Time & Venue: 17 Oct 2006, 13:30 to 14:50 @ Room 4333
ONE A4 paper cheat sheet is allowed

In en v tio n s
Id ea s
Innovation
Core Competences:
Assessment & Investment
Adaptive
Execution Opportunity
Register
Innovation and the
Entrepreneurial
Mindset
2
Market Entrance &
Competitive Strategy
Market-side
The Entrepreneurial
Frame
2
Market-side
Potential Market
Opportunities & Filling the Opportunity Register
3-6
Production-side
Matching
Competences &
Opportunities
7&8
Entry Strategy
Market Entry &
Adaptive Execution
9-11

 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.


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

New Product:
Low cost
Improved qualities
New qualities
Competences and
Assets
New
Technological knowledge
New Market
Knowledge

-- 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

What makes each of these companies
Innovative?

Go od
News
Bad N ews
In ve st
Do n' t In ve st
Good
Ne ws
Ba d N ew s


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



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

1.
2.
3.
4.
5.
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

 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

What are they? How are they related?
Influence / feedback
Verbally
Encoded
Information
Science
Verbally Encoded
Information
*publications
*patents
Verbally
Encoded
Information
Technology
Influence / feedback
Physically & Verbally Encoded
Information
*products & services
*documentatiom
*publications
*patents

What 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
Complementary Assets
Free or Unimportant Tightly held
Profit is Difficult
Holder of complementary assets
Inventor
Inventory or party with bargaining power
High
Low
Imitability

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
State of Evolution of Tech
Era of Ferment Era of Incremental Change
High Uncertainty
High influence of nontechnical factors
Medium Uncertainty
High influence of nontechnical factors
Little Uncertainty
Low influence of nontechnical factors
Near Certainty
Nontechnical factors may be ignored
High
Complexity
Low

(and what kinds of corporate assets or services generate value)
Different Industries; Different Rates of Change
Mainly Tangible Assets
DCF &Traditional
Past is indicator of Future
Property,Mortgages,
Mining & Extractive
Industries
Commodity
Manufacturing
(e.g., paper)
Branded-Luxury
Merchandise
Utilities &
Voice Telephony
Local Services
(e.g., Legal,
Government)
Mainly Knowledge-Intangible Assets
Complex
Manufacturing
(e.g., cars, chips)
Retailing,
Education &
Pure R&D
Data Telephony,
Global Network
Services (e.g.,shipping)
Financial Dynamics is Necessary
Future is Volatile
Insurance,
Electronic Markets
& Risk Management
Software,
Videogames,
Cinema, Music,
News

Sustainability
(Foster and others)


Eras of incremental change terminate with a ‘discontinuity’


We look for limits on the technology’s life cycle using knowledge of the technology's physical limits
E.g., Moore’s Law will run out on current platforms at 2013
Advance of a technology is a function of development effort
Physical Limit Communication Bottlenecks
Multi-processor
Speed of Light
Effort
Single-processor
Effort on Supercomputing

Low-cost or Differentiated Products
 Firms do this through their unique value configuration
 (i.e., value chain, value network, value shop, profit chain)
 To create Low-cost / Differentiated Products a firm needs:
 Plants, equipment, patents, scientists, brand name recognition, geographic location, client relations, distribution channels, trade secrets
 i.e., Assets, Competences and Knowledge

Technological Characteristics that Promote Innovation
 (Henderson-Clark) Products are made  up of components (even services)
 There exist two kinds of relevant knowledge


Component
Architectural
(Abernathy-Clark) Two kinds of knowledge underpin an innovation
 Technological


Market
Incumbents Fail when they Fail to “Get” one or the other type of Knowledge
Architectural Knowledge
Preserved Destroyed
Incremental Architectural
Modular Radical
Preserved
Component Knowldge
Destroyed
Technical Capabilities
Preserved Destroyed
Regular Revolutionary
Niche Architectural
Preserved
Market Capabilities
Destroyed

 Two factors are instrumental to profiting from an innovation


Imitability and
Complementary Assets
Complementary Assets
Free or Unimportant Tightly held
Profit is Difficult
Holder of complementary assets
High
Imitability
Inventor
Inventory or party with bargaining power
Low

Complementarity
What other products are needed to complete your Commercialization?

What are your ‘Killer Apps’?

Who are your ‘Co-opetitors’ and what essential assets do they control?
 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






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

Innovation
In en tio
Id ea
Opportunity
Register
Adaptive
Execution
Core Competences:
Assessment & Investment
Market Entrance &
Competitive Strategy
What is Innovation? Chapter 1
Framing the Challenge: Business Needs and Models Chapter 2
Blockbuster Innovations
Redifferentiating & Resegmentinb
Chapter 3
Chapter 4
Techniques: Quizzing, Attribute Maps and Consumption Chain Analysis
Practicums: False Faces
Slice and Dice
Think Bubbles


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:
1.
2.
3.
4.
5.
Business concept
Relevant trends
Key industry data
Obstacles and barriers
Company position
6.
7.
8.
9.
Competition and Substitutes
Sources for your information
What type of opportunity is this?
Timing of proposed actions

Defines your market


Support this with Attribute Maps and Consumption
Chains


 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






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 ..


This provides a heuristic for ‘Functional Innovation’ (Eric von Hippel)
Basic Discriminator Energizer
Positive Nonnegotiable Differentiator Exciter
Negative Tolerable Dissatisfier Enrager
Neutral So What?
Parallel

Awareness of need
Selection
Search
Order and purchase
Delivery
Service
Repairs and
Returns
Final disposal
Use
Payment
Storage and trasport
Installation and Assembly
Financing
Receipt


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


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)

 The Attribute Map compares your product to those of others
Basic Discriminator Energizer
Positive Nonnegotiable Differentiator Exciter
Negative Tolerable Dissatisfier Enrager
Neutral So What?
Parallel

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

 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

Factory


It doesn’t describe external forces:


Competition
Environment
Labor Work
 Scaling
R&D
It only depicts the systems that will be put into place to achieve a strategic objective
D esi g n s
N ee ds
Customer
Relationship
Management
M ar ke tin g
Customers
 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

 If I were to do something in the next 3-5 years
 That I, my boss 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?
Projections Goals
Innovation Year +1
200 220.00
+ 2
242.00
+ 3
266.20
+4
292.82
+ 5
322.10
+ 6
354.31 10% annual increase Profits
Return on Sales
Return on Assets
Assets
New asset investment at current utilization
Sales
New Sales
10%
15%
2000
10%
15%
1333 1466.667 1613.333 1774.667 1952.133 2147.347 2362.081
133.67
2200
200.00
10%
15%
280.33
2420
420.00
10%
15%
441.67
2662
662.00
10%
15%
619.13
2928.2
928.20
10%
15%
814.35
10%
15%
3221.02 3543.122
1221.02
1029.08
1543.12


E.g., Lucent’s Performance Targets


Sales from 1% growth to the high teens
R&D from 8% to 11% if Sales




Reduce SGA from 27% to 19%
Reduce tax rate 4% points
Lift
ROA from 0% to 1%
Entrepreneurial
Activity
Drives
Performance
(customers, investors, etc.)

 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

 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

 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

 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

Topic
Business Needs:
Framing the
Challenge
Building Blockbuster
Innovations
Redifferentiating
Products: New
Technology or New
Uses
Practicum
False Faces ( perceptual reversals )
Slice and Dice (Attribute Maps pp. 24-35)
Think Bubbles (Quizzing to understand the customers’ experiential context pp. 50-56)

An Escape from Looking at Problems in the Traditional Way
 BLUEPRINT  Which line is longer, AB or CD?






State your challenge.
List your assumptions.
Challenge your fundamental assumptions.
Reverse each assumption. Write down the opposite of each one.
Record differing viewpoints that might prove useful to you.
Ask yourself how to accomplish each reversal. List as many useful viewpoints and ideas as you can.
 Link the nine dots below with no more than three straight lines which will cross through all nine dots, without lifting your pencil
(think outside the box)

 Which figure is the widest?
BLUEPRINT
1. State your challenge.
2. Analyze the challenge and list as many attributes as you can.
?
3. Take each attribute, one at a time, and try thinking of ways to change or improve it. Ask "How else can this be accomplished?" and "Why does this have to be this way?"
4. Strive to make your thinking both fluent and flexible.


Consider the bicycle:







Frame.
Handlebars.
Pedals.
Brakes.
Tires.
Chain.
Drive sprocket.
Improved attributes:




Lightweight frames made out of new materials.
Racing handlebars replacing traditional handlebars.
Pedals with straps and grips.
Hand brakes replacing axle brakes.



Lightweight, solid tires replacing inflatable ones.
Chains with clamps to make changing them easier.
Sprockets that provided ten gears.








Mind mapping is an idea generator. It does not supply raw material, so your map may show areas where you need to collect more information
Mind Maps to Recognize the Potential of an Innovation share five basic characteristics:
1.Organization. Mapping presents information organized in the way you think it. It displays the way your mind works, complete with patterns and interrelationships, and has an amazing capacity to convey precise information, no matter how crudely drawn.
2 . Key words. Ignore all irrelevant words and phrases and concentrate only on expressing the essentials, and what associations these "essences" excite in your mind.
3.Association. Make connections, links, and relationships between seemingly isolated and unconnected pieces of information. These connections open the door to more possibilities. You can feel free to make any association you wish, without worrying whether or not others will understand you.
4.Clustering. The map's organization comes close to the way your mind clusters concepts, making the mapped information more accessible to the brain. Once your ideas are clustered, try to adopt the viewpoint of a critic seeing the ideas for the first time. This allows you to test your associations, spot missing information, and pinpoint areas where you need more and better ideas..
5.Conscious involvement. Making the map requires you to concentrate on your challenge, which helps get information about it transfered from short-term to long-term memory. In addition, continuous conscious involvement allows you to group and regroup concepts, encouraging comparisons. Moving think bubbles around into new juxtapositions often provokes new ideas.