Final Exam Review
Innovation Management (ISMT 302)
Time: 7 Dec 2005
Note: You will be allowed one A4 sized sheet of paper as a “
Cheat Sheet” for your reference during the ISMT302 Final Exam.
You can fill out both sides, and there are no limits on handwriting,
font, or techniques for the information you place on the page. No
other materials will be allowed during the exam
Logical Structure of the Course
Innovation
ons
Inventi
Commercial Opportunities
Ideas
Core Competences:
Assessment & Investment
Opportunity
Register
Adaptive
Execution
Market Entrance &
Competitive Strategy
Classes of Things
You have Learned

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.
Fundamentals
Definition: ‘Innovation’

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
Elements of
Product
Innovation
New Product:
Low cost
Improved qualities
New qualities
Competences
and
Assets
New
Technological
knowledge
New Market
Knowledge
The Purpose of a Business
is to Create a Customer
-- Peter Drucker

Even if you create marvelous inventions



Business customers are especially impatient


Your customers won’t care
Unless that is exactly what they need
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?
d
Goo
ve
In
Invention Generation
Do
n't
ve
s
Bad
New
s
st
In
Ne w
st
d
Goo
Ne w
s
Ba
dN
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
Sources of Innovation

How innovation arises

Functional:

Innovations arise from thinking about the functional relationships between groups
and individuals



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., customer or manufacturer
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
Sources of Innovation
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
Innovation at the National level

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
Science & Technology
What are they? How are they related?
Influence / feedback
Verbally
Encoded
Information
Verbally
Encoded
Information
Science
Technology
Influence / feedback
Verbally Encoded
Information
*publications
*patents
Physically & Verbally Encoded
Information
*products & services
*documentatiom
*publications
*patents
Complementarity
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
Profit is Difficult
Tightly held
Holder of
complementary assets
High
Imitability
Inventor
Inventory or party with
bargaining power
Low
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
High Uncertainty
High influence of
nontechnical factors
Era of Incremental Change
Medium Uncertainty
High influence of
nontechnical factors
High
Complexity
Little Uncertainty
Low influence of
nontechnical factors
Near Certainty
Nontechnical factors
may be ignored
Low
What sort of people are Innovators?

Idea Generators


Gatekeepers & Boundary Spanners


Sell the innovation to the firm
Sponsors (Coach, Mentor)


Conduits for knowledge from other firms and labs
Champions (Entrepreneurs, Evangelists)


Can sift through large quantities of technological and market data to identify
‘innovations’
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
ons
Inventi
Commercial Opportunities
Ideas
Core Competences:
Assessment & Investment
Opportunity
Register
Adaptive
Execution
Market Entrance &
Competitive Strategy
Market side innovation
The Opportunity ‘Register’

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.
6.
7.
8.
9.
Business concept
Relevant trends
Key industry data
Obstacles and barriers
Company position
Competition and Substitutes
Sources for your information
What type of opportunity is this?
Timing of proposed actions
•Commercialization
Defines your market
Who is the target customer for the company’s
product (age, income, medical history, and
other demographics)



Support this with Attribute Maps and Consumption
Chains
What will differentiate your innovation from
competitors’ in the customer’s minds?
Quizzing

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
Quizzing
Who?

… is with customers while hey use the product







If we could arrange it, who would we want the customer to
be with …
What?


How much influence do they have
… 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 ..
Toolsets
Organize Answers with a Mind Map
Summarize your Quizzing by the
Attributes of the Innovation that are
important to the Customer
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
Consumption Chain
Analysis
Selection
Search
Order and
purchase
Awareness
of need
Delivery
Repairs and
Returns
Payment
Final disposal
Service
Financing
Use
Receipt
Storage and
trasport
Installation
and Assembly
Function of Consumption Chain
Analysis

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
Consumption Chain Analysis

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)
Every Link in the Consumption
Chain has its Own Attribute Map

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
Toolsets
Consumption Chain Analysis



Determine the main steps in
consumption
Each step on the consumption
chain has an attribute map
You should only list the 3 or
4 most important steps
Selection
Search
Order and
purchase
Awareness
of need
Delivery
Repairs and
Returns
Payment
Final disposal
Service
Financing
Use
These will determine whether
the potential customer
proceeds to the next step (good)

Or leaves the consumption
process (not good)
Leave

Receipt
Storage and
trasport
Continue
Installation
and Assembly
Toolsets
Overview of Feature Set
Prioritize and choose the major features of your innovation from the
main branches of the Mind Map
Review the main innovation features with a feature-attribute map for
the entire innovation
Basic
Discriminator
Energizer
Positive
Nonnegotiable
Differentiator
Exciter
Negative
Tolerable
Dissatisfier
Enrager
Neutral
So What?
Parallel
Toolsets
Feature-Attribute Map the 3-4 Key Steps in the Consumption and
Manage those 3-4 Steps

Identify Discriminators
and Energizers
Describe how you will
manage each of these
features of the
consumption process
Leave

Continue
Basic
Discriminator
Energizer
Positive
Nonnegotiable
Differentiator
Exciter
Negative
Tolerable
Dissatisfier
Enrager
Neutral
So What?
Parallel
What To Do with the
Opportunity Register
When Competences start to matter
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
Business Models Matter

Telling a good story


Tying Narrative to Numbers




Part of selling your strategy / investment
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
Business Models Matter
A business model is not strategy
It doesn’t describe external forces:

Labor
Work
R&D

It only depicts the systems that will be put
into place to achieve a strategic objective

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
Customers
ng
eti
k
ar
M
s
ed
Ne

Competition
Environment
Scaling
Production

De
sig
ns

Factory
Customer
Relationship
Management
Framing the Challenge
Targets and Goals

If I were to do something in the next 3-5 years



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?
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
+2
+3
+4
+5
+6
Profits
200
220.00
242.00
266.20
292.82
322.10
354.31 10% annual increase
Return on Sales
10%
10%
10%
10%
10%
10%
10%
Return on Assets
15%
15%
15%
15%
15%
15%
15%
Assets
1333 1466.667 1613.333 1774.667 1952.133 2147.347 2362.081
New asset investment at current utilization
133.67
280.33
441.67
619.13
814.35 1029.08
Sales
2000
2200
2420
2662
2928.2 3221.02 3543.122
New Sales
200.00
420.00
662.00
928.20 1221.02 1543.12
Framing the Challenge: Strategy
Drivers

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.)
New Life from Old
Competences
Redifferentiating and resegmenting
Redifferentiating Products
The Dialectic

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 and Reconfiguring

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
Reconfiguring your Market

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
How to Resegment

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
Market-side Practicums
Prac·ti·cum (prăk-tĭ-kəm)
Topic
Practicum
Business Needs:
Framing the
Challenge
Building Blockbuster
Innovations
Redifferentiating
Products: New
Technology or New
Uses
False Faces (perceptual
reversals)
Slice and Dice (Attribute Maps
pp. 24-35)
Think Bubbles (Quizzing to
understand the customers’
experiential context pp. 50-56)
False Faces:
An Escape from Looking at Problems in the Traditional Way

BLUEPRINT

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.






Which line is longer, AB or CD?

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)
Slice and Dice
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.

Which figure is the widest?

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.
Think Bubbles: an aid to Quizzing







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.
Innovation
ons
Inventi
Commercial Opportunities
Ideas
Core Competences:
Assessment & Investment
Opportunity
Register
Adaptive
Execution
Production Side of
Innovation
Market Entrance &
Competitive Strategy
Resource based perspective of Strategy
Resource-based view (RBV) of firms
Dominant approach to business strategy today
Basis for Core Competences


The resource-based view suggests that a firm's unique resources
and capabilities provide the basis for a strategy.
The strategy chosen should allow the firm to best exploit its core
competencies relative to opportunities in the external environment.
Environment's
Resource Supply Curve
& Constraints
Value
Flow
{valuet , volumet}
Owner of
Strategy
(R-P-V Source
of Competitive
Advantage)
Value Added by Strategy
(difference between two value flows)
Value
Flow
{valuet , volumet}
Environment's Demand
Curve & Constraints
Core Competences

These are the things that the firm does



Firms establish their core competences by:




That they do better than other firms
That are the source of their competitive advantage
Investing in people
Investing in assets, plant and land
Identifying and focusing their mission
The Firm’s core competences are often those of its
CEO and management
Competences



You best
(perhaps your only)
opportunities to compete
are


Your
Competences
Competitor A's
Competences
Where Product Market
Needs
Cross with Competences
Product Market
Opportunities
Competitor B's
Competences
Competitor C's
Competences
Delivering on 7-10 critical ‘Key
Ratios’

This is what Investors and Venture Capitalists will
look for



The particular accounting statement measures
That indicate whether your strategy is succeeding or not
The exact set of measures depends on


your business model and
your strategy
Competences:
Hyper-efficient supply chain



Dell is relentless in negotiating the best prices from
suppliers, and
driving those savings through the supply-chain.
To do that, Dell replaces inventory with information.
Competences:
The FedEx Way

Compete for customers

Using new technologies


i.e., the increasing size and speed of jets
That restructure the geography of

space

time

money
Competences:
Overnight Delivery



Smith reasoned that he could turn Post Office
economics upside-down

Post Office delivery optimized distance traveled

time was not a critical value,

package handling was cheap.
Smith saw that new air technology could let him
ignore distance traveled
… and instead, optimize speed and handling
to create new market value
What is an Innovation
Worth?
Value ‘Happens’ in the Future

Your ‘Vision’ of the Innovation Firm is the best source of information about this
future value






From the ‘Vision’ you derive your ‘Business Plan’
From your ‘Business Plan’ you derive your ‘Strategies’
‘Strategies’ comprise ‘Real Options’ which are conditional particular ‘Events’ occurring
in the future
The feasibility of each ‘Event’ is ultimately ‘Discovered’ at some point in the future
Finance and accounting are geared towards measuring the past
Strategy is designed to plan and control the future



To select the correct innovations from our opportunity register
We need to assess how good our strategy will be
This is why Strategy Drivers


The basis of our key ratios
Are the basis of value as well
The move towards
A Resource Based View of Strategy
Outcomes
Profit-maximizing
Strategy
y
r
a
t
i
l
i
M
l
Classica
Evolutionary
Classical
Processes
Deliberate
19
70
Systemic
1980 s
19
s
0
9
s
Processual
Plural
Emergent
Key Ratios in Practice
Knowledge about
Assets & Value
100% Intangible
Assets
Brand Value Formulas
Real Options
Contingent
Value
Lev's Intangibles Accounting
Scenario and Decision Analysis
100% Physical
Assets
Financial Accounting
Past (Behavioral Estimation Period)
Residual Income
Discounted Cash Flow
Future (Forecast Period)
Forecast Horizon
Present
Managerial
Accounting
Cost Accounting
Certain
Value
Time
Easy and Difficult Industries

Deciding on investments in core competences for the future is
Where
to to
usethe
Financial
Dynamics
easy(and
aswhat
youkinds
move
left
on the line below
of corporate assets or services generate value)

It is nearly impossible as you move to the right 
Mainly Tangible Assets
Mainly Knowledge-Intangible Assets
DCF &Traditional
Valuation Methods are Accurate
Property,Mortgages,
Mining & Extractive
Industries
Commodity
Manufacturing
(e.g., paper)
Utilities &
Voice Telephony
Financial Dynamics is Necessary
for Accurate Valuation
Branded-Luxury
Merchandise
Local Services
(e.g., Legal,
Government)
Retailing,
Complex
Education &
Manufacturing
Pure R&D
(e.g., cars, chips)
Data Telephony,
Global Network
Services (e.g.,shipping)
Insurance,
Electronic Markets
& Risk Management
Software,
Videogames,
Cinema, Music,
News
Uncertainty and Decision Milestones



The Real Options decision tree (left) assumes that the manager makes a
decision, then finds out what happens
Where this fails is when the manager finds out what happens (or at least
guesses what might happen) prior to making a decision
In this case, scenario analysis (right) is better suited for the task of dealing
with uncertainty.
dN
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In
Do
s
ve
n't
est
Inv
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Do
Bad
New
s
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o
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od
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ew
s
N
ew
s
Ne
ws
n' t
In v
es t
st
Inve
Do
n' t
In
ve
st
Business Models:
Tying Narrative to Numbers

Factory
Work
Production
Labor
R&D
Customers
ng
eti
k
ar
M
s
ed
Ne

What activities, operations and
products are within the ‘scope’
of the valuation analysis?
(Bubbles: depends on audience)
What are the significant
environmental influences?
(Boxes: major competitive
forces outside management
control)
How does value flow through
the relevant scope of the
analysis? (Arrows: value metric)
De
sig
ns

Customer
Relationship
Management
Market Entry Strategy Model



What are the major
competitive forces molding
managerial strategy which
add to, or take away from
‘Value’?
What ‘levers’ (strategy
drivers) can management
pull to influence value
added?
What is the functional
relationship between value
and the strategy drivers?
(Define the ‘Strategy
Model’)
Technology Choice

Technology is shared across all competitors. It offers:








Efficiency (improved performance at the same cost)
Quality
Novelty
Substitutes
What are the major technologies relevant to managerial strategy which
add to, or take away from ‘Value’?
What ‘levers’ (strategy drivers) can management pull to incorporate
technology or react to the threat of technology?
What is the functional relationship over time of technological trends on
value? (Define the ‘Technology Choice Model’)
Technology Choice Models will be implemented in the same manner as
strategy models.
What you need to assess
Value
Behavioral Model
Forecast Model
Embeds strategy in historical
outcomes to determine behavior of the
firm
Firm behavior is a product of
corporate culture, importance of
timeliness, and managerial traits and
expertise
Past
Embeds scenarios and real options in a projection of
historical trends into the future
Historical dispositions of corporate culture, importance of
timeliness, and managerial traits and expertise are
assumed to carry on into the future
c k to
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f
o
ana
coun
casts
F o re , a t a d is v io r o f m
ent
beha
p re s
Present
Future
Predicting the Future from the
Past
$
ce
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e
fid
n
o
ue
C
l
a
r
V
pe
d
it
e
p
m
ct
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e
p
eL
c
Ex
n
de
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o
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w
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Present
t
mi
i
L
Forecast Period
Estimation Period
time
The Value Cone
$
$
e
eC
on
e
Present
Th
lu
Va
on
e
Forecast Period
Estimation Period
Forecast Period
Estimation Period
e
eC
Present
Th
lu
Va
time
time
$
Value and
Strategy Choices
$
Present
Present
$
Th
e
lue
Va
Co
Th
eV
a
C
lue
on
e
ne
Estimation
Period
$
time
Forecast Period
Estimation
Period
ti me
Present
eV
on
e
Present
Th
eC
alu
Th
Estimation
Period
eV
eC
alu
on
e
time
Estimation
Period
time
Easy and Difficult Industries



Deciding on investments in core competences for the future is
Where
to to
usethe
Financial
Dynamics
easy(and
aswhat
youkinds
move
left
on the line below
of corporate assets or services generate value)
It is nearly impossible as you move to the right 
The ‘Innovator's Dilemma’ is a serious problem in
managing
on the right Mainly Knowledge-Intangible Assets
Mainly Tangibleindustries
Assets
DCF &Traditional
Valuation Methods are Accurate
Property,Mortgages,
Mining & Extractive
Industries
Commodity
Manufacturing
(e.g., paper)
Utilities &
Voice Telephony
Financial Dynamics is Necessary
for Accurate Valuation
Branded-Luxury
Merchandise
Local Services
(e.g., Legal,
Government)
Retailing,
Complex
Education &
Manufacturing
Pure R&D
(e.g., cars, chips)
Data Telephony,
Global Network
Services (e.g.,shipping)
Insurance,
Electronic Markets
& Risk Management
Software,
Videogames,
Cinema, Music,
News
Production-side
Practicums
Prac·ti·cum (prăk-tĭ-kəm)
Topic
Practicum
Building Breakthrough
Competences
Selecting Your
Competitive Terrain
The Idea Box (Dr. Fritz Zwicky’s
morphological box)
Hall of Fame (forced
connection)
Assembling Your
Opportunity Portfolio
Cherry Split (fractionation)
Idea Box




BLUEPRINT
Specify your challenge.
Select the parameters of your challenge. To determine
whether a parameter is important enough to add, ask
yourself, “Would the challenge still exist without the
parameter I’m considering adding to the box?”
List variations. Below each parameter, list as many
variations as you wish for that parameter. The number of
parameters and variations will determine the box’s complexity. Generally, it is easier to find new ideas within a
simple framework than a complex one. For instance, a
box with ten parameters, each of which has ten
variations, produces 10 billion potential combinations.








Try different combinations. When the box is finished,
make random runs through th.e parameters and
variations, selecting one or more from each column and
then combining them into entirely new forms. You can
examine all of the combinations in the box to see how
they affect your challenge. If you are working with a box
that contains ten or more parameters, you may find it
helpful to randomly examine the entire box, and then
gradually restrict yourself to portions that appear
particularly fruitful. It’s like hunting for stars in a box.

Situation: I’m a marketing director for a company that
produces laundry hampers. The market has matured,
and the company needs a new design to capture the
customer’s imagination. My challenge is: “In what ways
might I improve the design of laundry hampers?”
Description: I analyze laundry hampers and list their
basic parameters. I decide to work with four parameters
(material, shape, finish, and position) and plan to use
five variations for each.
Idea Box: I construct my box with the parameters on top,
leaving five boxes beneath each parameter for the
variations.
To generate the variations, I ask myself:
What materials could be used to make hampers?
What shapes can hampers be made in?
What finishes can be used on hampers?
What are the positions for hampers?
Hall of Fame:
Famous Friends
BLUEPRINT
1. Create your personal Hall of Fame. Select those people, living or dead, real or fictional, who appeal
to you for one reason or another. For example, here are some people from my personal ‘Hall of
Fame’: Ben Franklin, Sherlock Holmes, Diogenes, Mark Twain, Ralph Waldo Emerson, Plato,
William Shakespeare, Sigmund Freud, Aristotle, Robert Frost, John F. Kennedy, Aldous Huxley, W.
Somerset Maugham, Adlai Stevenson, Sun Tzu, Albert Schweitzer, Thomas Jefferson, and
Winston Churchill. In addition, I have posted to our class website a list of chéngyǔ 成语 or 成語,
literally "to become (part of) the language"; these are four character Chinese idioms embodying
traditional wisdom that I often find more inspiring simply because they can be interpreted so many
ways while holding forth an important truth.
2. When you have a challenge, consult your Hall of Fame, select an adviser, choose a favorite
quotation.
3. Ponder the quotation. Write down your thoughts, regardless of appropriateness to the challenge. If
you think it, write it, and try to use these thoughts to generate more relevant thoughts. The basic
rules are:
Strive for quantity.
Defer judgment.
Freewheel (think freely, perhaps even aimlessly or irresponsibly; independently and free of
restraints)
Seek to combine and improve your thoughts.
4. Choose the thought or combination of thoughts that holds the most promise. Then restate it.
5. Allow yourself five to ten minutes to come up with new ideas. If you produce nothing significant,
select another quote or go to another adviser. Keep consulting your Hall of Fame until a quote or
passage provokes a train of usable ideas.
Cherry Split

Splitting the Difference
BLUEPRINT
State the essence of your challenge in two words. For instance, if your
challenge is "In what ways might I improve my sales of Canon copiers?"
the two-word phrase that captures the essence of your challenge is:
"Selling copiers." In the example that follows, the challenge is "In what
ways might we improve the methodology of picking cherries?"; the twoword phrase is "Cherry picking."
Split the challenge into two separate units. In the diagram note how "cherry"
and "picking" are handled.
Split each attribute into two mor/e attributes. For instance, "cherry" is split into
"delicate" and "separate," "picking" is split into? "remove" and "transport."
Do not worry about the correctness of the split; no two people will split
attributes in the same way. One person will look down a street and see
an indescribable beauty in the shadows, the light, the brick walls, the
dark porches, and the grayed snow banks. Another person will see only
rubble. You have to define attributes for yourself, taking your clues
where you find them.
Continue splitting the attributes until you feel that you have enough to work
with. In the cherry example, I split "delicate" into "damaged" and
"blemished," "separate" into "selecting" and "closeness to each other,"
"remove" into "touch and hold" and "picking," and "transport" into
"ground" and "boxes."
Examine each attribute for ideas. The wonder of this method is that big ideas
can dwell in the most insignificant attribute just as the flavor of an entire
ocean is contained in one drop.
Try reassembling the attributes. New combinations can induce new
perspectives and new ideas. Splitting a challenge into several attributes
is like removing a dividing panel from between chambers of very hot and
Challenge #1: "In what
ways might we improve
the methodology of
picking cherries?"
Damaged
Delicate
Blemished
Cherry
Selecting
Separate
Closeness to Each
Other
Touch and Hold
Remove
Picking
Picking
Ground
Transport
Boxes
Innovation
ons
Inventi
Commercial Opportunities
Ideas
Core Competences:
Assessment & Investment
Opportunity
Register
Adaptive
Execution
Market Entrance &
Competitive Strategy
Entry Strategy
Competition
Who is competing in this product market?
How you will measure the usefulness or attractiveness of
your prodict’s Attributes to the target customer.
1.

This performance metric should be a numerical measure
Who are your innovation’s top competitor in each of these three
Attributes
2.



a company marketing a competitive product or service
Are these companies profitable?
How big (approximately) is their business?

Think: Low-cost or Differentiated Products?

Every product or service has multiple competitors … there are no
exceptions
Two Realities

Competitors simply cannot allow you to go unchallenged



and must try to erode your position
Understanding where to create a competitive position that cannot
easily overcome is thus essential
You are not only competing with other organizations in
customer markets

You are also competing with them in the capital markets for
critical funds that you need to build future competitive position
You Convince Competitors and
Financiers By …

Proving that your ideas can perform on Key Metrics (e.g., Profit)


This raises the question:

“What are the important Metrics?”


Show me the money!
The answer is complex … and is not necessarily “Profit”
Accounting metrics like Profit

Measure the Past

Competitors and Financiers are interested in your future!
 Future Profits, Revenues, etc. are Unknown

Thus Other Measures both needed and More Important than Profit!
Competitive Responses
Think War

Capacity
High
Capacity Low
Commitment
Low
Sleeping Dogs
Bystanders
(track them)
(monitor)
Commitment
High
Combatants
Skirmishers
(Your main
focus)
(selective in their
responses due
to resource
limits; monitor)
3 Questions



Is this area important to them?
Have they been increasing
their commitment here?
Have they invested heavily in
this area?
Tactics

feint (fānt) noun


1. A feigned attack designed to draw defensive action away from an intended target.
2. A deceptive action calculated to divert attention from one's real purpose. See synonyms at artifice.


gam·bit (gămʹbĭt) noun




on·slaught (ŏnʹslôt´, ônʹ-) noun



1. Games. An opening in chess in which a minor piece, or pieces, usually a pawn, is offered in exchange for a favorable position.
2. A maneuver, stratagem, or ploy, especially one used at an initial stage.
3. A remark intended to open a conversation.
1. A violent attack.
2. An overwhelming outpouring: an onslaught of third-class mail.
gue·ril·la (gə-rĭlʹə) noun (warfare)

A member of an irregular, usually indigenous military or paramilitary unit operating in small bands in occupied territory
to harass and undermine the enemy, as by surprise raids.
noun, attributive.
Often used to modify another noun: guerrilla warfare; guerrilla tactics.
The Competitors
The Ralston Case in the Text
Commitments
The Ralston Case in the Text
Categories and Products
The Ralston Case in the Text
Competitive Positions
The Ralston Case in the Text
Ralston vs. Mars (importance)
The Ralston Case in the Text
Ralston vs. Mars (Attractiveness)
The Ralston Case in the Text
Adaptive Execution
Discovery Driven Planning
Decide on an entry strategy
Anticipating competitive behavior and response
Planning to learn when uncertainty is high
Rather than meeting objectives set in advance
Assessing your project as it unfolds
You can’t sell 10 until you sell 1
Each of the early sales is an opportunity:
To test your attribute map and consumption chain
To learn about your product and customer
To innovate again and again
Where are your Customers?

Lead-steer customers




Use these customers’ enthusiasm to:



Opinion leaders in their industries
Highly regarded by peers
Customers with blogs, review or other sites
Test your assumptions about attribute maps and consumption chains
Use their success with your offering to sell others
Customer Risks






Learning (experience) curve
Opportunity costs
Failure or uncertain operation
Employee resistance
Legal and Environmental
Quality & Perception
No Sales until ‘First 5 Sales’
prioritizing the first few sales
Benefit Low
Benefit High
Risk Low
Risk High
2nd Priority
Forget it!
(make risk of not
buying higher than of
buying)
(postpone until value
1st Priority
3rd Priority
(easy sell)
(‘if it doesn’t work,
send me the bill’)
or risk
3M’s Model for adaptive execution
"Give it a try—and quick!"

When in doubt, vary, change, solve the problem,
seize the opportunity, experiment, try something
new (consistent, of course, with the core ideology)

even if you can't predict precisely how things will turn out


Do something. If one thing fails, try another. Fix. Try.
Do. Adjust. Move. Act. No matter what, don't sit still.
3M’s Model for adaptive execution
"Accept that mistakes will be made"

Darwin's key phrase: "Multiply, vary, let the strongest live, and the weakest die."

In order to have healthy evolution,



you have to try enough experiments (multiply) of different types (vary),
keep the ones that work (let the strongest live), and
discard the ones that don’t (let the weakest die).

You cannot have a vibrant self-mutating system—you cannot have a 3M—
without lots of failed experiments.

Even the flops are valuable in certain ways.... You can learn from success, but
you have to work at it;

A visionary company tolerates mistakes,

but not "sins," that is, breaches of the core ideology.
3M’s Model for adaptive execution
"Take small steps."

It's easier to tolerate failed experiments when they are just
that—experiments, not massive corporate failures.


small incremental steps can form the basis of significant strategic
shifts.
If you want to create a major strategic shift in a company, you
might try becoming an "incremental revolutionary"


harnessing the power of small, visible successes
to influence overall corporate strategy.
3M’s Model for adaptive execution
“Give people the room they need."

A key step that enabled unplanned variation.

When you give people a lot of room to act, you can't predict
precisely what they'll do
This is good.


Visionary companies decentralized more and provided greater
operational autonomy than the comparison companies in twelve out
of eighteen of Porros and Collins cases. (Five were
indistinguishable.)

Corollary: Allow people to be persistent.
Entry Strategy
Practicums
Prac·ti·cum (prăk-tĭ-kəm)
Topic
Executing Your
Entrance Strategy
Putting DiscoveryDriven Planning to
Work
Managing Under
Uncertainty
Practicum
Tug-of-War (force-field analysis)
Ideatoons (pattern language)
Future Fruit (rationalizing future
uncertainty)
Tug of War:
Accentuate the Positive

Positive and negative forces define your
challenge.
Identify strengths you can maximize.
Identify weaknesses you can minimize.

Blueprint



Write the challenge you are trying to solve.

Describe the best-case scenario and the
worst-case scenario; the best that can happen
and the worst.

List the conditions of the situation. Conditions
are anything that modifies or restricts the
nature or existence of your subject. They are
whatever requirements you perceive to be
essential to solving a particular challenge.

Note the "tug-of-war." As you list the conditions,
you will find the forces pushing you to the best
case and those pulling you toward catastrophe.
Pit each condition against its opposite on the
continuum by specifying its push and pull
powers.
Ideatoons
Graphic Musings
visual and verbal thinking






Divide your challenge into attributes.
Describe each attribute by drawing an abstract graphic symbol. Each drawing should represent a
specific attribute and be on a separate index card. Draw whatever feels right for you. Allow the
image of the attribute to emerge in its own way—to state what it wants to say. On the back of the
card, write the attribute.
You can make pattern language as simple or as complex as you wish. One possible technique is
?
to use a different color for each parameter
of the challenge in addition to the graphic symbols that
describe the attributes. For instance, in marketing a product you might have four parameters:
packaging, distribution, promotion, and selling. You could draw the appropriate graphics on red
cards for packaging, yellow for distribution, blue for marketing, and white for selling.
Place all of the file cards on a table with the graphic symbols facing up. Group and regroup the
symbols randomly into various relationships. Try letting the cards arrange themselves without
conscious direction, as if they were telling you where they wanted to be. Mix and match the
symbols to provoke ideas.
Look for ideas and thoughts that you can link to your challenge. Try to force relationships. Try
free-associating. Record the most idea-provoking arrangements.
When stalemated, you may want to add other Ideatoons or even start an entirely new set. A New
Hampshire banker who wanted to solve the problem of stolen checks used several different sets
of Ideatoons to search for a solution. Finally, the act of using pictures itself prompted him to think
of the answer. The idea: He invented a system that lets banks print customer's pictures on their
checks.
Future Fruit
Thermonuclear thinking

BLUEPRINT

The procedures for preparing for the future are:
Identify a particular problem in your business.
State a particular decision that has to be made.
Identify the forces (economic, technological, product lines, competition, and so on) that have an
impact on the decision.
Build four or five future scenarios based on the principal forces. Use all the available information
and develop scenarios that will give you as many different and plausible possibilities as a pinball
in play.
Develop the scenarios into stories or narratives by varying the forces that impact the decision.
Change the forces (interest rates escalate, a key performer quits, need for your product or service
disappears, etc.) and combine them into different patterns to describe the possible consequences
of your decision over the next five years.
Search for business opportunities within each scenario. Then explore the links between
opportunities across the range of your scenarios, and actively search for new ideas.





