Innovation
Management
An effective innovation strategy
answers three key questions:
How will we
Create value?
How will we
How will we
Capture value? Deliver value?
Step 1: Creating Value





How will the technology evolve?
How will the market change?
How will consumer preferences and behavior change?
Where will innovations come from?
What is our value proposition?
Step 2: Capturing Value

How should we design the business model?
 Where should we compete in the value chain?
 How should we compete if standards are important?
Step 3: Delivering Value

How do we manage the core business and growth
simultaneously?
 How do we use our strategy to drive real resource
allocation?
 What organizational structure, processes, measurements,
and incentive mechanisms do we use?
Question:
Can you think of an industry that
has gone through drastic changes in
the past several decades in terms of
technology, business models, and
major players?
Examples




Personal computers
Retail
Photography
Video games
A harder question:
Can you think of an industry that
has not gone through drastic
changes in the past several
decades in terms of technology,
business models, and major
players?
Examples




Soft drinks
Ready-to-eat breakfast cereals
Rough diamonds
Business education?
The Traditional Model of Industry Life Cycle
Shakeout
Maturity
Sales volume
Fermentation
Time
Decline
An Alternate Model of Industry Life Cycle
Convergence
Coexistence
Sales volume
Emergence
Dominance
Established
Industry
Emerging Industry
Time
The Industry Life Cycle as an S curve
Performance
Maturity
Discontinuity
Takeoff
Ferment
Time
Transitions often challenge existing
organizations severely
Cumulate share of sales of photolithographic alignment
equipment, 1962-1986, by generation
Contact
Cobilt
Kasper
44
17
Canon
Proximity Scanner S&R (1)
<1
8
67
P-Elmer
GCA
Nikon
Total
61
S&R (2)
75
7
21
9
78
10
55
<1
12
81
70
82+
99+
But they also create major opportunity

Corning glass
– Cookware to optical fiber

IBM
– Mainframes to PCs to Services

Nintendo
– Playing cards to video games
Where do innovations come from?
Sources of innovation
according to Peter F. Drucker

Industry and market changes
 Demographic changes
 New knowledge
 Changes in perception
 Unexpected occurrences
 Incongruities
 Process needs
The second of three key questions...
How will we
Create value?
How will we
How will we
Capture value? Deliver value?
Or:
What Determines the Innovator’s Share?
Suppliers
Imitators,
followers
Customers
Innovator
Sources of Uniqueness

Intellectual property protection
– Patents
• Finite length
• The right to prohibit “producing”
– Copyrights
• The right to prohibit “copying”

Secrecy
– Trade secrets & non-compete clauses
– “Tacit” knowledge
– Causal ambiguity

Speed
Uniqueness is powerful but often
difficult to maintain

Legal mechanisms can be costly to create, and then
even more costly to enforce: and sometimes they
require public disclosure
 Secrecy may be difficult to maintain
 Speed is hard work, and sometimes imitable
What are Complementary Assets?

Those assets that allow a firm to make money, even if
the innovation is not unique.

The answer to the question:
– If our innovations were instantly available to our
competitors, would we still make money? Why?
In the best case, complementary assets
should be tightly held

Complementary assets that are tightly held are not
easily available to entrants or to most competitors
Types of Complementary Assets

Things you can do
–
–
–

Manufacturing capabilities
Sales and service expertise
Strategic alliances
COMPETENCIES
Things you own
–
–
–
Brand name
Distribution channels
Customer relationships
RESOURCES
Exercise:
Position:
Soft drinks
Windows Office
Book publishing
Travel agencies
Your industry/firm
Complementary assets are:
Easy to
maintain
Available
Tightly
held
B
A
C
D
Uniqueness is:
Hard to
maintain
Uniqueness & Complementary Assets
over the Life Cycle:
Uniqueness
Maturity
Takeoff
Ferment
Complementary
Assets
Managing discontinuities means
managing complementary assets:
Maturity
Performance
Takeoff
Discontinuity
Which of my complementary
assets is critical?
Ferment
Time
Complementary Assets/Uniqueness speak to
Rivalry, the Threat of Entry & Substitutes.
Entrants
Suppliers
Rivals
Substitutes
Buyers
Porter reminds us to think about the
structure of the value chain:
Entrants
Suppliers
Rivals
Substitutes
Buyers
The last of three key questions...
How will we
Create value?
How will we
How will we
Capture value? Deliver value?
Discontinuous Innovation
as a strategic problem

Genuine uncertainty
– It’s not going to happen – certainly not now

Cannibalization
– It will compete with our current products

Shifts in the customer base
– Our current customers don’t want it

Margin erosion
– It will make less money
New S curves may be hard
to spot in advance
The new opportunity
doesn’t meet our current
customer’s needs
The new opportunity
doesn’t offer nearly the
same margins and profit
opportunity
Discontinuous Innovation
as an
Organizational Problem
My experience has been that creating
a compelling new technology is so
much harder than you think it will be
that you're almost dead when you get
to the other shore.
--Steve Jobs
Discontinuous Innovation
as an organizational problem




Time horizons & Incentives
Fear of (individual) cannibalization
Overload
Competency Traps
Case discussion: Kodak (A)
1. Evaluate Kodak’s strategy in traditional photography.
Why has the company been so successful throughout
the history of the industry?
2. Compare traditional photography to digital imaging.
What are the main structural differences? Will digital
imaging replace traditional photography? How have
value creation and value appropriation changed in
digital imaging relative to traditional photography?
3. How would you assess Fisher’s attempt to transform
Kodak?
4. What is Kodak’s current position in digital imaging?
Evaluate Kodak’s strategies from the mid-1980s
onward.