innovation management an effective innovation strategy answers three key questions: how will we...
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Innovation Innovation ManagementManagement
An effective innovation strategy An effective innovation strategy answers three key questions:answers three key questions:
How will we Create value?
How will weDeliver value?
How will weCapture value?
Step 1: Creating ValueStep 1: Creating Value
How will the technology evolve?How will the technology evolve? How will the market change? How will the market change? How will consumer preferences and behavior change? How will consumer preferences and behavior change? Where will innovations come from?Where will innovations come from? What is our value proposition?What is our value proposition?
Step 2: Capturing ValueStep 2: Capturing Value
How should we design the business model? How should we design the business model? Where should we compete in the value chain? Where should we compete in the value chain? How should we compete if standards are important? How should we compete if standards are important?
Step 3: Delivering ValueStep 3: Delivering Value
How do we manage the core business and growth How do we manage the core business and growth simultaneously? simultaneously?
How do we use our strategy to drive real resource How do we use our strategy to drive real resource allocation? allocation?
What organizational structure, processes, measurements, What organizational structure, processes, measurements, and incentive mechanisms do we use?and incentive mechanisms do we use?
Question:Question:
Can you think of an industry that Can you think of an industry that has gone through drastic changes in has gone through drastic changes in the past several decades in terms of the past several decades in terms of technology, business models, and technology, business models, and major players?major players?
ExamplesExamples
Personal computersPersonal computers RetailRetail PhotographyPhotography Video gamesVideo games
A harder question:A harder question:
Can you think of an industry that Can you think of an industry that has has notnot gone through drastic gone through drastic changes in the past several changes in the past several decades in terms of technology, decades in terms of technology, business models, and major business models, and major players?players?
ExamplesExamples
Soft drinksSoft drinks Ready-to-eat breakfast cerealsReady-to-eat breakfast cereals Rough diamondsRough diamonds Business education?Business education?
The Traditional Model of Industry Life CycleThe Traditional Model of Industry Life Cycle
Time
Sa
les
volu
me
Fermentation Shakeout Maturity Decline
An Alternate Model of Industry Life CycleAn Alternate Model of Industry Life Cycle
Time
Sa
les
volu
me
Emergence Convergence Coexistence Dominance
Established Industry
Emerging Industry
The Industry Life Cycle as an S curveThe Industry Life Cycle as an S curve
Performance
Time
Ferment
Takeoff
Maturity
Discontinuity
Transitions often challenge existing Transitions often challenge existing organizations severelyorganizations severely
Cumulate share of sales of photolithographic alignment equipment, 1962-1986, by generation Contact Proximity Scanner S&R (1) S&R (2)
Cobilt 44 <1
Kasper 17 8 7
Canon 67 21 9
P-Elmer 78 10 <1
GCA 55 12
Nikon 70
Total 61 75 99+ 81 82+
But they also create major opportunityBut they also create major opportunity
Corning glassCorning glass– Cookware to optical fiberCookware to optical fiber
IBMIBM– Mainframes to PCs to ServicesMainframes to PCs to Services
NintendoNintendo– Playing cards to video gamesPlaying cards to video games
WhereWhere do innovations come from? do innovations come from?
Sources of innovation Sources of innovation according to Peter F. Druckeraccording to Peter F. Drucker
Industry and market changesIndustry and market changes Demographic changesDemographic changes New knowledgeNew knowledge Changes in perceptionChanges in perception Unexpected occurrencesUnexpected occurrences IncongruitiesIncongruities Process needsProcess needs
The second of three key questions...The second of three key questions...
How will we Create value?
How will weDeliver value?
How will weCapture value?
Or: Or: What Determines the Innovator’s Share?What Determines the Innovator’s Share?
Customers
Innovator
Suppliers
Imitators,followers
Sources of UniquenessSources of Uniqueness
Intellectual property protectionIntellectual property protection– PatentsPatents
• Finite lengthFinite length• The right to prohibit “producing”The right to prohibit “producing”
– CopyrightsCopyrights• The right to prohibit “copying”The right to prohibit “copying”
SecrecySecrecy– Trade secrets & non-compete clausesTrade secrets & non-compete clauses
– ““Tacit” knowledgeTacit” knowledge
– Causal ambiguityCausal ambiguity SpeedSpeed
Uniqueness is powerful but often Uniqueness is powerful but often difficult to maintaindifficult to maintain
Legal mechanisms can be costly to create, and then Legal mechanisms can be costly to create, and then even more costly to enforce: and sometimes they even more costly to enforce: and sometimes they require public disclosurerequire public disclosure
Secrecy may be difficult to maintainSecrecy may be difficult to maintain Speed is hard work, and sometimes imitableSpeed is hard work, and sometimes imitable
What are Complementary Assets?What are Complementary Assets?
Those assets that allow a firm to make money, even if Those assets that allow a firm to make money, even if the innovation is not unique.the innovation is not unique.
The answer to the question:The answer to the question:– If our innovations were instantly available to our If our innovations were instantly available to our
competitors, would we still make money? Why?competitors, would we still make money? Why?
In the best case, complementary assets In the best case, complementary assets should be should be tightly heldtightly held
Complementary assets that are tightly held are not Complementary assets that are tightly held are not easily available to entrants or to most competitorseasily available to entrants or to most competitors
Types of Complementary AssetsTypes of Complementary Assets
Things you can doThings you can do– Manufacturing capabilitiesManufacturing capabilities– Sales and service expertiseSales and service expertise– Strategic alliancesStrategic alliances
Things you ownThings you own– Brand nameBrand name– Distribution channelsDistribution channels– Customer relationshipsCustomer relationships
COMPETENCIES
RESOURCES
Exercise:Exercise:
Complementary assets are:
Available Tightly held
Position:Soft drinks Windows OfficeBook publishingTravel agenciesYour industry/firm
Easy to maintain
Hard tomaintain
Uniqueness is:
AB
DC
Uniqueness & Complementary Assets Uniqueness & Complementary Assets over the Life Cycle:over the Life Cycle:
Ferment
Takeoff
Maturity
UniquenessComplementary
Assets
Managing discontinuities means Managing discontinuities means managing complementary assets:managing complementary assets:
Performance
Time
Ferment
Takeoff
Maturity
Discontinuity
Which of my complementary assets is critical?
Complementary Assets/Uniqueness speak to Complementary Assets/Uniqueness speak to RivalryRivalry, the , the Threat of EntryThreat of Entry & & SubstitutesSubstitutes..
EntrantsEntrants
SubstitutesSubstitutes
SuppliersSuppliers BuyersBuyersRivalsRivals
Porter reminds us to think about the Porter reminds us to think about the structure of the value chain:structure of the value chain:
EntrantsEntrants
SubstitutesSubstitutes
SuppliersSuppliers BuyersBuyersRivalsRivals
The last of three key questions...The last of three key questions...
How will we Create value?
How will weDeliver value?
How will weCapture value?
Discontinuous InnovationDiscontinuous Innovationas a strategic problemas a strategic problem
Genuine uncertaintyGenuine uncertainty– It’s not going to happen – certainly not nowIt’s not going to happen – certainly not now
CannibalizationCannibalization– It will compete with our current productsIt will compete with our current products
Shifts in the customer baseShifts in the customer base– Our current customers don’t want itOur current customers don’t want it
Margin erosionMargin erosion– It will make less moneyIt will make less money
New S curves may be hard New S curves may be hard to spot in advanceto spot in advance
The new opportunity The new opportunity doesn’t meet our current doesn’t meet our current
customer’s needscustomer’s needs
The new opportunity The new opportunity doesn’t offer nearly the doesn’t offer nearly the
same margins and profit same margins and profit opportunityopportunity
Discontinuous Innovation Discontinuous Innovation as an as an
Organizational ProblemOrganizational Problem
My experience has been that creating My experience has been that creating a compelling new technology is so a compelling new technology is so much harder than you think it will be much harder than you think it will be that you're almost dead when you get that you're almost dead when you get to the other shore. to the other shore.
--Steve Jobs--Steve Jobs
Discontinuous InnovationDiscontinuous Innovationas an organizational problemas an organizational problem
Time horizons & IncentivesTime horizons & Incentives Fear of (individual) cannibalizationFear of (individual) cannibalization OverloadOverload Competency TrapsCompetency Traps
Case discussion: Kodak (A)Case discussion: Kodak (A)
1. Evaluate Kodak’s strategy in traditional photography. 1. Evaluate Kodak’s strategy in traditional photography. Why has the company been so successful throughout Why has the company been so successful throughout the history of the industry?the history of the industry?
2. Compare traditional photography to digital imaging. 2. Compare traditional photography to digital imaging. What are the main structural differences? Will digital What are the main structural differences? Will digital imaging replace traditional photography? How have imaging replace traditional photography? How have value creation and value appropriation changed in value creation and value appropriation changed in digital imaging relative to traditional photography?digital imaging relative to traditional photography?
3. How would you assess Fisher’s attempt to transform 3. How would you assess Fisher’s attempt to transform Kodak? Kodak?
4. What is Kodak’s current position in digital imaging? 4. What is Kodak’s current position in digital imaging? Evaluate Kodak’s strategies from the mid-1980s Evaluate Kodak’s strategies from the mid-1980s onward. onward.