Sources of innovation opportunities in the business environment

1. Sources of innovation opportunities in the business environment Objectives. Understand the role and place of opportunity recognition in the innovation process Be able understand what a business opportunity is Understand and identify the key elements of the business environment

2. Introduction • As new head of virtual services development of Worldwide Business Machines, the company CEO has sent you to the 25th annual Global Innovation Symposium held this year in Montréal. This year’s them : Innovation : Past, Present and Future. She has asked you to learn more about innovation and the challenges for the company. • You’ve chosen to visit the conference workshop that addresses the recognition of innovation opportunities. Understanding the “fuzzy front end” of innovation is essential for WBM which must quickly identify opportunities to place into the innovation funnel. In addition, your CEO has clearly indicated that WBM must focus on radical innovation which requires a broad appreciation of opportunities vs. in depth understanding in specific areas often useful for incremental innovation.

3. Welcome to the conference centre A short welcome • Your interactive personal digital assistant will help you find your way. • Advance at your own pace • Zoom in for a deeper understanding • Listen to what others have to say

4. Welcome to the live-community ! Listen to the instructions The live-community interface offers conference participants the best of self-paced discoveryand learning from a community of practice. Learn moreabout a subjectby cliking here. Click on the communitylinks to learn morefrom colleagues andpeers.

5. Active Reading The first section of this course presents a short review of the fuzzy front end of innovation and opportunity recognition.

6. invention planning prototyping development sales The Fuzzy Front End of Innovation Listen and learn The innovation funnel process, like most organisational processes, requires time and consumes valuable resources. It is in the best interest of the firm to make sure that some degree of opportunity screening is done up front.

7. The Fuzzy Front End of Innovation Listen and learn The innovation funnel process, like most organisational processes, requires time and consumes valuable resources. It is in the best interest of the firm to make sure that some degree of opportunity screening is done up front.  $   $   $ $   $

8. The Fuzzy Front End of Innovation Listen and learn Creativity and decision making skills are essential to the fuzzy front end !

9. The Fuzzy Front End of Innovation Key activities Developmentof the businesscase Opportunity Identification IdeaGenesis IdeaSelection OpportunityAnalysis

10. The Fuzzy Front End of Innovation So…what makes it fuzzy ? Environmental uncertainty Market uncertainty Technological uncertainty Uncertainty about internal competencies Click hereto learn more about some tools to better manage the FFE What do businessesconsider as fuzzy ? Organizations that best manage fuzzines will more easily identify innovation opportunities that others might not be able to see.

11. Remarks from the community What is the innovative organization ? Pierre MoranSenior VP, Consumer Market GroupDesjardins “Listen to clients and recognize the contribution of others” Patrick PichetteChief Financial OfficerBell Canada“The need for clear direction” Jean-Paul PeaugerDirector, Social, Technical and Administrative Affairs ALCAN“There needs to be a clear vision andfast implementation”

12. ZOOM ! Some ways to manage fuzziness  close « De-fuzzing » the fuzz The more the Fuzzy Front End is properly aligned withthe organization, the more efficient it will be. Here are two basic tools to align the front end. A Product Innovation Charter that authorizes an activity and reassures people that risk taking is tolerated but that the company expects to see concerted effort and leadership. Items for the PIC may include : new product purpose, concern for shareholders, statement of values, performance objectives, type of end-user activity, general new product goals… See « Product Innovation Charters: mission statements for new products » by Christopher Bart, R&D Management, 32:1, 2002. The Elevator Test – or the capacity to explain an idea in the time it takes to ride one way a short elevator (for example to a potential sponsor, etc.) Questions include : For whom? Who needs it? What is the product name and category? Why will people buy it? How is it different than its closest competitor? How is it different?

13. The Fuzzy Front End of Innovation Clarification of inputs and outputs makes it less fuzzy ! INPUTS OUTPUTS Click on each element for clarification ! Cross-functional teams for development and evaluation are often critical for success !

14. Learning Mission Here’s a quick assignment for you to do on you own or with others. Please feel free to print off the assignment and do at your leisure. You may want to consider sharing your analysis.

15. The Fuzzy Front End of Innovation How fuzzy is your front end ? 10  FullIntegration PartialIntegration Little Integration Integration of Activities 8 4 3 3 4 8 10 Intuitive Explicit in Part Explicit According to the authors, companies scoring at least 8 on each list can be considered as « world class ». If a company scores less than three on either list are likley to have problems with product development. Formality of Process Adapted from « Integrating the Fuzzy Front End of New Product Development t » Khurana & Rosenthal, Sloan Management Review, 1997.

16. Short Quiz We have seen that opportunity recognition starts with effective management of the fuzzy front end. Companies that can recognize innovation opportunities and get them going through the funnel faster than the others will have the advantage. Much of the recognition process deals with getting people to think differently and effectively see innovation opportunities. In many cases people are not prepared to see opportunities. Are you? While another course will address specific aspects of creativity, here are three quick concepts to consider.

17. Opportunity Recognition Are you ready to see them? 1 True False Submit Business ideas usually just « appear »

18. Opportunity Recognition Are you ready to see them? 1  True  False Submit Research suggests that opportunity identification or recognition is composed of several learning steps over time and requires immersion into the industry or marketplace. Business ideas usually just « appear »

19. Opportunity Recognition Are you ready to see them? 2 True False Submit To recognize opportunites, you must be concentrated

20. Opportunity Recognition Are you ready to see them? 2  True  False Submit Research suggests that opportunity recognition does not require deliberate action. In fact many successful entrepreneurs think of new business ideas when they are totally relaxed, doing something unrelated to business. So, while information gathering is active, the capacity to bring the information together and think creatively may be much less deliberate. To recognize opportunites, you must be concentrated What does this suggest about managing creativity ?

21. Opportunity Recognition Are you ready to see them? 3 Left Brain Thinking Right Brain Thinking randomness holistic think about parts think about whole focus on logic analytical The creative thinking process requires strong « right brain » thinking. What characterizes this way of thinking?

22. Case Study As you have seen, opportunity recognition is based primarily on process that deal with information gathering and information analysis. Information gathering is a well structured process that helps identify potential areas of business opportunities. The following case study helps to illustrate the importance of this process.

23. Toyota and GM stock performance Toyota GM May 2005 December 2005 Case Study : Hybrid Automobiles They “never saw it coming” … or did they ? A recent key innovation has been the emergence of hybrid automobiles. With growing sales, hybrids have successfully gone from the drawing board to the garage. The « lowdown » on « motown »

24. ZOOM ! Was Detroit ready for hybrids? A recent key innovation has been the emergence of hybrid automobiles. With growing sales, hybrids have successfully gone from the drawing board to the garage.  close The « lowdown » on « motown » In 2004, Forbes magazine suggested that GM (along with Chrysler) needed a hybrid strategy option and that even though gas prices were at $2 a gallon, higher prices might encourage their use. GM seemed to be looking in other directions for investment – rather than going down the road well traveled – hybrid. While the paradiGM hybrid systemwas anounced as early as 2001, by 2005GM still had no commercial strategy for the system.

25. Case Study : Hybrid Automobiles Did Toyota just “get lucky” ? Some might suggest that Toyota is just lucky and that gas prices are increased because of random events. In fact, the hybrid innovation is an excellent example of the importance of analyzing the business environment in seeking and exploiting opportunities. Organizational capabilities Technological feasbility Political support Emerging values Environmentand MarketCoherence OrganizationalCapabilities Economic forces Supply of oil Consumer trends

26. Case Study : Hybrid Automobiles To what extent are consumers ready to pay for them? Lets come back to the case of hybrid cars. To what extent has this innovation interplayed with a coherent and supportive environment ? The hybrid can be considered an innovation as people are increasingly buying them. The hybrid« buy » zone Price of gas Perceived value of hybrid cars

27. Case Study : Hybrid Automobiles But oil prices are only part of the puzzle ! But the environment is much more than consumer behaviour. How have other parts of the business environment played a role in this innovation? • The hybrid is consistent with the evolution of family structures, values and demographics • Government policies support the purchase of hybrid automobiles • The required technologies (more than one) evolved and finally converged to make it possible The long road to « hybrid »

28. ZOOM ! Hybrid history The long road to « hybrid » The first hybrid was developed by Porsche in 1898! During the gas crunch in the 70’s, many car makers invested into hybrid and electric cars. However as prices decreased, do did the enthusiasm of these solutions. In 1992, Toyota announced the “Earth Charter” – a mission of developing low emission vehicles and in 1997 the Prius went on sale in Japan.

29. Case Study : Hybrid Automobiles Bringing it all together This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation. Organizational capabilities Technological feasbility Political support Emerging values Economic forces Supply of oil Consumer trends

30. Case Study : Hybrid Automobiles Bringing it all together This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation. Tax policy Energy policy Tax policy Energy policy Global warming Global warming

31. Case Study : Hybrid Automobiles Bringing it all together This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation. Tax policy Energy policy High cost of city housing Dismantling of railways Dismantling ofrailways High cost of city housing Suburban life Suburban life Global warming

32. Case Study : Hybrid Automobiles Bringing it all together This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation. Tax policy Energy policy Dismantling of railways High cost of city housing Suburban life Increased elderly Increased elderly Global warming

33. Case Study : Hybrid Automobiles Bringing it all together This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation. Tax policy Energy policy Dismantling of railways High cost of city housing Suburban life Increased elderly Peak oil Peak oil Global warming

34. Case Study : Hybrid Automobiles Bringing it all together This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation. Tax policy Energy policy Dismantling of railways High cost of city housing Suburban life Increased elderly Technology convergence Technology convergence Peak oil Global warming

35. P Political - Legal E Economic Socio-culturalDemographic S T Technological Case Study : Hybrid Automobiles Bringing it all together : PEST This simple example shows how the Political, Economic, Socio-Cultural and Technological components of the environment have come together to support the hybrid innovation. Tax policy Energy policy Dismantling of railways High cost of city housing Suburban life Increased elderly Technology convergence Peak oil Global warming

36. Detecting Patterns The environmental changes may create recognizable patterns P E S T

37. PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST PESTPESPESTPESTPESTPEST Detecting Patterns The environmental changes may create recognizable patterns $ E P T S Understanding thePEST environment

38. Remarks from the community The PEST environment Pierre MoranSenior VP, Consumer Market GroupDesjardins “Social and demographic changes andtheir impact on financial services Patrick PichetteChief Financial OfficerBell Canada “Focus on the technology agendaand the regulatory environment” Jean-Paul PeaugerDirector, Social, Technical and Administrative Affairs ALCAN“The importance of regulations and social responsibility”

39. Listen and Learn What defines a potential opportunity for innovation? Where can organizations search for these opportunities? The following section looks at these two questions in detail.

40.    Analysing the environment for opportunities Search and Rescue SOS B WHERE ? A WHAT ? HOW ?

41. Analysing the environment for opportunities Key questions to consider After you know what to look for, you have to narrow the scope of the search to be efficient. Identifying an opportunity should not be like finding a needle in a haystack. Companies need to look in the relevant environment and across pertinent segments. WHERE ?

42. Analysing the environment for opportunities Key questions to consider Searching for potentialopportunities for innovation requires that we know WHAT we are searching for ! What characterizes potential opportunities? WHAT ? WHERE ?

43. Analysing the environment for opportunities Key questions to consider OPPORTUNITY How the search process takes place must be clear and efficient. How can the search process vary across businesses and sectors? What active and passive searching activities can be undertaken? WHAT ? WHERE ? HOW ?

44. WHERE should we look ? Patterns that signal opportunities WHERE?

45. Key concepts Some key definitions to read the “map” WeatherForecasting Business Environment Segments Winds, Temperatures Politics, Economics, Demogrpahy,.. Indicators Barometric pressure, Wind speed Interest rates, confidence surveys Falling temperaturesIncreased wind speeds Rising interest ratesDecreasing confidence Trends Patterns Risk of decrease in sales Winter storm possible

46. Key concepts Analysing change • Absolute analysis is not revealing  look at change ! • Analysis of change is essential to business decision making

47. rising falling falling p a t t e r n falling rising Key concepts The goal Trends indicator P Using historic analysisand our understandingof the links betweensegments, the emerging patterns actas a signal of otherpotential changesto come and theirpotential impact.The goal is to pick outimportant changebefore it is underway. indicator indicator indicator E indicator indicator indicator S indicator indicator indicator T indicator indicator

48. The environment Where is the business environment? General Environment CompetitiveEnvironment TaskEnvironment Firm Relevant Environment

49. The environment Characteristics of the business environment HomogeneityHeterogeneity This considers the degree of similarity across elements or entities in the environment (how similar are products, competitors, etc.) StabilityInstability To what extent are the elements or entities changing (rate of failure of companies, growth of the market, etc.) Connectedness How many different interconnections exist among the entities (how many suppliers for a buyer, distributors for a producer, lobbyists to politicians). Also looks at links across segments. Scarcity How rare are required resources by the organization Concentration Are required resources spread out or concentrated ? Are the clients concentrated by region? Be age? Turbulence To what extent are entities and linkages between them disturbed by increasing connectedness and rate of connectedness. Looks at the increase in causal connections that may obscure things.

50. The environment Looking for change Political Milieu Regulatory Milieu P E S T Lobbyists Interest groups Parties Political structures Policies Bureacracies Branches of government Local, National, Supranational LawsRegulations Institutions Local, National, Supranational New standards and rates Changes in information disclosure rulesTax benefits/penalties Deregulation Supranational harmonisations Other segments Polls Opinion statments Books by politicians Emergence of interest groups Election results Proposed laws and policies