Class 3: Opportunity Identification (Stage 1) January 30, 2007

1. Class 3:Opportunity Identification (Stage 1)January 30, 2007

2. Lead User Research

3. General Principle of Lead User Research • Extreme versus Means • Identification of functionally novel products and service concepts should be done at the leading edge of markets and applications • Evaluation of commercial potential should be done at the “means” of markets and market segments

4. Category Health Products Personal Care Sports Food Office Computers Apparel Example Gatorade Protein-based Shampoo Mountain Bike Chocolate Milk White-out Liquid E-mail, Desktop Publishing Sports Bra Important Innovations by Consumers

5. Definitions of Innovation Sources • An innovation is a user innovation when the developer (firm or individual) expects to benefit by using it. • An innovation is a manufacturer innovation when the developer expects to benefit by manufacturing and selling it. • The Lead User research process targets directly user innovations and funnels them into a firm’s development process

6. Benefiting from Lead Users • Lead User innovations form the basis for new products and service of value to manufacturers. • Lead Users • Have new product or service needs that will be general to the marketplace, but they face them months or years before the bulk of the market • Expect to benefit significantly by finding a solution to those needs

7. Adopter Categorization on the Basis of Innovativeness • Lead users are not the same as “early adopters”

8. Examples with Lead Users • Hearing Aids • Woodworking Tools

9. Does the LU approach work? • Natural experiment conducted at 3M on the effect of the LU process compared to more traditional processes • Funded LU ideas had forecast sales in Year 5 that were 8 times higher than other funded projects in the same time period ($146M vs. $18M) • Funded LU ideas had significantly higher novelty, addressed more original customer needs and had significantly higher forecasted market share in year 5 than those from more conventional methods

10. Scenario Planning

11. The trouble with the future is that there are so many of them. -John R. Pierce (Bell Labs)

12. Scenario Planning

13. Scenario Planning • Scenario planning provides a platform to imagine variable futures resulting in a portfolio of actionable strategies. There is no excuse to be surprised. Only by anticipating the future can we hope to shape it. • In a nutshell, scenario planning is the projection of environments into the future to test current and proposed strategic and policy assumptions.  It is a disciplined way of thinking about the future that uses a clear methodology to analyze the impact of social, economic, political and industry trends.   

14. Scenarios • Scenario are structured accounts of possible futures

15. Scenario Planning at Royal Dutch Shell (early 1970s) • Pierre Wack, a planner in the London offices of Royal Dutch Shell worked in the newly developed Group Planning Division (Shell was 11th in the world) • Looking for events that might change the price of oil: • The US was beginning to exhaust its oil reserves • US demand for oil was growing steadily • OPEC was showing signs of flexing its political muscles (most members were Islamic and bitterly resented Western support of Israel after the 1967 six-day Arab/Israeli war) Arabs could demand much higher prices for their oil

16. Scenario Planning at Royal Dutch Shell (early 1970s) • Pierre Wack came up with 2 basic scenarios: • The usual option at Shell Oil prices would remain stable • A miracle would have to occur (e.g. new oil fields in non-Arab countries) • Oil price crisis sparked by OPEC Oil prices would rise

17. Scenario Planning at Anglo American(a South African mining corporation) • Early 1990s (Pierre Wack left Shell to consult) came up with 4 scenarios that were widely publicized in South Africa: • Ostrich • Negotiations to end apartheid fail; minority rule continues • Lame Duck • Transition to majority rule is slow, complicated, indecisive • Icarus • Transition is successful but new government enacts unsustainable, populist economic policies leading to an economic crisis • Flight of the Flamingos • Transition is successful. Gradual improvement in the social and economic status of South Africans occurs as diverse groups work together

18. Challenging Inertia • Do an assumption analysis • List key uncertainties • Opportunities appear • Embrace the uncertainties with Scenario Planning

19. The following conditions suggest the use of scenario planning: • Uncertainty is high relative to a managers’ ability to predict or adjust • The person/company does not perceive or generate new opportunities • Too many costly surprises have occurred in the past • The industry has or will experience significant change • The company wants a common language and framework without stifling diversity • There are strong differences of opinion, with multiple opinions having merit

20. Example:Global Uncertainties (mid-80’s) • Key Uncertainties • Trade conflict between USA and Japan • Arms negotiations between USA and USSR • Spread of AIDS • Impact of Europe 1992 • Deterioration of ozone layer and hole • Continuation of Apartheid

21. Combining 2 Key Uncertainties USA / Japan Accommodation Trade Conflict Arms Race Imperial Twilight X USA/ USSR Detente Industrial Renaissance Protracted Transition

22. A Scenario Planning Exercise • Scenario Planning Stages • I) If you could consult the oracle at Delphi, what 3 questions would you ask? • II) Identify other key uncertainties • III) Pick the 2 most important and dichotomize them (vote) • IV) List the main stakeholders & their interests/positions • V) List the main long-term trends and assess the impact of each trend on this organization (+, 0, -, ?) • VI) Fill in the matrix, pick one cell to examine in depth

23. Opportunity Identification • Scenario Development • Have the group members take on the roles of the different possible players in the scenario & discuss details of the situation (how specifically would your party be impacted) • What new opportunities or needs emerge in this new “world”?