Strategic imlications of Innovation Management

Close Vs. Open Innovation A paradigm shift Close: Inward focused. Fully integrated The notion of ’total control’ Industry was the primary source of research funding and the commercial use of science and industry R&D was the primary locus of industrial research One could not wait for the external scientific community to become interested in practical applications of science

Close Vs. Open Innovation The creation of your own internal R&D organization started with the collaboration between university and corporations University based R&D was up to 1985 primarily funded by gov’t. After 1985 it was industry funded Investments in longterm internal R&D became an effective barrier to entry The firm would rely on itself for its critical technologies NIH – not invented here!

Close Innovation Patterns of deep, vertically integrated R&D organizations Inside path for new ideas No leakage out of the system A perfect vacuum Focus on current markets

The Knowledge landscape Company A Company B Current Market

Research AND Development Research is about exploring new frontiers, insights, which lead to new discoveries cannot be predicted in advance cannot be scheduled highly trained people attractive salaries freedom to publish their results specialized skills Development takes the output of R as an input to its own processes lead by engineers, trained to solve problems within time and budget takes R’s idea and makes products to be sold predictable minimize risks part of a business unit

Research AND Development Research organization Cost centre Discovery: Why? Hard to predict Hard to schedule Create possibilities Identify problems and how to think about them Development organizations Profit centres Execution: How? Hit targets Hit schedules Minimize risk Solve problems within constraints

Erosion of CI Increasing availability and mobility of workers Venture capital market External options for ideas sitting on the shelf The increasing capabilities of external suppliers external start-up and new markets Advances in science and knowledge

Open Innovation Primary driver: Diffusion of knowledge How to access useful knowledge Diffusion of knowledge patents are an OUTCOME of a knowledge process R&D by size of enterprise rise of university graduates NIH – need not reinvent the wheel – rely on external resources and be effective! Manage your Intellectual Property

Open Innovation Company A Company B New market Current Market

A new Business Model?? Business Model Function Articulate the value proposition Identify a market segment Define the firm’s value chain Specify the revenue generating mechanisms cost structures and target margins Describe the position within the value network linking suppliers and customers and including complementary firms and competitors Formulate the competitive strategy - sustainable

Business Model Business Model Economic Technical Target market Outputs Value proposition Value chain How paid Costs/margin Value network Competitive strategy Economic Outputs Value Price Profit Other mea- sures Technical Inputs Feasibility Performance Other mea- sures The Technical Domain The Social Domain

Crafting a strategic map of innovations Where have the important ideas in your company and your industry come from in the past five years? How have they fitted with your business model? What role have start-up firms played? Have they been able to access the market? Where have their ideas come from? What is their business model? What role do VCs and other private equity investors play in your industry? Are they active investors? What explains their bets that they are making? How do these bets compare? What role do universities play in contributing knowledge and understanding to your company and your industry? In what areas of importance to your comapny are the key departments in those universities working? Who are the top professors in those areas?

Advancing your current business Build your innovation roadmap fill in the gaps in your current business find blind spots in your current business review external technologies with external experts

Filling the Gaps with external technologies Current Market and Business Model Development Research Internal R&D project External R&D Venture investing Technology in-licensing acquisition

Growing new businesses Development Research Other Firms’ market and BM New Market and BM for your Firm Current Market and Business Model Research projects

New strategic capital from value creation Company and Product- Individual and Experience-centric centric value creation Co-creation of Value View of value Value is associated with a Value is associated with experience; company’s offerings. The Prod&serv. facilitate experiences. The competitive space is based competitive space is based on experiences products/services Role of Company To define and create value To engage the consumer in defining and for the consumer co-creating unique value. Role of consumer Passive pocket of demand Consumer as active player in seeking, for firm-defined offerings creating, and extracting value View of value Value is created by the firm; The consumer co-creates value with the creation consumers have a choice - firm and other consumers the variety offered by the firm

Sources of competence Stage 1 Pre-1990 Stage 2 1990 onward Stage 3 Business unit as the source of knowledge Corporation as a portfolio of competence Supplier base and partners as a source of compe- tence Consumers as a source of competence Stage 1 Pre-1990 Stage 2 1990 onward Stage 3 1995 onward Stage 4 2000 onward

The Locus of Core Competencies The Firm Family/Network of Enhanced Network Companies Unit of The company The extended enterprise The whole system – the comapny suppliers Analysis and value network – the company, partners AND consumers suppliers and partners Resource What is available Access to the competence and Access to conumser competence and invest- Base in the firm investment capacity of Co’s in ment of time and effort from consumers + the network the resource base Basis for Internal Co-specific Privileged access to companies Infrastructure for active, ongoing with diverse Access to processes within the network consumers Compe- tences Value Ad- Nurture and build Manage collaborative partner- Harness consumer competence, co-create ded by personalized experiences, co-shape managers customer experience Value creat. Autonomous Collaboration Co-creation Source of BU autonomy vs. Partner is Collaborator and competi- Consumer is collaborator and competitor for Man.tension core comeptencies tor for value value

Experience Economy Competitive Position Pricing Customer Needs Differentiated Competitive Position Undifferentiated Pricing Market Premium Customer Needs Relevant to Irrelevant to Extract Commodities Make Goods Deliver Services Stage Experiences

The new competitive space Supply chains Product Innovation Networks System Integration Solutions Experience Personalization Enahnced network of compe- tence + consumers Extended enterprise The firm and its supply base Product space Solution Experience space space