Final Exam Review Innovation Management (ISMT 537)

1. Final Exam ReviewInnovation Management (ISMT 537) Note: You will be allowed one A4 sized sheet of paper as a “Cheat Sheet” for your reference during the ISMT537 Final Exam. You can fill out both sides, and there are no limits on handwriting, font, or techniques for the information you place on the page. No other materials will be allowed during the exam

2. What we have studied

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. The Three Phases of Innovation

7. Elements of Product Innovation

8. 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

9. What makes each of these companies Innovative?

10. 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

11. 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

12. 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

13. 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

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

15. 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

16. 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

17. 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

18. Market side innovation

19. 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

20. 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?

21. 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

22. 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 ..

23. ToolsetsOrganize Answers with a Mind Map

24. 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)

25. Consumption Chain Analysis

26. 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

27. 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)

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

29. ToolsetsConsumption Chain Analysis • Determine the main steps in consumption • Each step on the consumption chain has an attribute map • You should only list the 3 or 4 most important steps • These will determine whether the potential customer proceeds to the next step (good) • Or leaves the consumption process (not good)

30. ToolsetsOverview of Feature Set Prioritize and choose the major features of your innovation from the main branches of the Mind Map Review the main innovation features with a feature-attribute map for the entire innovation

31. ToolsetsFeature-Attribute Map the 3-4 Key Steps in the Consumption and Manage those 3-4 Steps • Identify Discriminators and Energizers • Describe how you will manage each of these features of the consumption process

32. 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

33. 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

34. 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

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. Vision • The initial and most general statement you make about your business model • What will your: • industry • market • company • look like in 1, 2, 5, 10 years? • We will be #1; or the world’s largest…; or the world’s best… ; etc. • ARE THE WRONG ANSWERS

37. Business Model • A story about your business, • With narrative links to numbers • i.e., key ratios, milestones, targets • The story may be laid out graphically in the Value Map • Which shows the components and value flows between them of the business model • A Business Model is NOT Strategy • Strategy defines how the vision will be attained • The Business Model is the vehicle • The story should consider unique aspects of industry technology • Network externalities (value of a network grows by the square of the number of users) • Technology acceleration (e.g., Moore’s Law; performance to price of key technologies grows exponentially • This leads to the Four Phases of Radical Innovation described in chapter 4 of the text. • (or four ‘collisions’ in Chris Anderson's ‘The Long Tail’)

38. Industry Dynamics • Unique aspects of industry technology such as • Network externalities , and • Technology acceleration • Are useful in predicting key ‘inflection points’ in a market • The most important of these ‘inflection points’ result from the so-called Innovator’s Dilemma • Where existing competitors are locked in to an old technology by their customers • And new technologies can (at the ‘inflection point’) almost instantly capture their markets

39. Framing the Challenge Targets and Goals • If I were to do something in the next 3-5 years • That my firm 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?

40. Framing the Challenge: Strategy Drivers • These will be the major Performance Metrics that will be stated in your Milestone / Targets • For example • Sales growth from 1% growth to the high teens • R&D expense from 8% to 11% of Sales • Reduce SGA expense from 27% to 19% • Reduce tax rate 4% points • Increase ROA from 0% to 1%

41. New Life from Old Competences Redifferentiating and resegmenting

42. 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

43. 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

44. 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

45. 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

46. R&D and CRM • In the perspective presented in this course • Customer Relationship Management (CRM) • … and Research & Development (R&D) • Are two parts of the same overall process. • Customer Relationship Management serves several functions: • Making sure that customers are satisfied with existing products; • Make sure that they know about new and upcoming products; • Asking them questions to find out what they want in new products; • Making them aware of new features that they didn’t know they wanted • These are essential parts of the R&D process

47. Production Side of Innovation Resource based perspective of Strategy

48. Resource-based view(RBV) of firmsDominant approach to business strategy todayBasis for Core Competences • The resource-based view suggests that a firm's unique resources and capabilities provide the basis for a strategy. • The strategy chosen should allow the firm to best exploit its core competencies relative to opportunities in the external environment.

49. Core Competences • These are the things that the firm does • That they do better than other firms • That are the source of their competitive advantage • Firms establish their core competences by: • Investing in people • Investing in assets, plant and land • Identifying and focusing their mission • The Firm’s core competences are often those of its CEO and management

50. You best (perhaps your only) opportunities to compete are Where Product Market Needs Cross with Competences Competences