1. INNOVATION STRATEGY
Setting the direction

2. AGENDA READINGS Mapping Your Innovation Strategy
Creating New Market Space
Case: Evolution of the Circus Industry
LEARNING OBJECTIVES:
What is strategy? What is an innovation strategy?
What is value innovation?
How can this be applied to understanding the circus industry?
What is a disruptive technology/innovation?
Prep readings:
S. Anthony, M. Eyring, L. Gibson. “Mapping Your Innovation Strategy”. Harvard Business Review, May W.C. Kim, R. Mauborgne. “Creating New Market Space.” Harvard Business Review, Jan-Feb 1999: pp CASE: Evolution of the circus industry (A). M. Williamson, W.C. Kim, R. Mauborgne & B.M. Bensaou , Case 06/ : INSEAD (6 pages).
Questions:
1. What were the factors the traditional circus competing on? What did you like or dislike about the traditional circus? 2. Is it possible to find new market space in the circus industry?
Handouts needed for this class:
Even a clown can do it (B), INSEAD Case by M. Williamson
Blue Ocean strategy, HBR Ost 2004 by W.C. Kim, R. Mauborgne

3. STRATEGY?
A strategy is the way in which an organization chooses to meet its goals and objectives.
A strategy defines appropriate decisions and actions.
Strategy: the way a company achieves it’s objectives.

4. INNOVATION STRATEGY?
Innovation strategy determines to what degree and in what way a firm attempts to use innovation to execute its business strategy and improve its performance.
What does an innovation strategy include?
Target: What market?
Ideation: What innovations?
Conversion: How to plan, select and develop innovations?
Diffusion: How to commercialize?
An innovation strategy: how will you achieve innovation in your organization?
Pick the market:
Where will you play? What is your market? Why is this the right market for you? What opportunities and threats exist in this market? Is this the same market you always target? What does this market want/need?
Example – does Harvard Summer School target the same market as Harvard Business School or Medical School? What advantages does Harvard achieve by serving the extension market?
Pick the innovation (ideation)
What will work – for you and the market? What are the options?
Plan, select and develop (conversion)
Criteria? Testing? Motivation for employees? Who decides?
Commercialize (diffusion)
Analyze the results, reassess your criteria, test and launch.
This paper takes the Hansen & Birkinshaw Innovation value chain of idea generation, conversion and diffusion and applies to to finding non-obvious opportunities based on non-traditional assumptions.

5. Typology of Strategies (James Gardner )
Play-to-win strategy
Play-not-to-lose strategy
Exploration
Expectation of a significant competitive advantage
Relies on semi-radical and radical innovations
New technologies and business models for breakthrough innovations
Lead the competition
Exploitation
Maintaining existing competitive advantage
Incremental innovation to strengthen existing products
Keeping up with the competition

6. An example of internal process innovation in PNTL Strategy

7. Example of Amazon, PTW
Complete redesign of business model for delivery of books from publisher to consumer
Heavy reliance on technology
Responsibility for shipping with publisher
Required heavy up front investment
Now has expanded beyond books
Challenge was that it took 10 years to turn a profit.

8. VALUE INNOVATION Kim & Mauborgne
Research showed that managers of high-growth companies think in terms of value innovation while managers of less successful companies think in terms of conventional strategic choices. And…
Represent…
Incremental Innovations
Radical Innovations
% of launches..
86%
14%
% of revenue..
62%
38%
% of profits…
39%
61%
Examples provided of Formule 1 Hotels that minimize the perks and maximize convenience, and Kinepolis movie theatres that super-sized the movie theater experience.

9. VALUE INNOVATION
Creating products or services for which there are no direct competitors – and use those offerings to stake out and dominate new market space.
Examples:
Quicken Software from Intuit
Starbucks
Home Depot

10. Comparing Conventional To Value Innovation Logic
Conventional Logic
Value Innovation Logic
Industry assumptions
Conditions given
Shape conditions
Strategic focus
Beat the competition
Create quantum leap in value
Customers
Retain & expand, segment & customize
Serve masses, focus on commonalities
Assets & capabilities
Leverage existing
Create what is needed
Product/Service Offering
Maximize value within traditional boundaries
Total solutions for customers regardless of boundaries
Key tool: how to map your strategy against the competition along main dimensions – existing and value innovation.

11. Discovering the Value Curve
Apply this analysis to the circus industry…

12. Traditional Circus Industry
How would you assess the attractiveness of the circus industry in the early 1980’s? What would you conclude from your industry analysis?
What were the factors the traditional circus companies competed on? What do you like or dislike about the traditional circus?
How would you assess the attractiveness of the circus industry in the early 1980’s? What would you conclude from your industry analysis?
Rivalry
Supplier bargaining power – acts provided by individual ‘subcontractors’, some very famous. Star acts can demand significant salaries and top billing.
Barriers to entry in little league very low but in big league very high.
Threat from substitutes – video games, professional sporting events, theater, etc.
Buyer bargaining power
What were the factors the traditional circus companies competed on? What do you like or dislike about the traditional circus?
Demand side – demand shrinking.
Frustrations:
Debilitating huckster reputation
Feels unprofessional
Cold, uncomfortable
3 rings, can’t see everything
Kids upset if they don’t get the expensive stuff
Even clowns look sad
Animals used for human entertainment, they look sad
Suspicion about animal (and employee) treatment
Animals’ smell
Benefits
Magic
World of amazement and exceptional strength/skills
Wonder and illusion
Real action and movement
Live entertainment outside
Sense of danger and risk
Fun and light entertainment
Family event
Realities:

13. Origins of the Circus Classic circus: Equestrian acts Clowns Acrobats
Jugglers
Created by Philip Astley in 1768

14. Evolved to the 19th & 20th Century Ringling Brothers and Barnum & Bailey’s Circus
Three-ring format
Emphasis on spectacle
Mobile circus
Typical clowns
Star performers such as
Tom Mix, Rodeo Rider
Clyde Beatty, wild animal trainer
Revenue based on ticket sales and concessions (80/20)

15. Challenges Logistical requirements of tearing down and setting up
Core workforce supplemented with local hires
Itinerant nature makes estimating ticket sales difficult
Marketing and publicity usually happens when the circus arrives in town
Venue: tent, civic arenas
Locations: towns & cities
Logistics:
local help plus core workforce plus star performers
set up and tear down
permanent tours
simultaneous, subcontracted acts
leased animals
Value: spectacular, spectacle, exotic, novelty (once/year)
Business model: ticket sales = 80%; concessions = 20%; unpredictable income
Marketing – advance teams, entrance performance
In 1997 – 90 US travelling circuses; revenue = from $50,000 to $1 million/year; performers

16. Current State Ringling Brothers Modernizes
But who is their target market?
In 1984 a new option is born
Who is the audience for the “non Circus”, Cirque du Soleil?
What is different?
Even a Clown can do it!
Cirque du Soleil video on Organizational Behavior CD, disc one – 10 mins

17. Questions
When you compare Cirque du Soleil with the conventional circus, which are the factors kept by Le Cirque? Which ones were downplayed and which ones were played up?
Which factors were eliminated by Cirque du Soleil? What are the operational and financial implications?
What factors were created by Cirque du Soleil? Where did the idea come from?

18. Cirque du Soleil challenged the assumptions of the industry:
Traditional Circus
Cirque du Soleil
3 Ring
Star Performers
Seasonal
One Show
Child Audience
Animals
Unrelated Acts
No Music/Dance
Low Price
High Push for concession sales
Emphasis on fun/thrills
Functional watching environment
One ring
Non-star Performers
Yearly
Multiple productions
Adult audience
No animals
Story/theme
Individualized Music/Dance
High price
Profits from tickets
Emphasis on artistery
Refined watching environment

19. BLUE OCEAN STRATEGY W. Chan Kim, Renée Mauborgne
Create uncontested market spaces where the competition is irrelevant.
Invent and capture new demand, and offer customers a leap in value while streamlining costs.
As opposed to red ocean strategies which represent all industries in existence – the known market space. Industry boundaries are defined and accepted, and the competitive rules of the game are well understood.

20. “We reinvent the circus”
Cirque du Soleil invented a new industry that combined elements from traditional circus with elements drawn from sophisticated theater.

21. Red Ocean Versus Blue Ocean Strategy
Red Ocean Strategy
Blue Ocean Strategy
Compete in existing market space.
Beat the competition.
Exploit existing demand.
Make the value/cost trade-off.
Align the whole system of a company’s activities with its strategic choice of differentiation or low cost.
Create uncontested market space.
Make the competition irrelevant.
Create and capture new demand.
Break the value/cost trade-off.
Align the whole system of a company’s activities in pursuit of differentiation and low cost.

22. Disruptive Innovations Clayton M. Christensen
An innovation (or technology) that disrupts an existing market.
"Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.“
Christensen, Clayton M. (1997). The innovator's dilemma: when new technologies cause great firms to fail. Harvard Business Press.
For example…
Disruptive Innovation: Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors.  An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.  Characteristics of disruptive businesses, at least in their initial stages, can include:  lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics. 
For example, the one-laptop-per-child initiative was envisioned by Nicholas Negroponte, cofounder and chairman emeritus of MIT’s media lab. The concept, which he unveiled at the World Economic Forum at davos, Switzerland in January 2005, was to give all children in developing countries a laptop computer of their own. The vision led Negroponte to organize the project as a nonporifit – the OLPC foundation. The challenge was then in the implementation – how to achieve minimal power consumption, a manufacturing cost of US$100 for production runs of millions of units, a cool look, e-book functionality and free or open-source software development. Since its launch computer manufacturers are now developing a commercialized version.

23. EXAMPLES OF DISRUPTIVE TECHNOLOGIES (from Wikipedia)
Innovation
Disrupted market
8 inch floppy disk drive
14 inch floppy disk drive
Steamships
Sailing ships
5.25 inch floppy disk drive
Telephones
Telegraphy
3.5 inch floppy disk drive
Automobiles
Rail transport
Downloadable Digital Media
CDs, DVDs
Private jet
Supersonic transport
Hydraulic excavators
Cable-operated excavators
Plastic
Metal, wood, glass etc
Mini steel mills
vertically integrated mills
Light-emitting diodes
Light bulbs
Minicomputers
Mainframes
Digital synthesizer
Electronic organ and piano
Personal computers
Minicomputers, Workstations.
Mobile Telephony
Mobile Discount Operators
Desktop publishing
Traditional publishing
LCD
CRT
Computer printers
Offset printing
Digital calculator
Mechanical calculator
Digital photography
Chemical photography
Ultrasound
Radiography (X-ray imaging)
High speed CMOS video sensors
Photographic film
Podcasting
Broadcast Radio & TV