Innovation & Strategy

Innovation & Strategy M. S. Krishnan Joseph Handleman Professor of Information Systems & Innovation Ross School of Business University of Michigan Ann Arbor

Business Trends & Strategy Innovation as an “Opportunity for Change” Ecosystem Innovation: New Age Business Models Capabilities for Business Transformation Agenda

Business Agenda • Conserve Cash & Efficiency • Risk Management & Disruption • Capacity to meet Market Volatility • Manage Capital Intensity • Access to New Markets • Search for New Business Models Is Innovation Feasible?...Is there a Disconnect?

“Did you know?” Facts There were 1000 Internet devices in 1984 , 1000000 in 1992 and 1000000000 in 2008 The first commercial text message was sent in Dec 1992. Today the number of text messages every day exceeds total world population 6Billion+ **Source: “Did You Know?” Internet Video Series

Trends in Patent Filing by Country Between 2003 and 2007, the patent offices of Brazil, China and Hong Kong SAR (China) had the largest increase in percentage of patent filings The top 3 countries in terms of patent filings per $billion GDP were Korea, Japan and China. Source: “World Intellectual Property Indicators, 2009”, World Intellectual Property Org.

The New Age of Innovation :The Basic Thesis Connectivity Wealth Creation Globalization Digitization Cloud & Convergence Social Networks A New Approach To Innovation & Value Creation

A New Approach to Value Creation …and many more! One Consumer Experience at a Time (N=1); Leverage Global Resources (R=G)

The Case of Apple iPod N = 1 R = G Co-creation of personalized experiences Global Content Providers Playlists Display: News • - Wide Selection of songs • Personal Preferences • Favorites based on time of day/moods Memory(RAM) Assembly Transformation of the Music Industry

Ubiquitous and Enriching Connectivity N = 1 R = G Communication Services Co-creation of personalized experiences Display Location Services Internet Radio Memory(RAM) News on-demand Personal Shopping Lists Application Developers & Content Providers Transformation of the Communications Industry

Evolving Ecosystems & Engaging Experience: Implications Across Industries N = 1 R = G Communication Services Personalized experiences Location Services Display Internet Radio Memory(RAM) News on-demand Personal Shopping Lists Application Developers & Content Providers

Prudential-ICICI Health Insurance (India) Patient Behavior and Compliance Based Premium Adjustments Pharma Companies Customer Community Enabling Platform Gymnasiums Doctor Lab Testing

More Experiments from Insurance Cos

Is This an Opportunity?

TutorVista Traditional Business Model Private Tutor • What are the challenges? • Affordability • Access to the right Tutor Single student

TutorVista Traditional Business Model Private Tutor Single student Medium Cost But… Pace of learning Schedule Constraints … High cost Group of Students

TutorVista Traditional Business Model Private Tutor New Business Model Global Community of Tutors N=1 Flexible time Single student Group of Students Personalized Learning Personalized assistance Ultra Low Cost Subscription Based High cost Medium Cost

Learning Is Social www.ednovo.org Prasad Ram pram@ednovo.org Ednovo Confidential. Please do NOT forward. Contact pram@ednovo.org

for Teachers (N=1) Search and Teach in Class Search for standards-aligned lessons Teach using a laptop, wifi and projector Engage students with rich web resources Customize Lessons Copy lessons that you like Edit with easy-to-use tools designed specifically for teachers Add notes or your own lesson plans to rich resources recommended to you Share with Other Teachers Chat with teachers to discuss a topic Follow teachers that you like Share your lessons publicly Rich Web Content and Guest Speakers in Class Ednovo Confidential. Please do NOT forward. Contact pram@ednovo.org

for Students (N=1) Core Studying Experience Access openly-licensed digital textbooks Simple navigation and high fidelity rendering Personalize with highlights and margin notes Access High Quality Material Review class events from home Study through interactions with simulations and education videos Choose from 3rd party learning gadgets Interact with the Class Chat with classmates to discuss a topic Ask the teacher a question Share notes and annotations with classmates Ednovo Confidential. Please do NOT forward. Contact pram@ednovo.org 21

N=1 R=G in Shoe Manufacturing New Business Model Traditional Business Model Foot Scanned Design Center 3-D Image Customer Information stored Factory Multiple customers Customer Factory One size for each customer (N = 1) Customers adjust to available shoe sizes Shoes available from $80 in this model

Episodic Transactions Perspective Customers Design Sourcing Mfg. Mktg. & Sales Firm Product/Service Suppliers Development Service/ Support Focus on Market Research and Product Capabilities

Business Model Ecosystem Innovation R = G N = 1 Digital Platform Products Orchestrating Firm Devices Global Supplier and Partner Network People Focus on Personalized Experience and Global Resources

Disruption & Changing Valuations and $12 Billion $3+ Billion $300M $15 M Managers Cannot Ignore These Trends

Ecosystem Business Model: Entertainment New Business Model Traditional Business Model Content Creators Video Stores Device Manufacturers Consoles, TVs.. Emerging Platforms Channel Partners Multiple customers Global Resources Analytics… Customers adjust to store inventory Personalized Experience Transparent and Flexible Business Models

N=1 The Centrality of Personalized Experience Personalized Co-Creation (e.g. Diabetes, Tires) N=1 Mass Customization (e.g. Dell) Customer Segments (e.g. Age,Income Undifferentiated Customers (Model T)

R=G Access to Distributed Resources Emergence of Nodal Firms and Supply Webs R= G Global Supply Chains (e.g. Walmart) Creation of a Supply base Vertical Integration (e.g. River Rouge plant)

Transformations in the making…..

N=1, R=G in Book & Media Publishing Industry Traditional Business Model New Business Model N = 1 R = G Authors Global authors My Version, My content Publishers Access to all books any time Device Manufacturers Mass Printing Personalized Tagging and Searching Global Content Providers Channel Partners Digitization, Personalization, Efficient Access to Global Resources and Markets Consumers/ Students/ Teachers

Analytics at Sams Club (Evalue Kiosks) Traditional Business Model New Business Model Customers’ purchase history N=1 Credit ratings of customers Analytics Customers’ individual preferences Multiple customers Vendor Promotions Personalized Coupons with Contextual messages Bulk coupons, prices for groups of customers. 1-2% response rate to coupons 20-30% response rate to discounts Source: NY Times May 30, 2010

New Business Model in Customer Connection & Support Traditional Business Model 1-800 NUMBER • Core Problems: • Increase in Call Volumes • Reactive Engagement • Unhappy Customers • Cost Increases Dominant Response: Shift Operations Offshore Most Likely Outcome: Problems Shift Offshore

Transactions to Relationships 8-10% increase in Customer Spending Improvement in Customer Satisfaction and Efficiency Social Change • Empowerment and Facilitation • Incentives for Engagement • Relationship Skills • Performance linked to Customer Experience • Management Control • Efficiency-oriented Incentives • Product Skills • Performance linked to Incentives

Wireless Telecom Operator in India

Wireless Telecom Operator in India • $24.2 billion Market Capitalization • 94 million Subscribers. • (as of April 1, 2009) • Revenue Growth of 25% in • March 2009 Quarter. • 21% growth in net profit to • $500 million (approx.) in • March 2009 Quarter.

Business Challenges • Low Average Revenue Per User (less than $7.5/ user per month) • Competitive Industry ( 12+ Wireless Carriers) • Lowest Pricing ( 2 cents per minute) • Scarce Spectrum • Active Regulation

Global Partner Ecosystem Model (R = G) Retailers and Distributors FMCG Companies

Transformation from Product Centric View to N=1; R=G 1910 2015

N=1; R=G Demands on Internal Systems N = 1 R = G Access to Resources Managing Collaborative Networks Governance in a Velcro Organization Need for Flexibility High Quality at affordable cost Speed Resilient Business Process Platform Increased Complexity Innovation Arbitrage Simple Customer Interfaces Access to Global Talent Scalability Scalability • Capacity to Orchestrate an Ecosystem • Managing Tensions and Frictions • New Mindsets, Capabilities, Systems, Measurements and Talent

The World of N=1, R=G: A Framework for Capability Building Clarity to Business Strategy Business Models Business Processes Social Architecture Technical Architecture ICT Architecture and Tools HR Policies and Practices Business Results

Business Insights for Management Action Rich Transaction Data (Consistent, transparent) Unstructured Data (Weak Signals) e.g. Web Pages, Blogs, Wikis Individual Decision Maker’s Preferences Analytics Engine (Focus on Strategic Priorities of N=1, R=G) Experimentation Based Learning Insights for Management Actions

The Management Disconnect Organizational Impediments: Legacy Mindset Need For A New Approach • Command and Control • Management Knows… • Reward for Compliance • Rigid Approach to Decisions • Hierarchical Decision Making • Focus on Employee Satisfaction ….. Empowerment of Individuals Employee Knowledge Partner Knowledge Reward for New Ideas and Compliance Bottom Up and Top Down Decisions Complacency & Traditional thinking New Ideas, Agility, Humility and Speed Internal Frictions

Organizational Impediments: The Implicit Business IT Disconnect Line Managers CIO/CTO • Managing Legacy Systems • Transaction Orientation • Prepackaged Solutions • Expensive Customization • Cost and Time Overruns, • Multiple Standards andIT Vendors • …. • …. Value creation Evolving markets Need for innovation, flexibility andspeed in business processes, pressure for unique solutions Value Creation System Efficiency Lack of Transparency

Interface to Talent Access Enterprise HR Systems Social Network Systems

Organizational Impediments: The Social Disconnect HR & Talent Management New Approach Traditional Approach Pre-occupied with managing existing policies Focus on broad recruiting policies and aggregate training Aggregate assessment through employee satisfaction surveys Value creation Evolving markets Need for innovation, flexibility and speed, pressure for unique solutions Resistance to Change

Organizational Impediments: The Social Disconnect HR & Talent Management Pre-occupied with managing existing policies Focus on broad recruiting policies and aggregate training Aggregate assessment through employee satisfaction surveys Value creation Evolving markets Need for innovation, flexibility and speed, pressure for unique solutions Resistance to Change Unless We Understand our Talent N=1, We Cannot Deliver N=1 Experience for Customers

Organizational Impediments: The Social Disconnect Line Managers HR & Talent Management • Pre-occupied with managing existing policies • Focus on broad recruiting policies and aggregate training • Aggregate assessment through employee satisfaction surveys • Subjective employee assessment and tracking Value creation Evolving markets Need for innovation, flexibility and speed, pressure for unique solutions Resistance to Change System Efficiency Value Creation Unless We Undersatnd our Talent N=1, We Cannot Deliver N=1 for Customers

The New House of Innovation The Social Architecture of the Firm: (Values, Skills, Attitudes, Decision Processes, Performance Metrics in the firm) Global Access to Resources and Talent : R=G Personalized Co Created Experiences: N=1 Flexible and Resilient Business Processes and Focused Analytics The Technical Architecture of the Firm: (Information and Communication Technology –ICT- Backbone of the Firm) 48

Conclusion The Nature of Business Competition is Changing No Industry is Immune to this Transformation Quality of Digital Infrastructure, Business Processes and Social Architectureare at the Center of these evolving Business Models Access to Global Talent and new approach to vendor contractsare Critical to Innovate and Thrive in this Journey

Innovation & Strategy