the crucial question - become better faster, or better to become faster?

8/9/2019 The Crucial Question - Become Better Faster, or Better to Become Faster?

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8 Detecon Management Report 1 / 2009

Strategy

Become Better Faster, or Better to Become Faster?Making a Plea or a Diferentiated Approachin Innovation Management

Dirk Pracht, Frank Wei

Innovations are a decisive lever for market success. But creativity is also under pressure:

product life cycles are becoming substantially shorter so that any lead resulting from

innovation does not last long. The promises offered by new innovation methods such as

open innovation and design thinking to accelerate the innovation process are examined

closely here.

Te Crucial Question

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ur modern society, under the dominant inuence o tech-nology, lives according to the dictates o permanent social andeconomic acceleration, as is shown in almost all social areas:new knowledge is already old hat tomorrow, while in our privatelives we are under pressure to recognize and take advantage oevery opportunity lie gives us. In the economic sector, the glo-balization process sets the new tempo which controls our worklives. So o course this trend can also be seen in the developmento new products and services as well as in the steady reductionin the length o their lie cycles in recent years. A drastic reduc-

tion in development times can be observed especially in the ICsector and in particular in the online and Web 2.0 environment.Google Maps is a clear example o this process: the completeapplication was developed and successully launched on themarket in only eight months.

Innovation leadership increasingly short-lived

Tis clear tendency towards a shortening o product and servicelie cycles can be seen in the most widely diering industriesand is not limited to the traditionally ast-living sotware sector.Te reasons or this development, aside rom the generallyaccelerated technological progress, include above all the steadily

increasing competitive pressures rom the continuing processo globalization, the intense pressure rom the capital marketsdemanding substantial growth rates rom companies, and acce-lerated imitation by direct competitors, retailers own labels, orno-rills producers. But the lessened loyalty o workers to theiremployers and the concomitant possibility to simply buy upthe competitions intellectual property as well as the increased

willingness o consumers to try something new are also contri-buting actors.

O All o these eects accumulate to create a situation in whichcompanies have less and less time to exploit the technologicalleadership they have achieved and to earn the premium neces-sary to renance investments. Te IC industry in particular ismore and more requently conronted with simple products orservices o the Internet and Web 2.0 sector which cast doubt onthe viability o complete business models o established enter-prises. One such case was the development and spread o Voiceover IP services on the Internet, leading to a dramatic decline inclassic telephony sales.

I they are to master the increased competitive pressures and theacceleration described above, thereby securing their turnoverand prot in the middle to long term, companies will be orcedto strengthen their innovative abilities and to optimize theirinnovation processes. Te pressure to achieve this by especiallycost-efcient means has also risen in view o the current worldeconomic crisis. Te ollowing discussion will consider twoinnovation methods, open innovation and design thinking,

which address the acceleration o the innovation process as wellas its cost efciency. Can these approaches keep the exorbitantpromises they have made, and are they eective enough togenerate advantages even in times o crisis?

Open innovation approach develops innovation potentialbeyond company boundaries

Open innovation is the opening o a companys innovation pro-cess and the integration o the environment into the innovationactivities. Exploration or new products, technologies, processes,or business models can be conducted jointly with suppliers,customers, partners, and/or competitors. Generally speaking,

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a distinction is made between two types o open innovationapproaches: one aims at the acquisition o external knowledge,

while the other ocuses on commercialization o the companys

own knowledge through external cooperation. An importantprerequisite is the capability o internalizing external knowledge(outside-in process) and o externalizing internal knowledge(inside-out process). A visualization o the open innovationparadigm, in particular the dierence to closed innovation ap-proaches, is shown in Figure 1.

Tere are various models available or the implementation. Aspecial case as well as the rst mention o the open innovationconcept is the Lead User Innovation presented by E. Hippel

in 1986 and today the most widely used one. It incorporatesselected and especially progressive users, some o them romother market sectors, in the innovation process. Lead users are

especially good at ormulating uture user requirements and eva-luating them on the basis o prototypes, some o them createdby the users themselves. Customers are no longer merely passiveconsumers, but active added value partners, and play an activerole in the design o products or services. Another special case odeveloping external potential is the acquisition o startup com-panies. Incorporating the startup as a (partially) separate unitin the corporation is a way to maintain its innovative character.Moreover, widely dierent models o cooperation between theinnovation partners are possible.

Figure 1: Closed Innovation versus Open Innovation

Source: Detecon

Closed Innovation Open Innovation

Company boundary Company boundary

Ideas IdeasMarket Market


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As a consequence o the loosening o the company borders, openinnovation expands the available innovation potential in termso nances and personnel. Tis can contribute to a shortening o

the innovation cycles. Te investment in or acquisition o othercompanies, or example, can signicantly cut down the time tomarket. Jacobs and Waalkens proved that a shortening o thetime to market is a undamental motivation or the openingo the innovation process in their study Innovation Squared:Innovation in the Organization o Innovation rom 2001. Be-sides the opportunity to accelerate innovation, additional inno-vation elds are suddenly perceived which would possibly notbe considered rom a purely internal perspective.

Pioneers demonstrate what open innovation can do

In the study Open Innovation in Practice: An Analysis oStrategic Approaches to echnology ransactions published byDr Lichtenthaler (WHU Otto Beisheim School o Manage-ment) in 2008, it was determined that most companies havenot yet warmed up to the possibility o conducting innovationactivities beyond the companys own borders. No dierencesspecic to any particular industry were determined. In thecourse o the study, it was also proved that earnings potential isimproved in the orm o higher return on sales when open inno-vation methods are used. Te Detecon study Core Capabilitieso IC Innovation Management conducted in 2008 used theIC industry as an example to show that the internal innovati-on sources were regarded as the most important by the surveyed

companies. But it was simultaneously determined that partner-ships with suppliers, cooperation with external institutes, andthe acquisition o startups were regarded as important drivers inthe innovation process.

Successul examples o cross-company innovation activities in theIC sector are the cooperation between Apple and Nike and theacquisition o external know-how by Cisco. Te two companies

Apple and Nike have jointly developed and marketed the trai-ning system Nike+iPod (www.nikeplus.com). A sensor whichhas been built into the Nike running shoe transmits data about

the run to a receiver on the iPod. Tese data are communicatedto the runner during the training phase and can be evaluated ona PC ater the run. Cisco has implemented the open innovation

paradigm in a dierent orm. More than any other company,Cisco has understood how to obtain the required know-how ex-ternally, e.g., through the acquisition o startups, venture capitalinvestments, or cooperative development ventures. By openingup to external companies, Cisco has been able to push asidethe one-time leader Lucent. Te Internet companies Yahoo! (theexample o the Flickr acquisition) and Google (the example othe acquisitions o Android or Youube) have been similarlysuccessul in acquiring external know-how.

Design thinking trains creativity

Design thinking is a process or the practice-oriented, creativesolution o problems which is used in the context o innovationmanagement or the generation and verication o innovativeideas. In contrast to conventional innovation processes whichare heavily dependent on analysis, design thinking is characte-rized by a creative process. Ideas are never rejected during theearly phase; instead, the attempt is made rom the beginningto try out as many o the proposed ideas by supplying experi-mental prototypes to uture users. Both the implementation oprototypes and their immediate use by uture users promotesthinking outside the box and requently leads to astonishinglycreative solutions and ideas leading to the next level.

Te general procedure or design thinking is comprised o threephases (see Figure 2, Page 12). Te designer begins by evalua-ting the uture use context o the innovation (inspiration). Tisis ollowed by the generation o ideas in interaction with usersand the testing o the ideas using prototypes (ideation). Atervarious product ideas have been assessed, the most promisingapproaches are commercialized on the market (implementa-tion).

Te inclusion o the users in the process goes ar beyond thesimple conduct o surveys or market studies. Te observation


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and analysis o user behavior makes it possible to understandand anticipate requirements in detail. It is important here toperceive as well customer needs which are still latent and o

which the users themselves are not even cognizant. Productsdeveloped in accordance with this paradigm do not as a rulehave a clearly dened group o buyers, but they awaken needs

which already exist and thereby successively generate demand.In the ideal case, users are included throughout the entireinnovation process during design thinking. So users can con-tribute to the generation o ideas at the beginning (co-creation)or provide support at a later date in the drating and evaluationo the product design (co-design). Understanding users needsis a great advantage especially in the IC industry because theinuence o the products on peoples daily lives is increasingsteadily in this sector. I only the example o cell phones isconsidered, it quickly becomes apparent just how much thesedevices have aected the way we plan our appointments, com-municate with other people, and structure our private and pro-essional lives.

Early test phases are decisive

An integral component o design thinking is to develop pro-

totypes even in the early phase o the innovation process. Pro-totypes can be either physical or haptic prototypes or serviceinteraces modeled using touch points. Whatever the type, allprototypes serve to test existing ideas against the requirementso the uture users. Prototypes are created in an iterative process.Te design o the innovation is adapted on the basis o eed-back. Te important point here is to invest only as much eortin the creation o the prototype as is necessary to obtain theeedback which will result in positive changes. I a prototype isdeveloped too extensively in the early phase o the process, the

willingness to modiy it again, perhaps even rom the groundup, will decline.

Design thinking projects are characterized by interdisciplinaryproject teams as well as by experimental prototypes and pro-nounced weighting o user requirements. echnicians, business

Figure 2: Design Tinking

Source: Detecon

Desirability Viability

Feasibility

Inspiration Ideation

Design Tinking

Implementation


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tion potential per market participant diminishes because every-one is developing innovation capabilities which are becomingincreasingly similar. Tis dilemma, known as strategic conver-gence, should be the basis o a highly dierentiated evaluation othe companys own innovation strategy. It is much more difcultor competitors to imitate the development o strategic capabili-ties by the acquisition o innovation cores as described usingCisco as an example but this requires market and technology

elucidation at the highest level in the innovation management.Tis is where uture market leaders should start their delibera-tions, especially during times o nancial crisis.


Frank Weiss studied inormation management at the University o Bamberg.Ater working as a consultant or Accenture, he came to Detecon in 2007. As amember o the group Strategic echnology, he ocuses on new IC technolo-gies and IC innovation management.

[email protected]

Dirk Pracht is the head o the group Strategic echnology. His work revolvesaround IC innovation management and the analysis, evaluation, andimplementation o strategic technologies in the IC and telecommunicationsindustry. Beore joining Detecon, he worked in the unit Business InormationStrategies at Capgemini. Dirk Pracht holds a Master o Business Administra-tion (Executive Global One MBA) rom the Rotterdam School o Managementand a degree in computer science rom the University o Karlsruhe (H).

[email protected]

In the context o design thinking, the ocus on low-cost andpragmatic prototypes in the early research phases supportscost-efcient innovation management. But i the strict prin-ciples in this respect are not strictly observed, the productiono a large number o complex prototypes can cause the costso innovation to explode. Increased research costs can also beincurred pursuant to the design thinking principle that ideasshould not be rejected early on. While this promotes the creative

exploration o diering, perhaps promising approaches, it cansimultaneously result in reduced efciency o the innovationactivities.

Securing diferentiation potential

In conclusion, it can be determined that both approaches en-joy signicant advantages with regard to speed and efciency incomparison with a closed innovation process such as that stillimplemented in most companies today. Te design thinkingapproach, although innovative, involves increased expendituresand can result in poorer cost efciency during the innovationprocess i there is a large number o complex prototypes. Tis

is not the case when the open innovation method is used be-cause there are no comparable cost drivers. As a general rule,the specic expenditures and costs must be monitored whenevereither o the approaches described here are used so that efciencycan be assured.

Both approaches lead to a known phenomenon which is beingexamined more and more closely: as a consequence o theutilization o advanced innovation methods by a larger andlarger number o market participants, the possible dierentia-

the crucial question - become better faster, or better to become faster?

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