1. Innovation Management (ISMT 537)
Instructor: J. Christopher Westland, Professor, ISMT
Text: Westland, J.C., Global Innovation Strategy, Palgrave / MacMillan 2007
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2. Organization of Course Materials

3. Understanding Innovation?
The Processes and Competencies

4. 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

5. Definition: Capabilities
A firm’s assets and competences together
For example,
Intel
Capabilities = integrated circuit design & semiconductor manufacturing
Assets = patents, copyrights, installed base of PC’s (Intel inside), reputation, scientific expertise
Competences = protection of intellectual property, fast product time to market, compatibility of new products with prior genrations

6. Understanding Innovation
Innovation usually means Change
Change management is an essential part of innovation management
How successful a firm is at innovating depends on
The firm’s capacity to collect and commercially use information
The nature of that information itself

7. How do you know that you have an ‘Innovation’?
Innovations can be:
Incremental
Radical
Architectural
They can be competence enhancing or destroying
They can make or break barriers to entry
Innovations have their own ‘life cycle’
Successful innovators know where to invest money and resources in the life cycle

8. Industry Change Affects all companies in a market
Industries change in four ways
radical 19%, progressive 43%, creative 6%, and intermediating 32%.
Only 19% is life-threatening radical change
Most is incremental
Failure resulted from obsolescence of the firm’s products or services arising from two directions:
(1) a threat to the industry's core competences; and
(2) a threat to the industry's core assets—the resources, knowledge, and brand capital that have historically made differentiated the firm.

9. Understanding Innovation Complementarity
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

10. Understanding Innovation Profits (and who)
Only 20% of value created by innovations goes to the producer (the rest to consumers)
Who gets that 20% depends on:
Imitability and
Complementary Assets

11. Markets and Competences Competences are knowledge assets
By its very definition, you are very likely to know when you stumble across an innovation – the fact that what you have found is new to you, your customer or your employer makes it an 'innovation.'
But because of its newness, you are just as unlikely to know its value.
Innovations, to be successful, must align with the competences and assets of the firm

12. Understanding Innovation Types of Knowledge
Four kinds of knowledge underpin an innovation; two are
Technological
Market
Component
Architectural
Incumbents Fail when they Fail to “Get” one or the other type of Knowledge

13. Science generates commercial technologies in three phases
The first 'fluid' phase marks the prototyping of laboratory technologies
The second 'transitional' phase begins standardizing components, and defining consumer-producer relationships

14. Successful innovation demands the firm be sensitive to ‘Windows of Opportunity’
The early part of the S-curve is a period of idiosyncratic development, before standards or deep understanding of the technology exist
Many competing theories and trajectories exist, promoted by strong and volatile egos, making any investments highly risky.
As understanding evolves, standards are established, and technology advances incrementally,
generally through sober research, investment and hard work.

15. Physical limits of the S-curve
The physical limits of the S-curve are constrained by the limits of scientific knowledge; often technology alone cannot push it back.

16. Understanding Innovation Life cycle
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

17. The Innovator’s Challenge
A firm makes profits
by offering products or services at a lower cost than is competitors Or
by offering differentiated products at premium prices
that more than compensate for the extra cost of differentiation

18. Sources of Innovation How innovation arises Functional:
From thinking about the functional relationships between groups and individuals
Attribute Maps and Quizzing help identify Innovations arising functional relationships
Circumstantial:
Innovations arise from thinking about the circumstances in which an innovation will be used
Consumption Chain Analysis helps identify circumstantial Innovations

19. Sources of Innovation 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

20. Five sorts of People (Manpower Assets) Are needed for Innovation
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

21. Elements of Product Innovation

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

23. Business Model vs. Strategies
(more in Chapter 4)

24. Requires a Business Model, and
Business Modeling
Innovation = Invention + Commercialization
The “Commercialization” part
Requires a Business Model, and
Requires a Strategy

25. Business Models Telling a good story Tying Narrative to Numbers
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

26. Framing the Challenge
Task #1: Establish what your business needs to do to make innovation worthwhile
What do we mean by ‘needs to do’?
What do we mean by ‘worthwhile’?
This is what will drive the Business Model

27. Facts of Life There is no checklist!
Incremental improvement of existing products or business models is insufficient!
You must really make a difference
Will your efforts yield a good return for your shareholders?
Exactly how?

28. 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?

29. What Drives your Strategy?
What’s your Strategy Driver?
What makes your proposed business perform?
What makes your proposed innovation a commercial success?

30. Reality Check
Your text suggests a simplistic (but revealing) reality check
For any new business idea
(click for the spreadsheet)

31. Strategy

32. Evolution of ‘Strategy’

33. The Resource Based View of Strategy

34. Classical Perspective on Strategy Inside the Firm (Operations)

35. Porter Perspective on Strategy Outside the Firm (Markets)

36. Each of these companies Looked at their challenge in a new way

37. Case Study: Model T Ford
A Study in Incremental & Process Innovation

38. What is it? Model T Stock Footage Factory Row Starting up 1957 rebuild
1913 Green
Ford and Model T
1925 Model T
1903 Model T

39. Model T Ford: Questions
Describe parallels between the early automotive industry the early personal computer industry.
Why do you think that the automotive industry developed up in a “knowledge cluster”?
How might this drive the pace, and provided investment for the new auto companies?

40. Model T Ford: Questions
How was the U.S. patent system was used to stifle creativity?
Why do you think Ford as a company prevailed despite the fact that it did not possess better technology. How did it benefit from a combination of good marketing, good technology, sound production, and luck?

41. Model T Ford: Questions
Efficiency improvement through automation was largely a procedure of standardizing parts and processes – in other words, making transactions routine. How does routinization bring about reduced costs, faster and more efficient production?
Ford's substitution of technology for human effort was not a 1-to-1 replacement of man by machine; rather, the more subtle three people can now do the task formally allocated to four. Is this typically the way automation impacts firm economics, or is it unique to Ford?

42. Model T Ford: Questions
Much of Ford's success resulted from replacing materials, labor, and machines with knowledge. Describe this process.
The benefits from the technology accrued mainly to customers (in better quality and lower prices) and workers (in higher wages). Why?

43. Cars in General: Efficiency of Transit

44. Cars in General: Efficient Cars are Impossible
Cars large, heavy, fast-moving vehicles that demand enormous amounts of space to function effectively.
They also have a zone of influence that expands as speed and the quantity of traffic increases, a fact that dictates sprawling land development.
Even if cars grow more efficient, they dictate an inefficient use of land and other natural resources and contribute to social fragmentation.
The US General Accounting Office cites estimated U.S. national productivity losses from congestion of US$100 billion annually, and truck-delay costs from congestion of US$24 to US$40 billion per year.

45. Cars in General: Cars only exist through subsidies
U.S. government subsidies for highways and parking alone amount to between 8% and 10% of U.S. gross national product
The equivalent of a fuel tax of approximately US$3.50 per gallon.
If this tax were to account for “soft” costs such as pollution cleanup and emergency medical treatment,
it would be as high as US$9 per gallon.
The cost of these subsidies – approximately US$5,000 per car per year
is passed on in the form of increased prices for products or,
more often, as income, property, and sales taxes.
About half of U.S. air pollution emissions come from motor vehicles

46. Innovation Workout Attribute Segmentation in Redesign of Products
Redesign a successful product or service of your choosing