ENT 470/570 - 2009 – 03 –
2009:
STRATEGIC INNOVATION MANAGEMENT
Ozzie Mascarenhas S. J.,
Ph.D.
While for most companies continuous
innovation is a strategic imperative, the task of managing innovations seems to
be narrowly defined. Most companies
treat innovations as discrete objects or projects, whether they relate to a new
or revamped process, new or retrofitted brand or service, or a commercial
innovation such as a new sales channel.
Corporate executives fail to see innovations systemically as a part of
the company’s innovativeness – the
capacity to ideate, conceive, develop, test, roll out, and improve new market
offerings as a whole. Most executives
look at just part of the innovation process.
Companies like Xerox, Intel, Gillette, and Sony fell behind for a while
because of their systemic deficiency of viewing innovations as a vital process
of the entire company at all times, where the whole is greater than the sum of
its parts.
There is much literature on how to best
manage innovation – empower employees, encourage initiatives, cultivate risk
taking, overcome mindless status quo, and the like. But managers need much more than such generic
advice because there are many kinds of innovation (e.g., technological
breakthrough, continuous process improvement, process revolutions,
product/service innovation, disruptive innovation, radical innovation, market
breakthrough, and strategic innovation), and each requires a profoundly
different managerial approach (Govindarajan and Trimble 2005: xxi). Managing each type of innovation has to be itself innovative and creative (Florida
When it comes to innovation, few modern
corporate executives are more closely associated with revolutionary change than
Steve Jobs, the iconic leader of Apple.
During his tenure at Apple, the company’s product introductions have
altered not only how we talk but also how we live: the Mac, the iPod, iTunes,
the iPhone 3G. Now that Steve is ailing
from pancreatic cancer, the Apple board has been seriously searching for a
worthy successor. Innovation is critical for long-term success of Apple.
Boardroom discussions on choosing a successor to Steve often center on two
questions: How can we sustain innovation? Do we have a plan for developing
future leaders who can facilitate this goal? Truly innovative executives are
very rare. Perhaps 5% or 10% of the
high-potential managers within a company at any given time have the skills and
attributes to become breakthrough innovators.
Companies usually develop leaders who can replicate rather than innovate;
that is, rising stars realize that to be promoted, they need to mirror
incumbent leaders (Chon, Katzenbach and Vlak 2008: 63-64).
Hamel and Getz (2004: 78) asked more than
500 senior and mid-level managers in large U. S.
Corporate Culture for
Innovation
Corporate culture refers to the core set of
ideas and attitudes, policies and practices shared by the members of a firm
(Despandé and Webster 1989; Henard and Szymanski 2001; Tellis, Prabhu and
Chandy 2009). Obviously, such a
corporate culture of attitudes and practices differs across various functions
such as innovation management and new product development, human resources
management, production management, financing management, and marketing
management. While these attitudes and
practices could be drivers of innovation, they can also be inhibitors of
creativity and innovation. For instance, obsession with cash flows,
profitability, shareholder value, accountability, structure and processes can
slow down, if not paralyze, corporate innovation. In this connection, Govindarajan and Trimble
(2005: 5) speak of an organization code that enables or disables a company from
pursuing innovation. Following
Govindarajan and Trimble (2005: 5), Table 3.1 explores possible
organizational codes of efficiency versus creativity in formulating corporate
strategies.
Code A is about discipline and hierarchy
while Code B is about creativity and democracy.
Code A is risk averse and operational expertise, while Code B is
risk-absorbing, creativity, innovation and venturesome. In most companies, Code A is mainstream and
code B is counterculture. The Code
A-Code B debate dominates today’s corporate and political meetings and defines
the agenda. The truth is, we need
both. If we want new blood, new
thinking, new innovations, new products and services, new and exponential
growth, then we need more of Code B.
Creativity (Code B) should precede efficiency (Code A); business plan
(Code B) should precede profitability (Code A).
You cannot expect long-term profitability without a new idea, without a
new business plan, and without resultant corporate growth.
In relation to innovation management and
new product development, Tellis, Prabhu and Chandy (2009) identify three firm
attitudes and firm practices that may drive innovation:
- Willingness
to Cannibalize: This is an attitude that puts up for
review and sacrifice current-profit generating assets, including current
profitable and successful innovations, so that the firm can get ahead with
the next generation of innovations (Chandy and Tellis 1998).
- Future
Orientation: This attitude forces a firm to
realize the limitations of the current technology and the emergence of a
new generation of technology that may become dominant in the future
(Yadav, Prabhu and Chandy 2007).
- Risk
Tolerance:
This is an attitude that is ready to trade a current, sure stream
of profit-generating assets for a future, uncertain stream of profits that
can come from radical innovations (Tellis, Prabhu and Chandy 2009).
Empowering innovation and product champions,
establishing attractive incentives, and promoting internal markets and
competition are three proven business practices that can engender and sustain
the above three pro-innovation attitudes.
Related to the above three pro-innovation
attitudes are three strategies for innovation that Govindarajan and Trimble
(2005: 17) investigate and demonstrate.
They call existing business Core-Co and new emerging business NewCo.
- Forgetting: NewCo must forget some Core-Co’s
old success formulas, old and stable answers to what CoreCo’s business is
and how it wins. Mere conversations
and debates will not do this. NewCo
must alter the organizational design in order to be distinct from CoreCo.
- Borrowing: NewCo can gain, however, critical competitive advantage from
borrowing existing and successful expertise, skills and resources of
CoreCo such as manufacturing capacity, specialized skills, sales
relationships, distribution channels, and supply chain management
relationships.
- Learning: Whereas CoreCo’s success formula is proven and stable, and NewCo
is a guess, NewCo must learn, resolve critical unknowns in its new
business plans, and zero in on a working business model as quickly as
possible. If NewCo cannot forget
CoreCo’s old success formulas, it will struggle to learn its own.
The above three attitudes and three strategies can
help a firm to leapfrog from the stifling past into the creative future. A strategic experiment will be successful
only to the extent it is willing to cannibalize, is future-oriented, is ready
to take risk when necessary, is ready to forget the past even though success
formulas, is ready to borrow proven skills and resources from the past, and,
above all, is ready to learn as it goes along its path to great success.
CEO’s Challenges in Managing
Innovations
A common top management problem in managing
innovations is that business goals are stated so broadly or vaguely that they
do not help to identify the best opportunities and innovations to pursue from a
cadre of available options. For
instance, if the top-level goal is to “create growth,” then is it best
satisfied with a new technology that improves product performance by 20% and
will empower you to take market share from your competitors. Instead, should you innovate new products or
variants of existing brands that will enable you to tap into new markets that
will ensure long-term corporate growth?
Innovations are mere tools and skills, which by themselves do not ensure
sustainable competitive advantage nor even steady profitability
“As commercial processes commoditize in a
developed economy, they are outsourced or transferred offshore or both, leaving
onshore companies with unrelenting pressure to come up with the next wave of
innovation. Failure to innovate equals failure to differentiate equals failure
to garner the profits and the revenues needed to attract capital
investment. It behooves us all to use
our brains to get out in front of this Darwinian process” (Moore
Creativity and innovation, however, are not
enough. There is a big difference
between being a creative firm and an innovative enterprise: the former
generates many ideas; the latter generates much cash (Levitt 1963). A failing company needs innovations that
quickly turn into market-ready ideas to good products to good markets and good
markets that turn into good cash and financial returns – this is the innovation-to-cash chain (Andrew and
Sirkin 2003: 78). Motorola rose to
prominence with the first generation of cell phones; Sony created instant
wealth in fast spreading fads like the collector card game Pokémon.
Finding a great idea is not enough. You must find a great leader to endorse and
sponsor it. Moreover, we need processes,
techniques and organizational designs that can conceptualize, prototype,
design-test, test-market and implement innovative ideas (Drucker 1985;
Galbraith 1982; Hamel 1999; Kim and Mauborgne 2000). Moreover, implementing innovations faces
stiff internal resistance from accountants and finance people on grounds that
they consume too many resources, from marketing people that they cannibalize
existing products, and from top executives that their financial performance
results are not clearly predictable.
Meanwhile, the competitors can go ahead and redefine the industry. Thus, Canon went ahead of Xerox; Wal-Mart
forged ahead of K-Mart and Sears; Fuji U. S.
Strategic innovators need more than a great
idea. They need to move from idea to
execution. With a great idea in hand,
you move to a quest that would bring both great expectations and excruciating
frustrations. Thus, leaders of any
ground breaking business idea: a) need to attract funding, b) learn quickly to
predict success from failure, c) rally people around a fuzzy view of the
future, d) reorganize to leverage the lessons learned, and e) manage
expectations of performance amid chaos.
Besides these five challenges and
constraints, the leader must: (Govindarajan and Trimble 2005: 2).
- Overcome tensions between the new idea
and the old product that it may efface,
- Disengage core employees from existing
products and deploy them to the new idea,
- Bring about changes in the existing
power structure required to support
the new idea,
- Siphon funds from the old products to
new ideas, and
- Recruit new talent, if necessary, to
implement the new idea; this makes managerial task very challenging
Strategic innovation and the strategic
experiments that accompany it need the support of the organization. Both fail
if the company relies solely on the heroism of a hyper-talented and
hyper-passionate individual who has a great idea, and even has an executive
champion to back it. For instance,
Joline Godfrey, the leader of a great idea in Polaroid, created a business that
focused on commercializing services that enhanced vacation experiences with
photography. She had all the right
stuff: boundless energy, ability to excite others enough to work long hours
with her, and even had a dedicated senior executive champion. Nevertheless, she failed to obtain
unflinching support from the top.
Polaroid’s old mentality of preserving the core business never gave her
a fighting chance to succeed.
Gifford Pinchot (1985) in his book Intrapreneuring lays down “Ten
Commandments” for intrapreneurs to succeed:
- Come to work each day willing to be
fired.
- Circumvent any orders aimed at
stopping your dream.
- Do any job needed to make your project
work, regardless of your job description.
- Find people to help you.
- Follow your intuition about the people
you choose, and work only with the best.
- Work underground as long as you can –
publicity triggers the corporate immune mechanism.
- Never bet on a race unless you are
running with it.
- Remember it is easier to ask for
forgiveness than for permission.
- Be true to your goals, but be
realistic about the ways to achieve them.
- Honor your sponsors.
Organizations are almost always more
powerful than individuals. Hence,
executive intrapreneurs with a strategic innovation idea will have to fight
both the long odds facing any strategic experiment as also the organization
fighting them at every turn.
Innovation Management and
New-Product Development Value
Chains
Innovation is more than new product
development. There is innovation in
purchasing, in processes, in production, in employee motivation management, in
marketing, in customer acquisition and retention, in business models, and
everywhere in the corporation. The
domain of innovation is very broad. Where
a product is in its life cycle determines which kind of innovation will do the
most good for the company (Moore 2004).
A company’s innovation success is a
function of many variables, market factors and execution stages. All these relate the entire new product development value-chain
activities such as:
- Generating new ideas – they could come
from either the customer (market-push) or the company (technology-push); ideas
could be unfulfilled customer needs, customer wants or customer
desires/dreams; this is the first level of possible customer involvement;
- Converting new ideas into corresponding
concepts – they are company’s response to the new ideas;
- Converting new concepts to corresponding
prototypes – this demands design and creative thinking;
- Pre-testing prototypes by target
customers; this is the second level of customer involvement;
- Designing by engineers of right materials
and processes to convert pre-tested prototypes into products/services;
- Design-testing by target customers; this is the third level of customer
involvement;
- Work-in-progress inventory management
– JIT, inventory buffers, decoupling inventories;
- Packaging and product bundling
products/services into market-ready brands;
- Package or price-product bundle-testing
by target customers; this is the fourth level of customer involvement;
- Test-marketing brands to choose an
optimal mix of pricing, placing and promoting new brands; this is the fifth level of customer
involvement;
- Finished products inventory management
- JIT, inventory buffers, decoupling inventories;
- Transportation, delivery and
distribution logistics management;
- Advertising, promotions, press
releases, new product arrival announcements and aggressive marketing of
the product/service bundles;
- Financing brand purchases or
organizing consumer credit; e.g., GMAC, Ford Credit, GE Capital;
- Service packaging – e.g., warranties,
guaranties, systems to honor warranties and guarantees; product
return-refund-remedy policies and procedures;
- Nationally launching brands with effective
press release, PR, and attractive marketing programs;
- Obtaining continuous customer feedback
on brand delivery, brand distribution, brand-user-friendliness,
convenience (i.e., saving on money, energy, time, use-research, use,
maintenance-research, maintenance, anxiety, risk, insurance, life-time,
refund/return, salvage value or future value), brand quality, brand
competitiveness, and customer satisfaction and delight.
- Incorporating customer feedback to
refine and upgrade value-chain activities along stages 1-17.
The organization’s capacity for innovation
is the product (not sum) of its skills (measured on 0-10 scale) on each of
these thirteen new product development phases.
If the skill level at any stage is zero, the whole process of innovation
may stall. An innovative company
develops high skills at the back end
(stages 1-7, 18), middle-stream
(stages 8-12, 18) and front end
(stages 13-17, 18) of the entire value chain development. A company needs high levels of design,
creativity and innovation skills at all stages, back end, middle end and front
end. Some manufacturing companies obsess
over the back end (e.g., Toyota
In some companies (e.g., Corning, GE), the
back-end innovation process may be split into centralized hardcore research
group that does the basic science for the invention of the prototype (Stages
1-4) and a single centralized development group to develop the new prototype to
product-readiness (Stages 5-7). The
innovation process involves the marked transfer of certain specific
responsibilities from the research group to the development group. The marketing group steps to the plate next
and takes the newly developed product to the market (Stages 8-18). In a typical company, different groups demand
different set of underlying competencies, and hence, exert different type of
power.
In general, power is centered in the group
of people who have the core skill that creates a competitive advantage. For instance, in P&G, it may be the
marketing group; in a logistic company such as the UPS, USPS, FedEx, it may be
the operations groups, and in a hardcore science and engineering organization
(e.g., Corning-CMT, GE), it may be the invention-prototype group (Govindarajan
and Trimble 2005: 21-25). Accordingly,
each group operates at a different level of risk, stress, uncertainty, anxiety,
ambiguity, reliability, predictability, and, consequently, at a different level
of creativity, innovativeness, exploration, experience, and strategic
experimentation. Each group also bears different levels of contribution,
performance, accountability, controllability, and profitability.
In general,
- Manufacturing companies focus on the
back end (e.g., TPS of
- Electronic and entertainment goods
companies concentrate on the middle-chain of packaging industries (e.g.,
laptops, iPhones, iPods, cross-products, cross-licensing, cross-selling)
and
- Service oriented companies naturally
tend to surpass at the front-end of being great ambassadors of the
products and services to the target customers (e.g., front-desk management
of hotels and investment banks, excellent store ambience and services of
luxury retail outlets and restaurants, and hospitality of institutions
like clinics, hospitals and political campaign services).
Table 3.2 expands the value-chain of a new product development
process into several more stages than the 18 considered above. At each stage there is different level of product risk (e.g., organizational stress,
market uncertainty and product ambiguity), organizational
concerns (e.g. ecology, privacy,
safety, security, corporate ethics and morality, and corporate social
responsibility) and growth potential
(e.g. via innovation, sustainable competitive advantage (SCA), profitability,
market capitalization and shareholder value).
Table
3.2 projects a high (H),
medium (M) or a low (L) to describe the level of “stress,” “concerns” and
“potential” at each stage, depending upon the nature of the organizational task
at that stage. Strategic experiments may
be involved at each stage, and these place managers under great stress as they
present a far more ambiguous environment at that stage. Under conditions of stress and ambiguity,
managers naturally gravitate toward their familiar instincts (i.e., best
planning templates, best and proven organizational routines, best organizational
memory resources, or best inter-departmental relationships) without being aware
of it. They naturally look first to
customers they already know, create value propositions that have proved
successful offerings in the past, or obviously seek to recreate existing
processes. Thus, in general,
organizational memory defines what an organization will and will not do. Erasing memory is the crux of the “forgetting”
challenge (Govindarajan and Trimble 2005: 26-27).
What Innovators look like
[See Chon, Katzenbach and Vlak (2008: 64-65)].
The best innovators have very strong
cognitive abilities, including excellent analytical skills. They zero in on the most important points and
waste no time on peripheral issues. Once
they isolate key factors, they can quickly see how all the pieces might fit
together in an integrated whole. They have
the ability to think strategically even in highly ambiguous situations.
Great innovators never rest on their
laurels. Driven by a certain underlying
insecurity, they do not necessarily rely on past success, but evaluate each new
change with a clean slate. Just because
something has worked in the past, they argue, it does not mean it will work in
the future. They frame and reframe challenges from multiple vantage points and
identify which solutions are very likely to be embraced by the influential
people in their organization.
High potential innovators are socially
aware of their surroundings at all times.
They can walk into a conference room full of diverse constituents,
including colleagues, customers, subordinates, bosses, vendors, and partners,
and quickly discern the underlying motivation of each one. They leverage that information to craft and
communicate a message that resonates with every constituent. This is the innovative art of bringing a
diverse group into the same page, and it is absolutely essential to
transforming an interesting idea into a companywide innovation.
Successful innovators are persuasive and
often charming. They know how to extract
information from specific areas of an organization and then garner
organizational support for potential projects.
Innovation cannot thrive when new ideas simply die. Most successful innovators are able to
persuade executives to share their interesting insights and ideas. They are extremely curious and are always
shopping for new ideas without being intrusive.
On the flip side, successful innovators use their skills and charm to
push an unproven idea through the corporate machinery. It is a rare sales ability.
An innovator accesses resources and
recombines ideas in ways that are unfamiliar to the organization. Doing so means moving beyond conventional
boundaries and the safety of existing positions, which can be a lonely
experience. Successful innovators bring
the knowledge they have gained back to traditional hierarchies, which can be
frustrating. They work equally well in
large cross-functional teams and in extreme isolation. They exhibit a “unique psychological
mix.”
How do you Groom Breakthrough
Innovators
[Chon, Katzenbach and Vlak (2008), “Finding and
Grooming Breakthrough Innovators,” HBR,
62-69].
Finding and grooming the next generation of
innovators is one key to corporate growth, but most companies smother their
creative talent. The biggest challenge
any growing company faces is to identify and foster the next generation of
breakthrough innovators. Grooming
innovators from within or from without, companies do a magnificent job of
smothering creative spark; that is, they usually develop leaders who replicate
than innovate. Nevertheless,
- Growth-oriented companies have intense
talent-management processes in place and put identified innovators in the
line of fire, where natural innovators thrive. Do not filter candidates for promotion
to breakthrough innovations by competencies that are ingrained in the
corporate culture. That is, do not
judge your rising stars by how closely they resemble their peers and
bosses. Conformity spells
mediocrity. Breakthrough innovators
are those who are willing to deviate from the norm, take real risks, and
embrace different points of view.
You should nurture and empower them. Empower them to choose their own innovation
team from different parts of the organization, give them authority to set
the tone, ground rules, strategy, and goals for it.
- Great
companies scour for raw talent – they look among their
high potentials to find people who are never content with status quo or
following yesterday’s best practices bur who display unusual skills. Good talent knows how to handle stress,
manage complexity and ambiguity, and get others believe in the ideas that
he/she is pursuing. McDonald’s
provides would-be innovators to prove themselves in front of top
management. They are encouraged to
work with senior executives in key line positions to identify innovations
that have the potential to affect the entire organization. Some of these
ideas are not necessarily product-related.
They could relate, for instance, to how Wal-Mart and McDonald’s
collaborate or partner together, and how could such partnership
products/services be scalable – an essential quality if an idea is to have
any traction at McDonald’s.
- Disengage
future breakthrough innovators prospects from ordinary duties. Do not let your great
innovators be buried in their daily duties of line jobs and hidden from
your top management. You need to
come to know them and develop them.
Your best innovators are not necessarily in HR departments; they
are embedded in frontline ambassadorial activities with your customers and
suppliers. At McDonald’s,
executives comb through individual department plans semiannually, hold
talent roundtables and succession planning discussions, perform talent
calibration and conduct systematic reviews in identifying and developing
future breakthrough innovators. At
Reuters (which merged with the Thompson Corporation in April 2008 to form
Thompson Reuters), the executives use an initial mechanism called
“predictive index” to identify potential innovators – this index surveys
core drivers, core competencies, and core motivations of the subordinates
as a basis for compiling a master list of rising stars.
- They
test their innovators with live ammunition – they give them real projects and access to top management.
Mentoring and peer network are crucial for providing support to future
innovators. At Starwood, the parent
company of hotel chains such as Westin, St. Regis, and Sheraton, rising
innovators build and manage cross-functional teams to develop their
projects and then present full-fledged marketing plans to the company’s
top executives.
- Great
companies mentor and engage peer networks. Peer networks that meet
regularly and have open channels of communication provide a sense of
solidarity and a uniquely fertile environment to exchange ideas, share
information, and inspire hope. Smart
organizations pair innovators with carefully selected mentors who can
continuously educate them about the people they are most likely to
encounter and the interactions they are most likely to have. The mentors themselves need to be
coached and supported by the CEO, thus strongly signaling the importance
of the initiative. Mentoring should
be a perfect supplement to the innovators’ natural mix of intuition and
curiosity. Mentors equip rising
innovators with information about the people they are most likely to
encounter and the interactions they are most likely to have. Innovators are encouraged to turn to
peer-networks for feedback. Peer
networks also enables participants to answer more tangible questions, such
as Which parts of the organization are good sources of information, ideas,
and insights available? And Where are the dead ends? Often a mentor who is often a senior
member of the organization and who is also not an innovator cannot answer
these questions. Peers will share
information with one another that they might not reveal to a mentor. At Starwood, peer networks are called “collaboration
circles,” a group of cross-functional experts; the team typically includes
specialist in marketing, operations, finance, accounting, designers,
developers, artists, photographers, and opera singers, depending upon the
nature of entertainment innovation pursued. The group not only helps rising
innovators navigate the grooming process, but also fuels the innovation
process. The CEO of Starwood
monitors the process to ensure it works.
- Actively
manage investors’ careers. Great companies carefully select and
place prospective breakthrough innovators outside the regular structure,
thereby empowering them to create wholly new businesses. At JP Morgan Chase, the CEO and the head
of HR spearheaded “ascension plans” for breakthrough innovators, in
concert with innovators themselves.
The company creates new positions for rising stars if appropriate
ones do not exist.
- Replant
innovators in the middle: Once rising breakthrough innovators have
been identified, developed and established in the middle of the
organization, the next question is where to place them so that they have
the most impact in the organization.
They must be placed where the nodes in the shadow organization are
– those all-important hot spots that do not show up on formal organization
charts, where innovations can be sparked.
These nodes should make innovators become “innovation hubs,” with
easy access to influencers across the firm, more autonomy, and broader
albeit ambiguous responsibilities – the hubs can better see how existing
products, ideas, people, or even entire businesses can be recombined in
new, value-adding ways.
Once you have spotted your high-potentials,
you must determine who among them has the real innovator’s spark. Several companies such as Thompson Reuters,
Pitney Bowers, Visa, do this in a series of one-on-one interviews, often
conducted by outside assessment and leadership-development experts. These experts present the candidates during
interviews some complex but real life scenarios from which the interviewer
intentionally omits some key information in order to gauge whether they can
weed through ambiguity, make realistic assumptions based on the data available,
reach a decision, and articulate a clear compelling rationale for any
trade-offs involved in it. The candidates
are gradually given additional information.
Napoleon remarked that a general’s most
important asset is luck. Nevertheless,
luck comes to people who are well prepared and manage to be in the right place
at the right time. Napoleon’s brilliance
was in identifying future commanders early in their military careers and giving
them access to resources, authority, and the opportunity to prove their
mettle. He wanted his future leaders to
be smart enough to recognize good ideas wherever they came from, and combine
them with limited resources in a novel way to conquer seemingly invincible
adversaries. The same is true of
business innovation.
Given this graduated procedure, the
interviewers should continually assess several qualifiers of breakthrough
innovators such as:
- Can the candidates to breakthrough
innovation recognize promising ideas, effectively lead cross-functional
teams of experts to develop them, and sell them to top executives?
- Can the candidates evaluate what and
why a given idea or model will have the best potential impact on
performance and profitability and what does not and why?
- Can they tackle a complex issue, take
it apart, and focus on the most salient issues? Can they make it viable,
practical and scalable?
- Can the team leaders, the future
innovators, create, manage and motivate a high-performance team, through
excellent communication and persuasion skills, and develop a strong
solution to a given customer or client problem?
- Can the rising stars work side-by-side
with the company’s experienced salespeople developing pitches, dissecting
customer needs, accompany the team on client calls, discern what was
really making the key decision makers tick, and actually helping to close
the sale?
- Can the rising stars, thus, teach
experienced salesmen of the company a few new effective techniques in
scanning, persuading, winning and closing a significant sale?
- Can they critically reflect as to what
evidence warrants changing existing positions, past beliefs and mental
models?
- Can they connect valuable new information
additionally provided to them to revise their past proposed answers or
solutions?
- Can they clearly and convincingly
defend a decision or a sell a point of view?
- Do they ask for feedback on the
assessment process so that can learn from their previous mistakes?
In a final series of interviews, the
candidates should be able to explain without reservation what they do
badly. If candidates do not do well in
all these sequenced interviews and exercises, their level of talent and
self-awareness is not sufficiently high for them to become successful
innovators.
Ten Characteristics of
Strategic Experiments that generate
Breakthrough Innovations
[See Govinadarajan and Trimble 2005: xix-xi]
- They have very high potential for
growth (e.g., 10 times over three to five years):.
- Focus on emerging or fuzzy (poorly
defined) industries created by nonlinear shifts in the industry
environment.
- Test an unknown business model: they
are launched before any competitor has proven itself and before any clear
formula for making profits has emerged.
- Radical departure from existing
business or proven business definition and its assumptions about how
businesses succeed: GM’s OnStar and GMAC departed from selling autos to
offering services. P&G’s Tremor
departed from consumer products to business services. Disney’s Moviebeam augmented content
production with new direct-to-consumer distribution.
- Use of some existing assets and
competencies: they leverage unused capital, assets, technologies and
skills.
- Development of new knowledge and
capabilities, by combining new and old, internal and external, within and
outside the industry.
- Discontinuous rather than incremental
value creation: they revolutionize the definition of a business rather
than enhance performance within the proven business definition (via
product line extensions, geographic expansions, or technological
improvements).
- Great multidimensional uncertainty
across multiple functions: e.g., who could be potential customers, with
what value propositions, with what process and product technologies? For instance, which of the possible many
services of OnStar would be beneficial to whom? How well could Tremor compete against
traditional media-centered approaches to marketing? How would movie-distribution
technologies evolve and affect Moviebeam’s viability?
- Unprofitable for several quarters or
more (e.g.,
- No clear picture of performance early
on – they are difficult to evaluate.
Feedback is delayed and ambiguous, and executives may not know for
several quarters whether they are succeeding or failing.
Popular Types of Innovations
Geoffrey Moore (2004: 88) distinguishes
several layers or types of innovations.
- Disruptive
Innovation:
This innovation appears from nowhere, creating massive new source
of wealth from certain technological discontinuities (e.g., Motorola’s
first generation cell phones; Sony’s PlayStation One, Two and Plus;
Apple’s iPod and iTunes; the collector card game Pokémon, and the like).
- Application
Innovation:
This innovation takes existing technology into new markets to serve
new purposes (e.g., Tandem applied its fault-tolerant computers to the
banking market to create ATMs; OnStar took Global Positioning Systems into
the automobile market for roadside assistance).
- Product
Innovation: This innovation takes established
market offerings in established markets to the next level focusing on
product performance increase (e.g., Intel releases its new microprocessor,
Toyota releases its new hybrid Toyota Prius; Titleist Pro VI golf balls)
or cost reduction (e.g., HP inkjet printers; Dell’s personal computers or
laptops), usability improvement (e.g., Palm handhelds, Blackberry) or any
other product enhancement (e.g., various cell phones; iPod to iTunes).
- Process
Innovation: This innovation makes production
processes of established products more efficient and effective (e.g.,
Wal-Mart’s refinement of vendor-managed inventory process; Charles
Schwab’s migration to online trading; Dell’s PC supply chain and order
fulfillment systems; Fedex’s package tracking).
- Experiential
Innovation: This innovation makes surface or
cosmetic modifications to improve customer experience of established
products or processes (e.g.,
- Marketing
Innovation: This innovation significantly
improves customer-interfacing processes by such things as marketing
communications (e.g., Web-based marketing; viral marketing), consumer
transactions (e.g., Amazon’s e-commerce mechanisms; eBay’s online
auctions).
- Business
Model Innovation:
This innovation reframes an established value-proposition to the
customer or a company’s established role in the value chain or both (Gillette’s
move from razors to razor blades; IBM’s shift to on-demand computing, and
Apple’s expansion into consumer retailing).
- Structural
Innovation: This innovation capitalizes on
disruption to restructure industry relationships. For instance, Fidelity and Citigroup
used the deregulation of financial services to offer broader arrays of
products and services to consumers under one umbrella, thus becoming
fierce competitors to traditional banks and insurance companies; Fannie
May and Freddie Mac exploited credit deregulations to offer easy mortgage
loans to homeowners who could scarcely afford them).
As an executive,
what type of innovation would you focus, when, and to what competitive
advantage? Once we invoked the theory of
core competencies to solve this problem:
select the processes and products you are best at and focus your
resources accordingly. But companies
have discovered that being the best at something does not guarantee sustainable
competitive advantage. A distinctive
competence is valuable only if its drives or converts to purchase
preferences. Customers ignore a
company’s core competencies in favor of products that are good enough and
cheaper (Moore
Each of these
innovation types should respond to a given stage in the product or technology
adoption life cycle as follows:
- Early market: of enthusiastic adopters and
innovators and lifestyle setters; the media comes with glowing reports
about your sensational product.
Capitalize on the disruptive
innovation your product implies.
- The Chasm:
The market stalls adoption; needs more time to understand and
prefer your product over existing brands; the media watches for further
market reaction; the market-response chasm could deepen and widen. Robust technologies withstand the chasm.
- The Bowling Alley:
The market regain confidence in your product; speaks well about
your product; the late adopters or pragmatists now risk your product and
embrace it; targeting one market
influences and touches the other as in bowling when one pin hits the
others. Work on application innovation to target
multiple markets.
- Tornado:
The technology has passed the test of usefulness, safety and
customer delight. It hits the market.
Your product becomes the market format, standard or benchmark. Customers of all stripes flood the
market and do not wish to be left behind.
Maximize and energize product
innovation to meet this burst of market enthusiasm.
- Early
- Mature
- The Fault Line: Technology obsolescence has struck
like an earthquake, exposing the gaping and slippery fault line between
what you can sell and what the market desires. Your survival
innovation strategies will be to buy your competitors (leveraged buy
out) or merge with them. With the market nearing the fault line,
reinventing the product or radical restructuring of your enterprise may be
an option.
- The End of Life:
Your market has vanished or is quickly vanishing. Hang to your old loyal customers for
some solace. Spark fire by some revival innovation tactics; if none
works, withdraw from the market, and focus your resources on new
opportunities.
Table
3.3 captures this interaction between the technology adoption line stages
with corresponding types of innovation that can support it. The implication of Table 3.3 is that enterprises must mutate their core competencies
and products over time to sustain attractive returns despite maturity or
decline of the main street markets. At
each stage, the management must introduce new types of innovation while
deconstructing old processes and old organizational routines. The way to move
forward is to aggressively extract resources from old legacy structures and
processes and redirect them to serve the new innovation type.
As markets are
commoditizing at one point in the value chain, they are, according to
Christensen (2002), de-commoditizing elsewhere.
For instance, in the automobile industry today, normal vehicle
maintenance is commoditizing while road side auto services are de-commoditizing.
Hence, management must pursue a twofold
path of concurrent construction and deconstruction. For construction, the goal is to create the
next generation of competitive advantage through appropriate teams of
executives, managers and operators (see Table
3.3, last two columns). The
concurrent deconstruction strategy is to withdraw resources stuck in
unproductive assets, products, processes and legacy structures, and redirect
them to new technologies, processes, products, markets and opportunities. Both construction and deconstruction processes
should enhance both differentiation and productivity. Both are necessary – a differentiation that
does not drive customer preference is a liability. “It is important to recognize that
differentiation- creating innovation and productivity-creating deconstruction
must be conducted in tandem. If you try
the former without the latter, the inertia demon defeats you. If you try the latter without the former, you
do nothing to overcome the forces of de-commoditization” (Moore
Innovation Margins
[See Hamel and Getz (2004),
“Funding Growth in an Age of Austerity,” HBR,
76-84]
A company should
be able to raise the yield of its innovation investments substantially in order
to justify such investments in an age of capital austerity. Achieving such a step function needs much
more than just a bit of belt tightening of R&D budgets. It demands a fundamentally new way of
thinking about innovation productivity, as well as a set of strategies that
have the power to deliver more bang for every innovation buck (Hamel and Getz 2004: 78).
Both J. M. Juran
and Edwards Deming argued that companies can reap big rewards by investing in
the problem-solving skills of rank-and-file employees. That s, innovation belongs to every
department and division of the firm, and not only to the R&D and new
product development department, and not restricted to the few imaginative
geniuses in the company. Most executives
not only fail to capitalize on the intellect of their employees, they waste a
substantial share of their imagination.
The cheapest way to tap innovation in your firm is to ask your employees
for new ideas.
Cemex, the highly
innovative Mexican cement maker, devotes nine days each year for harvesting
employee ideas. Each of these Innovation Days focuses on a particular business
or function. In preparation for this event, a sponsoring VP personally invites
hundreds of employees to submit ideas around a chosen theme for developing
novel customer solutions or for dramatically improving cost-efficiency. Cemex categorizes new ideas into four groups:
Stars (big and valuable ideas that
could be implemented immediately); balls
(valuable ideas that need to be bounced around for productivity or market
readiness), apples (good ideas for
incremental improvement that could be put into practice right away), and bones
(ideas that seem interesting but had little meat to them).
W. L. Gore, a
$1.35 billion (2003) Newark ,
Delaware
Gore’s signature
product, Gore-Tex, sprang from serendipity.
Hoping to create a low-cost plumber’s tape, Bob Gore, the founder’s son
and the company’s current chairman, stretched a piece of
polytetrafluoroethylene (PTFE) and discovered it had some amazing
properties. When PTFE was laminated to
fabric, the resulting material was waterproof and breathable – a boon to
campers, hunters, athletes, and many others (Hamel and Getz 2004: 79).
A. G. Laffey,
chairman P&G, has challenged his company to source half its innovations
from outside the company (e.g., buying technology, patents; outsourcing
innovations, joint ventures; strategic alliances), up from roughly 20
percent. P&G’s current success
product, Swifter mop, used technology purchased from a Japanese competitor.
Not all radical
innovations are risky. Risky investments
are uncertain and expensive. Some
radical ideas, like fusion power or nuclear power, are risky, but many are
not. For instance, Starbucks debit card;
the idea is radical but not risky. Daily
coffee drinkers were happy to pay their daily dose of caffeine weeks or months
in advance, rather than wait longer at checking counters. Its technology (magnetic stripe debit card)
was simple and well proven, and the idea could have been easily test marketed
before rollout. The payoff was big. The card was launched in November 2001;
within the first two months, Starbucks booked more than $60 million in
prepayments. Since then, more than 30
million cards have been sold, and currently account for more than 15% of
Starbucks sales.
Dramatic change always
creates opportunities for radical innovation.
Discontinuities in technology, demographics, lifestyle, regulation, and
geopolitics can often be the launching pad for radical innovation. A recent major demographic trend in the U. S.
TiVo is another
example of radical innovations that responded to dramatic changes to busy
single-person homes. You push a button,
and you can record any show you like and then watch it any time you like. TiVo
has made the experience of watching TV much like the experience of reading a
magazine. You rarely read the magazine
with all its contents and ads in one shot; you do it when you want. Briva and TiVo are good examples of a
disciplined use of analogy. What if a
dishwasher was more like a microwave oven?
What if watching TV were more like reading a magazine? Analogical thinking can bring long ignored
problems into sharp focus and point the way to radical solutions (see also, Gavetti
and Rivkin 2005; Mascarenhas, Kesavan and Bernacchi 2005).
Consider Linux,
the other operating system that Microsoft has been fighting against. In 2001, Linux had more than 30 million lies
of source code, representing something like 8,000 person-years of development
time. If these developers were highly
skilled software engineers of a company, the development costs of Linux would
have exceeded well over a billion dollars. Instead, it was created by volunteers
on open standards – a development model even more efficient that
outsourcing. Linux is a very strong
competing operating system to Microsoft.
IBM has adopted it – it is now at the heart of its enterprise-computing
strategy. Similarly, Epic Games, Digital
Extremes, and NVIDIA, creators of the popular Unreal Tournament game, developed
the game by enrolling thousands of their customers in a virtual development
network. These game companies sponsored a $1 million competition that rewards
individuals from around the world for innovative and enriching add-ons to the
game.
Consider the race
in the hybrid industry of energy-efficient cars. In the early 1990s, GM bet on big electric
vehicles and chose to build the EVI, an egg-shaped, all-electric, zero-emissions
vehicle. Launched with extravagant
fanfare in 1996, EVI was soon a commercial bust. After spending $1 billion on the project and
producing only 700 units, the CEO pulled the plug by 1999. On the other hand, the Toyota Prius was a
great success Toyota Toyota Japan U.
S. Toyota
A careful
analysis of hyper-efficient innovators reveals five indicators and imperatives
(in the form of ratios) for boosting innovation margins:
- Raise the ratio of innovators to the
total number of employees: the
higher the percentage of innovators in your company, whatever their formal
job description, the higher the innovation yield. A good innovative company should have at
least 30% innovators among its employees.
You should achieve this ratio not necessarily from hiring
innovators from outside, but from developing and training from among your
employees in innovation processes or events. Ensure all employees are given the time,
tools and the space to be creative and innovative.
- Raise the ratio of radical innovation
to incremental innovation: the higher this ratio, the higher the
innovation payoff. Incremental
innovations such as retreads, updates, brand extensions, add-ons are good,
but radical innovations (those that yield the biggest innovation payoffs
and drive above average growth) drive a company’s hotline growth. Radical innovations change customer
expectations and behaviors (e.g., PayPal), change the basis of competitive
advantage (e.g., what digital camera did to Sony and the photographic film
industry; what iPod and iTunes did to Apple and the music industry), and
changes industry economics (e.g., Southwest airlines changed the airline
industry economics).
- Raise the ratio of externally sourced
innovations to internally sourced innovations: The better a company is at harnessing
ideas and energies from outsiders, the better its return on innovation
investments. P&G does this
routinely. This is how Linux was
developed. This is how the very
popular epic computer game, the Unreal Tournament, was developed. Regardless of how creative and
innovative your innovators may be, there could be more innovation
potential outside the company than within it. Currently, this is very evident in the
outside online world of software hackers, music re-mixers, video producers,
e-Bay auctions, and bloggers. Typical outside sources are licensing
technology, polling lead users for new ideas, outsourcing R&D to
universities, joining research consortia, and open standards.
- Raise the ratio of learning over
investment in innovation projects: The more
efficient a company is at exploring new opportunities, learning much while
risking little, the more effective will be its innovation efforts. Learning is achieved by successful
experimentation. Unlike product
testing that is product-focused, strategic experiments are business
model-focused; they seek to explore the merits of a number of
inter-related changes to a company’s business model. Strategic experiments are designed to
create opportunities for iterative learning. Their basic principle is, do not kill a great idea prematurely
(i.e., reduction of Type I or alpha error). Product testing does the opposite: it
typically winnows out unproductive ideas, with the basic principle, do not invest on losers (i.e.,
reduction of Type II or beta errors).
- Raise the ratio of commitment over the
number of key innovation priorities: A firm
that is deeply committed to a relatively small number of broad innovation
goals and consistent in that commitment over time, will multiply its
innovation resources. When it comes
to innovation, consistency counts.
Over time, small ideas compound, learning from experimentation
accumulates, and competencies grow stronger. Teams develop a collective
memory and avoid making the same mistakes twice. With this in mind, a company should
commit itself to a relatively small number of medium-term innovation goals. The company should measure its
commitment to these goals not by the level of its investment into these
goals but by how persistently it pursues success.
In conclusion,
competitive evolution has always favored companies that can do more with less,
and this is true for innovation as it is for any other corporate functions or
activities. To produce more growth per
dollar of investment, you must produce more innovation per dollar of
investment. That is, the company must
parlay meager resources into radical, growth-generating innovation. It must learn to innovate boldly and consistently
despite austerity (Hamel and Getz 2004: 84).
Study the Margins of the firm
From the analysis
thus far, we should be able to study and monitor the margins of the
company. We should be able to determine
which margins matter and are critical.
That is, we should identify everything that has little to do with the
margin-generating part of the business, regardless of effect on the revenues
(Sutton 2002: 7). Identify key customers
from cheap whining customers. Identify
big accounts that generate most of your profits. Identify the major creditors, vendors,
leaseholders and mortgagers. Identify
marginal performers (products, services, departments, people, divisions) in the
company, Identify and strengthen the
winners. Identify where you can cut
costs, especially on expensive administrative overheads.
We must be able
to define and defend the margins, and specialize where the margin lives. Identify where we can cut costs by raising
quality. Quality leads to money. Quality saves advertising dollars, returned
products, warranty and guarantee service charges, bad feelings, and the cost of
redoing the entire product (Sutton 2002: 228).
The critical margins help to keep the most promising new development
going, and stop spending on fuzzy ones.
Manufacturing, marketing, and retailing divisions may have to be
reshaped and redesigned in the process.
Interview the
CEO, and then the CFO, all VPs, asking each individual what the problem was and
what their solution is. Meet them soon
together, and feed them back with the problems and solutions of other leaders
in the company.
Targeting the Mass Affluent
for Enhancing Innovation Margins
[See Nunes, Johnson and Breene (2004), “Selling to the
Moneyed Masses,” HBR, 94-104].
Between 1970 and
2000, the income distribution in the U. S. U. S.
This highly differentiated
log-normal distribution of 2000 over 1970, indicates the dramatic emergence of
mass affluence in the U. S.
The Consumer Expenditure Survey 1984-2002 released by the U. S. Bureau of Labor Statistics in 2003
confirms the last hypothesis stated above.
Among the top quintile income households (i.e., top 20% of U. S. U. S.
The traditional
marketing approach is STP: segment the market, target the market, and then do
positioning. We may have to reverse this
in reaching the mass affluent market.
That is, start with positioning.
Consider tooth-whitening solutions.
In the 1980s, the highest-end functionality solution was a complicated
and expensive capping procedure performed by dentists. Bleaching techniques sold at $1,000. The other end, low-cost solution was a $2
teeth-whitening toothpaste. There was
hardly anything in between. Meanwhile,
innovation by the mass marketers focused on improving teeth-whitening
performance that led to marginally higher price points. Toothpaste tubes with exotic ingredients like
propolis and myrrh sold at $5 (Tom of
Maine
Find a new middle ground
in your own product category. To do
this, identify all the benefits your existing offering delivers. Next, consider all the really expensive
high-end offerings in the market that satisfy the customer needs that your
product does not. This expands the
positioning map and gap. Next, pick a
price point that is substantially higher than your category’s average (anywhere
2-10 times higher but still below the high-end solution) and imagine what you
could possibly develop and deliver given your R&D budget. What unmet customer needs can you deliver now
and what innovative approaches can you consider to deliver. For example,
consider a $12 battery-operated portable toothbrush, well above the ordinary $2
angle bristle manual brushes available, but well below the $60 rechargeable
electric toothbrush. Delivering the
extra value gives consumer enhanced service to your customers.
A similar in-between
strategy came from Copper
Mountain Colorado
Such high “status”
selling packages, however, may be tantamount to “discriminatory pricing.”
Presumably, this may be justified with “frivolous” want and dream products and
not with necessities. Alternately, one must market such status products as the
right tool for the right job or “occasional use.” Moreover, one could offer a product/service of
quality level product suited to each major income category. For instance, the
Austrian wineglass maker firm Riedel, a firm that had been in glass business
for over 300 years, introduced in 1973 a series of ten wineglasses, each shaped
and sized to enhance the use of a specific wine. Currently, Riedel offers more than 80
different glasses, ranging from $8 to $85 per stem, and sells over 5 million
annually. The high-end glass became a
very successful mass affluence product. Similarly, Swatch transformed watches
from rare purchases into more affordable items that consumers bought as fashion
statements. On a similar note, IKEA is
trying to change consumer attitudes among elite furniture purchasers.
For decades, marketing
theory and practice have been moving toward the “market of one” philosophy and methodology. Modern companies have learnt to think in
terms of “customer-centricity.”
Marketers must separate out great customers from good customers from
marginal customers, and to focus their attention on the most valuable
tiers. In the single-minded pursuit of
wallet-share, however, they could easily fail to see the forest for the triage
(Nunes, Johnson and Breene 2004: 97).
Following Nunes, Johnson and Breene (2004), Table 3.5 presents seven new
rules for tapping the affluent market segment without missing the forest for
the triage.
New versions of “fractional”
ownership of high-end products (e.g., classic cars, original art, luxury homes,
luxury jets, vacation properties, even yachts) are now successful market
offerings. A Chicago-based company called
Exotic Car Share with founder George Kiebala sells equity shares for rare,
antique, and luxury automobiles. For
instance, the programs offers one-fifth share of a Ferrari 360 Modena Spider,
or Lamborghini Murcielago, or Bentley Arnage T. makes it possible. Ownership of luxury implies risk of care, theft,
breakage, insurance, and other vulnerabilities.
Exotic Car Share is prepared to buy all these risks and enable the mega rich
enjoy part ownership of luxuries. Ownership can be less onerous when it does
not endure so long.
Assessing the Intangible Assets of Sampled Companies
“Organizational performance is increasingly tied to intangible assets
such as corporate culture, customer relationships and brand equity. Yet, controllers, who monitor and track firm
performance, traditionally concentrate on tangible, balance-sheets assets such
as cash, plants, equipment, and inventory” (Lusch and Harvey 1994). Little has been done in the last 20 years to
project more accurately the “true” asset base of the corporation in the global
marketplace (Lusch and Harvey 1994).
However, there is a growing recognition that a significant proportion of
the market value of firms today lies in intangible off-balance sheet assets,
rather than in tangible book assets (Srivastava, Shervani, and Fahey 1998).
For instance, brand equity is
the upstream reservoir of cash flow - an asset built by good marketing that
will yield current and future profits (Ambler 2001). Brand equity can be measured from the
incremental discounted cash flow from the sale of a set of products and
services associated with that brand (Keller 1998). Yet brand equity, customer equity, company
reputation, customer loyalty, and lifetime loyal customers are great market-based
cash-flow generating assets that find no voice or citation in the income
statements, balance sheets or cash flow statements of companies (Srivastava,
Shervani and Fahey 1998) or in business turnaround plans. Consequently, they do not have a role in
turnaround management strategies. Incidentally, Customer equity is the total of
the discounted lifetime values summed over all of the firm’s current and
potential customers (Rust, Lemon and Zeithaml 2003). Analogously, customer
equity can be measured as the sum of the lifetime values of all the firm’s
current and future customers, where the lifetime values is the discounted
profit stream obtained from the customer (Rust et al. 2004: 78).
The following intangible assets need to be explored:
·
Patents and pre-patents
·
Sustainable competitive advantage in
creativity and innovation management
·
Sustainable competitive advantage in
attracting and retaining talent management
·
Sustainable competitive advantage in new
products/services management
·
Sustainable competitive advantage in
pricing management
·
Sustainable competitive advantage in
customer credit and financing management
·
Sustainable competitive advantage in total
quality management
·
Sustainable competitive advantage in supply
chain management
·
Sustainable competitive advantage in total
customer experience
·
Sustainable competitive advantage in
customer lifetime loyalty management
·
Sustainable competitive advantage in brand
community management
·
Sustainable competitive advantage via brand
equity and customer equity
·
Sustainable competitive advantage via
company reputation
·
Sustainable competitive advantage in cost
containment management
·
Sustainable competitive advantage in
competition management
·
Sustainable competitive advantage in
government relations management
·
Sustainable competitive advantage in inventory
management
·
Sustainable competitive advantage in
receivables management
·
Sustainable competitive advantage in
payables management
·
Radical innovations during the last 10
years
·
Investment breakthroughs during the last
ten years
·
Market breakthroughs during the last ten
years
·
Technological breakthroughs during the last
ten years
·
Strategic inter-industry alliances during
the last ten years
·
Joint ventures during the last ten years
·
Equity spin-offs and equity carve-outs
during the last ten years
·
Globalizing projects during the last ten
years
·
Greening projects during the last ten years
·
Creative landscaping during the last ten
years
·
Organizational learning and learning
communities during the last ten years
·
Ongoing entrepreneurship during the last
ten years
·
Creativity, Innovation and Entrepreneurial
achievements during the last ten years
·
Strong brand communities during the last
ten years
·
Attracting and sustaining international
investments during the last ten years
·
Powerful tax havens and shields during the
last ten years
On Innovating Innovation
(Thoughts from John Kao (2007), Innovation Nation, Free Press)
Innovate the innovation process. Weave innovation into the national fabric,
purpose and process of growth and expansion.
Innovation should be a linchpin of public policy that influences
national priorities, infrastructure investments, and the development of human
capital (Kao 2007: 53).
- Think outside your specialties.
- Think outside the box. Thinking inside the box is to think
within constraints and exploring alternatives or their combinations within
a confined space. Hence, change
constraints or set the right constraints, and ask the right kinds of
questions.
- Innovation moves beyond old and
established ways of thinking.
- Innovation is interdisciplinary and
should cross boundaries.
- Innovation realizes value from ideas.
- Innovation is not just about
intellectual property and patent law.
It goes beyond it.
- It is not about high tech only; but
transcends it.
- It is beyond the Silicon formula, “better,
faster and cheaper” products.
- Innovation entertains “impossible”
possibilities, conducts meaningful experiments, consults outsiders with
widely different backgrounds and divergent opinions, and takes daring
intellectual and economic risks.
Management of Innovation
Instead of treating innovation as a
discreet, tactical agenda that can be improved by occasional R&D or
tech-research grants, we need to immerse ourselves as a society in the
challenge of innovation with fresh eyes (Kao 2007: 13-14). Innovation must become part of the very core
of our national vision and strategy, beginning in our schools (academic
innovation), churches (value-ethics innovation) and homes (bonding and loyalty
innovation), and continuing throughout in our jobs (intrapreneurial innovation)
and our own businesses (entrepreneurial innovation). Our entire life, from birth to death, should
be an innovation.
Every innovation carries two risks: technology risk and market risk. Technology risk asks the question, will the technology work? Market risk asks the question, will the market want it? In product innovations, technology risk is
primary while the market risk is secondary.
That is, in the early stages of product development, technology risk is
very high, but it flattens in later stages when the market risk begins to
soar. In business model innovations,
technology risk is very low in the early stages but market risk is high and
primary until in later stages technology risk begins to rise.
In general (Campbell
·
Both market risk and technology risk are low for routine and minor product or business
model innovations.
·
Both market risk and technology risk are moderate
for incremental product or business
model innovations.
·
Both market risk and technology risk are high for fundamental product or business model
innovations.
·
Both market risk and technology risk are very high for
breakthrough product or business
model innovations.
Market Breakthrough versus Technology
Breakthrough
Breakthrough innovations can occur at the
business model (e.g., Dell, Wal-Mart), at the technology level (e.g., Intel,
Microsoft, Netscape, Linux), at the product or market level (e.g., P&G, GE,
Apple, Sony). Business, market or
technology breakthrough is like a grand slam in baseball; it is glamorous. It creates a buzz in the boardrooms, media
sensationalizes it, and the markets go crazy about it. A business model breakthrough is a next
generation model. A technology breakthrough is an convergent or emergent
industry. A market breakthrough is like
a block buster product.
Not all breakthrough innovations are
successful. They should be the growth
strategy of last resort. Consider Sun
Microsystems: since its inception in 1982, the company has developed a number
of blockbusters (high-end computer work-stations. The Java operating system, for instance, has
driven much Internet software development and the powerful Internet servers
that serve corporate websites. During the dot.com bubble, Sun Microsystems
acted as of the Internet revolved around it.
But since then, the company has been unable to keep the flow of
breakthrough products. Sales have slid
nearly 40% since 2001, and it piled up $5.1 billion losses by 2003. The company’s stock has eroded 94% and more
since the fall of 2000. Its exotic
innovation strategies usually get beaten by the slow and steady approach of
incremental innovation. In fact, Sun
eschewed more incremental innovations that could have generated significant
growth, including application software and consulting, which the rivals used to
lock in customers (Treacy 2004: 29).
On Incremental Innovations
Distinguish between innovation that simply
improves what is (incremental innovations) from innovations that defines what could be (radical
innovations)(Christensen: Innovators’ Dilemma).
There is nothing wrong with incremental
innovations. Semiconductors get faster
every year; storage devices store more every quarter; music file sharing
products have access to more thousands of songs; digital cameras store more
pictures with better resolutions and more retrievable albums; you can sell more
stuff online on eBay; medications become more effective; cars become more
stylish and, presumably, more fuel efficient.
Oreo sandwich cookies begot Oreo minis that begot mint-flavored Oreos
that begot limited-edition white-fudge-covered Oreos, Easter Oreos, Halloween
Oreos, and so on – today there over forty Oreo brand extensions on the market,
including Oreo piecrust and ice-cream cones.
Innovation is about new ways of doing and
seeing things as much as it is about the breakthrough idea. Innovation flows from shifts in mind-set that
can generate new business models, recognize new opportunities, and weave
innovations throughout the fabric of society.
Innovation depends on harvesting knowledge from a range of disciplines
besides science and technology, among them design, social science, and the
arts. It is exemplified by more than
just products; services, processes, experiences can be innovative as well. The work of entrepreneurs, scientists, and
software geeks alike contributes to innovation. (Kao 2007: 19).
Integrate many disciplines and practical
systems of knowledge such as those illustrated in Table 1. We have to reinvent
new learning methods and modules. The
traditional and the current teaching methods have not produced great
results. It is still textbook,
memory-retrieval, multiple-choice based test-directed learning. It is disconnected to what students care and
should care about in schools and colleges, and to what they will be doing in
the outside real world. Textbooks and
classroom drills are boring for many children, and the homework assignments may
lack immediate relevance to their lives.
Hence, high school dropout rates are increasing nationally. Table 2
suggests some futuristic and yet-to-be-discovered learning global curricula,
content, methods and modules. We need
new creative and innovative modes of learning, retaining, and enriching life
and values.
Each year, several states offer summer
science and engineering programs for grades K-12 with varying levels of
challenging curricula in math, chemistry, physics, biology, biotechnology,
bioinformatics, ecology, alternative energies, astronomy, engineering, Lego
robotics, history, art, music, video games, animation, space and rocketry,
forensics, and explorations into new products and technologies. For a sampling of such programs in Michigan
A $3 million National Science Foundation
grant to researchers at Wayne State
University , North Carolina Michigan
External Sourcing of
Innovations
- Proctor
and Gamble’s recent new product development
strategy includes “Connect + Develop”
in which the company uses online R&D marketplaces and other innovation
intermediaries to identify and acquire ideas and technologies from
independent innovators.
- Intel’s Intel Capital is the
chipmaker’s new tool for investing in technology start-ups outside the
company and for buying and developing them to enrich its core products.
- Nokia’s Concept Lounge is an
interactive forum to search and acquire innovative and futuristic product
concepts directly from independent designers.
All three are great current examples of
sourcing innovation from outside the company.
Notwithstanding these success stories, most companies find it
challenging to shop for innovation offerings that will develop their core
business. There is no single best
method yet for sourcing innovation externally.
Based on interviews with senior managers of more than 30 major companies
that in-source innovations from outside the organization, Nambisan and Sawhney
(2007) offer some practical guidelines for optimizing the in-sourcing process.
First, the “innovation bazaar” can be
characterized as a continuum with raw or patent-pending ideas on the one end,
market-ready ideas in the middle, and market-ready products at the other
end. You can shop for relatively raw and
undeveloped ideas or new patents and then invest in their development and
commercialization. At the other end of
the spectrum, you could directly buy market-ready products, services or process
technologies and quickly market them.
Right in the middle of the continuum, there are market-ready ideas that
need further development and commercialization.
In any case, the external sourcing innovation continuum involves four
variables:
a) The reach
the companies have as they search for innovations. Reach is the number of options the company is
able to consider when buying an innovation.
b) The cost
of acquiring and developing those ideas.
c) The risk
involved in converting them into marketable products.
d) The speed
with which the raw ideas can be brought to the marketplace.
Reach and risk are high for raw ideas, but
they exponentially decrease as one seeks market ready ideas or market-ready
products. Similarly, speed and cost are
high for market-ready products but they exponentially decrease as one is
prepared to settle for market ready ideas, just raw but patent-ready ideas or
even unpatented but good ideas. Figure
3.1 portrays this market phenomenon.
Many companies rely on innovation
intermediaries (see Figure 3.1) to find inventors for extending their reach and
filtering process. These include:
- Idea
scouts (e.g., Big Idea Group; Product
Development Group) who seek and screen ideas in the inventor community on
behalf of large firms who then review them for commercial potential. Idea scouts are paid up front and may
share royalties paid to the inventor.
- Patent
brokers who bring together inventors and
firms that are interested in commercializing their patents, without representing
either side.
- Licensing
agents who broker the licensing (rather than
the sale) of patented technologies.
- Invention
capitalists who buy patents from the inventors
and then sell them to companies, often bundling related patents
together.
- Innovation
capitalists: They trade in market-ready ideas. They seek promising ideas and concepts
with high commercial potential, identify their inventors, assess the
innovations and help the inventors to improve on the ideas and develop them
further. Further interaction
between ICs and inventors will develop and refine the product. The IC will bring deep industry
knowledge and market focus to the product, while the inventor brings new
ideas, tools and techniques, until the marriage blend is market-ready
product. ICs attempt to optimize
the four variables – cost, reach, risk and speed (See Figure 1). Examples of ICs include Evergreen IP,
Igniter IP
- Online
R&D Marketplaces (e.g., InnoCentive, NineSigma, and
yet2.com) can help match companies with promising ideas or patents. Eli Lilly, a pharmaceutical company, has
spearheaded InnoCentive (www.innocentive.com),
a solution-seeking Website that Lilly, P&G and other companies use to
find answers to specific technical or scientific problems.
- University-affiliated
business incubators: These invest in or nurture new
products or ventures with the aim of readying them for acquisition by
large firms (e.g., IDEO at
For instance, Staples, the office-supplies
retailer, has been aggressively repositioning itself by seeking innovation
intermediaries for developing its own private label products rather than merely
sell branded or generic products.
Ever since A. G. Lafley took over Proctor
& Gamble as CEO in early 2000, the company has also started sourcing
innovation ideas from outside, developing them and taking then to the market as
P&G branded products. Lafley argued
that P&G could not and should not source all its innovations from
within. After five years of investment,
P&G now has a state-of-the-art process for sourcing innovation ideas
externally, which includes a global network of resources and online
knowledge-exchange sites. P&G
acquired in 2001 from Nottingham-Spirk, its small product invention and
development group, the SpinBrush Company, that made low-cost battery-operated
toothbrushes. The product was
market-ready, but the price tag was high - $450 million, but it was a great
success product line for P&G. The
process of sourcing raw ideas externally complements P&G’s core competency
in executing on ideas. P&G sales and
profits have been up by 42% and 84%, respectively, over the past five years
(Hansen and Birkinshaw 2007: 122).
Salesforce.com opened in January 2007 its
first AppExchange incubator in San
Mateo , CA San Francisco
Intuit, the maker of the financial software
programs Quicken and QuickBooks, is to import lot of raw ideas but had low
skills for bringing those ideas to the market.
When in January 2000 Stephen Bennett joined Intuit, he fixed this
weakness. He demanded that clear
business objectives be set for ides in development, and he held people
accountable for delivering on them.
Intuit is not more market focused, equally imports and generates new
ideas and bring them quickly to the market.
Intuit’s revenues and profits were up by 47% and 65% respectively from
2003, in part because of this effort (Hansen and Birkinshaw 2007: 122).
Design Thinking and Innovation
Thomas Edison did not
just invent the light bulb, his signature invention; he created an entire
industry around it by inventing a system of electric power and
transmission. Edison ’s
genius was his ability not only to create discreet devices such as the bulb or
the phonograph, but also to conceive and create a fully developed marketplace
around it. He was able to envision how people would want to use what he
made. He paid great attention to user
needs and preferences, and he engineered his creativity and genius toward that
insight. Innovation is hard work. Edison made
it a profession that blended art, craft, science, business savvy, and an astute
understanding of customers and markets.
For instance, using
“design thinking” how will you design creative, engaging and retentive learning
for high school dropouts 18 years and older?
Disqualified to sit in regular high schools because of overage and
unable to find jobs given that the jobs they normally qualify are outsourced,
they could be potentially vulnerable to poverty, drugs, drinks, sex and other
crimes that could lead them to prisons.
In fact, prisons in USA
The learning methodology
should reconnect dropouts to their learning experience as children while also
dealing with the root causes of their present frustration and intimidation of
high school learning. The learning
experience should be fun and freedom, creativity and innovation, discovering
stable humanizing values and virtues.
The learning project should seek complete solutions of creative reading
and writing, creative learning of math and sciences, creative engagement in
social and civic sciences. The learning
project should be characterized by a deep understanding of the lives of high
school dropouts and their environment, and then use the principles of design
thinking to innovate and build value.
That is, innovative learning must account for the vast differences in
cultural and socioeconomic conditions of the target market students. The ultimate
goal of learning should go far beyond the GED – it should be a transformative
experience that leads to college-exploration and conversion, and eventually,
graduation in one’s field of love and innate genius. The mission of the team should be to pursue
innovation that enhances the student dropout’s experience, learning and
resilience to challenges.
We surveyed a few high
school dropouts over 18 years who have pursued GED since and finished four-year
college and more. The primary reason for
their dropping out of school was that they found the classroom “boring” and/or
“disconnected” to what they are, and found their future “hopeless” and
“aimless.” The GED training modules must
respond to these major concerns.
Aggressive Marketing
If the company lacks internal innovation
capabilities but its aim is to respond rapidly to market demand by introducing
many new products and services, then:
- Shopping for many raw ideas or
patent-ready concepts implies your costs and reach of collecting these
ideas is low, but that you must have a large capital and high new product
developing skills to quickly and effectively develop these ideas, market
test them, and roll them out. Not
all raw ideas may reach the market.
- Shopping for a few market-ready ideas
or concepts implies you have enough capital to buy and develop them and
moderately high product developing skills to quickly and effectively
commercialize these ideas, market test them, and launch them nationally or
globally..
- Shopping for just one or two
market-ready products implies you have large capital to acquire them and
that you have a wide and effective distribution network to market them. Often, this strategy may imply buying not
just the market-ready product but also the company that developed it. In which case, you may buy too much
baggage of the company that you may have to discard at a cost (e.g., its
sales force, commercialization infrastructure)
Table 3.6 suggests various strategy dimensions that one should
consider in choosing among these three options. Under all three scenarios, one
must address
a)
Complementary
Issues: When
importing innovations externally, companies must consider their existing skills
and processes for developing these innovations, pinpoint their unique
challenges, and uniquely place and promote them in the marketplace.
b)
Scaling
issues – whether a product can be manufactured
cost-effectively in large quantities.
c)
Incubation
issues: can you incubate these ideas or concepts within the
company early before they are market-ready products? This in-house incubation will enable you to
have close look at the innovative concepts or business before acquiring them.
d)
Optimization
issues: Wherever in
the spectrum you are, try to optimize on reach, risk, cost and speed.
e)
Diffusion
Issues: What is your
company strategy to diffuse the innovation through your company and its
constituencies so that they all support and market your new product? Who is your “idea evangelist” to preach the
good word about your new or emerging products or business concepts? Who will help launch this product in the
nation and the globe?
f)
Performance
Issues: Define and
implement new key performance indicators focusing on specific deliverables from
each link in the innovation value chain (see below).
Salesforce.com, a leading producer of
enterprise software applications for customer relationship management (CRM),
has adopted both the marketplace and the incubation approach. In January 2006, Salesforce.com created the
AppExchange, an online marketplace for software products from external
developers that would complement the company’s own product lines. It has been a great success. The AppExchange currently lists more than 500
on-demand applications ranging from finance to HRM to CRM. Salesforce.com’s customers can browse these
applications, try them out, and buy them from independent developers.
The Innovation Value Chain
Innovation challenges differ from firm to
firm. Do not assume that all
organizations face the same obstacles to innovating and developing new products,
services, or lines of business. The
innovation value-chain (IVC) is a sequential three-phase process that involves
idea generation, idea development, and the diffusion of developed concepts. Across each phase, innovation managers must
perform six critical tasks – internal sourcing, cross-unit sourcing, external
sourcing, selection, development, and companywide spread of the idea. Each is a link in the IVC. The strength of
your IVC is the strength of its weakest links.
You must take an end-to-end view of your innovation efforts, and
identify the strongest and the weakest links.
Importing innovations from outside should reinforce your strongest links
and strengthen your weakest links. (Hansen and Birkinshaw 2007: 121-22).
Before importing innovative ideas from
outside the organization, companies should consider their innovation value
chain, its strongest links, its weakest links, and consider how they can
exploit them for strengthening, complementing or supplementing weakest links,
and taking them to the marketplace. Any
idea import should complement, supplement, strengthen and reinforce all the
links in your IVC, especially focusing on the weakest links. Michael Porter’s value chain does exactly
this – it supports the entire IVC. In Table 3.7, we feature the integrated
flow of the IVC as described by Hansen and Birkinshaw (2007: 124).
Identify the weakest links in your
IVC. Often paucity of promising raw
ideas can be your weakest link.
New raw ideas and concepts cannot succeed
without proper screening and funding mechanisms. Improper screening skills and a shortage of
seed money for high-risk projects can create bottlenecks, innovation silos, and
paralyze innovativeness in the company.
Further, no matter how well screened and funded are raw-idea projects,
they must still be turned into revenue-generating processes, products and
services. Thirdly, concepts that have been sourced screened, funded, and
developed still need to be bought-in by the rest of the company, its suppliers,
its creditors, its target customers, distributors and retailers. An early universal buy-in from these
constituencies can shorten and augment the new product development cycle.
Radical ideas do not start as surefire
bets. A great idea becomes a commercial
success through a recursive process of experimentation and learning. At the start, it is not always easy to
discern if a new idea is smart or stupid.
Hence, low-cost under-the-radar experimentation is important; it allows
a company to fully explore the potential of a radical new idea by pre-checking
market access and acceptance, technical feasibility, pricing and cost
economics. Experimentation helps
avoiding the kind of expensive risk-taking that so often gives innovation a bad
name (Hamel and Getz 2004: 82-83).
An excellent example of cross-unit
collaboration (see Table 3.2) is
P&G’s cross-functional new product unit.
Fort instance, P&G developed Olay
Daily Facials (a face cream that is an excellent cleanser and moisturizer)
using a cross functional team. Experts from
P&G’s skin care, tissue and paper towel, and detergents and fabric softener
groups joined. Their combined knowledge
about surfactants, substrates, and fragrances generated the concept of Olay
Daily Facials, a very successful product.
P&G has over 30 such collaborative units.
A great example of idea evangelist for
diffusing new products is the European launch of Sara Lee’s Sanex soap and
shower products in the early 1990s.
Sanex was first developed in Spain Europe . However, given the highly decentralized
structure of Sara Lee in Western Europe made
Muñoz’s job very difficult. By sheer
dint of perseverance and personal crusade, Muñoz visited Sara Lee senior
managers all over Europe and after two full
years of evangelization managed to win them and their markets in four countries
(UK Denmark Germany France
Managers adopting the IVC will need to
cultivate new roles for employees. For
instance, team members at Siemen’s Silicon Valley
unit are external scouts, seeking and sourcing good ideas externally. At P&G, product developers and scientists
assume the idea of internal idea brokers, dialoguing with colleagues across the
company on devising new ways of combining technologies from different parts of
the company to develop new products and businesses. At Shell, Leo Rodhart and the members of his
GameChanger team act as internal value capitalists, funding and overseeing new
ideas.
Concluding Remarks
In managing your “market push” (and not
“technology-push”) innovation value chain or innovation portfolio, follow these
guidelines:
1.
Be
market focused.
See what are the market gaps, market niches, blue oceans, uncharted
seas, untapped markets your company’s core business can explore.
2.
Be
Customer Focused:
Within each identified market identify your specific consumers,
customers, clients or market communities.
Study their specific unmet needs, wants, desires and dreams.
3.
Be
Competition Vigilant:
See what your competitors are doing in this regard. Which blue oceans are they targeting? Do not assume they are ignorant of these blue
ocean market opportunities.
4.
Be
Innovation Value Chain focused: See Table
3.2. Identify your strongest links
in the IVC as well the weakest links.
For instance, are you good at generating raw innovative ideas both
internally and externally, but poor in converting them to market-ready ideas or
products and perhaps, even more weak in diffusing them to your relevant
constituencies?
5.
Be
End-to-end Innovation Focused: View innovation as an end-to-end process
rather than focusing on a part. This
enables you to spot your stronger and weaker links simultaneously.
6.
Focus
on Innovation Effectiveness:
Apart from incubating some ideas for some time, most of your innovation
raw ideas should be market-ready ideas in less than 3-6 months, and these
should be market-ready products within another 3-6 months. See Table
3.6.
7.
Focus
on Business Effectiveness: All along the new product life cycle
chain focus on four critical areas:
risk, reach, cost and speed. See Figure 3.1.
8.
Focus
on Profits and Growth: High revenues with high CGS are no
good. The bottom line is profits. Otherwise, the company has no retained
earnings and cannot grow.
9.
Forecast
basic Financial Metrics:
Given guidelines 1-8, check on some financial fundamentals benchmarks
such as ROD (return on development
[R&D]), ROQ (return on quality), ROM (return on marketing), ROS (return on
sales), ROI (return on investment), ROA (return on assets), RONA (return on net
assets), ROIC (return on invested capital), ROCE (return on capital employed),
ROE (return on equity), EPS (earnings per share) and P/E (price/earnings
ratio).
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Table 3.1: Possible Organizational Codes of Efficiency
versus Creativity
[See also Govindarajan and Trimble (2005:
5)]
|
Domain
|
Code A: Maximize
Efficiency
|
Code B: Optimize
Creativity
|
|
Attitudes of exploration
|
Stick to your field of specialization;
Build on your skills and strengths.
|
Think outside the box; enlarge the box.
Expand your vision, mission, and identity.
|
|
Domain of exploration
|
Exploit what you know;
Do what you know best.
Industry focus: convergent industries
|
Explore what you don’t know;
Make happen things you don’t know.
Cross-industry focus: divergent industries
|
|
Purpose of exploration
|
Cost containment
|
Revenue generation
Exploring opportunities;
Capitalizing opportunities
|
|
Stimulus of exploration
|
Beat the competition;
Focus on core products and brands
Explore and exploit red oceans
|
Ignore the competition;
Focus internally on skills, strengths and core
competences;
Explore “blue” oceans.
|
|
Market-Focus of
Exploration
|
You meet current customers needs;
|
You anticipate future customer needs;
You explore current customer wants, desires and
dreams.
|
|
Style of exploration
|
You organize, focus and plan.
|
You let things emerge.
You empower things to happen.
You enable unraveling and discovery.
|
|
Process of exploration
|
You impose process and structure
|
You avoid process and encourage unstructured
interaction;
You allow freedom and flexibility
|
|
Assessment of exploration
|
You demand accountability;
You impose outcome metrics.
|
You expect shared vision and commitment;
You appreciate and acknowledge efforts, team spirit,
team learning.
|
|
Outcomes of exploration
|
Efficiency, sales, cash flow, profitability, ROA,
ROI, ROE
|
Design, creativity, innovation and long term
revenues, market share, brad renown, company reputation, ROI, ROIC, EPS, P/E,
Tobin’s Q, and corporate social responsibility
|
|
Ecology of exploration
|
Minimal EPA compliance;
Exploit nonrenewable resources;
|
Optimizing eco-compliance;
Explore alternative energies, renewable energies and
fuels;
Contribute to clean air, land, water and space.
|
|
Future of exploration
|
Status quo;
Follow industry growth;
Industry follower; market follower
Incremental innovations
Incremental growth in sales;
Incremental growth of the company
|
Forging ahead, explore, discover; Reinvent, redesign
the future;
Industry leader; market leader, product pioneer;
Radical innovations, market breakthroughs and
technological breakthroughs;
Dynamic and exponential growth of sales, revenues,
opportunities, investments, shareholders, stakeholders;
Development of local communities
|
Table
3.2: Managing Innovation along Value
Chains by Industries
|
Value-Chain
|
Value-Chain
Components
|
Hardcore Manufacturing Industry
|
Software, Electronic and Entertainment Product
Industries
|
Banking, Media, Government and other Service
Industries
|
||||||
|
Risk:
Stress
Uncer-tainty
Ambi-guity
|
Concerns:
Ecology
Privacy
Safety
Ethics
Morals
|
Potential
for:
Innovation
SCA
Profita-
bility
|
Risk:
Stress
Uncer-tainty
Ambi-guity
|
Concerns:
Ecology
Privacy
Safety
Ethics
Morals
|
Potential
for:
Innovation
SCA
Profita-
bility
|
Risk:
Stress
Uncer-tainty
Ambi-guity
|
Concerns:
Ecology
Privacy
Safety
Ethics
Morals
|
Potential for:
Innovation
SCA
Profita-bility
|
||
|
Upstream
Value Chain: Back-end Innovations
(18 areas)
|
Innovation Idea
|
L
|
L
|
L-H
|
H
|
M
|
H
|
H
|
L
|
H
|
|
Innovation Concept
|
M
|
M
|
L-H
|
H
|
M
|
H
|
H
|
L
|
H
|
|
|
Creativity-Innovation
|
H
|
M
|
H
|
H
|
M
|
H
|
H
|
M
|
H
|
|
|
Design
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
|
|
Fabrication
|
H
|
M
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
Materials
|
H
|
M
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
Components
|
H
|
M
|
M
|
M
|
M
|
M
|
L
|
L
|
L
|
|
|
Process Technology
|
H
|
H
|
H
|
M
|
M
|
M
|
L
|
L
|
L
|
|
|
Prototype
|
H
|
M
|
H
|
H
|
H
|
H
|
L
|
L
|
L
|
|
|
Patentability
|
M
|
L
|
H
|
H
|
H
|
H
|
L
|
L
|
M
|
|
|
Assembly-line
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
Supply-chain-mgmt
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
Purchasing
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
Transportation logistics
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
Warehousing
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
WIP Inventory mgmt
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
Product Technology
|
H
|
M
|
H
|
M
|
M
|
M
|
M
|
M
|
M
|
|
|
Quality Control
|
H
|
M
|
H
|
H
|
H
|
H
|
M
|
H
|
M
|
|
|
FP Inventory mgmt
|
M
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
L
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream Value Chain:
Mid-end Innovations
(10 areas)
|
Product sizing
|
M
|
L
|
H
|
H
|
M
|
L
|
M
|
L
|
M
|
|
Product packaging
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
|
|
Product labeling
|
M
|
L
|
L
|
H
|
L
|
H
|
L
|
L
|
L
|
|
|
Instruction Manuals
|
M
|
L
|
L
|
H
|
L
|
M
|
L
|
L
|
L
|
|
|
Order Processing
|
M
|
L
|
M
|
H
|
L
|
M
|
L
|
L
|
L
|
|
|
Delivery Logistics
|
M
|
L
|
M
|
H
|
L
|
M
|
L
|
M
|
M
|
|
|
Installation/maintenance
|
M
|
L
|
L
|
H
|
L
|
M
|
L
|
L
|
L
|
|
|
Inventory replenishment
|
M
|
L
|
M
|
M
|
L
|
M
|
L
|
L
|
L
|
|
|
Store shelving
|
M
|
L
|
M
|
M
|
L
|
M
|
L
|
L
|
L
|
|
|
Shelf replenishment
|
M
|
L
|
M
|
M
|
L
|
M
|
L
|
L
|
L
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downstream Value Chain: Front-end
Innovations
(21 areas)
|
NPD preannouncements
|
H
|
M
|
H
|
H
|
H
|
H
|
M
|
M
|
M
|
|
Press Release
|
M
|
M
|
H
|
H
|
H
|
H
|
M
|
M
|
M
|
|
|
Unit Costing
|
M
|
L
|
H
|
H
|
M
|
M
|
L
|
L
|
L
|
|
|
Unit Pricing
|
H
|
M
|
H
|
H
|
H
|
H
|
M
|
M
|
M
|
|
|
Price Bundling
|
H
|
M
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
|
|
Product Bundling
|
H
|
M
|
H
|
H
|
H
|
H
|
H
|
L
|
L
|
|
|
Rebate and discounting
|
M
|
L
|
H
|
H
|
M
|
M
|
H
|
M
|
L
|
|
|
Free sampling and testing
|
M
|
L
|
H
|
H
|
M
|
M
|
L
|
M
|
L
|
|
|
Promotions & advertising
|
H
|
L
|
H
|
H
|
M
|
M
|
L
|
M
|
M
|
|
|
Credit/financing
|
H
|
M
|
H
|
H
|
M
|
M
|
L
|
L
|
L
|
|
|
Store choice and retailing
|
M
|
L
|
M
|
H
|
M
|
M
|
L
|
L
|
L
|
|
|
Point of purchase display
|
M
|
L
|
M
|
H
|
M
|
M
|
L
|
L
|
L
|
|
|
Salesperson service
|
H
|
M
|
H
|
H
|
M
|
M
|
M
|
M
|
M
|
|
|
Servicing Warranties
|
M
|
M
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
|
|
Customer complaints
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
|
|
Customer redress
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
|
|
Customer loyalty
|
H
|
M
|
H
|
H
|
H
|
H
|
H
|
H
|
H
|
|
|
Building brand Community
|
M
|
M
|
H
|
H
|
H
|
H
|
H
|
M
|
M
|
|
|
Customer co-designing
|
M
|
M
|
H
|
H
|
H
|
H
|
L
|
L
|
L
|
|
|
Customer co-production
|
M
|
M
|
H
|
H
|
H
|
H
|
L
|
L
|
L
|
|
|
Customer co-partnering
|
M
|
M
|
H
|
H
|
H
|
H
|
L
|
L
|
L
|
|
Table 3.3: Mapping Types of Innovation with
Technology Adoption Life
Cycle Stages
[Source: See also Geoffrey
Moore (2004)]
|
Technology
Adoption Cycle
|
Innovation Life Cycle
|
Market
Response Cycle: Revenue
Growth
|
Executive leader to
manage the cycles
|
Team leader to manage
the cycles
|
|
Early Market
|
Disruptive Innovation
|
The market adopts the new technology; a new tentative
market category is created
|
CEO: Emphasize technological breakthrough or
discontinuity
|
Marketing entrepreneurs: explode national launch;
heavy PR.
|
|
The Chasm
|
Advocacy Innovation:
Monitor adoption;
Forestall failure; Welcome feedback;
Explain defects.
|
The market hesitates, questions the new technology,
and faces challenges in adoption.
|
General Manager: watch market response; withdraw
product if chasm deepens and widens.
|
Marketing managers: Foresee defects; Solicit
feedback;
Honor guarantees;
Apologize graciously;
Repair damage.
|
|
Bowling Alley
|
Application
Innovation
|
The initial uneasiness subsides; a new permanent
market category emanates.
|
General Manager: explore new market niches and
related niches. Targeting one of them
target the rest (as in bowling).
|
Engineering manager: take existing technologies to
exploit new markets.
|
|
Tornado
|
Product Innovation
|
The product hits the market of innovators and early
adopters; viral marketing sets in and the market blows up.
|
General Manager:
focus on performance improvement, cost-reduction, and more
user-friendliness.
|
Engineering manager: focus on performance
improvement, cost-reduction, and more user-friendliness.
|
|
|
Process Innovation
|
The new category market moves to Early Main Street
|
VP for operating: make all processes more efficient
and effective.
|
Operations manager: improve process performance at
all levels
|
|
|
Experiential
Innovation
|
Competition is getting strong; consumers are bargain
hunting looking for the best experience;
|
VP Marketing: focus on the total customer experience
|
Customer service manager: improve customer service at
all levels
|
|
Marketing Innovation
|
Consumers are looking for differentiation in quality,
price, and service
|
VP Marketing: focus on product and service
differentiation
|
Marketing manager: set skilled frontline ambassadors
for the product
|
|
|
|
Business Model Innovation
|
|
CEO: redesign the product or reframe the market
|
General Marketing Manager: enable redesigning the
product or reframing the market
|
|
Structural Innovation
|
Customers are looking for a break before quitting
your product.
|
CEO: capitalize on deregulation or structural market
changes to improve the product service
|
General Manager: Cash cows fast; stem market decline;
focus resources to improve product performance.
|
|
|
Fault Line
|
Survival Innovation
|
A sudden market withdrawal due to fierce competing
products.
|
Marketing manager: Save the decline; save the product;
revamp the market.
|
Marketing manager: Save the decline; save the
product; revamp the market.
|
|
End of Life
|
Revival Innovation
|
Hard line customers may still patronize the product
for nostalgic reasons.
|
VP Marketing: phase out or withdraw the product if
necessary.
|
Marketing manager: phase out the product quietly
without hurting existing brands
|
Table 3.4: The Dramatic Emergence of the Moneyed Class
during 1970-2000
[Source: Compiled from the U. S. United States
|
Period
|
1970
|
2000
|
Cumulative
|
1970-2000
$
growth in the Moneyed Class
|
Cumulative
1970-2000
$
growth in the Moneyed Class
|
|
|
|
Percentage
of Population in this income bracket
|
Percentage
of Population in this income bracket
|
1970
|
2000
|
||
|
$55,000 - $60,000
|
4.00
|
4.00
|
4.00
|
4.00
|
00.00
|
0.00
|
|
$60,000 - $65,000
|
3.50
|
3.75
|
7.50
|
7.75
|
03.33
|
3.33
|
|
$65,000 - $70,000
|
2.50
|
3.50
|
10.00
|
11.25
|
12.50
|
15.33
|
|
$70,000 - $75,000
|
1.50
|
3.25
|
11.50
|
14.50
|
17.39
|
29.89
|
|
$75,000 - $80,000
|
1.35
|
3.00
|
12.85
|
17.50
|
36.19
|
66.08
|
|
$80,000 - $85,000
|
1.15
|
2.75
|
14.00
|
20.25
|
44.64
|
110.72
|
|
$85,000 - $90,000
|
1.10
|
2.50
|
15.10
|
22.75
|
50.66
|
161.38
|
|
$90,000 - $95,000
|
1.00
|
2.00
|
16.10
|
24.75
|
53.73
|
215.11
|
|
$95,000 - $100,000
|
0.70
|
1.75
|
16.80
|
26.50
|
57.74
|
272.85
|
|
$100,000 - $105,000
|
0.50
|
1.15
|
17.30
|
27.65
|
59.83
|
332.68
|
|
$105,000 - $110,000
|
0.50
|
1.15
|
17.80
|
28.80
|
61.80
|
394.48
|
|
$110,000 - $115,000
|
0.45
|
1.10
|
18.25
|
29.90
|
63.84
|
458.32
|
|
$115,000 - $120,000
|
0.40
|
1.05
|
18.65
|
30.95
|
65.95
|
524.27
|
|
$120,000 - $125,000
|
0.35
|
1.00
|
19.00
|
31.95
|
68.16
|
592.43
|
|
$125,000 - $130,000
|
0.35
|
1.00
|
19.35
|
32.95
|
70.28
|
662.71
|
|
$130,000 - $135,000
|
0.30
|
1.00
|
19.65
|
33.95
|
72.77
|
735.48
|
|
$135,000 - $140,000
|
0.30
|
1.00
|
19.95
|
34.95
|
75.19
|
810.67
|
|
$140,000 - $145,000
|
0.25
|
1.00
|
20.20
|
35.95
|
77.97
|
888.64
|
|
$145,000 - $150,000
|
0.15
|
0.50
|
20.35
|
36.45
|
79.12
|
967.76
|
|
$150,000 - $155,000
|
0.15
|
0.45
|
20.50
|
36.90
|
80.00
|
1047.76
|
|
$155,000 - $160,000
|
0.10
|
0.40
|
20.60
|
37.30
|
81.07
|
1128.83
|
|
$160,000 - $165,000
|
0.10
|
0.35
|
20.70
|
37.65
|
81.88
|
1210.71
|
|
$165,000 - $170,000
|
0.05
|
0.30
|
20.75
|
37.95
|
82.89
|
1293.60
|
|
$170,000 - $175,000
|
0.05
|
0.25
|
20.80
|
38.20
|
83.65
|
1377.25
|
|
$175,000 - $180,000
|
0.025
|
0.20
|
20.825
|
38.40
|
84.39
|
1461.64
|
|
$180,000 - $185,000
|
0.020
|
0.20
|
20.845
|
38.60
|
85.18
|
1546.82
|
|
$185,000 - $190,000
|
0.015
|
0.15
|
20.860
|
38.75
|
85.76
|
1632.58
|
|
$190,000 - $195,000
|
0.010
|
0.15
|
20.870
|
38.90
|
86.39
|
1718.97
|
|
$195,000 - $200,000
|
0.010
|
0.15
|
20.880
|
39.05
|
87.02
|
1805.99
|
|
$200,000 - $205,000
|
0.010
|
0.15
|
20.890
|
39.20
|
87.65
|
1893.64
|
|
$205,000 - $210,000
|
0.010
|
0.15
|
20.900
|
39.35
|
88.28
|
1981.92
|
|
$210,000 - $215,000
|
0.010
|
0.15
|
20.910
|
39.50
|
88.90
|
2070.82
|
|
$215,000 - $220,000
|
0.010
|
0.15
|
20.920
|
39.65
|
89.53
|
2160.35
|
|
$220,000 - $225,000
|
0.010
|
0.15
|
20.930
|
39.80
|
90.01
|
2250.42
|
|
$225,000 - $230,000
|
0.010
|
0.10
|
20.940
|
39.90
|
90.54
|
2340.96
|
|
$230,000 - $235,000
|
0.010
|
0.10
|
20.950
|
40.00
|
90.93
|
2431.89
|
|
$235,000 - $240,000
|
0.010
|
0.10
|
20.960
|
40.10
|
91.32
|
2523.21
|
|
$240,000 - $245,000
|
0.010
|
0.10
|
20.970
|
40.20
|
91.70
|
2614.91
|
|
$245,000 - $250,000
|
0.005
|
0.10
|
20.975
|
40.30
|
92.13
|
2707.04
|
|
$250,000 - $300,000
|
0.050
|
1.00
|
21.025
|
41.30
|
96.43
|
2803.47
|
|
$300,000 & above
|
0.065
|
1.15
|
21.090
|
42.45
|
101.28
|
2904.75
|
|
|
|
|
|
|
|
|
|
$55,000 - >$300,000
|
21.090
|
42.45
|
|
|
101.28
|
2904.75
|
Table 3.5: New Rules to Tap
the Mass Affluent
[See Nunes, Johnson and Breene (2004), “Selling to the
Moneyed Masses,” HBR, 101].
|
Strategic
Components of Mass Marketing
|
Conventional
Marketing Rules
|
New
Marketing Rules
|
Typical
Examples
|
|
Positioning
Offerings
|
Avoid middle-market positions between low-cost and
premium.
|
Seize the new middle-ground position above the best
of the conventional market offerings and below ultra premium solutions.
|
“No wrinkle” shirts (e.g., Brooks Brothers, Lands’
End) fill the gap between polyester blends and 100% cotton shirts.
|
|
Provide identical market offerings at a price
affordable to all
(e.g., Model T, South West Airlines)
|
Provide nearly identical market offerings to all,
at prices they can afford
|
For an annual fee of $50, Hertz grants even
infrequent renters “#1 Club Gold” status; they can now bypass the line at the
airport counter
|
|
|
Designing
Offerings
|
Make the “special” suitable for every day use by the
masses.
|
Make version of “everyday” products that are
suitable only for special-use occasions.
|
Starbucks’ “After Coffee” mints and gun command
prices two to ten times those of their multiuse customers; their sales exceed
those of the competitors.
|
|
Produce less-expensive versions of luxuries to sell
to the masses.
|
Introduce new models of ownership that make real
luxuries affordable to the masses.
|
Fractional ownership has made luxuries (e.g., high-end
classic cars, homes, yachts) available to millions of consumers.
|
|
|
Offer the masses new consumables and new investment
opportunities.
|
Offer new consumables that perform like investments.
|
Watchmaker Patek Philippe reminds buyers that its
watches are not owned, just kept safe for the next generation.
|
|
|
Reaching
Customers
|
Make retail stores destinations for the masses by
offering the biggest variety and discounts
|
Serve the masses locally, with the convenience,
layout, and assortment you know they want and the prices you know they will
pay.
|
Retail stores like Wal-Mart, Best Buy, and Home
Depot are using smaller store formats to get closer to the urban affluent.
|
|
Keep spending on promotion until the masses are
convinced they want your offering.
|
Limit the need for spending on promotion by becoming
highly relevant to the masses.
|
NBC modified its lineup and program content to
attract a viewing audience who is more affluent and therefore more valuable
to advertisers.
|
Table 3.6: Choosing your Innovation Sourcing Strategy
[See also Nambisan and
Sawhney 2007: 114-116]
|
Strategy
Dimensions
|
Innovation
Sourcing
|
||
|
Raw Ideas
Patent-ready Ideas
|
Market Ready ideas
|
Market Ready Products
& Services
|
|
|
Internal Innovation Capabilities
|
Low
|
Low
|
Low
|
|
Internal Innovation Development Capabilities
|
High
|
Moderate
|
Low
|
|
Marketing and Distribution Capabilities
|
High
|
High
|
High
|
|
Product Portfolio
|
Large
number of diverse products
|
Products
in a few key markets and industries
|
Products
and services that expand, enhance and update existing products
|
|
Core objective
|
To
connect as many companies with relevant raw ideas
|
To connect as many companies with relevant
market-ready ideas
|
To
connect as many companies with relevant market ready products
|
|
Purpose of Innovation
|
Enhancement
of existing products with raw ideas
|
Extension
of brands and product lines with market ready ideas
|
Exploring
new product and service lines, new markets, and new product portfolios
|
|
Core function
|
To
create a brokering infrastructure in the ideas market
|
To
create a networking infrastructure to find and develop market ready ideas
|
To
create a networking infrastructure to find and distribute market ready
products
|
|
Capital investment
|
Low
|
Medium
|
High
|
|
Risk assumed
|
High
|
Medium
|
Low
|
|
Intellectual Property Rights
|
Low
unless patent-ready ideas
|
Moderate
and shared between inventor and developer
|
High
and bought or shared from the inventor
|
|
Market potential
|
Around
$100 million
|
Around
$250 million
|
Around
$500 million
|
|
Cost of evaluating innovations
|
Low
per raw idea; High across many ideas
|
Medium
per market ready idea; high across many such ideas
|
Low
per market ready product
|
|
Information required to develop typical innovation
|
Specific
knowledge about each raw idea
|
Integrated
knowledge from several involved business areas
|
If
the product is acquired with the company, then information asymmetries of
typical mergers and acquisitions
|
|
Innovation portfolio
|
Weak,
diffused and long term given dependence on raw ideas from outside sources
|
Medium,
complementary, supplementary and with sustainable competitive advantage if
market focused
|
Strong,
focused, and immediate if product and company acquired match buyer’s core
business
|
Table 3.7: The Innovation Value Chain: An Integrated
Flow
[See also Hansen and
Birkinshaw (2007), “The Innovation Value Chain,” HBR, 124).
|
Crucial Questions
|
Raw
Innovation Idea Generation
|
Conversion
to Market-Ready Ideas and Market-Ready Products
|
Diffusion
|
|||
|
Internal Unit Sourcing
|
Inter-departmental
Pollination
|
External Sourcing
|
Screening, Selection and Testing
|
Rapid Development to enter the market
|
Companywide
support and promotion of the new
fledgling product
|
|
|
Key Inquiry
|
Does the unit
generate enough promising raw ideas?
|
Does the company
create good innovative ideas by cross unit collaboration?
|
Do we import
enough good raw ideas from external sources?
|
Is the company
good at screening, selecting, funding, testing and funding good ideas?
|
Is the company
good at converting ideas into good products, core businesses and best
practices?
|
Is the company
good at diffusing new ideas and products across the company?
|
|
Key Strategy
|
What is our basic
strategy to generate enough promising raw ideas internally?
|
What is our basic
strategy (e.g., on-going dialogue; knowledge exchange) to create good
innovative ideas by cross
business unit
collaboration?
|
What is our basic
strategy to import enough good raw ideas from external sources? How do we network with sources suggested in
Table 1?
|
What are our
basic tools and techniques to screen, select, fund and test good new product
ideas?
|
What is our basic
strategy to convert ideas into good products, core businesses and best
practices?
|
What is our basic
strategy to diffuse new ideas and products across the company
|
|
Key Metric
|
The number of
high-quality raw ideas the unit generated
in the last two years
|
The number of
high-quality raw ideas the cross unit collaboration generated in the last two
years.
|
The number of
high-quality raw ideas you tapped from external sources.
|
Percentage of all
ideas generated that were finally screened, selected and funded,
|
Percentage of
screened, selected and funded ideas that lead to significant revenues and
profits within the first year of product launch.
|
The rate pf
penetration into
Company
departments, target markets, channels and other promotional centers.
|
|
Key Corrective
Mechanism
|
If our key metric
is not fully realized, then what can the company strategize to rectify the
weakness?
|
If our key metric
is not fully realized, then what can the company strategize to rectify the
weakness?
|
If our key metric
is not fully realized, what then can the company strategize to rectify the
weakness?
|
If our key metric
is not fully realized, what can the company do to rectify the weakness?
|
If our key metric
is not fully realized, what can the company strategize to rectify the
weakness?
|
If our key metric
is not fully realized, then what can the company strategize to rectify the
weakness?
|
|
Key Control System
|
How can we
continuously check that our corrective mechanism works in the desired
direction?
|
How can we
continuously check that our corrective mechanism works in the desired
direction?
|
How can we
continuously check that our corrective mechanism works in the desired
direction?
|
How can we
continuously check that our corrective tools and techniques work in the
desired direction?
|
How can we
continuously check that our corrective mechanism works in the desired
direction?
|
How can we
continuously check that our corrective mechanism works in the desired
direction?
|
Table 3.8: Innovation as Value Differentiation
|
Innovation as:
|
Attributes
|
Defined
|
Unique Customer Benefits
|
|
Resource
|
Rare
|
Not widely held
|
Competitive
advantage (CA)
|
|
Valuable
|
Convertible to
customer value
|
Unique value to
customers
|
|
|
Non-imitable
|
Non replicable,
non-duplicable
|
Exclusive,
snobbish, brand community
|
|
|
Non-substitutable
|
Irreplaceable;
Inadequate
substitutes
|
Substitutes are
too expensive or non-ecological
|
|
|
Non-transferable
|
Cannot be bought
by competition; asset specificity
|
Ensures product
quality, stability, and consistency
|
|
|
Product/
Service
|
Commercializable
|
Feasible, viable,
convenient
|
Market-readiness;
added value and service; time-energy-anxiety-money-efforts saving;
|
|
Affordable
|
The target
audience can afford it and/or be able to finance it
|
Affordability
ensures market diffusion and national institutionalization
|
|
|
Marketable
|
Market should be
large, expandable, stable, accessible and profitable
|
Steady
availability, updatability, current edge, state-of-the-art
|
|
|
Legal
|
Does not violate
any laws, norms, codes, standards and specifications
|
Safe, secure,
private, ecological, disposable,
|
|
|
Value Added
|
Value creation
|
Creates value for
customers
|
Value appreciated
and wanted by customers
|
|
Value capture
|
Creates value
(profits) and growth for the company: ROA, RONA, ROCE, ROIC, ROBA
|
Value as
shareholders: EPS, P/E, ROI, ROE,
|
|
|
Tax value
|
Taxable for
governments
|
Increased tax
base enhances government spending for better infrastructure
|
|
|
Human value
|
Benefits mankind,
ecology, legacy, heritage, culture, cosmos
|
Humanizing,
socializing, ecologizing, transforming, meaning, shared values
|
|
|
Tangible values
|
Core attributes,
core features, core specifications
|
Core benefits,
present and future
|
|
|
Intangible values
|
Brand image,
brand renown, brand equity
|
Brand community,
brand exclusivity, enhanced lifestyles, high-tech, high visibility, highly
socializing, high-bonding, empowerment, ethical, moral
|
Assignment: Take Home Exam III
- Using Table 3.1 assess your current developmental/global innovation. Is it a raw idea, market-ready idea or a
market-ready product, and why?
Study its strategy dimensions.
That makes it a promising raw idea.
Alternatively, what makes it market-ready idea or a market-ready
product?
- Specifically, assess its cost, reach,
risk and speed. Using Figure 3.6, reassess the value of
your innovation. What is the
intellectual property (IP) involved?
What are your IP rights? That is, is your innovation something that
idea scouts or licensing agents, patent brokers or invention capitalists
will be interested in and why?
Alternatively, will your innovation appeal to innovation
capitalists and why? Alternatively,
would you business-incubate it for further market- development and how?
- Assess the above four innovation
variables of your innovation from the customers’ viewpoint. That is asses risk (user safety, privacy, security, benefit), reach (market, its size, its
volatility and stability, its accessibility), cost (price, convenience, anxiety, savings on money, energy,
space, pace, ) and speed (getting
it market-ready, getting it home-ready, getting it use-ready, getting it
service-ready, getting it expanded, updated or redesigned). Hence, what is
the value creation? What is the
value added, to whom and why? Why
should the customer buy your innovation and not that of your competition?
- Study your innovation value chain
(IVC). Using Table 3.7, identify and assess the strongest links in your IVC
as well its weakest links. How will
your reinforce your strongest links and revamp and strengthen your weakest
links using strategies suggested in Table
3.7? Be specific. Based on the many examples cited in this
handout, or from your experiences, how others have done in this regard,
and how and what you will learn from them.
- Based on your analysis from (1) to
(4), a) draw and defend your innovation value chain, and b) based on (a),
draw a corresponding business plan to execute your IVC. You business plan should include costs
at each stage of your value-added chain (e.g., costs per unit of invention
(raw idea or market ready idea or market-ready product), cost of prototype
designing, cost of prototype testing, cost of pretest concept marketing,
cost of product test marketing, cost of materials, cost of components,
cost of parts, cost of assembling, cost of sizing, packaging, and
labeling, costs of delivery and distribution logistics, cost of marketing,
advertising, promotion, consumer credit,
and PR, cost of commissions (or royalties) to innovation
intermediaries, cost of financing, cost of government approval, cost of
patenting, cost of warranty and service guarantees, ….). Assess your revenues, cash flows, gross
margins, contribution margin, net earnings, taxes, … Hence, assess EBIT, EBITDA, discounted
cash flows, …. Will your
innovation intermediary buy into it and why? Use ENT 470/570-2008 –04: Framing your Business Plan.
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