Creative destruction – enhancing innovation in economic crisis

1. Creative destruction – enhancing innovationin economic crisis Miika Kajanus Suceava 29.7.2009

2. Own background – developing demand driven practical based innovation services • 2001: Strategy and innovation model for an entrepreneurial forest owner (dissertation) • 2004: Regional Research and Innovation Manager: active search for innovation ideas and their implementation via networks • 2006 - 2007: INNO-STU – project (developing the model): • Regional Innovation Strategy; Results: 162 ideas, 89 feasibility studies, 31 development projects, 15 innovations • 2008 - 2010: KIP-project (model launch): • University network based innovation service products; Pedagogical models, User innovations • 2008 – 2009: A Model for Developing the Entrepreneurship Skills in Degree Programme in Agriculture and Rural Industries • The Centre of Excellence: A Certificate got from Ministry of Education in Finland, • 2009 year of Creativity and Innovation in EU • INNO-FOREST (2005 – 2007) was chosen as an example of best practice in the field of creativity, innovation and entrepreneurship • 1.8.2009 new organization of Savonia University of Applied sciences

3. Contents • Story of Stromsdal Ltd. in small town of Juankoski • Plan B project to create new jobs and businesses • About innovation: some aspects: • Research and development not the only mean to innovate • Disruptive innovation • Open innovation • Interpretation and analytical problem solving is different phases in an innovation process • Self assessment of innovation capabilities • Savonia reorganizing its activities to respond for the development needs of the companies and the region • Lessons learnt

4. Creative destruction ?

8. Stromsdal Ltd. • 1746 the blast furnace milieu stars, the first ironworks in Finland • (bog iron) • the first sawmill established at the end of 1800 • the first groundwood plant 1907 • the first board mill at 1913 • iron production end 1911 • Kymmene Ltd. owned the board mill 1915 – 1988 • 1989 sold to private owners and new company name Stromsdal Ltd. • main product whiteboard and high tech covers • 160 employers, turnover 56,1 million EUR • 2008 announced economical difficulties and finally at November • bankruptcy => crisis for small town Juankoski (6.000 inhabitants) • two options: • 1) to find new investor (Spanish company Castor Plus letter of intend • June 2009, final agreement expected at the end of September 2009) • 2) “plan B” – if the mill can not continue as itself, what then?

9. Plan B for Juankoski • Activities • Regional Liaison program (research and innovation manager) • Organizing innovation processes for Stromsdal staff and others: • Idea generation (sessions, RPM, workshops…) • Feasibility studies • Development projects (financed by Tekes and others) • Launching projects • Tailored education courses for implementing innovations • Launching Research programs for the needs above

10. Plan B for Juankoski • Objectives by the end of 2011 • Produced Regional Innovation strategy for the sub-region • Innovations • 10 implemented innovations (start ups or others) • 50 feasibility studies • 100 innovation ideas • 10 educational courses • 5 research programs

11. What is innovation?

12. Can flying car be considered as an innovation?

14. OECD - Typology of Innovation at firm level - New at firm level - New at industry level - Absolutely new

15. Innovation • For customerinnovation means a better product or service, less costs or easier usage; better means to achieve one’s values. • For organisation it give’s a competitive advantage; reason for live. • For society innovation is an important development instrument; way for democracy e.g. living labs and other demand driven approaches

16. Two different models of innovation: Practical based: like water finding its way (Philip Cooke and Vesa Harmaakorpi) Waterfall: from science to practice

17. From where does the innovations come from? Innovations comes: 4 % from science 96 % other sources, mostly from customers (Harmaakorpi 2008)

18. Non-RD innovators European Innovation Scoreboard 2008 and Innobarometer 2007: • More than 50% of innovative firms innovate without carring out R&D! • They are smaller, active in low tech sectors and located in areas with relative poor innovative capabilities. • However, they are growing at the same rate as their R&D performing counterparts!

19. Main methods to innovate: • Research and development • Technology adoption • Minor modifications or incremental changes • Imitation including reverse engineering • Combining existing knowledge in new ways • Adopting solutions developed by users See: Neglected innovators: How do innovative firms that do not perform R&D innovate? Results of an analysis of the Innobarometer 2007 survey No. 215, INNO-Metrics Thematic Paper, A. Arundel, C. Bordoy, and M. Kanerva, MERIT, March 31, 2008

20. Technology adoption: • Firms can acquire innovative products and processes from sources external to the firm, with little or no further work required. For example, a computer assembler can purchase faster hard drives or wireless cards, purchased from specialist firms, to include in a notebook computer, or a food processing firm can purchase improved packaging equipment. CIS data used by Evangelista and Mastrostefano (2006) show that the acquisition of new machinery and equipment is one of the most common innovation activities across firms. Similarly, firms could acquire the ideas for organisational innovations from other firms.

21. Minor modifications or incremental changes • to products and processes, including the use of engineering knowledge (Kline and Rosenberg, 1986). Modifications can be made to both purchased products and processes or to technologies developed by the firm itself in a previous time period. These innovation activities are particularly common for process innovation (Evangelista et al 2002; Nascia and Perani 2002). Lhuillery and Bogers (2006) estimate that 15% of overall cost reductions are from incremental innovations made by employees to production processes. Incremental change can depend on learning by doing, as a firm gets better at what it already does (Cohen and Levinthal, 1989).

22. Imitation including reverse engineering: • Many activities to replicate products or processes that are already available, including some solutions to circumvent a patent (Kim and Nelson, 2000), do not require R&D. This method of innovating could be especially common in less developed countries or for innovations that are not patentable.

23. Combining existing knowledge in new ways: • This can include some types of industrial design and engineering projects (Grimpe and Sofka, 2007; Huston and Sakkab, 2006). The Italian ‘informal learning systems’, characterized by SMEs in traditional industries and mechanical and electrical/electronics sectors, use these methods to create new products (Evangelista et al. 2002). These systems build on tacit knowledge, engineering skills and cumulative learning processes, where the necessary knowledge is located in the system, rather than in a specific firm (Gottardi, 1996). Informal contacts and mobility of highly-skilled personnel move tacit knowledge from firm to firm.

24. Adopting solutions developed by users • Von Hippel (2005) argues that user innovation is much more widespread than earlier thought. User innovation thrives when there are methods for sharing information and breaking down a problem into components (e.g. innovation toolkits). These enable users to innovate without new R&D and improve the ability of users to combine and coordinate their efforts (e.g. over the internet).User innovation can also serve as an important source of solutions for firms.Von Hippel calls the ability of users to develop what they need instead of buying what is available the “democratisation of innovation”.

25. Innovation characteristics • New for firm, new for markets, new for the world • Innovation is technological, organisational, social or institutional • Incremental or radical; sustaining or disruptive

26. Innovation market based strategies 1. Sustaining: Bring a better product into an established market (market leaders) Range of performance that customer can utilize “The innovator’s solution – Creating and sustaining successful growth” Cristensen and Raynor 2003

27. Innovation market based strategies 1. Sustaining: Bring a better product into an established market (market leaders) Range of performance that customer can utilize 2. Low end Disruption:Address over served customers with lower-cost business model (growth opportunities) “The innovator’s solution – Creating and sustaining successful growth” Cristensen and Raynor 2003

28. Innovation market based strategies 1. Sustaining: Bring a better product into an established market (market leaders) Range of performance that customer can utilize 2. Low end Disruption:Address over served customers with lower-cost business model (growth) 3. New market disruption: Compete against non-consumption (radical innovation) “The innovator’s solution – Creating and sustaining successful growth” Cristensen and Raynor 2003

29. Typical innovation process?

31. Open innovation

32. Innovation process is one of the key processes in an enterprise, which can and should be managed systematically and goal oriented (not just a product development project)

33. Key processes in enterprise • Management • Production • Delivery and marketing • Support • Innovation

34. Innovation process in enterprise Gatekeeper Gatekeeper Gatekeeper Gatekeeper Idea Generation Launch & Rollout Feasibility Capability Concept refinement and prototype creation Product or process optimization Commercialization Production & Distribution Initial marketing and technical concepts Post Launch Review Launch Proposal Contract Tracks success of and key learnings from launched products Charter Launch Plan including CEP approval request. Cross-functional development plan including project plan as contract between team and Gatekeeper. KEY One page description of proposed project including objective, rationale and development routes. Early Commercial Assessment = GATE = DOCUMENT Professor Rebecca Henderson MIT Sloan School of Management

35. E N T E R E X I T Example, key questions in different phases Portfolio Review Phase Review 1 Phase Review 2 Phase Review 3 Phase Review 4 Current Product Support Idea Generation Phase 1: Concept Investigation Phase 4: Post Release Phase 3: Development Phase 2: Feasibility • Does the idea fit roughly with our strategy and resource availability? • If yes, then • concept document • approved • & sub-team allocated • Does the product make sense from marketing, technical & financial perspectives? • If yes, then • concept • approved • & full team • allocated • What is the product spec? • Can we develop it within budget and schedule? • Can we produce it at the required cost & volume? • If yes, then • prototype • approved • & full team • allocated • Has the product been fully verified and validated? • Have production objectives been met? • If yes, then • full manufacturing • approved • & sub-team • allocated • Is the product meeting safety, efficacy and business targets in the market? • If yes, then • closeout • approved • & handoff to • product support Professor Rebecca Henderson MIT Sloan School of Management

36. E N T E R E X I T Different types of phases 2. Analysis - problem solving 3. Traditional management 1. Interpretation Portfolio Review Phase Review 1 Phase Review 2 Phase Review 3 Phase Review 4 Current Product Support Idea Generation Phase 1: Concept Investigation Phase 4: Post Release Phase 3: Development Phase 2: Feasibility • Does the idea fit roughly with our strategy and resource availability? • If yes, then • concept document • approved • & sub-team allocated • Does the product make sense from marketing, technical & financial perspectives? • If yes, then • concept • approved • & full team • allocated • What is the product spec? • Can we develop it within budget and schedule? • Can we produce it at the required cost & volume? • If yes, then • prototype • approved • & full team • allocated • Has the product been fully verified and validated? • Have production objectives been met? • If yes, then • full manufacturing • approved • & sub-team • allocated • Is the product meeting safety, efficacy and business targets in the market? • If yes, then • closeout • approved • & handoff to • product support Professor Rebecca Henderson MIT Sloan School of Management

37. Ability to generate a stream of new product, to improve upon old ones, and to produce existing product in an increasingly efficient way, depends on two fundamental processes => • Analysis • Interpretation “Innovation – The missing dimension”, Lester and Piore 2004

38. 1. Interpretation • is not directly towards the solution of well-defined problems • This process don’t have a clear end-point, it’s ongoing in time • Activity, out of which something innovative emerges – a new insight about the customer, a new idea of a product, a new approach producing or delivering it • The role of manager has less to do with problem solving or negotiation between interests, rather the role is in initiating and guiding conversations among individuals and groups • The interpretative view is not widely understood or even recognized!

39. 2. Analysis, rational problem solving • In designing a new product, the product development manager first seeks to define a clear objective, usually based on research into customer needs • Then identifies the resources -human, financial, and technical-that are available to meet that goal, as well as constraints on those resources. • He then organizes a project to accomplish the goal. The key is to divide the problem into a series of discrete and separable components and assign each one to a knowledgeable specialist. • The solution is obtained by bringing the components together in some optimum combination as quickly and efficiently as possible. • Managers role leading problem solver or negotiator resolving conflicts

40. Self assessment • Innovation process can be managed by means of quality approach • E.g. Imp3prove

42. Imp3rove process

43. Savonia organization 1.8.2009 Business and culture Technology and environment Social and healthcare Well-being products and services Industrial design Energy and environment Safe live Entrepreneurship and innovation Centers of expertise Departments (like faculties)

44. New Savonia model Demand driven idea generation Feasibility Develop- ment Launch Practical oriented Innovation Toolbox Innovation strategy, sessions, mentors, student projects,, expert evaluations, PD-projects, Innovation foresight (RPM) etc…. • Learning • processes • R&D • International • expert network • end users • (customers) E&I-Research program

45. The way to innovation: New centres of expertise for organising innovation activities • Savonia is undertaking a major organization reform at the moment. At the beginning of 2009, the number of profit centres changed from five to three. In the autumn of 2009, five centres of expertise start their operations. • The centres of expertise utilize the expertise of several training programmes. The centres of expertise gather teachers, research staff and students into development projects by utilizing the partner network. The topics of the centres of expertise are the following: Energy and Environment, Entrepreneurship and Innovation, Welfare Products and Services, Secure Life, and Industrial Design. • The centres of expertise are demand-driven and serve the region by channelling education, R&D and innovation efforts into targets that are of benefit for the regional economy. The launch of the centres of expertise will bring about challenges for the innovation management. • The centres of expertise are supervised by the deputy headmaster and the executive group of the university. Each centre of expertise has a coordinator who is responsible for planning, implementing and evaluating the activities in collaboration with the rest of the staff.

46. Savonia  a bold innovator and cooperative facilitator of future expertise • Savonia, founded in 1992, is a university of applied sciences that operates in the cities of Kuopio, Varkaus and Iisalmi in eastern Finland. The general task of the university is to improve professional, business and cultural expertise in the region, as well as to promote competitiveness and welfare of the region by education and R&D. • According to its vision, Savonia is a bold innovator and cooperative facilitator of the expertise required in the future. Its regional task is to secure economic and social vitality of eastern Finland. • At the beginning of 2009, Savonia was reorganized into three profit centres: technology & environment, welfare, and business & culture. • Savonia has a budget of c. 60 million € and a staff of c. 600 employees, of which one hundred works in R&D activities. • Savonia has received numerous accolades, including the quality award of the Higher Education Evaluation Council.

47. Lessons learnt • In every crisis is also including a seed for new beginning • Entrepreneurship not just a personal endeavor; merely it’s also a local and cultural attempt • Society, including educational institutions have also to contribute for solving the crisis • Innovation process is one key process of an enterprise and it can and should be managed • Consider end user benefits, i.e. customer’s customer needs and benefits • Involve world leading experts

48. KIP – project 2008 - 2010 University network’sInnovation Services and50 new innovations! http://kip.savonia.fi

49. Basics • Innovation = Better product or service to customer and/or lower price • How universities can serve firms to innovate better? • Especially in outside of campus areas

50. KIP goal • To increase the number and the share of growth oriented innovative firms in North Savo • by means of developing innovation services for the network of educational organizations as a part of the regional innovation system. ”Top firms” ”Ordinary SMEs” => KIP Target