Mid-term Exam Review Slides Innovation Management (ISMT 302)

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Mid-term Exam Review SlidesInnovation Management
(ISMT 302)

• Time Venue 17 Oct 2006, 1330 to 1450 _at_ Room
  4333
• ONE A4 paper cheat sheet is allowed

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Logical Structure of the Course
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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.

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Fundamentals
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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

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Elements of Product Innovation
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The Purpose of a Business is to Create a
Customer-- Peter Drucker

• Even if you create marvelous inventions
• Your customers wont care
• Unless that is exactly what they need
• Business customers are especially impatient
• With any product that doesnt help them gain
  competitive advantage
• Yet your firm wants to build products that take
  advantage
• Of their Core Competences

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What makes each of these companies Innovative?
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Invention Generation

• The opportunity register (OR) should be seen as
  a repository of ideas that can be pulled up at
  any time.
• If a particular idea isnt 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

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Sources of Innovation

• 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 RD
• External Markets (Customers)
• Competitors related industries
• University, government private labs
• Other nations / regions
• The last two sources are strongly influenced by
  society and governments

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Sources of Innovation

• Internal RD
• 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

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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

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Science TechnologyWhat are they? How are they
related?
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ComplementarityWhat 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

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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

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Sustainability Different Industries Different
Rates of Change
Past is indicator of Future
Future is Volatile
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Sustainability S-Curve (Foster and others)

• Eras of incremental change terminate with a
  discontinuity
• We look for limits on the technologys life cycle
  using knowledge of the technology's physical
  limits
• E.g., Moores Law will run out on current
  platforms at 2013
• Advance of a technology is a function of
  development effort

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Key to Generating Profits 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 Productsa
  firm needs
• Plants, equipment, patents, scientists, brand
  name recognition, geographic location, client
  relations, distribution channels, trade secrets
• i.e., Assets, Competences and Knowledge

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Technological Characteristics that Promote
Innovation

• (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

• (Henderson-Clark) Products are made up of
  components (even services)
• There exist two kinds of relevant knowledge
• Component
• Architectural

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Market-Technology Interplay Effect on the
Profitability of Inventions

• Two factors are instrumental to profiting from an
  innovation
• Imitability and
• Complementary Assets

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ComplementarityWhat 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

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What sort of people are Innovators?

• 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

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Market side innovation

• What is Innovation? Chapter 1
• Framing the Challenge Business Needs and
  Models Chapter 2 Blockbuster Innovations
  Chapter 3
• Redifferentiating Resegmentinb Chapter 4
• Techniques Quizzing, Attribute Maps and
  Consumption Chain Analysis
• Practicums False Faces
• Slice and Dice
• Think Bubbles

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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
• 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

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CommercializationDefines your market

• Who is the target customer for the companys
  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 customers minds?

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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 Customers
  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

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Quizzing

• 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 ..

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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
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Consumption Chain Analysis
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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

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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)

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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
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What To Do with the Opportunity RegisterWhen
Competences start to matter

• Assuming youve 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

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Business Models Matter

• 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 dont work
• Its because the fail either
• The Narrative test
• Or the Story test

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Business Models Matter A business model is not
strategy

• It doesnt describe external forces
• Competition
• Environment
• Scaling
• 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

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Framing the Challenge Targets and Goals

• If I were to do something in the next 3-5 years
• That I, my boss and my companys 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?

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Framing the Challenge Strategy Drivers

• E.g., Lucents Performance Targets
• Sales from 1 growth to the high teens
• RD from 8 to 11 if Sales
• Reduce SGA from 27 to 19
• Reduce tax rate 4 points
• Lift
• ROA from 0 to 1

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New Life from Old Competences

• Redifferentiating and resegmenting

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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 doesnt 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

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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

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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

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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 Customers Needs
• To find new Customer Groups within your existing
  customers
• Keep them from moving to competitors products

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Market-side Practicums
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Practicum (prak-ti-k?m)
Topic Practicum
Business Needs Framing the Challenge False Faces (perceptual reversals)
Building Blockbuster Innovations Slice and Dice (Attribute Maps pp. 24-35)
Redifferentiating Products New Technology or New Uses Think Bubbles (Quizzing to understand the customers experiential context pp. 50-56)
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False FacesAn 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)

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Slice and Dice

• 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.

BLUEPRINT State your challenge. Analyze the challenge and list as many attributes as you can. 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?" Strive to make your thinking both fluent and flexible.
?
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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.