1. Innovation Management (ISMT 537) Instructor: J. Christopher Westland, Professor, ISMT Text: Westland, J.C., Global Innovation Strategy, Palgrave / MacMillan 2007 Contact: Office: 852 2358 7643 Fax: 852 2358 2421 Email: westland@ust.hk URL: http://teaching.ust.hk/~ismt537/

2. Organization of Course Materials

3. Understanding Innovation And who does it well?

4. Changing the Current Business Model This is the Key to Innovation  Innovation = Invention + Commercialization  The Inventions are already there 90% of the time  The Commercialization (Business Model) is what is new

5. Redesign: Keep it Simple The simplest way to change a business model  Is to redesign your current products and services Objective for redesign is:  One that so appeals to your target customers  That they feel almost compelled to buy from you

6. 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

7. Creative Tension: Opportunities vs. Capabilities The Innovator’s Challenge  develop products and services  That fully utilize the firm’s core competences  And deliver what the customer wants

8. Creative Tension: Opportunities vs. Capabilities Samsung is a great example:  Core competence is Memory Chips  Digital televisions, phones and MP3 players were markets that were heavy users of Memory Chips  Samsung developed these products to take advantage of its own core competences

9. Core Competences The Resource View of Firm Strategy Each company is a collection of capabilities. From resource-based view:  a firm's unique resources and capabilities provide the basis for a product strategy

10. Finding Core Competences To be successful a firm’s organizational structure has to effectively coordinate and integrate:  R&D  Design Strategy  Manufacturing Assets and Competences  Marketing

11. The Innovation Process is Holistic

12. Weakness in a Marketing-Centric View Situation: Sales force sets product strategy Problems: 1. Competences don’t support cost effective production and distribution 2. R&D can’t satisfy lead times, product quality Examples:  Apple’s Newton  Sony’s Blue Ray / PSP3

13. Weakness of a Techno-Centric View Situation: R&D sets product strategy Problems: 1. Competences don’t support cost effective production and distribution 2. There is no market (i.e., no money) for what R&D wants to make Examples:  Iridium (Motorola)

14. Weakness of a Competence-Centric View Situation: “Stick to your knitting” Problems: 1. There is no motivation to proactively “evolve” firm competences to meet consumer demands 2. R&D pursues useless work 3. Potential for disruptive innovations to destroy the firm in a very short time period Example:  Norton sandpaper

15. Weakness of a Product-Centric View Situation: Product success deters exploration for new product strategies  (yet ‘change happens’) Problems: 1. Competences don’t ‘evolve’ 2. R&D focuses on ‘tweaking’ existing products 3. The reason even smart companies don’t survive disruptive innovation Example:  Kodak Film

16. Case Study: Viagra Build a Better Product By Managing the Consumption Chain

17. Viagra: Competences Pfizer developed several new competences in the process of bringing Viagra to market  List three of them  Explain how each of these new competences was developed and implemented  Explain the marketing significance of each (can you put a dollar figure on their value?)

18. Viagra: Marketing In what ways is Pfizer’s marketing challenge different than Toyota’s (for example)  List two of them  Explain how each of these can be managed  Explain how each difference influences customer demand

19. Toolsets

20. Quizzing Detailed look at customer usage and decision making regarding your product Looks for ideas to Change the Customer’s Experience  i.e., to redifferentiate your product Remember: Experience is dynamic  So are the questions in quizzing

21. How to Quiz Ask Questions Who? … 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..

22. Function of Consumption Chain Analysis A complement to quizzing …  Quizzing is random Consumption Chain Analysis  Time sequenced From the time customers 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

23. The Attribute or Feature Map Formalizes market position of innovation  In a way that allows it to be explored  For compatibility with Competences R&D Customer needs and current products Competitors and Barriers You can start a general review of a product with a rough assessment of the attribute map for the product

24. Assessing Customer Attitudes The Attribute Map Compares your product to those of others BasicDiscriminatorEnergizer PositiveNonnegotiableDifferentiatorExciter NegativeTolerableDissatisfierEnrager NeutralSo What?Parallel

25. Consumption Chain Analysis

26. More Attribute Maps Each step on the consumption chain has an attribute map These determine whether the potential customer proceeds to the next step  Or leaves the consumption process (not good)

27. 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 CCA is about keeping your customer at each step

28. Every Link in the Consumption Chain has its Own Attribute Map The Attribute Map compares your product to those of others BasicDiscriminatorEnergizer PositiveNonnegotiableDifferentiatorExciter NegativeTolerableDissatisfierEnrager NeutralSo What?Parallel

29. Attribute Maps Are applied:  Before CCA  At each step of the consumption chain This can get complex  This forces you to simplify  Minimize strategy drivers  Minimize essential features

30. Summary: Steps for Redifferentiating 1. For each customer segment sketch the consumption chain 2. Identify the trigger events that precipitate customer movement from link to link 3. Put in place procedures to alert you when the trigger is pulled (and plan your response) 4. Quiz to assess needs that may not be met currently 5. Create an attribute map for each significant link in the Consumption Chain 6. Use your knowledge of Customer Experience to create Blockbuster Products 7. Put the ideas you generate into your opportunity register Repeat this process for each class of stakeholders

31. Design Innovations Landmark Designs from years past

32. Henry Dreyfuss: Form follows function

33. “Streamlining” It’s first uses applications were practical

34. Loewy’s Streamlining

35. McCormick-Deering Creamer before and after Loewy’s 1945 redesign to streamline, and eliminate fragile parts

36. Streamlining Household Appliances (Loewy)

37. Transformation: Functioning invention to Marketable product

38. Which is Faster?

39. Utility + Human Interface

40. Lessons from 3M and Norton3MNorton A study in Innovation Contrasts Case Study from Jim Collins & Jerry Porras, Built to Last, 1997

41. Success from Failure Detailed plans fail, because circumstances inevitably change Military theorist Karl von Clausewitz 3M began life as a failure (1904) Its corundum (e.g.,rubies and sapphires) mining operations failed It moved to abrasives to develop a use for all its low- grade grit William McKnight’s Strategy Diversify products Develop the lab to do so.

42. Norton Same industry  same time period as 3M Financially stronger  Took the conservative approach  Of only servicing successful customers and products

43. Comparison of history: 3M & Norton

44. ‘Culture’ 3M’s culture of innovation transcended McKnight, Okie, Drew and Carlton Consider the ‘Mechanisms’ that define the culture

45. 3M and Norton Lessons Learned 3M has come up with many management innovations to make its technology company work ‘Mechanisms’= The Ticking Clock that continues to operate despite management / personnel changes

46. Management Innovation "Give it a try—and quick!" When in doubt, vary, change, solve the problem, seize the opportunity, experiment, try something new (consistent, of course, with the core ideology)  even if you can't predict precisely how things will turn out Do something. If one thing fails, try another. Fix. Try. Do. Adjust. Move. Act. No matter what, don't sit still.

47. Management Innovation "Accept that mistakes will be made" You can't tell ahead of time which variations will prove to be favorable You have to accept mistakes and failures Darwin's key phrase: "Multiply, vary, let the strongest live, and the weakest die." In order to have healthy evolution,  you have to try enough experiments (multiply) of different types (vary),  keep the ones that work (let the strongest live), and  discard the ones that don’t (let the weakest die). Failures are valuable in certain ways.... You can learn from success, but you have to work at it; A visionary company tolerates mistakes (but only where you learn from them)

48. Management Innovation "Take small steps." It's easier to tolerate failed experiments when they are just that—experiments, not massive corporate failures. small incremental steps can form the basis of significant strategic shifts. If you want to create a major strategic shift in a company, you might try becoming an "incremental revolutionary" harnessing the power of small, visible successes to influence overall corporate strategy.

49. Management Innovation “Give people the room they need." A key step that enabled unplanned variation. When you give people a lot of room to act, you can't predict precisely what they'll do This is good. Visionary companies decentralized more and provided greater operational autonomy than the comparison companies in twelve out of eighteen of Porros and Collins cases. (Five were indistinguishable.) Corollary: Allow people to be persistent.

50. Management Innovation Leadership tone Managers often underestimate the importance of building lasting mechanisms to translate objectives into results They erroneously think that if they just set the right "leadership tone," people will experiment and try new things.

51. Management Innovation 3M’s Ticking Clock

52. Some Questions How could you improve 3M? 3M seems to be quite lenient with managers whose projects fail to meet ROI targets. Can you think of a way to prevent 3M’s product failures and keep generating profitable products? What would such a strategy look like?

53. Some Questions 3M’s relaxed environment is likely to attract freeloaders and deadwood to their staff. How should 3M manage these problem employees? Is there a Human Resources strategy that can prevent the accumulation of non-performing employees in a relaxed, self-motivating work environment like 3M’s?

54. Innovation Workout Quiz, Consumption Chain Analyze and Feature Map an Innovation Quizzing and Mind Maps