Class 3: Opportunity Identification (Stage 1) January 30, 2007

Lead User Research

General Principle of Lead User Research Extreme versus Means Identification of functionally novel products and service concepts should be done at the leading edge of markets and applications Evaluation of commercial potential should be done at the “means” of markets and market segments

Important Innovations by Consumers Category Health Products Personal Care Sports Food Office Computers Apparel Example Gatorade Protein-based Shampoo Mountain Bike Chocolate Milk White-out Liquid , Desktop Publishing Sports Bra

Definitions of Innovation Sources An innovation is a user innovation when the developer (firm or individual) expects to benefit by using it. An innovation is a manufacturer innovation when the developer expects to benefit by manufacturing and selling it. The Lead User research process targets directly user innovations and funnels them into a firm’s development process

Benefiting from Lead Users Lead User innovations form the basis for new products and service of value to manufacturers. Lead Users Have new product or service needs that will be general to the marketplace, but they face them months or years before the bulk of the market Expect to benefit significantly by finding a solution to those needs

Adopter Categorization on the Basis of Innovativeness Lead users are not the same as “early adopters”

Examples with Lead Users Hearing Aids Woodworking Tools

Does the LU approach work? Natural experiment conducted at 3M on the effect of the LU process compared to more traditional processes Funded LU ideas had forecast sales in Year 5 that were 8 times higher than other funded projects in the same time period ($146M vs. $18M) Funded LU ideas had significantly higher novelty, addressed more original customer needs and had significantly higher forecasted market share in year 5 than those from more conventional methods

Scenario Planning

The trouble with the future is that there are so many of them. -John R. Pierce (Bell Labs)

Scenario Planning

Scenario planning provides a platform to imagine variable futures resulting in a portfolio of actionable strategies. There is no excuse to be surprised. Only by anticipating the future can we hope to shape it. In a nutshell, scenario planning is the projection of environments into the future to test current and proposed strategic and policy assumptions. It is a disciplined way of thinking about the future that uses a clear methodology to analyze the impact of social, economic, political and industry trends.

Scenarios Scenario are structured accounts of possible futures

Scenario Planning at Royal Dutch Shell (early 1970s) Pierre Wack, a planner in the London offices of Royal Dutch Shell worked in the newly developed Group Planning Division (Shell was 11 th in the world) Looking for events that might change the price of oil : The US was beginning to exhaust its oil reserves US demand for oil was growing steadily OPEC was showing signs of flexing its political muscles (most members were Islamic and bitterly resented Western support of Israel after the 1967 six-day Arab/Israeli war) Arabs could demand much higher prices for their oil

Scenario Planning at Royal Dutch Shell (early 1970s) Pierre Wack came up with 2 basic scenarios: The usual option at Shell Oil prices would remain stable  A miracle would have to occur (e.g. new oil fields in non- Arab countries) Oil price crisis sparked by OPEC Oil prices would rise

Scenario Planning at Anglo American (a South African mining corporation) Early 1990s (Pierre Wack left Shell to consult) came up with 4 scenarios that were widely publicized in South Africa: Ostrich Negotiations to end apartheid fail; minority rule continues Lame Duck Transition to majority rule is slow, complicated, indecisive Icarus Transition is successful but new government enacts unsustainable, populist economic policies leading to an economic crisis Flight of the Flamingos Transition is successful. Gradual improvement in the social and economic status of South Africans occurs as diverse groups work together

Challenging Inertia Do an assumption analysis List key uncertainties Opportunities appear Embrace the uncertainties with Scenario Planning

The following conditions suggest the use of scenario planning: Uncertainty is high relative to a managers’ ability to predict or adjust The person/company does not perceive or generate new opportunities Too many costly surprises have occurred in the past The industry has or will experience significant change The company wants a common language and framework without stifling diversity There are strong differences of opinion, with multiple opinions having merit

Example: Global Uncertainties (mid-80’s) Key Uncertainties Trade conflict between USA and Japan Arms negotiations between USA and USSR Spread of AIDS Impact of Europe 1992 Deterioration of ozone layer and hole Continuation of Apartheid

Combining 2 Key Uncertainties USA / Japan USA/ USSR Arms Race Detente AccommodationTrade Conflict Imperial Twilight Industrial Renaissance Protracted Transition X

A Scenario Planning Exercise Scenario Planning Stages I) If you could consult the oracle at Delphi, what 3 questions would you ask? II) Identify other key uncertainties III) Pick the 2 most important and dichotomize them (vote) IV) List the main stakeholders & their interests/positions V) List the main long-term trends and assess the impact of each trend on this organization (+, 0, -, ?) VI) Fill in the matrix, pick one cell to examine in depth

Opportunity Identification Scenario Development Have the group members take on the roles of the different possible players in the scenario & discuss details of the situation (how specifically would your party be impacted) What new opportunities or needs emerge in this new “world”?