Transcript Mid-term Exam Review Slides Innovation Management (ISMT 302) 4333

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
Innovation
ions
Invent
Commercial Opportunities
Ideas
Core Competences:
Assessment & Investment
Opportunity
Register
Adaptive
Execution
Market Entrance &
Competitive Strategy
Market-side
The Entrepreneurial
Frame
2
Innovation and the
Entrepreneurial
Mindset
2
Market-side
Potential Market
Opportunities & Filling
the Opportunity Register
3-6
Production-side
Matching
Competences &
Opportunities
7&8
Entry Strategy
Market Entry &
Adaptive Execution
9-11
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
New Product:
Low cost
Improved qualities
New qualities
Competences
and
Assets
New
Technological
knowledge
New Market
Knowledge
The Purpose of a Business
is to Create a Customer
-- Peter Drucker

Even if you create marvelous inventions

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
Business customers are especially impatient


Your customers won’t care
Unless that is exactly what they need
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?
d
Goo
ve
In
Invention Generation
Do
n' t
s
Bad
New
s
st
In
Ne w
ve
st
d
Goo
Ne w
s
Ba
dN
ew
s

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
Sources of Innovation

How innovation arises

Functional:

Innovations arise from thinking about the functional relationships between groups
and individuals



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., customer or manufacturer
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.
2.
3.
4.
5.

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

‘Complementarity of several sources may amplify and
accelerate innovation
Innovation at the National level

Success in societies which:


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




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 & Technology
What are they? How are they related?
Influence / feedback
Verbally
Encoded
Information
Verbally
Encoded
Information
Science
Technology
Influence / feedback
Verbally Encoded
Information
*publications
*patents
Physically & Verbally Encoded
Information
*products & services
*documentatiom
*publications
*patents
Complementarity
What 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



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

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
Complementary Assets
Free or Unimportant
Profit is Difficult
Tightly held
Holder of
complementary assets
High
Imitability
Inventor
Inventory or party with
bargaining power
Low
Life cycle of an Innovation Development
Determines Optimal Market Entry Strategy

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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
State of Evolution of Tech
Era of Ferment
High Uncertainty
High influence of
nontechnical factors
Era of Incremental Change
Medium Uncertainty
High influence of
nontechnical factors
High
Complexity
Little Uncertainty
Low influence of
nontechnical factors
Near Certainty
Nontechnical factors
may be ignored
Low
Where to use Financial Dynamics
Sustainability
(and what kinds of corporate assets or services generate value)
Different Industries; Different Rates of Change
Mainly Tangible Assets
Mainly Knowledge-Intangible Assets
DCF &Traditional
Financial Dynamics is Necessary
Future
Volatile
for
Accurateis
Valuation
Past is indicator
of Future
Valuation Methods
are Accurate
Property,Mortgages,
Mining & Extractive
Industries
Commodity
Manufacturing
(e.g., paper)
Utilities &
Voice Telephony
Branded-Luxury
Merchandise
Local Services
(e.g., Legal,
Government)
Retailing,
Complex
Education &
Manufacturing
Pure R&D
(e.g., cars, chips)
Data Telephony,
Global Network
Services (e.g.,shipping)
Insurance,
Electronic Markets
& Risk Management
Software,
Videogames,
Cinema, Music,
News
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

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E.g., Moore’s Law will run out on current platforms at 2013
Advance of a technology is a function of development effort
Rate of Tech Progress
Rate of Supercomputer Progress
Physical Limit
Communication Bottlenecks
Multi-processor
Speed of Light
Single-processor
Effort
Effort on Supercomputing
Key to Generating Profits:
Low-cost or Differentiated Products

Firms do this through their unique value
configuration


To create Low-cost / Differentiated Products
a firm needs:


(i.e., value chain, value network, value shop, profit chain)
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

(Henderson-Clark) Products are made  (Abernathy-Clark) Two kinds of
up of components (even services)
knowledge underpin an innovation
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There exist two kinds of relevant knowledge
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Component
Architectural

Incremental
Preserved
Destroyed
Architectural
Technological
Market
Incumbents Fail when they Fail to “Get” one or the
other type of Knowledge
Technical Capabilities
Architectural Knowledge
Preserved

Preserved
Regular
Destroyed
Revolutionary
Market Capabilities
Component Knowldge
Modular
Radical
Destroyed
Preserved
Niche
Architectural
Destroyed
Market-Technology Interplay:
Effect on the Profitability of Inventions

Two factors are instrumental to profiting from an innovation


Imitability and
Complementary Assets
Complementary Assets
Free or Unimportant
Profit is Difficult
Tightly held
Holder of
complementary assets
High
Imitability
Inventor
Inventory or party with
bargaining power
Low
Complementarity
What 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
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Gatekeepers & Boundary Spanners
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Sell the innovation to the firm
Sponsors (Coach, Mentor)
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Conduits for knowledge from other firms and labs
Champions (Entrepreneurs, Evangelists)

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Can sift through large quantities of technological and market data to identify
‘innovations’
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
Innovation
ons
Inventi
Commercial Opportunities
Ideas
Core Competences:
Assessment & Investment
Opportunity
Register
Adaptive
Execution
Market Entrance &
Competitive Strategy
Market side innovation
What is Innovation? Chapter 1
Framing the Challenge: Business Needs and Models Chapter 2
Blockbuster Innovations
Chapter 3
Redifferentiating & Resegmentinb
Chapter 4
Techniques: Quizzing, Attribute Maps and Consumption Chain Analysis
Practicums: False Faces
Slice and Dice
Think Bubbles
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.
2.
3.
4.
5.
6.
7.
8.
9.
Business concept
Relevant trends
Key industry data
Obstacles and barriers
Company position
Competition and Substitutes
Sources for your information
What type of opportunity is this?
Timing of proposed actions
•Commercialization
Defines your market
Who is the target customer for the company’s
product (age, income, medical history, and
other demographics)
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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
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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
Quizzing
Who?
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… is with customers while hey use the product

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If we could arrange it, who would we want the customer to
be with …
What?
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How much influence do they have
… 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
This
provides a heuristic for ‘Functional Innovation’ (Eric von Hippel)
Basic
Discriminator
Energizer
Positive
Nonnegotiable
Differentiator
Exciter
Negative
Tolerable
Dissatisfier
Enrager
Neutral
So What?
Parallel
Consumption Chain
Analysis
Selection
Search
Order and
purchase
Awareness
of need
Delivery
Repairs and
Returns
Payment
Final disposal
Service
Financing
Use
Receipt
Storage and
trasport
Installation
and Assembly
Function of Consumption Chain
Analysis
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A complement to quizzing …
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And (perhaps) quizzing done from a different (more graphical)
perspective
Consumption Chain Analysis
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Works from the premise that
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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
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Tying Narrative to Numbers

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Part of selling your strategy / investment
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:

Labor
Work
R&D
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It only depicts the systems that will be put
into place to achieve a strategic objective

A good model is not enough
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The boxes on the value map need to be
understood in depth
In order to develop a good strategy
Customers
ng
eti
k
ar
M
s
ed
Ne

Competition
Environment
Scaling
Production

De
sig
ns

Factory
Customer
Relationship
Management
Framing the Challenge
Targets and Goals
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If I were to do something in the next 3-5 years
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If I were to do something in the next 3-5 years

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That I, my boss and my company’s investors would regard as a major
win
What would this performance record have to look like?
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?
Projections
Goals
Innovation Year +1
+2
+3
+4
+5
+6
Profits
200
220.00
242.00
266.20
292.82
322.10
354.31 10% annual increase
Return 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 2362.081
New asset investment at current utilization
133.67
280.33
441.67
619.13
814.35 1029.08
Sales
2000
2200
2420
2662
2928.2 3221.02 3543.122
New Sales
200.00
420.00
662.00
928.20 1221.02 1543.12
Framing the Challenge: Strategy
Drivers

E.g., Lucent’s Performance Targets
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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%
Entrepreneurial
Activity
Drives
Performance
(customers, investors,
etc.)
New Life from Old
Competences
Redifferentiating and resegmenting
Redifferentiating Products
The Dialectic

Innovation involves a dialectic:
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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
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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)


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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

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
It builds on your insights from the Consumption Chain Analysis
and Attribute Map
Looking for new Segments to market to
Observe behavior

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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
Building Blockbuster
Innovations
Redifferentiating
Products: New
Technology or New
Uses
False Faces (perceptual
reversals)
Slice and Dice (Attribute Maps
pp. 24-35)
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
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
accomplished?" and "Why
does this have to be this
way?"
4. Strive to make your thinking
both fluent and flexible.

Which figure is the widest?

Consider the bicycle:





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

Frame.
Handlebars.
Pedals.
Brakes.
Tires.
Chain.
Drive sprocket.
Improved attributes:

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
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.
Think Bubbles: an aid to Quizzing

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
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 information 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 associations, 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 information 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.