 to 14:50 @ Room 4333 ONE A4 paper cheat sheet is allowed.

Mid-term Exam Review Slides

Innovation Management (ISMT 302)

Time & Venue: 17 Oct 2006, 13:30 to 14:50 @ Room 4333

ONE A4 paper cheat sheet is allowed

Logical Structure of the Course

O p p o r tu n ityR eg is ter

Inv en tion 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

I n n o v atio n an d th eE n tr ep r en eu r ia l

M in d s e t2

En try S tra te g yM ar k et E n tr y &

Ad ap tiv e E x ec u tio n9 - 1 1

Pro du ct io n - s ideM atc h in g

C o m p eten c es &O p p o r tu n it ies

7 & 8

M a rk e t - s ideP o ten tia l M a r k e t

O p p o r t un it ie s & F illin gt h e O p p o r t un it y R e gist e r

3 - 6

M a rk e t - s ideT h e E n tr ep r en eu r ia l

F r am e2

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

non techn ica l f acto rs

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

non techn ica l f acto rs

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

Sustainability Different Industries; Different Rates of Change

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 ro p erty,M o rtg a g es,M in in g & E x tra ctiveIn d u stries

U tilities &V o ice T elep h o n y

In su ra n ce,E lectro n ic M a rk ets& R isk M a n a g em en t

S o f tw a re,V id eo g a m es,C in em a , M u sic,N ew s

D a ta T elep h o n y,G lo b a l N etw o rkS ervices (e.g . , sh ip p in g )

C o m m o d ityM a n u fa ctu rin g(e.g . , p a p er)

C o m p lexM a n u fa ctu rin g(e.g . , ca rs, ch ip s)

L o ca l S ervices(e.g . , L eg a l,G o vern m en t)

R eta ilin g ,E d u ca tio n &P u re R & D

B ra n d ed -L u x u ryM erch a n 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 nPast is indicator of Future Future is Volatile

Sustainability

S-Curve (Foster and others)

Eras of incremental change terminate with a ‘discontinuity’ We look for limits on the technology’s life cycle using knowledge of the

technology's physical limits E.g., Moore’s Law will run out on current platforms at 2013

Advance of a technology is a function of development effort

E f f o r t

Rate of T

ech Progress

P h y s ic a l L im it

E f f o r t o n S u p er c o m p u tin g

Rate of

Supercom

puter Progress

S p eed o f L ig h t

C o m m u n ic a tio n Bo tt len ec k s

M ulti-p ro cessor

S ing le-p rocessor

Key to Generating Profits: Low-cost or Differentiated Products

Firms do this through their unique value configuration

(i.e., value chain, value network, value shop, profit chain)

To create Low-cost / Differentiated Productsa firm needs:

Plants, equipment, patents, scientists, brand name recognition, geographic location, client relations, distribution channels, trade secrets

i.e., Assets, Competences and Knowledge

Technological Characteristics that Promote Innovation

(Abernathy-Clark) Two kinds of knowledge underpin an innovation Technological Market Incumbents Fail when they Fail to “Get” one or the

other type of Knowledge

R a d ica lM o d u la r

A rch itectu ra lIn crem en ta l P r es er v ed

D es tr o y ed

P r es er v ed D es tr o y ed

A rch ite ctu ra l K n o wle dg e

C o m po n e n t K n o wldg e

(Henderson-Clark) Products are made up of components (even services) There exist two kinds of relevant knowledge

Component Architectural

A rch itectu ra lN iche

R ev o lu tionaryR egu la r P r es er v ed

D es tr o y ed

P r es er v ed D es tr o y ed

Te ch n ica l C a pa bilit ie s

M a rk e t C a pa bilit ie s

Market-Technology Interplay: Effect on the Profitability of Inventions

Two factors are instrumental to profiting from an innovation Imitability and Complementary Assets

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

ComplementarityWhat other products are needed to complete your Commercialization?

What are your ‘Killer Apps’?

Who are your ‘Co-opetitors’ and what essential assets do they control?

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 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

What is Innovation? Chapter 1Framing the Challenge: Business Needs and Models Chapter 2

Blockbuster Innovations Chapter 3Redifferentiating & Resegmentinb Chapter 4

Techniques: Quizzing, Attribute Maps and Consumption Chain Analysis

Practicums: False FacesSlice and DiceThink Bubbles

O p p o r tu n ityR eg is ter

In v e ntio 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

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 ..

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

Basic Discriminator Energizer

Positive Nonnegotiable Differentiator Exciter

Negative Tolerable Dissatisfier Enrager

Neutral So What? Parallel

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 juxtapositions often provokes new ideas.