1. Mid-term Exam Review Slides Innovation Management (ISMT 302)
Time & Venue: 17 Oct 2006, 13:30 to Room 4333
ONE A4 paper cheat sheet is allowed

2. Logical Structure of the Course

3. Classes of Things You have Learned
Concepts: Things you need to know before you think about innovating. These include:
Knowledge about previous successful and unsuccessful innovators (people and companies)
Theories and frameworks
Facts
All of these underlie and motivate your activities.
Activities and Tasks: Things you (as an entrepreneur or intrepreneur) need to do in developing innovative products. These occur on both sides of the equation:
Innovation = Invention + Commercialization
Activities can either ‘Invent’ or they can ‘Commercialize’
Tools: Used to make decisions about ‘Inventing’ or ‘Commercializing’
These are the tangible mental exercises, models, spreadsheets, documentation, etc. that support innovation activities and tasks.

4. Fundamentals

5. Definition: ‘Innovation’
An ‘Innovation’ is:
Invention + Commercialization
Freeman, The Economics of Industrial Innovation
A new way of doing things that is commercialized
Porter
The new knowledge in an innovation can be either
Technological, or
Market related

6. Elements of Product Innovation

7. The Purpose of a Business is to Create a Customer -- Peter Drucker
Even if you create marvelous inventions
Your customers won’t care
Unless that is exactly what they need
Business customers are especially impatient
With any product that doesn’t help them gain competitive advantage
Yet your firm wants to build products that take advantage
Of their Core Competences

8. What makes each of these companies Innovative?

9. Invention Generation
The opportunity register (OR) should be seen as a repository of ideas that can be pulled up at any time.
If a particular idea isn’t working, you have the option to switch to another OR Entry (i.e., another innovation)
You can actually plan these milestones in advance
Hedging your bets
By running many innovation projects
Simultaneously, or
Sequentially

10. Sources of Innovation How innovation arises Where innovations arise
Functional:
Innovations arise from thinking about the functional relationships between groups and individuals
e.g., customer or manufacturer
Attribute Maps and Quizzing help identify Innovations arising functional relationships
Circumstantial:
Innovations arise from thinking about the circumstances in which a product (innovation) will be encountered
e.g., a cooking innovation when it is consumed in a restaurant
Consumption Chain Analysis helps identify circumstantial Innovations
Where innovations arise
Internal R&D
External Markets (Customers)
Competitors & related industries
University, government & private labs
Other nations / regions
The last two sources are strongly influenced by society and governments

11. Sources of Innovation
Internal R&D
External Markets (Customers)
Competitors & related industries
University, government & private labs
Other nations / regions
The last two sources are strongly influenced by society and governments
‘Complementarity of several sources may amplify and accelerate innovation

12. Innovation at the National level
Success in societies which:
operate, manage and build instruments of production
create, adapt and master new technologies
impart expertise and knowledge to the young
choose people for jobs by competence and relative merit
promote and demote on basis of performance
encourage initiative, competition and emulation
let people to enjoy and employ the fruits of their labor, enterprise and creativity
Success where government does the following:
encourage saving and investment
enforce rights of contract
secure rights of personal liberty against tyranny and crime
provide stable government,
though not necessarily democratic
provide responsive government
provide no rents or favors for government position
have governments that are moderate, efficient and ungreedy

13. Science & Technology What are they? How are they related?

14. Complementarity What other products are needed to complete your Commercialization?
Most economically significant modern products have little value on their own
They require complementary products from many firms to be of value
Petroleum has little use without internal combustion engines
Or Cars without Roads (US Road costs are around $5-10 per gallon of gasoline)
Or Electricity without Electric Motors
Or iPods without MP3s
… you get the idea
What are your ‘Killer Apps’?
The complements that sell your product

15. Life cycle of an Innovation Development Determines Optimal Market Entry Strategy
Fluid phase
Mainly lab based or custom applications of technology
Transitional phase
Standardization of components, and consumer-producer interaction lead to dominant design
Specific phase
Products built around the dominant design proliferate; innovation is incremental

16. Sustainability Different Industries; Different Rates of Change
Past is indicator of Future
Future is Volatile

17. Sustainability S-Curve (Foster and others)
Eras of incremental change terminate with a ‘discontinuity’
We look for limits on the technology’s life cycle using knowledge of the technology's physical limits
E.g., Moore’s Law will run out on current platforms at 2013
Advance of a technology is a function of development effort

18. Key to Generating Profits: Low-cost or Differentiated Products
Firms do this through their unique value configuration
(i.e., value chain, value network, value shop, profit chain)
To create Low-cost / Differentiated Products a firm needs:
Plants, equipment, patents, scientists, brand name recognition, geographic location, client relations, distribution channels, trade secrets
i.e., Assets, Competences and Knowledge

19. Technological Characteristics that Promote Innovation
(Henderson-Clark) Products are made up of components (even services)
There exist two kinds of relevant knowledge
Component
Architectural
(Abernathy-Clark) Two kinds of knowledge underpin an innovation
Technological
Market
Incumbents Fail when they Fail to “Get” one or the other type of Knowledge

20. Market-Technology Interplay: Effect on the Profitability of Inventions
Two factors are instrumental to profiting from an innovation
Imitability and
Complementary Assets

21. Complementarity What other products are needed to complete your Commercialization?
What are your ‘Killer Apps’?
Who are your ‘Co-opetitors’ and what essential assets do they control?
Most economically significant modern products have little value on their own
They require complementary products from many firms to be of value
Petroleum has little use without internal combustion engines
Or Cars without Roads (US Road costs are around $5-10 per gallon of gasoline)
Or Electricity without Electric Motors
Or iPods without MP3s
… you get the idea

22. What sort of people are Innovators?
Idea Generators
Can sift through large quantities of technological and market data to identify ‘innovations’
Gatekeepers & Boundary Spanners
Conduits for knowledge from other firms and labs
Champions (Entrepreneurs, Evangelists)
Sell the innovation to the firm
Sponsors (Coach, Mentor)
Senior level manager who provides behind the scenes support, access to resources, and protection from political foes
Project Managers
Planners with discipline; one-stop decision making shop

23. Market side innovation
What is Innovation? Chapter 1
Framing the Challenge: Business Needs and Models Chapter Blockbuster Innovations Chapter 3
Redifferentiating & Resegmentinb Chapter 4
Techniques: Quizzing, Attribute Maps and Consumption Chain Analysis
Practicums: False Faces
Slice and Dice
Think Bubbles

24. The Opportunity ‘Register’
Concept: Always keep an inventory of possible opportunities so that you are unlikely to run out of ideas for making the next competitive move or capturing the next prospect for growth
Fields:
Business concept
Relevant trends
Key industry data
Obstacles and barriers
Company position
Competition and Substitutes
Sources for your information
What type of opportunity is this?
Timing of proposed actions

25. Commercialization Defines your market
Who is the target customer for the company’s product (age, income, medical history, and other demographics)
Support this with Attribute Maps and Consumption Chains
What will differentiate your innovation from competitors’ in the customer’s minds?

26. Quizzing
Detailed look at target customer usage and decision making regarding your product
Looks at the customers “stream of consciousness”
Through a series of questions
Looks for ideas to Change the Customer’s Experience (i.e., redifferentiate your product)
Remember: Experience is dynamic
So are the questions in quizzing
Over a time period prior to the first time customer is exposed to the product
To a time well after the customer has stopped using it

27. Quizzing Who? What? What else? … might customers have on their minds
… is with customers while hey use the product
How much influence do they have
If we could arrange it, who would we want the customer to be with …
What?
… Do our customers experience when the use the product
… needs provoked our offering
What else? … might customers have on their minds
When? … do our customers use this ..
Where? … are our customers when they use this
How? … do customers learn to use the product ..

28. Summarize your Quizzing by the Attributes of the Innovation that are important to the Customer
This provides a heuristic for ‘Functional Innovation’ (Eric von Hippel)
Basic
Discriminator
Energizer
Positive
Nonnegotiable
Differentiator
Exciter
Negative
Tolerable
Dissatisfier
Enrager
Neutral
So What?
Parallel

29. Consumption Chain Analysis

30. Function of Consumption Chain Analysis
A complement to quizzing …
And (perhaps) quizzing done from a different (more graphical) perspective
Consumption Chain Analysis
Works from the premise that
opportunities for redifferentiation
lurk at every step and decision that your customers take
From the time they first become aware of their need for your product or service
To the time thy finally dispose of the remnants of the used up product
Rather than ‘stream of consciousness’
It is time-sequential

31. Consumption Chain Analysis
A complement to quizzing …
And (perhaps) quizzing done from a different (more graphical) perspective
Consumption Chain Analysis
Works from the premise that
opportunities for redifferentiation
lurk at every step and decision that your customers take
From the time they first become aware of their need for your product or service
To the time thy finally dispose of the remnants of the used up product
Rather than ‘stream of consciousness’
It is time-sequential
It provides a Heuristic for ‘Circumstantial Innovation’ (Eric von Hippel)

32. Every Link in the Consumption Chain has its Own Attribute Map
The Attribute Map compares your product to those of others
Basic
Discriminator
Energizer
Positive
Nonnegotiable
Differentiator
Exciter
Negative
Tolerable
Dissatisfier
Enrager
Neutral
So What?
Parallel

33. What To Do with the Opportunity Register When Competences start to matter
Assuming you’ve been religiously adding to your Opportunity Register
You should by this time have a lot of different ideas for new and marketable products
Then the question becomes:
Which projects should you take on; emphasize; continue?
The answer depends on your competences
This is the point where Demand and Supply side of Innovation Meet

34. Business Models Matter
Telling a good story
Part of selling your strategy / investment
Tying Narrative to Numbers
Strategy becomes less philosophy
More performance and outcome
When business models don’t work
It’s because the fail either
The ‘Narrative’ test
Or the ‘Story’ test

35. Business Models Matter A business model is not strategy
It doesn’t describe external forces:
Competition
Environment
Scaling
It only depicts the systems that will be put into place to achieve a strategic objective
A good model is not enough
The boxes on the value map need to be understood in depth
In order to develop a good strategy

36. Framing the Challenge Targets and Goals
If I were to do something in the next 3-5 years
That I, my boss and my company’s investors would regard as a major win
What would this performance record have to look like?
That my customers would regard as a major (disruptive) innovation
How would I change their lives?
How would my relation with customers affect my performance?

37. Framing the Challenge: Strategy Drivers
E.g., Lucent’s Performance Targets
Sales from 1% growth to the high teens
R&D from 8% to 11% if Sales
Reduce SGA from 27% to 19%
Reduce tax rate 4% points
Lift
ROA from 0% to 1%

38. New Life from Old Competences
Redifferentiating and resegmenting

39. Redifferentiating Products The Dialectic
Innovation involves a dialectic:
On the one-side are arguments about what the customer wants (demand-side)
Remember that the customer doesn’t care about us or our products
We have to make them care
On the other-side are arguments about what we can do (supply-side)
These are determined by our core competences
Which are to some extent determined by Mission and Vision statements, and our Business Models

40. Resegmenting and Reconfiguring
Focusing on and better serving existing market segment
Reconfiguring
Completely changing the existing basis for segmentations
By reconfiguring existing value maps
Or introducing entirely new kinds of solutions

41. Reconfiguring your Market
Reconfiguration is about
Breaking down the Barriers (technological, regulatory or organizational)
That set limits on the Attributes you can offer
Or on the way that Consumption Chains can be configured
It builds on your insights from the Consumption Chain Analysis and Attribute Map
Looking to remove the Limitations imposed by your existing Core Competences

42. How to Resegment
Resegmentation addresses the Dynamics of Customer Usage of a Product
It builds on your insights from the Consumption Chain Analysis and Attribute Map
Looking for new Segments to market to
Observe behavior
To Uncover existing Customer’s Needs
To find new Customer Groups within your existing customers
Keep them from moving to competitors’ products

43. Market-side Practicums

44. Prac·ti·cum (prăk-tĭ-kəm)
Topic
Practicum
Business Needs: Framing the Challenge
False Faces (perceptual reversals)
Building Blockbuster Innovations
Slice and Dice (Attribute Maps pp )
Redifferentiating Products: New Technology or New Uses
Think Bubbles (Quizzing to understand the customers’ experiential context pp )

45. False Faces: An Escape from Looking at Problems in the Traditional Way
BLUEPRINT
State your challenge.
List your assumptions.
Challenge your fundamental assumptions.
Reverse each assumption. Write down the opposite of each one.
Record differing viewpoints that might prove useful to you.
Ask yourself how to accomplish each reversal. List as many useful viewpoints and ideas as you can.
Which line is longer, AB or CD?
Link the nine dots below with no more than three straight lines which will cross through all nine dots, without lifting your pencil (think outside the box)

46. Slice and Dice State your challenge.
BLUEPRINT
State your challenge.
Analyze the challenge and list as many attributes as you can.
Take each attribute, one at a time, and try thinking of ways to change or improve it. Ask "How else can this be accom­plished?" and "Why does this have to be this way?"
Strive to make your thinking both fluent and flexible.
Which figure is the widest?
Consider the bicycle:
Frame.
Handlebars.
Pedals.
Brakes.
Tires.
Chain.
Drive sprocket.
Improved attributes:
Lightweight frames made out of new materials.
Racing handlebars replacing traditional handlebars.
Pedals with straps and grips.
Hand brakes replacing axle brakes.
Lightweight, solid tires replacing inflatable ones.
Chains with clamps to make changing them easier.
Sprockets that provided ten gears. ?

47. Think Bubbles: an aid to Quizzing
Mind mapping is an idea generator. It does not supply raw material, so your map may show areas where you need to collect more information
Mind Maps to Recognize the Potential of an Innovation share five basic characteristics:
1.Organization. Mapping presents information organized in the way you think it. It displays the way your mind works, complete with patterns and interrelationships, and has an amazing capacity to convey precise information, no matter how crudely drawn.
2. Key words. Ignore all irrelevant words and phrases and concentrate only on expressing the essentials, and what associations these "essences" excite in your mind.
3.Association. Make connections, links, and relationships between seemingly isolated and unconnected pieces of information. These connections open the door to more possibilities. You can feel free to make any association you wish, without worrying whether or not others will understand you.
4.Clustering. The map's organization comes close to the way your mind clusters concepts, making the mapped infor­mation more accessible to the brain. Once your ideas are clustered, try to adopt the viewpoint of a critic seeing the ideas for the first time. This allows you to test your asso­ciations, spot missing information, and pinpoint areas where you need more and better ideas..
5.Conscious involvement. Making the map requires you to concentrate on your challenge, which helps get informa­tion about it transfered from short-term to long-term memory. In addition, continuous conscious involvement allows you to group and regroup concepts, encouraging comparisons. Moving think bubbles around into new juxtapositions often provokes new ideas.