[MANAGING INNOVATION] TD&PM
1.1
Introduction
Innovation is driven by the ability to see connections, to spot opportunities and to take advantages of
them. It is about opening up new markets and offer new ways of serving established and mature ones.
1.2
Why innovation matters
Often success derives in large measure from innovation. There is a strong correlation between market
performance and new products. New products can help capture and retain market shares, and increase
profitability in those markets. New product development is an important capability because the
environment is constantly changing. E.g. legislation and competitors may open new pathways or close
down others.
Strategic advantages through innovation are complexity, novelty, legal protection, timing etc. L1, p7
1.3
Old questions, new context
Changing context for innovation
1. Acceleration of knowledge production
2. Global distribution of knowledge production
3. Market fragmentation
4. Market virtualization
5. Rise of active users
6. Development of technological and social infrastructure
Joseph Schumpeter: Entrepreneurs will seek to use technological innovation to make profits, thereby
destroying old structures and creating new ones. (creative destruction)
Edison: Innovation is the process of the need to complete the development and exploitation aspects of
new knowledge, not just its invention.
1.5
A process view of innovation
There are four key phases of a model of innovation:
Search
How can we find opportunities for innovation?
Select
What are we going to do - and why?
Implementation How are we going to make it happen?
Capture
How are we going to get benefits from it?
Success of failure? Having a clear and focused direction and creating the organizational conditions to
allow focused creativity.
Scopes for innovation
Sometimes it is about completely new possibilities. Equally important is the ability to spot where and
how new markets can be created and grown. Innovation is also about offering new ways of serving
established and mature markets.
4P approach
 Product innovation
 Process innovation
 Position innovation
 Paradigm innovation
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1.6
Exploring different aspects of innovation
Types of innovation:
(1) Degree of novelty – Incremental or radical innovation?
Incremental innovation - doing what we do but better
Radical – do something different
Level of novelty?
(2) Platform and families of innovation
Development of a basic platform which can be extended in the form of a product family. Powerful ways
for companies to recoup their high initial investments in R&D by developing the technology across a
number of market fields.
 ‘Walkman’ originally developed by Sony as a portable radio and cassette system; the platform concept has
come to underpin a wide range of offerings from major manufacturers, CD, DVD, MP3
(3) Discontinuous innovation – what happens when the game changes?
Sustainable: innovation build on the firm’s existing knowledge base
 Intel’s Pentium 4 built on the technology for Pentium III.
Discontinuous:
 Innovation that creates a new market by allowing customers to solve a problem in a radically
new way. Closely related to radical innovation
 Requires a good deal of user-learning, often disrupt his or her routine, and may even require
new behavior patterns.
 Sources: new market emerges, new technology emerges, new political rules emerge, running
out of road, deregulation, unthinkable events, business model innovation etc. (p32-36)
 Photocopier machines, personal computer, internet.
(4) Level of innovation – component or architecture
Component –Innovation that change things at the level of components
Architecture – Innovation that involve change in a whole system
(5) Timing – the innovation life cycle
Innovation
characteristics
Competitive
emphasis placed on
Innovation
stimulated by
Predominant type
of innovation
Product line
Production
Processes
Fluid pattern
Transitional phase
Specific phase
Functional product
performance
Information on user needs,
technical inputs
Product variation
Cost reduction
Opportunities created by
expanding internal
technical capability
Frequent major changes in Major process innovations
products
required by rising volume
Diverse, often including
Includes at least one stable
custom designs
or dominant design
Flexible and inefficient - aim Becoming more rigid and
is to experiment and make defined
frequent changes
Pressure to reduce cost,
improve quality etc.
Incremental product and
process innovation
Mostly undifferentiated
standard products
Efficient, often capital
intensive and relatively
rigid
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2.1
Variations on a theme
Common innovation and highlighted problems are:
 Lack of culture of innovation
 Lack of strategy for where to focus innovation efforts
 Innovation is seen to conflict with fee-paying work and is thus not always valued
 A formal innovation process does not exist
 Project management skills are very limited.
Service innovations are often much easier to imitate and the competitive advantages that they offer can
quickly be competed away because there are fewer barriers.
 E.g. intellectual property protection.
Type of innovation
Incremental
Radical
Product –service offering to end Modified/improved version of an Radical departure such as online
users
established service offering such retailing
as increased range of features in
telecomm service.
Process – ways of creating and
Lower cost delivery through back Radical shift in process route, for
delivering the offering
office process optimization.
example moving from face-to-face
Waste reduction through lean or contact to online, supermarkets
six sigma.
and self-service shopping.
Position – target market and the Opening up new market segmentsRadical shifts in approach such as
story told to those segments
such as opening specialist
shifting healthcare provision to
insurance products for students. communities.
Paradigm – underlying business Rethinking underlying model.
Radical shifts in mindset such as
model
Example: migrating from insurancemoving from product-based to
agents and brokers to direct and service-based manufacturing.
only systems
The extended enterprise
The underlying business model of outsourcing is based on being able to do something more efficiently
than the client and thereby creating a business margin, but achieving this depends critically on the
ability to reengineer and then continuously improve on core business processes.
Size of the organization is also an important influence on the particular way in which innovation is
managed. Typically smaller organizations possess a range of advantages.
Advantages
Speed of decision making
Informal culture
Flexibility, agility
Entrepreneurial spirit and risk taking
Energy, enthusiasm, passion for innovation
Good at networking internally and externally
Disadvantages
Lack of formal management control systems
Lack of access to key resources, especially finance
Lack of key skills and experience
Lack of long-term strategy and direction
Lack of structure and succession planning
Poor risk management
 Small-/medium-sized enterprises (SMEs) often fail to feature in surveys of R&D and other formal
indicators of innovative activity
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5.2
Knowledge push
Examples of knowledge-push innovations: nylon, microwave, photocopiers, antibiotics, medical scanners
Knowledge creation provides a push, creates an ‘opportunity field’ which sets up possibilities for
innovation.
Not every idea finds successful application and innovation requires some form of demand if it is to take
root.
- Involves a mixture of occasional breakthrough followed by extensive elaboration on the basic
theme.
Moore’s law: shapes and guides innovation based on the idea that the size will shrink and the power will
increase by a factor of two every two years.  affects components  drives rate of innovation in
applications
5.3
Need pull
Another key driver of innovation is need – the complementary pull to the knowledge push.
In innovation management the emphasis moves to ensuring we develop a clear understanding of needs
and finding ways to meet those needs.
 Henry Ford was able to turn the luxury plaything into something which became ‘a car for
Everyman’.
Managing innovation is a dynamic capability – something which needs to be updated and extended on an
continuing basis to deal with the ‘moving frontier’ problem.
Understanding buyer/adopter behavior has become a key theme in marketing studies since it provides us
with frameworks and tools for identifying and understanding user needs. Advertising and branding play a
key role in this process – essentially using psychology to tune into – or even stimulate and create – basic
human needs.
Need-pull innovation is particularly important at mature stages in industry. Competing depends on
differentiating on the basis of needs and attributes.
Brandwagon effect: as more people adopt so the innovation becomes modified to take on board their
needs.
Model of Kaizen: Kaizen means ‘improvement’. The Kaizen strategy calls for never-ending effort for
improvement, involving everyone in the organization. Incremental.
- Basic philosophy behind the TQM movements in the 1980s
Innovation is not always about commercial markets or consumer needs. There is also a strong tradition
of social needs providing the pull for new products, processes and services.
 Micro-finance
5.4
Whose needs?
Disruptive innovation: describes innovations that improve a product of service in ways that the market
does not expect. Also when the rules of the game change dramatically in the marketplace. (Clayton
Christensen)
 YouTube, DVDs, portable memory, wireless internet access, cellphones, mp3, low-cost airlines
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The role of ‘emerging markets’
There is a growing interest in what have been termed ‘the bottom of the pyramid’ (BoP) markets.
- Prahalad argued that 80% of the world’s population lived on incomes below the poverty line.
- See table 5.2 on page 240
5.5
Towards mass customization
Mass customization is the ability to offer highly configured bundles of non-price factors configured to
suit different market segments, but to do this without incurring cost penalties and the setting up of a
trade-off of agility versus prices.
Type of customization
Characteristics
Distribution customization Customers may customize product/service packaging, delivery schedule and
delivery location but the actual product/service is standardized.
 Sending a book to a friend from Amazon.com/Bol.com
Assembly customization
Customers are offered a number of predefined options. Products/services are
made to order using standardized components.
 Buying a computer from Dell
Fabrication customization Customers are offered a number of predefined designs. Products/services are
manufactures to order.
 BMW allows you to design your own configuration i.e. color, size, extras
Design customization
Customer input stretches to the start of the production process. Products do not
exist until initiated by a customer order.
 Shoe design Adidas
5.6
Users as innovators
Ideas of users + their frustrations with existing solutions lead to experiment and prototyping and create
early versions of what eventually become mainstream innovations.
Lead users: importantly active and interested users who are often well ahead of the market.
One strategy around managing innovation is thus to identify and engage with such lead users to cocreate innovative solutions. Perpetual beta: testing new software modules across a community to get
feedback and development ideas.
5.7
Extreme users
An important variant that picks up on both the lead user and the fringe needs concepts lies in the idea of
extreme environments as a source of innovation. Users in the toughest environments may have needs
which by definition are at edge.
 Antilock braking system began life as a special add-on for premium high-performance cars
5.8
Watching others
Innovation is essentially a competitive search for new or different solutions. Imitation is a viable and
successful strategy for sourcing innovation.
Benchmarking: enterprises make structured comparisons with others to try and identify new ways of
carrying out particular processes or to explore new product of service concepts.
 Southwest Airlines became most successful when it copied the pit-stop techniques in the Formula
1 Grand Prix events. This reduced the turnaround times at airports.
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5.9
Recombinant innovation
Recombinant innovation: transferring or combining old ideas in new contexts (Andrew Hargadon)
 Reebok pump running shoe
Rich innovation through: recruited teams with diverse industrial and professional backgrounds and thus
bring very different perspectives to the problem in hand.
Very often original – breakthrough – ideas come about through a process of what Artur Koestler called
bisociation – the bringing together of apparently unrelated things which can somehow be connected
and yield an interesting insight.
Key message: Look to diversity to provide raw materials which might be combined in interesting ways –
and realizing this makes the search for unlikely bedfellows a useful strategy.
5.10
Regulation
Deregulation may open up new innovation space.
 Privatization of telecommunications led to rapid growth in competition and high innovation
rates.
Regulation can also trigger counter innovation: solutions designed to get round existing rules or at least
bend them to advantage. Regulation both pushed in key directions and pulls innovation through in
response to changed conditions.
5.11
Futures and forecasting
Another source of stimuli for innovation comes through imagining and exploring alternative trajectories
to the dominant version in everyday use. Concept models and prototypes are used in this context.
5.12
Accidents
 Making adhesive resulted in ‘Post-it’ notes
The secret is not so much recognizing that such stimuli are available but rather in creating the conditions
under which they can be noticed and acted upon.
 9/11 provides a huge stimulus to innovate in areas like security, fire safety and evacuation
5.13
A framework for looking at innovation sources
The key challenge for innovation management is how to make sense of the potential input and to do so
with often limited resources. Innovations tend to resolve into vectors – combinations of the two core
principles. These direct our attention in two complementary directions – creating possibilities and
identifying and working with needs.
User-led innovation may be triggered by used needs but it often involves creating new solutions to old
problems – essentially pushing the frontier of possibilities in new directions.
(1) All eggs in one basket: push/pull
(2) Incremental or radical innovation. There is a pattern of what could be termed: punctuated
equilibrium. This means that most of the time innovation is about exploiting and elaborating, creating
variations on a theme within an established technical, market or regulatory trajectory.
(3) Timing – at different stages in the product of industry life cycle the emphasis may be more or less on
push or pull.
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(4) Diffusion – the adoption and elaboration of innovation over time. Understanding diffusion processes
is important because it helps understand where and when different kinds of triggers are picked up.
5.14
How to search
The challenge in managing innovation is how to seek out and find the relevant triggers early and well
enough to do something about them.
 Community Innovation Survey reinforces the view that successful innovation is about spreading
the net as widely as possible, mobilizing multiple channels.
In open innovation, organizations move to a more permeable view of knowledge in which they
recognize the importance of external sources and also make their own knowledge more widely
available.
5.15
Balancing exploitation and exploration
Exploitation: the use and development of things already know.
It builds strongly through knowledge leveraging activities on what is already well established – but in the
process leads to a high degree of path dependency.
- Supported by applied research
Exploration: long jumps or re-orientations that enable a firm to adopt new attributes and attain new
knowledge outside its domain.
- Supported by wide-ranging ‘blue-sky’ activities
5.16
Absorptive capacity
Absorptive capacity (AC): the measure of the ability to find and use new knowledge.
Technological learning: the processes whereby firms acquire and use new technological knowledge and
underlying organizational and managerial processes which are involved.
Reasons why firms may find difficulties in growing through acquiring and using new knowledge:
1. Unaware of the need to change (problem of SME growth)
2. Recognize the need to change, but lack the capability to target their search or to assimilate and
make effective use of new knowledge once identified.
3. Clear what they need but lack capability in finding and acquiring it
AC involves multiple and different activities around search, acquisition, assimilation and
implementation. Connectivity between these is important – the ability to search and acquire may not
lead to innovation. To complete the process further capabilities around assimilation and exploitation are
also needed.
Developing AC involves 2 complementary kinds of learning:
1. Adaptive learning – about reinforcing and establishing relevant routines for dealing with a
particular level of environmental complexity.
2. Generative learning – for taking on new levels of complexity.
5.17
Tools and mechanisms to enable search
Managing internal knowledge connections
How can organizations tap into the rich knowledge within its existing structures and amongst its
workforce?
 Use communities of practice, such as Innovation scouts, intranet
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One rich source of internal innovation lies in the entrepreneurial ideas of employees. Encouraging
intrapreneurship (internal entrepreneurship) is increasingly popular and used by Google and 3M.
Bootlegging: a culture in which there is tacit support for projects which go against the grain.
 BMW Series 3 Estate caused concern because of the conflict with the high-quality brand image.
Extending external connections
Open innovation is needed to make new connections. Page 263, table 5.5




5.18
Extending search strategies for innovation
Sending out scouts
 Exploring multiple futures
 Using the web
Working with active users
 Deep diving
 Probe and learn
Mobilize the mainstream
 Corporate venturing
 Idea generators
Use brokers and bridges
 Deliberate diversity
 Corporate entrepreneurship
and intrapreneuring
Two dimensions of innovation search
High rates of R&D investment  push technological frontiers even further  technology overshoot
Firms in a particular field can adopt the same way of framing when they assume certain rules of the
game. These frames correspond to accepted architectures – the way which players see the configuration
within which they innovate.
Search behavior is essentially bounded exploration and raises some challenges:
 When there is a shift to a new mindset/cognitive frame established players may have problems
because of the reorganization of their thinking which is required  think outside the box.
 Bounding process – they create a box we need to get out of.
 Architectural innovation is easier for new players
 There may be incremental innovation to make the new configuration work but this is not usually
new to the world but rather problem solving.
5.19
A map of innovation search space
With this model organizations learn to manage innovation within this space and construct routines. In
mature sectors a characteristic is the dominance of a particular logic which gives rise to business models
of high similarity. This model represents a ‘dominant logic’ of trajectory for a sector they are not the
only possible way of framing things. In high-complexity environments with multiple sources of variety it
becomes possible to configure alternative models – to ‘reframe’ the game and arrive at an alternative
architecture.
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page 271-274
6.1
No man is an island
A network can be defined as a complex, interconnected group or system, and networking involves using
that arrangement to accomplish particular tasks.
Teamwork is about links between organizations, developing and making use of increasingly wide
networks.
Internal project teams are formal and informal networks of knowledge, often organized as a team.
Challenge: crossing department borders.
Fluency is the ability to produce ideas; and flexibility is the ability to come up with different types of
idea.
Technological breakthrough  all kinds of inputs from the marketing skill set  getting access to
finance  spend the money wisely.
6.2
The ‘spaghetti’ model of innovation
Why greater levels of networking in innovation?
1. Collective efficiency
2. Collective learning
3. Collective risk taking
4. Intersection of different knowledge sets
Rothwell’s vision of the ‘fifth-generation’ innovation is essentially the one in which we now need to
operate, with rich and diverse network linkages accelerated and enabled by intensive set of
information and communication technologies.
6.3
Innovation networks
Networks have been claimed by some to be a new hybrid form of organization that has the potential
to replace both firms (hierarchies) and markets. = virtual corporation
How can a network influence actions of its members?
1. Through flow and sharing of information within the network.
2. Through differences in the position of actors in the network.
Sources of power: technology, expertise, trust, economic strength and legitimacy.
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Different network perspectives in innovation research
Social
network
focus
Actor
network
focus
Regional and business
groups; communities of
scientists and engineers
Portfolios of strategic
alliances
Focus on general
innovativeness
Diffusion and
commercialization of
innovations
Networks mobilized for a
specific innovation
Focus on discrete
innovations
High transaction costs in purchasing technology: network approach/market model
Where uncertainty exist: network approach/full integration or acquisition
A process of information exchange between supplier groups is path-dependent in the sense that past
relationships between actors increase the likelihood of future relationships, which can lead to inertia
and constrain innovation.
System attributes
Firm strategies
Unconnected, closed
(1) Incompatible technologies
(2) Customer components and
interfaces
Control standards by protecting
proprietary knowledge
Source of advantage
Connected, open
(1) Compatible across vendors
and products
(2) Standard components
Shape standards by sharing
knowledge with rivals and
complementary markets
Economies of scope, multiple
segments
Economies of scale, customer
lock-in
E.g. Microsoft in operating
systems
Organizational networks have two characteristics that affect the innovation process:
1. Activity cycle – create constraints within a network. The repetition of transactions is the
basis of efficiency, but systemic interdependencies create constraints to change.
2. Instability.
Zaibatsu is a family based organization.
Keiretsu are the more loosely connected organizations.
(1) Vertical types organizes suppliers and distribution outlets hierarchically beneath a large,
industry-specific manufacturer. E.g. Toyota
(2) Horizontal shows relationships between entities and industries, normally centered around a
bank and trading company.
Benefits of keiretsu include access to low-cost, long-term capital, and access to the expertise of firms
in related industries. This is important for high-technology firms. Keiretsu is associated with belowaverage profitability and growth.
 Mitsubishi: machinery by Nikon, cars by Mitsubishi motors, food by Kirin brewery
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 Mitsui , Sumitomo, DKB (commercial banks), Sanwa
Emergent network emerges and develops as a result of environmental interdependence and through
common interest.
Engineered network requires some triggering entity to form and develop.
Innovation networks can also have emergent properties - the potential for the whole to be greater
than the sum of its parts. Without such networks it’s hard to bring ides successfully to the market.
Another way in which networking can help innovation is in providing support for shared learning. A
lot of process innovation is about configuring and adapting what has been developed elsewhere and
applying it to your process.
Long-lasting innovation networks can create capability to ride out major waves of change in the
technological and economic environment.
 Silicon Valley
Entrepreneur-based
Internal project teams
Communities of practice
Spatial clusters
6.5
Types of innovation networks:
Sectoral networks
Sectoral forum
Emerging standards
Supply-chain learning
New product/process
development consortium
New technology
development consortium
Networks on the inside
Organizations have many people spread across their organizations with all sorts of knowledge. The
trouble is that many of these knowledge elements remain unconnected.
6.6
Networks on the outside
Principles of open innovation by Chesbrough:
1. Not all the smart people work for you
2. External ideas can help create value, but it takes internal R&D to claim a part of that value.
3. It is better to build a better business model than to get to the market first.
4. Make the best use of internal and external ideas and you will win.
5. Profit from others’ use of your intellectual property and buy others’ IP whenever it advances your
own business model.
6. Expand R&D’s role to include not only knowledge generation, but knowledge brokering as well.
Case of Procter & Camble:
- Inward-focused approach  innovation
- Connect and develop – an innovation process based on the principles of open innovation.
6.7
Learning networks
A learning network is a network formally set up for the primary purpose of increasing knowledge.
 Formally established and defined
 Have primary learning target
 Have a structure for operation, with boundaries defining participation
 Processes which can be mapped on to the learning cycle.
 Measurement of learning outcomes: feedback and decision to continue
 Co-laboratories, sectoral research organizations, horizontal/vertical collaboration
Enable learning through: experiment (e.g. R&D), transfer of ideas from outside, working with different
players, reflecting and reviewing previous projects and even from failures.
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Key element shared learning: active participation of others in the process of challenge and support
6.8
Networks into the unknown
Primary objective
Finding prospective
partners
Type of
barrier
Geographical
Technological
Institutional
Forming relationships
Ideological
with prospective partners
Demographic
Ethnic
Zone 1
 LEGO’s decision to develop its nextgeneration Mindstorms product involved
using network of lead users of the firstgeneration product.
Zone 2
- Scouts and agents play a key role
Zone 4
 BBC Backstage
Description
Geographical and cultural distance makes complex
opportunities more difficult to access, and as a result
they typically get discounted.
Discontinuous opportunities often emerge at the
intersection of two technological domains.
Arise because of different objectives or origins of two
groups, such as those dividing public from private
sector.
Not sharing values and norms which can blind from
seeing threats or opportunities which might arise at
the interfaces between the 2 world views.
Different values and needs of different demographic
groups.
Arise from deep-rooted cultural differences between
countries or regions in the world.
Reluctant to
engage with
you
3. Building
relationships
with unusual
partners
Keen to
1. Creating new
engage with
networks in
you
proximate
areas
Easy to find
6.9
Managing innovation networks
Configuring innovation networks
Important success factors:
 Highly diverse
 Third-party gatekeepers
 Financial leverage
 Proactively managed
Learning to manage innovation
4. Moving into
uncharted
territory
2. Seeking out
new
networks in
distant areas
Hard to find
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networks
 How to manage something we don’t own or control.
 How to see system-level effects not narrow self-interests.
 How to build trust and shared risk taking without typing the process up in contractual red tape.
 How to avoid ‘free riders’ and information ‘spillovers’.
9.1
Processes for new product development
Four main types of team structure
1. Functional structure – Traditionally hierarchy structure where communication is handles by function
managers to standard procedures.
2. Lightweight product manager structure – traditional hierarchy where a project manager provides an
overarching coordinating structure to the inter-functional work.
3. Heavyweight product manager structure – matrix structure led by a manager with authority.
4. Project execution teams – full-time project team where staff works under project leader direction
Filter ideas to
preliminary
investigation
Filter projects
to business
opportunities
Filter projects to
product/process
development
Filter product
to limited
launch
Filter products
to international
marketing
Concept generation
Identifying the opportunities for new products and services
Incremental adaptations or product line extensions  market pull
Product assessment and selection
Screening and choosing projects which satisfy certain criteria.
Two levels of filtering:
1. Aggregate product plan
1.1
Ensure resources are applied to the appropriate types and mix of projects
1.2
Develop a capacity plan to balance resource and demand
1.3
Analyze the effect of the proposed projects on capabilities to ensure it meets future
demands.
2. Specific product concepts
 Development funnel: identify, screen and converge development projects as they move from
idea to commercialization.
 Stage-gate system: provides a formal framework for filtering projects on explicit criteria.
Product development
Translating the selected concepts into a physical product.
Product commercialization
Testing, launching and marketing the new product.
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Best criteria for success:
Product advantage
Market knowledge
Clear product definition
Risk assessment
Project organization
Project resources
Proficiency of execution
Top management support
Five key practices that contribute to the successful development of blockbuster products:
1. Commitment of senior management
Functioned as sponsors and toke an active and intimate role.
2. Clear and stable vision
Project pillars are the key requirements. Mission, objectives and leadership clarity.
3. Improvisation
4. Information exchange
Blockbusters development teams are generally cross-functional where communication is difficult.
5. Collaboration under pressure
9.2
Influence on technology and markets on commercialization
Strategic marketing: whether or not to enter a new market
Tactical marketing: concerned mainly with the problem of differentiating existing products and services,
and extensions to such products.
High novelty: segmentation, prototyping, market experimentation and industry experts.
Low novelty: partnering customers, trend extrapolation and segmentation
Many of the standard marketing tools and techniques are of limited utility for the development and
commercialization of novel or complex products. Weaknesses:
 Identifying and evaluating novel product characteristics.
 Identifying and evaluating new markets or businesses
 Promoting the purchase and use of novel products and services.
Novelty of
technology
High
Low
9.3
Technological
New solutions to
existing problems
Differentiated
Compete on quality
and features
Novelty of Markets
Complex
Technology & markets
co-evolve
Architectural
Novel combinations of
existing technologies
High
Differentiating products
 High relative quality is associated with a high return on sales.
 Good value is associated with increased market share.
 Product differentiation is associated with profitability.
Low relative costs
Innovation  relative quality ↑  relative value ↑+ brand image ↑  market share↑
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Quality function deployment (QFD)
Used to identify opportunities for product
improvement or differentiation, rather than to
solve problems. It is a useful technique for
translating customer requirements into
development needs, and encourages
communication between engineering, production
and marketing.
Does not work where relations between technical
and marketing groups are a problem.
Types of users:
1. Must be’s
2. One dimensional
3. Delighters
9.4
Must exist before a potential customer will consider a product
Quantifiable features which allow direct comparison between
competing products.
Most subtle means of differentiation, attractive features.
Building architectural products
Architectural products consist of novel combinations of existing technologies that serve new markets or
applications.
Segmenting consumer markets
Utilitarian theories: consumers are rational and make purchasing decisions by comparing product utility
with their requirements. Rational approach states that there is not influence on buying behavior.
Utilitarian: Problem recognition  information search  evaluation of alternatives  purchase
Behavioral approaches have greater explanatory power. The balance between rational and behavioral
influences will depend on the level of customer involvement.
Segmenting by: socioeconomic class, life-cycle groupings, lifestyle, psychographic.
 Yuppy, Dinky, Yappy, Sitcoms, Skiers
Segmenting business markets
Business customers tend to be better informed than consumers and make more rational purchasing
decisions. They are segmented on the basis of common buying factors or purchasing processes.
People involved in the process: actual customer/buyer, ultimate users, gatekeeper, influences.
Benefit segmentation is only practical where such preferences can be related to more easily observable
and measurable customer characteristics.
3-stages segmentation process for identifying new business markets.
1. Functional segmentation: mapping functions against potential applications.
2. Behavioral segmentation to identify potential customers with similar buying behavior.
 Price of service
3. Combine the functional and behavioral segmentation in a single matrix to help identify potential
customers with relevant applications and buying behavior.
Phases of analysis:
1. Cross-functional teams are used to generate new product concepts.
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2. These concepts are refined and evaluated, using techniques such as QFD.
3. Parallel prototype development and market research activities are conducted.
Incremental product innovation within an existing platform can either introduce benefits to existing
customers, such as lower price or improved performance, or additionally attract new users and enter new
market niches.
9.5
Commercializing technological products
Technologists are concerned with developing devices. Potential customers but products, which marketing
must create from the devices.
Appraise
Select
Develop
Field Trial
Operate
Identify technologies
and evaluate
On the basis of the
data from Appraise
select the best
technology
R&D program to
develop a route to
the technology and
demonstrate its
applicability and
effectiveness
Identify field trial
targets, engage
business units,
execute field
demonstration
Commercialize the
technology and
implement within
BP
9.6
Implementing complex products

A special case in marketing: neither technology nor markets are well defined and understood.
The nature of complex products
 Products consist of a large number of interacting components and subsystems.
Customers evaluate purchasers at the system level, rather than at the component.
 Robot manufacturers offer ‘manufacturing solutions’ rather than stand-alone robot manipulators.
Links between developers and users
 Technical knowledge of customers is greater, but there is a burden on developers to educate
potential users. This requires close links between developers and users.
Expeditionary marketing is the process that acknowledge that failure might take place, bit it is a risk worth
taking.
 Apple didn’t identify a specific audience that needed the benefits of a touch screen computer,
they launched a product and caused enough of a buzz around it through marketing and PR.
Three distinct processes need to be managed, each demanding different linkages: development, adoption
and interfacing. The interface process can be thought of as consisting of two flows: information flows and
resource flows which are negotiates by developers and adopters.
Two dimensions help determine the most appropriate relationship between developers and users: the
range of different applications for innovation; and the number of potential users of each application:
Few applications, few users
Few applications, many users
Many applications, few users
Many applications and different users
Face-to-face negotiation
Classic marketing case which demands careful segmentation,
but little interaction with users.
Multiple stakeholders, skills to avoid optimization of
technology for one group at the expense of others.
Developers must work with multiple architects of users and
aim for the most generic market possible.
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Role of lead users
Lead users can help to co-develop innovations, and are therefore often early adopters of such innovations.
They recognize requirements early, expect high level of benefits, develop their own innovations and
applications and perceived to be pioneering and innovative.
Early adopters can provide insights to forecasting the diffusion of innovations.
Research note – Beyond lead users: the co-development of innovations
 Shift towards a more open, democratized form of innovation driven by networks of individual users.
 Free revealing: users will often freely share their innovations with others.
Adoption of complex products
 Adoption involves long-term commitment  cost of failure to performs is high
 Buying process is lengthy, adoption may lag years behind availability.
1. Performance risk: the extent to which the purchase meets expectations.
2. Psychological risk: associated with how other people in the organization react to the decision.
If there’s a agreement concerning the buying criteria, a process of persuasion and bargaining is likely to be
necessary before any decision can be made. Three factors that affect the purchase decision:
1. Political and legal environment
2. Organizational structure and tasks
3. Personal roles and responsibilities
9.7
Service innovation
Productivity paradox: disappointing returns to IT investments in services have resulted in a widespread
debate about its causes and potential solutions.
The service sector includes a very wide range and a great diversity of different activities and businesses,
ranging from individual consultants and shopkeepers, to huge multinational finance firms.
Differences services and goods:
 Good tend to be tangible, services are mostly intangible.
 Perceptions of performance and quality are more important in services. Perceptive are affected by:
- Tangible aspects – appearance of facilities, equipment and staff
- Responsiveness – prompt service and willingness to help
- Competence – the ability to perform the service dependably
- Assurance – knowledge and courtesy of staff, ability to convey trust and confidence.
- Empathy
 Simultaneity
 Storage
 Customer contact
 Location
Types of service organization for innovation
(1) Client project orientated
Reduces time to market and improves service delivery by focusing on customer requirements and project
managements.
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


Structured processes, such as QFD, are used to identify/influence customer requirements.
Demands achievement of innovation solutions and significant time compression at the same time.
Knowledge management initiatives to encourage sharing of know-how
Cross functional communications meetings and skills networks, project database, expert intranet.
 Consultancies and technology-based firms
(2) Mechanistic customization
Reduces costs by setting standards and through the involvement of suppliers and customers.


Standardization is key factor in controlling relationships.
A project is complete when all physical work is completed, all costs relation to the work have been
incurred, and all benefits have been delivered.
(3) Hybrid knowledge sharing
Provides a combination of innovation and efficiency by promoting team work and knowledge sharing.


People are cross-trained, co-rewarded and organized in groups, which reinforces team identity.
Group systems are self-contained  value knowledge
Able to become experts in developing and delivering products as quasi-professionals  provides
advantage of codified knowledge with far less hierarchical control.
 Strong in organization, tools and system integration, lacks formal processes.
 Distributed database, templates for process mapping
(4) Integrated innovative
Raises innovation and quality by means of cross-functional groups supported by groupware and other
tools and technology, but this increased coordination raises the time and cost of service development.
 Co-located, cross-functional teams in a flattened hierarchy.
Several common elements:
- Organizational mode of bringing people together.
- Control mechanism, either impersonal (documentation) or interpersonal (co-located teams).
- Shared knowledge and/or technical information base.
- External linkages, e.g. customer, partners, suppliers.
Service delivery is improved by customer focus and project management, and by knowledge sharing and
collaboration in teams. Time to market is reduced by knowledge sharing and collaboration, and customer
focus and project organization, but cross-functional teams can prolong the process.
Summary:
Where both technologies and markets are relatively mature, the key issue is how to differentiate a
product or service for competing offerings. Tools like quality function deployment (QFD) are useful. Where
existing technologies are applied to new markets, what we call architectural innovation, the key issue is
resegmentation of markets to identify potential new applications. Where new technologies are applied to
existing markets, the key issue is to assess the advantage the technology may have over existing solutions
in specific applications, and then identify target users based on behavioral characteristics. Finally, where
both technologies and markets are complex, the key issue is the relationship between developers and
potential users.
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Slides
Inventor innovation
 Often radically new invention
 Individual discovers new product or process, often commercializing it
 Predominant till the early 20th century
 E.g. Siemens, Daimler, Bosch
Laboratory innovation
 Pioneered by the German chemical industry since the 1870s
 Predominant till the 1980s
 Pooling of experts at a single location – the laboratory
 Typically improvement of competence
Network innovation
 Several firms with different competencies involved
 Predominant since the 1990s
 Process often called ‘open innovation’