innovation for start-ups
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What is innovation? What are the different types of innovation? Which types of innovation are most important for the success of your enterprise? How do you capture the value of the innovation that you do? How do you build a culture of innovation that will sustain your company in the future?TRANSCRIPT
Rishikesha T. KrishnanProfessor & Area Chair, Corporate Strategy & Policy, IIM Bangalore
Innovation for Start-ups
November 10, 2012
What is Innovation?2
Innovation Invention Application= +
What is Innovation?3
The Traditional View
Problem Idea Execution+
What is Innovation?4
+ + Benefit
Novelty Utility
Application of new ideas to
solve problems resulting in
benefits to users
Challenge?
Solving Problems…
How do you provide clean
drinking water at low cost?
5
How do you convert an existing
car into a hybrid?
What are the different types of
innovation?6
New to the
company
Innovation could be…
New to the
world
New to the
industry
New to the
country
7
I C EnginePetroleum
Refinery
Long-distance
telephony
Prominent Innovations
Nylon
Microprocessor
Electric arc
furnace
Semiconductor
foundry
Information
Technology
Internet
8
Do you see a pattern here?....
I C EnginePetroleum
Refinery
Long-distance
telephony
Prominent Innovations
Nylon
Microprocessor
Electric arc
furnace
Semiconductor
foundry
Information
Technology
Internet
9
Product Process “Enabling”
Joint Stock Company
Prominent Innovations
Multi-divisional
Organization
Global Delivery
Model (Software)
10
What’s
special
about
these?
What are the other types of innovation?11
Types of
innovations Process
Product /
Offering
Customer
Experience
Business
Model
Innovation Typology12
The Six Levers of Innovation
Value
Proposition
Supply
Chain
Target
Customer
Product &
Services
Process
Technologies
Enabling
Technologies
Business
Model
Technology
Source: Davila, Epstein &Shelton, 2006
13
Incremental vs. Radical Innovation
• Builds upon existing
knowledge & resources
• Competence-enhancing
• Relatively small changes
in performance / utility
• The lifeblood of innovation?
• Requires new knowledge &
resources
• Existing competence loses
value?
• Step changes in
performance
• Relatively rare
Incremental
InnovationRadical Innovation
14
The Power of Incremental Innovation
“There is no genius in our company. We
just do whatever we believe is right, trying
every day to improve every little bit and
piece. But when 70 years of very small
improvements accumulate, they become a
revolution”
From Interview with Katsuaki Watanabe
in HBR, July-Aug 2007
15
Existing companies are good at sustaining
Innovation, but newcomers are better at
disruptive innovation
Why is innovation critical for start-ups?17
What is the advantage of a start-up
vis-à-vis a large company?
Bias towards
creativity
Balance creativity
& value capture
Focus on
value capture
Challenge for
startup companiesChallenge for
mature companies
As organizations mature over time
18
Innovation is the critical differentiator for a start-up
But start-ups in India…
Tend to fall in “no-man’s land”
No breakthrough technological innovation
Lack clear understanding of customer domain /
application
Even if they come up with one good innovation,
struggle to come up with another!
19
THE RAW MATERIAL FOR
INNOVATION….
The Raw Material of Innovation
Ideas
Experiments
Customer Insights
21
IDEAS
WHERE DO YOU LOOK FOR
GOOD IDEAS?
What have been the most creative
experiences of your life?
Gandhiji was asked:
24
7 June 1893, Maritzburg railway station
25
James Watt, 1765
“Why is so much steam getting wasted?”
“Are you serious? It means
computing will be free”
Bill Gates, 1971, at age 16 to Allen on hearing “Moore’s law”
26
3 sources of itch
Pain Wave Waste
27
The Four Lenses of Innovation
1. Challenging Orthodoxies
Question dogmas about what drives success
2. Harnessing Discontinuities
Spot trends that could change the game
3. Leveraging Competencies & Strategic Assets
Think of organisation as a portfolio of skills and assets, not in terms of products and markets
4. Understanding Unarticulated Needs
Learn to live inside the customer’s skin
Source: Skarynski & Gibson, 2008
28
Stage
Utlility
Purchase Delivery Use Supple-
ments
Maint-
enance
Disposal
Customer
productivity
Simplicity
Conven-
ience
Risk
Fun &
Image
Envir
friendli.
Buyer Utility Map
29
Another source of ideas is to look for blank spaces on the buyer utility map
EXPERIMENTATION
What is an experiment?
Activity that validates assumptions
31
What kinds of assumptions does an
experiment validate?
32
Improve the Idea Velocity
Experiment with Low Cost at High Speed
33
itchidea
demoimpact
Feasibility Loop Viability Loop
2 months
Sep2003
Nov2003
Feb 2004
3 months 2 months
Apr 2004
34
4 types of
assumptions
of every
idea
Need
Will people use Internet?
Commerci-
lization
risk
Do we have the
technology
to create Internet
apps?
Technology
Production
Can we scale this?
Can we
monetize
this?
Iterate on the Business Model
36
Google’s search sandbox
Guess how many experiments were
carried out in 2010?
20,000!
How many went live? 500
Source: “How Google makes improvements to its search algorithm?”, YouTube video
37
Create a Climate for
Experimentation
Have a high trial rate: fail fast, learn fast
Can you do the “last” experiment first?
Failure plays a critical role in innovation
Post-It Notes & failed adhesives
Nylon: a lab experiment that went wrong
TVS Spectra failed, but Victor succeeded
38
Avoid the “Failure Fallacy”39
CUSTOMER INTIMACY
Disguster Delighter
Annoyance Frills
Negative Positive
Low
High
Emotions
Importance
to
customer
A Relentless Focus
on User Experience is Critical
Source: H. Rao, Stanford GSB, 2007
41
Big Bazaar: India’s Largest Hypermarket Chain
Part of the Future Group (Kishore Biyani)
Philosophy: Rewrite rules, retain values
India: Confidence & Change → Consumption
But consumers here demand ideas and solutions that are uniquely Indian
Inspired by Saravana Stores, Chennai
Low margin, high turnover model
Possible to operate on multiple floors
Has to be located in the city, near transport points
People come shopping in families – meet needs of entire
family
42
HOW DO YOU MAKE SURE
YOU “APPROPRIATE” THE
VALUE OF INNOVATION?
The Problem
Google created a powerful search engine, but
couldn’t monetise it until it created its advertising
model…
Mobile VAS applications is a popular area for
start-ups in India, but its difficult to squeeze money
out of mobile operators (remember Porter’s 5-
forces?)…
In financial services, innovations can be copied
almost overnight…
44
How do you
appropriate
value?
Legal (IP)
Strategy
Continual
Innovation
Product-Market
Actions
Standards
Barriers to Imitation
Collaborative
Agreements
Continual Improvement
Cannibalization
Product Platform
Radical Innovation
Patents
Copyright
Trade Secret
Trademarks
Innovation Value Appropriation
45
Adapted from Grant
Difficult to
make money
Holder of
complementary
resources makes
Money
(Coke)
Inventor
makes
money
Party with
Innov .+ Compl.
resources makes
Money
(Pixar vs Disney)
Freely availableor unimportant
Tightly heldand important
Low
High
Complementary Assets
Ease of Imitation
Inimitability/Complementary Assets Framework
Source: Afuah, 200446
WHEN DOES BEING “FIRST-
MOVER” HELP?
FIRST MOVER
ADVANTAGES
Being first succeeds when…
1. Pioneering helps build a firm’s reputation and
image with buyers
2. Early commitments to new technologies, channels,
etc. can produce an absolute cost advantage
3. First-time consumers remain strongly loyal to
pioneering firms in making repeat purchases
4. Moving first constitutes a pre-emptive strike
making imitation more difficult
49
FIRST-MOVER
DISADVANTAGES
Late movers benefit when…
1. Pioneering leadership is more costly than imitating
followership and only negligible experience
benefits accrue to the leader
2. Products of the pioneer do not live up to buyer
expectations so that a follower can win customers
away from the pioneer
3. Technology is advancing rapidly so that followers
can leapfrog pioneers with second or third
generation products
51
LIMITATIONS OF
PATENT STRATEGY
Robert Kearns & the Intermittent Wiper
Kearns invented first intermittent wind-
shield wiper for cars in the early 1960s
Filed patent application in 1964
Tried to license his technology to
auto majors but, no one took a licence
Majors introduced their own wipers 5 years later
Kearns filed patent suits against Ford, Chrysler
Won suits only in early 1990s…divorced…almost
went mad
See 2008 movie Flash of Genius
53
Forthcoming book by Vinay Dabholkar & Rishikesha T. Krishnan
8 Steps to Innovation Excellence:
Building a Systematic Innovation Capability
1
Build a
pipeline
3 Improve
Batting Avg
2 Improve idea velocity
55
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