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

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

2. Logical Structure of the Course

3. 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.

4. Fundamentals

5. 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

6. Elements of Product Innovation

7. 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

8. What makes each of these companies Innovative?

9. 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

10. 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

11. Sources of Innovation • 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

12. 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

13. Science & TechnologyWhat are they? How are they related?

14. 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

15. 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

16. SustainabilityDifferent Industries; Different Rates of Change Past is indicator of Future Future is Volatile

17. SustainabilityS-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

18. Key to Generating Profits: Low-costor 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

19. 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 • (Henderson-Clark) Products are made up of components (even services) • There exist two kinds of relevant knowledge • Component • Architectural

20. Market-Technology Interplay: Effect on the Profitability of Inventions • Two factors are instrumental to profiting from an innovation • Imitability and • Complementary Assets

21. 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

22. 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

23. 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

24. 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: • 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

25. 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?

26. 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

27. Quizzing Who? • … 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 ..

28. 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)

29. Consumption Chain Analysis

30. 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

31. 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)

32. Every Link in the Consumption Chain has its Own Attribute Map • The Attribute Map compares your product to those of others

33. What To Do with the Opportunity RegisterWhen 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

34. 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

35. 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

36. 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?

37. 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%

38. New Life from Old Competences Redifferentiating and resegmenting

39. Redifferentiating ProductsThe 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

40. 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

41. 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

42. 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

43. Market-side Practicums

44. Prac·ti·cum (prăk-tĭ-kəm)

45. 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) False Faces:An Escape from Looking at Problems in the Traditional Way

46. 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. ?

47. 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. Think Bubbles: an aid to Quizzing