FoBI Final Strategic Innovation Management Notes PDF

**Strategic Innovation Management -- Chapter 1** **Summary by Dylano Paans** - Innovation is the process of creating value from ideas - There are differences in the novelty of the changes we introduce - There are different levels of innovation, from changing parts to changing the way t...

**Strategic Innovation Management -- Chapter 1** **Summary by Dylano Paans** - Innovation is the process of creating value from ideas - There are differences in the novelty of the changes we introduce - There are different levels of innovation, from changing parts to changing the way they are arranged - - Innovation is making changes in order to create value - Innovation can also be about creating social value - Competition can exist between firms, or between problems and problem solvers - Innovations are driven by a quest for opportunity or a response to a threat - An entrepreneur is an individual or group who sees an opportunity and takes the risk of trying to exploit it - An important theorist on innovation is Joseph Schumpeter -  - What organizations know and have learnt is a core asset which they can leverage - Paying attention to creating, capturing, and using knowledge is critical for innovation - William Baumol: "Virtually all of the economic growth that has occurred since the eighteenth century is ultimately attributable to innovation" - Innovation involves a moving target - Individuals and organizations need to have a strategy for innovation and a plan for implementing that strategy - Innovation also matters to policy agents, which include: - Governments: innovation creates economic growth - Trade and sector bodies: stimulating innovation to make for sector health and competitiveness - Supply chain 'owners': any supply network is as strong as its weakest link, so it makes sense for firms to try to manage their supply systems and upgrade them - Innovation is a multiplayer game and needs different bits of the network to work together - Many small and medium-sized enterprises (SMEs) fail because they don't see the need for change - A common problem for successful companies is when their core competencies become the things which make it hard to see or accept the need for change - Existing players often fail to respond fast enough to the new signals coming from outside their industry - Innovation is not a random process, but a sequence of planned experimentation: 1. Searching for possible opportunities (generating variation) 2. Selecting a particular one (selection) 3. Implementing it (propagation) - Success in innovation is not just about having a good idea, but also about having the capabilities to manage them - Innovation is about growth and survival **Lecture notes Fundamentals of Business Innovation W43L1** **(FoBI-L01.2) - Dylano Paans** - Business Innovation is improving on a new product - If you put innovators/experts near each other, they can learn from each other (Silicon Valley) - Concentrate producers so they won't share their secrets or work for someone else - Innovations lead to other innovations once they are shared to the public - Innovations lead to new demands - Individualism is one of the strongest drivers of innovation - Control key resources - Internally (monopoly on your own products) - Externally (monopoly on external goods) - Protect your innovations from imitations (non-compete clause, patents, etc.) - The spread of innovation has huge societal impact (private vs. public benefits of innovation) **What is innovation** - 'The process of creating value from ideas' - Strategic innovation management - Different areas to innovate in - Product/service - Process - Delivery - Market - Different degrees of novelty (how much it has changed compared to an existing idea) - Not about change for the sake of change, but about value creation - "An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations." - OECD - Innovation is not the same as invention or change - There are a lot of intermediate products, it's hard to say when a product is new or just an improvement on an old product - Being able to implement the idea is a key part of innovation - Schumpeter: Innovation is recombination. Innovation/value creation in bringing existing products together - Not innovating means stagnating and will result in 'diminishing results on capital' - Doing more of the same will not differentiate you - Innovation is hard - Businesses need to be organized for innovation - Innovation strategy can give us a framework for discussion and alignment - Strategy is about making a clear vision for the future - Strategic analysis begins with an exploration of innovation space -- where could we innovate and why would it be worth doing so - Build a sense of the environment and analyze threats and opportunities - Reflect on what resources the organization can bring to bear - Spot where and how new markets can be created and grown - Serve established markets in new ways - Innovation can be mapped along four dimensions 1. Product: changes in the things which an organization offers 2. Process: changes in the way in which these offerings are created and delivered 3. Position: changes in the context into which the products/services are introduced 4. Paradigm: changes in the underlying mental models which frame what the organization does - Strategic selection is choosing out of all the things you could do, the ones you will do - Play to your strengths - Understand how you fit into wider systems and where we could create a competitive advantage through innovation - Determine your strategic posture - Strategic implementation - Make a simple project plan - Think through and challenge the underlying strategic concept - Make sure others see your strategic vision - Clearly communicate your innovation strategy - There is a core role for leadership to provide vision and direction - The sustainable competitive advantage of firms lies not in their products, but in their core competencies - Core competencies feed into multiple core products which feed into multiple business units - The resource-based view of strategy proposes that competitive advantage is primarily driven by a firm's valuable rare, inimitable and non substitutable resources - Resources are stocks of available factors that are owned, controlled or accessed on a preferential basis by the firm - Resources are primarily having rather than doing forms - Capabilities refer to the organization's potential for doing - These include basic operational or functional activities - Dynamic capabilities include abilities to improve, adapt, and innovate - Identifying key attributes (Coyne) - For a sustainable competitive advantage to exist, three conditions must apply: - Customers must perceive a consistent difference in important attributes between the producer's product/service and the attributes offered by competitors - This difference is the direct consequence of a capability gap between the producer and its competitors - Both the difference in important attributes and the capability gap can be expected to endure over time - There are four types of resource capability - Regulatory: the possession of legal entities (e.g. patents) - Positional: the results of previous endeavors (e.g reputation) - Business systems: the ability to do things well - Organizational characteristics - Mapping attributes to resources and competencies - Important characteristics of strategic competencies - They are responsible for delivering a significant benefit to customers - They are idiosyncratic to the firm - They take time to acquire - They are sustainable because they are difficult and time-consuming to imitate - They compromise configurations of resources - Functional capability compromises resources which are individual or team skills and knowledge - Cultural capability compromises the resources which are the characteristics of the organization - Assessing the potential for sustaining, protecting and exploiting opportunities - Effective management is about knowing where to locate knowledge resources and the organizational linkages that integrate them together to create competencies - The capacity of the firm to appropriate the benefits of its investment in capabilities depends on two factors: 1. The firm's capacity to translate its capabilities into commercially viable products or processes 2. The firm's capacity to defend its advantage against imitators - Nine factors which influence the firm's capacity to benefit commercially from its capabilities 1. Secrecy 2. Accumulated tacit knowledge 3. Lead times and after-sales service 4. The learning curve 5. Complementary assets 6. Product complexity 7. Standards 8. Pioneering radical new products 9. Strength of patent protection **Lecture notes Fundamentals of Business Innovation W44L2** **(FoBI-L02.2) - Dylano Paans** **Strategy** - Strategy is what an organization does to reach its goals - Innovation is not the end goal, but the means to get there - According to high-school economics, a company is a rational actor whose goal is profit maximization, but this isn't the case in the real world - Strategy is about making risky choices **Behavioral theory of the firm** - A firm is a coalition of participants - Multiple actors influence what the firm can or cannot do - The firm has no unambiguous objective function - Each group of participants will have their own objective - Information is not free, it has a price - Decision makers are boundedly rational **Organizational goals** - The goals of a firm are reached through a bargaining process - The bargaining power of different participants determines how much they can influence goals - The bargaining power of different participants depends upon how unique their contribution to the company is and on their legitimacy **Contributions and inducements** - All participants have aspiration levels of how much change they want - A participant doesn't optimize, it searches for satisfaction - Satisfaction implies reward → aspiration - Aspiration levels can develop over time **Loss aversion** - People are risk averse - People become less risk averse when in a situation they perceive to be a loss **Escalation of commitment** - You keep doing something even though there is mounting evidence that it's a bad decision - Also known as the sunk cost argument **Cognitive biases for strategy** - Loss aversion: loss is seen as too important - Risk aversion: people want to be compensated for risk - Escalation of commitment: sticking to decisions made in the past even in the face of new information - Hyperbolic discounting: present payoffs vs. future payoffs - Even professionals have these biases **A bridge to strategy** - Organizations have to decide whether to change course or keep doing what they're doing - Changing means taking risks - Organizations base their decisions past experiences - Organizations only consider taking risks when in a loss situation **Competitive vs. Corporate strategy** - A lot happens between 'setting the goals' and 'evaluating performance' - Strategy - A competitive strategy - Competitive decisions of business unit(s) in specific sectors - A corporate strategy - Strategy for portfolio business units  **Market Environment** - Most 'companies' are actually owned by a flew global conglomerates - Without market power (perfect competition) there is no room for strategy - Market power provides barriers to entry - Minimum efficiency scale - Economies of scale - Economies of scope - Capital -- sunk capital investments - R&D -- knowledge investments - Network effect - Government policies **Porter's five forces model** **Lecture notes Fundamentals of Business Innovation W45L4** **(FoBI-L04.2) - Dylano Paans** - There is more innovation in industries where market power is higher - Decrease costs with process innovation -  - If you have little market power, you have less room for innovation, are more easily copied, and can differentiate less - You need more than a good market environment to be able to innovate - PESTEL - - Look at which markets to join or leave using a PESTEL analysis - The environment sets the boundaries for strategy - Product uniformity (larger audience (Heineken, Budweiser)) vs. Product uniqueness (Higher margins (small breweries)) - Resource based view: each firm is a collection of resources - Is this resource valuable? rare? inimitable? - Is the company well organized? -  - SWOT analysis to integrate different parts of integration strategy - Strenghts - Weaknesses - Opportunity - Threat - Inimitable - Secrecy - Legal protection/patents - Lead time & learning curve - Tacit knowledge - Dynamic capability: "capacity of an organization to purposefully create, extend or modify its resource bases" - Some firms are better at adapting new technologies, new regulations, cultural/societal changes → prevent core competencies from becoming core rigidities - Try to cover the market: capture low-end and high-end customers - Think about what your competitor would do - It's not always smart to maximize profits (because you might get cornered by a competitor) and be flexible (game of chicken) **Case summary W45T05 by Dylano Paans** **Finnegan's Fish Bar (fish and chips shop)** 4 areas in which a business can be innovative: 1. Paradigm: the principles that underlie the way business is conducted - Continuous improvement - Focus on core competency (only selling one type of product) - Utilizing past experience - Encourage the staff to come up with new ideas and implement the good ones - Sees that big change can be detrimental, but continuously looks for small, incremental ways to improve his business 2. Position - Differentiated menu (something for everyone, but still one type of product) - Ask for customer feedback and listen to their responses - Creative marketing 3. Product - Developing new products - Batterless cod - Chicken Goujons - Packaging 4. Process - Food warming - Chip making - Sourcing **4Ps Innovation compass** - Innovation can take many forms - 'product innovation' -- changes in the things (products/services) which an organization offers - 'process innovation' -- changes in the ways in which they are created and delivered - 'position innovation' -- changes in the context in which the products/services are introduced - 'paradigm innovation' -- changes in the underlying mental models which frame what the organization does - Innovations can be positioned on a spectrum from incremental to radical - Innovations can be stand alone or form a part of a linked system that brings many different components together in a particular way **Blue Ocean strategy** - A red ocean zone is a market with a lot of competition - A blue ocean zone is a market where it is possible to operate without competition - It is better to operate in blue ocean zones than red ocean zones **Boston box** - Put market growth on the Y-axis and market share on the X-axis - Plot your products on the matrix - Stars are the products in which your company has a high market share and the market is growing. You should focus on these products - Cash cows are companies with high market share but low market growth. These areas should be milked to provide cash for investments in future product areas - Dogs are products with low market growth and low market share. These should be dropped from your portfolio - Problem children are products with high market growth and low market share. They need to be watched closely and an investment must be maintained - **SWOT analysis** -  **Lego** - In 1930, Lego went from producing furniture for local farmers to producing children's toys made out of wood - In the 1940s Lego started making toys out of plastic - Lego bricks were released on the market in 1953 but were initially unsuccessful - They grew into different sectors, like amusement parks - They developed products for different markets (duplo for small children) - They added storytelling to their products (medieval knights, pirates, star wars) - Competitors began to arise who offered a low cost, 'good enough' alternative to lego - After a crisis, they began changing their way of operating - They started engaging users more, they found new ways for their customers to interact with their product - They opened their design process to outsiders to increase innovation - They branched out to new markets by developing a video game - They innovated in promotion by sending lego bricks into space - They found that they didn't control a large section of the market (toys for girls) so they researched how they could improve in this market (they added more storytelling) - Lego became a cultural icon - They branched out into new media - They cooperated with their competitors - Lego focusses on its users - Lego has been exploring new markets - Lego has recently been focussing on sustainability and social responsibility **The 5 forces competitiveness map** - - These 5 forces shape the challenges for the firm - There is no single ideal type of leadership or organization which supports innovation - Upper echelons theory argues that decisions and choices by top management have an influence on the performance of an organization, through their assessment of the environment, strategic decision making and support for innovation - Effective innovation leaders have the following traits: - Bright, alert, and intelligent - Seek responsibility and take charge - Skillful in their task domain - Administratively and socially competent - Energetic, active, and resilient - Good communicators - A key role of creative leadership is to provide feedback and evaluation - There are as many positives as negatives to leader-member exchange (LMX) - Intellectual stimulation of employees works well in times of uncertainty - Stratified system theory (SSM) focusses on the cognitive aspects of leadership, and argues that conceptual capacity is associated with superior performance in strategic decision-making where there is a need to integrate complex information and think abstractly in order to assess the environment - Rafferty and Griffin define a vision as 'the expression of an idealized picture of the future based around organizational values' and inspirational communication as 'the expression of positive and encouraging messages about the organization, and statements that build motivation and confidence'. They found that expression of a vision has a negative effect on followers' confidence, unless accompanied with the inspirational communication - Leaders need to provide clarity - A review of 27 empirical studies identifies 6 factors that leaders should focus on: - Upper management should establish an innovation policy that is promoted throughout the organization. It is necessary that the organization through its leaders communicates to employees that innovative behavior will be rewarded - When forming teams, heterogeneity is necessary to promote innovation. However, if the team is too heterogeneous, tensions may arise; when heterogeneity is too low, more directive leadership is required to promote team reflection - Leaders should promote a team climate of emotional safety, respect and joy through emotional support and shared decision-making - Individuals and teams have autonomy and space for idea generation and creative problem solving - Time limits for idea creation and problem solutions should be set, particularly in the implementation phases - Finally, team leaders, who have the expertise, should engage closely in the evaluation of innovative activities - The Kirton Adaption-Innovation (KAI) scale assesses different dimensions of creativity, including originality, attention to detail and reliance on rules. It seeks to differentiate 'adaptive' from 'innovative' styles: - Adaptors characteristically produce a sufficiency of ideas based closely on existing agreed definitions of a problem and its likely solutions, but stretching the solutions. These ideas help to improve and 'do better' - Innovators are more likely to reconstruct the problem, challenge the assumptions and to emerge with a much less expected solution which very probably is also first less acceptable. Innovators are less concerned with doing things better than with doing things differently - There are different kinds of creative styles - Teams have more to offer than individuals to in terms of fluency of idea generation and flexibility of the solutions developed - A team is a group that comes together for a common purpose, vision, or goal in their organization. - Teams go through four stages of development: 1. Forming 2. Storming 3. Norming 4. Performing - Belbin classifies people into a number of preferred role types. The most effective teams have people with different role types - A number of characteristics that promote effective teamwork: - A clear common and elevating goal - Results-driven structure - Competent team members - Unified commitment - Collaborative climate - Standards of excellence - External support and recognition - Principled leadership - Appropriate use of the team - Participation in decision-making - Team spirit - Embracing appropriate change - There are a number of threats to effective team management: - Group versus team - Ends versus means - Structured freedom - Support structures and systems - Assumed competence - Climate is the recurring patterns of behavior, attitudes, and feelings that characterize life in the organization - Climate is more observable at a surface level within an organization and more amenable to change and improvement efforts than culture - Culture refers to deeper and more enduring values, norms, and beliefs within the organization - 6 Critical factors to how climate influences innovation: - Trust and openness - Challenge and involvement - Support and space for innovation - Conflict and debate - Risk-taking - Freedom - Leadership and organization of innovation are much more than a set of processes, tools and techniques, and the successful practice of innovation demands the interaction and integration of three different levels of management: individual, collective, and climate - At the personal or individual level, the key is to match the leadership styles with the task requirement and type of teams. General leadership requirements for innovative projects include expertise and experience relevant to the project, articulating a vision and inspirational communication, intellectual stimulation and quality of leader-member exchange (LMX) - At the collective or social level, there is no universal best practice but successful teams require clear, common and elevating goals, unified commitment, cross-functional expertise, collaborative climate, external support and recognition, and participation in decision-making - Innovation is a process, it doesn't end at the inventing of a product - The innovation process goes through the following key 'stations': 1. Searching for trigger ideas -- how can we find opportunities for innovation? 2. Selecting from the possibilities the one we are going to follow through -- what are we going to do and why? 3. Acquiring the resources to make it happen 4. Developing the idea from initial 'gleam in the eye' to a fully developed reality -- how are we going to make it happen? 5. Managing its diffusion and take-up in our chosen market 6. Capturing value from the process -- how are we going to get the benefits from this? - Innovation is a risky business - Even if the process failed, the lessons are valuable - Innovation needs: - Clear strategic leadership and direction, and the commitment of resources to make this happen - An innovative organization in which the structure and climate enable people to deploy their creativity and share their knowledge to bring about change. Have structure, but not too much of it - Proactive links across boundaries inside the organization and to the many external agencies that can play a part in the innovation process -- suppliers, customers, sources of finance, skilled resources and of knowledge, etc. -  - The true process you will go through will vary based on your industry, size of the company, and other factors - Innovation is a global thing and is about building and working in networks - Learn with and from others by building networks and partnerships - Behavioral routines are patterns of behavior which we learn in order to make something happen. These get reinforced when they work and we practice and rehearse them - Innovation is about developing capabilities across many areas - Innovation is a moving target, to meet this target, we need moving capabilities: dynamic capabilities -- the ability to step back and review the ways we manage innovation, and to adapt or change them - Innovation doesn't happen simply because we hope it will. It's a complex and risky process that requires systematic management. Innovation isn't a single event, it's a process that involves stages of searching, selecting, implementing and capturing value. The challenge is doing this in an organized way and being able to repeat it. - If we want to manage innovation, we have to ask ourselves the following questions: - Do we have effective enabling mechanisms for the core process? - Do we have strategic direction and commitment for innovation? - Do we have an innovative organization? - Do we build rich, proactive links? - Do we learn and develop our innovation capability? - Find behavioral patterns to do this and engrain them in your organization - Triggers for innovation can be found everywhere - There are limited resources to pursue and implement innovations - Innovation management tries to turn innovation uncertainty into calculated risks - In innovation management, the challenge is to invest in acquiring early knowledge to get early information to feed decision-making - The further we go into a project, the more it costs and the more we know - A checklist can be a simple way to select which innovation to pursue - Ways to identify which innovation to pursue (from very general and easy to detailed and complex); - Simple 'gut feeling' intuition - Simple qualitative techniques, e.g. checklist - Financial measures, e.g. return on investment - Complex financial measures e.g. 'real options' approach - Multidimensional measures, e.g. decision matrix - Portfolio methods and business cases - Potential factors for project evaluation - Corporate objectives - Marketing and distribution - Manufacturing - Research and development - Regulatory and legal factors - Financial - People are far from rational and suffer from cognitive biases - You can spread your innovation risk by building an innovation portfolio - Have a structure in place to figure out when to cut or start funding on projects - Cognitive dissonance: individuals and organizations often selectively perceive and interpret the new situation to match or fit their established worldviews - By the time the disconnect between the new situation and the old situation becomes apparent, it is often too late. This is when core competencies become core rigidities - Organizations have different comfort zones for innovation - - Zone 1 assumes a stable and shared frame within which adaptive and incremental development takes place - Zone 2 involves selection from exploration into new territory, pushing the frontiers of what is known and deploying different search techniques for doing so, but this still takes place within the old frame of the business - Zone 3 involves searching and selecting from a space where alternative architectures are generated, exploring different permutations and combinations of elements in the environment - Zone 4 is a complex environment where innovation emerges as a product of a process of coevolution. This is the result of interactions between independent elements - The process of new product or service development is a gradual one of reducing uncertainty through a series of problem-solving stages, moving through the phases of scanning and selecting into implementation. - (Cooper) - Successful product development needs to operate some form of structured, staging process (Cooper) - Four-stage model to discriminate between the various factors that must be managed at different stages of innovation: 1. Concept generation -- identifying the opportunities for new products and services 2. Project assessment and selection -- screening and choosing projects which satisfy certain criteria 3. Product development -- translating the selected concepts into a physical product 4. Product commercialization -- testing, launching, and marketing the new product - Customers do not buy a technology, they buy benefits - Fuzzy front end: filtering ideas from customer needs - Two costs of not selecting the 'best' project are the actual cost of resources spent on poor projects and the opportunity costs of marginal projects which may have succeeded with additional resources - There are two levels of filtering: - The aggregate product plan attempts to integrate the various potential projects to ensure that the collective set of development projects meet the goals and objectives of the firm, and help to build the capabilities needed. The first step is to ensure that resources are applied to the appropriate types of projects, the second step is to develop a capacity plan to balance resource and demand. The final step is to analyze the effect of the proposed projects on capabilities - The second lower-level filters are concerned with specific product concepts. The development funnel is a means to identify, screen, review, and converge development projects as they move from idea to commercialization. - Success factors: - Product advantage -- product superiority in the eyes of the customer - Market knowledge -- due diligence - Clear product definition - Risk assessment - Project organization - Project resources - Proficiency of execution - Top management support - - Fundamental differences between manufacturing and service operations: - Tangibility - Perceptions of performance and quality are more important in services - Simultaneity - Storage - Customer contact - Location - Common approaches to coming up with a concept: - Surveys and focus groups - Latent needs analysis - Lead-users - Customer-developers - Competitive analysis - Industry experts or consultants - Extrapolating trends - Building scenarios - Market experimentation - Approaches to project selection: - Ranking - Profiles - Simulated outcomes - Strategic clusters - Interactive - Approaches to product development: - Design for manufacture (DFM) - Rapid prototyping - Computer-aided techniques (CAD/CAM) - Quality function deployment (QFD) 1. Identify customer requirements, primary and secondary, and any major dislikes 2. Rank requirements according to importance 3. Translate requirements into measurable characteristics 4. Establish the relationship between the customer requirements and technical product characteristics, and estimate the strengths of the relationship 5. Choose appropriate units of measurement and determine target values based on customer requirements and competitor benchmarks -  - The key factors that distinguish a potential new venture from the core business are risk, uncertainty, newness, and significance - - Motives for establishing corporate ventures: - Grow the business - Exploit underutilized resources - Introduce pressure on internal suppliers - Divest non-core activities - Satisfy managers' ambitions - Spread the risk and cost of product development - Combat cyclical demands of mainstream activities - Learn about the process of venturing - Diversify the business - Develop new technological or market competencies - There are two dimensions to managing ventures: who owns them and who funds them. These two dimensions suggest four different combinations: 1. Opportunistic -- no dedicated ownership or resources for venturing 2. Enabling -- no formal corporate ownership, but the provision of dedicated support, processes and resources 3. Advocacy -- organizational ownership is clearly assigned, but little or no special funding is provided 4. Producer -- includes both formal ownership and dedicated funding of ventures - Six stages of the venturing process: 1. Establish an environment that encourages the generation of new ideas and the identification of new opportunities, and establish a process for managing entrepreneurial activity (definition) 2. Select and evaluate opportunities for new ventures, and select managers to implement the venturing programme (definition) 3. Develop a business plan for the new venture, decide the best location and organization of the venture, and begin operations (definition) 4. Monitor the development of the venture and venturing process (development) 5. Champion the new venture as it grows and becomes institutionalized within the corporation (development) 6. Learn from experience in order to improve the overall venturing process (development) - Three options to conceptualize an innovation: - Rely on R&D personnel to identify new business opportunities based on their technological developments - Rely on marketing managers to identify opportunities and direct the R&D staff into the appropriate development work - Encourage marketing and R&D personnel to work together to identify opportunities - Potential corporate entrepreneurs face significant political barriers: - They must establish their legitimacy within the firm by convincing others of the importance and viability of the venture - They are likely to be short of resources, but will have to compete internally against established and powerful departments and managers - As advocates of change and innovation, they are likely to face at best organizational indifference and at worst hostile attacks - A number of key roles must be filled when a new venture is established: - Technical innovator - Business innovator or venture manager - Product champion -- promotor - Executive champion or organizational champion - High-level executive - A checklist for assessing the proximity of the venture proposal to existing skills and capabilities: - What are the key capabilities required for the venture? - Where, how and when is the firm going to acquire the capabilities, and at what cost? - How will these new capabilities affect current capabilities? - Where else could they be exploited? - Who else would be able to do this, perhaps better? -  - Design options for corporate ventures: - Direct integration with existing business - Integrated business teams - A dedicated staff function to support efforts company-wide - A separate corporate venturing unit, department or division - Divestment and spin-off **Lecture notes Fundamentals of Business Innovation W46L6** **(FoBI-L06.2) - Dylano Paans** **Why managing matters for innovation** - Innovation is very risky - Resources are limited - Market opportunity and its time-window can expire **Innovation as a process** 1. Triggers for innovation - Dissatisfaction of available options - Desire to make the world a better place - Having a bright idea - Legislative pressure or competitor action 2. PESTEL - Does this idea have a market, where is it? 3. 5-forces model - Will this idea have bargaining power, could it harvest profits? 4. Resource based view - Could my capabilities and resources convert this idea into a real product? 5. Implementation - Involvement of entire organization - Review and improve **Key activities of innovation management** 1. Initiate search for innovative ideas 2. Select the promising ones 3. Acquire the resources to make it happen 4. Develop and polish gate/threshold evaluation 5. Bring to market and diffuse to capture value **Key elements that influence innovation management** - You can group them in 3 dimensions: 1. Leadership (vision, leadership, determination) 2. The team (customers, teamwork, collaboration) 3. The organization (shared value, trust, freedom) **Leadership** - Upper echelon theory: 'organization is forged by the top managers (strategy, structure, culture, performance, etc. - Build the team/firm - Guide the team/firm in working towards goals (bring a new idea into the market, etc.) - Visionary, passionate, encourage experimentation and exploration **Effective collaboration (the team)** - Transformational vs. transactional - Transformational: lead by gaining trust and respect of the team and empowering others - Transactional: lead by using a system of rewards to motivate team members - Quality and nature of the leader-member exchange (LMX) **Organizational structure and culture** - -  **Selection of innovation** - High expected value + high probability of success (stars/pearls) - - Best fit with strategy and limited resources - Dealing with uncertainty with information and knowledge - Start with what you have - Tap into your network - Involve your customers - Quick iterations in the market (lean-startup) - Which decision-making tools to use depends on: - Data availability - Environmental uncertainty - Disruptive opportunities **Capturing radical innovation** - Small entrepreneurial firms vs. mature firms in capturing radical innovation - Start-ups: - Nothing to lose - No baggage of history - No obstacle of network - Even a small bit of the profit is big enough - Mature firms: - Self destroying, cannibalism - Objected by internal personnel - Network embeddedness - Even if you were able to capture all of the market value, it's still not worth it - External oriented -- capture the market -  **Case summary W46T07 by Dylano Paans** **Google glass** - A pair of augmented reality glasses - Costed \$400 million in developing and marketing - Was thought to become the next big thing - Failed miserably - Extremely short battery time - Violated people's privacy by constantly recording - Looked weird/bad design - Google stopped targeting the consumer market and started targeting professional - Many competitors - Bad marketing - Health and safety concerns - Overpriced - Heating issues **Design thinking** 1. The What? - Focus on user experience - Build prototypes - Tolerate failure 2. The How? - - Discover - Dive into a specific topic - What is the present state and what is the desired future state - Empathize - Connect with your customers/user base - Observe how people interact with your product - Define - Combine and sort the collected data - Start pinpointing opportunities for innovation and identifying customers' hidden needs - Ideate - Brainstorm - Prototype - Choose a few ideas (1-3) from the previous phase and start prototyping them - Evaluate the feasibility - Validate - Test your ideas with different groups of people - Iterate - Integrate feedback **(IBM) Integrated Product Development (IPD)** - What is IPD - A structured, end-to-end process - Can be customized for each project - A business management system designed to optimize the development and delivery of successful products and offerings - Consists of five phases with periodic checkpoints - Team-based management - Two tier management model - Integrated portfolio management team -- cross functional executive team - Product development team -- cross functional execution team - IPD objectives - Focus investments on right products at right time for the right markets Reduced time-to-market - Lower development expense to revenue ratio - Positive effect on corporate profits - Higher percentage of winning offerings - Significant expense and cost savings from reuse - Repeatable and measurable business process - Ensure Project Management Methodology is tied to Product Development - Provide metrics to ensure success - IPD team hierarchy -  - IPD process overview - - What are decision checkpoints - Structured project reviews with specific entry and exit criteria to aid the cross-functional PDT and IPMT as they measure progress of a project -  - Concept phase - - Plan phase -  - Develop and qualify phase - - Ramp up and launch phase -  - Life cycle phase - **Gmail** - Google encourages its employees to devote 20% of their time to side projects - Gmail started as the side project of a junior developer - Gmail didn't do as well as its competitors at first - They continued to innovate - After continually adding new features, Gmail eventually became the biggest in their market - Gmail was launched on april fools' day and was originally seen as a joke. This created a lot of buzz around the project - Gmail started out as an invite-only platform which caused an increase in demand - Innovation is not just about occasional flashes of inspiration **Sources of innovation** - Knowledge push - Scientific research - Wide network of people sharing ideas - Many process innovations came from R&D - Need pull - Necessity is the mother of invention. Innovation is the response to a need for change - Important at mature stages in industry or product life cycles when there is competition - Making processes better - Sources of frustration are signals for change - This kind of innovation can engage a lot of the workforce who experiences these needs first hand - Relevant in the public sector where the issue is not about creating wealth, but of providing value for money in service delivery - Edges of existing markets - Often seen as irrelevant by existing players - Sometimes the fringe can become the new mainstream - Meeting the needs of the fringe can destabilize the market: 'disruptive innovation' - A lot of chances for this type of innovation lie in the developing world - Crisis driven innovation - A crisis can create an urgent need for innovation - Towards mass customization - Different people want different things - There are different levels of customizing -  - - Users as innovators - See how users adapt your product and try to bring these changes to your mainstream production - Watching others -- and learning from them - Reverse engineering - Developing imitations - Benchmarking: enterprises make structured comparisons with others to try to identify new ways of carrying out particular processes or to explore new product or service concepts - Recombination innovation - Combining existing innovations - Regulation - Regulation prohibits certain types of innovation, but opens up new paths of innovation - Counter-innovation: ways of getting around the existing regulations - Futures and forecasting - Identify key trends, threats and opportunities in the future - Design-driven innovation - Give meaning to the shape and form of products - Accidents - Some innovations are accidental - Innovations can be resolved into two broad classes: knowledge push and need pull -- although they almost always act in tandem. Innovation arises from the interplay between them - The key challenge for innovation management is how to spot the potential in a sea of possibilities, and to do so with often-limited resources - All sources of innovation can be seen as 'push' or 'pull' types of innovation - 'Necessity may be the mother of invention but procreation needs a partner' - Innovation needs both push and pull - Incremental or radical - Punctuated equilibrium: most of the time innovation is about exploiting and elaborating but occasionally there is a breakthrough which creates a new trajectory - Focus a part of your innovation portfolio on longer-range, higher risk innovation - At different stages in a product or industry life cycle, the emphasis can be more on push or pull - Mature industries tend to focus on pull, younger industries on push 1. Fluid phase: a lot of uncertainty and emphasis on product innovation. Entrepreneurs have lots of ideas about the ways to use new market and technological opportunities 2. Stabilization around the 'dominant design': emphasis shifts away from more product variety to process innovation 3. It ends with the 'mature' phase: innovation is incremental in both product and process, there is extensive competition, and the scene is set for another breakthrough and return to the fluid phase - Adoption and diffusion - Early adopters are important sources of ideas and feedback - Incremental/radical innovation: do better/do different - Radical innovation has more risks and more gains - Established frame/new frame - It's difficult to think outside the 'box'/existing frame - Firms should explore uncharted territories - Exploit or explore - Exploitation: using what we already know as the foundation for further incremental innovation - Exploration: radical product and process innovation. Risky but they enable the organization to do new and different things - Innovation search strategies for exploitation - Refining tools and methods for technological and market research, deepening relationships with established players - Process innovation through inviting suggestions for incremental improvement across the organization - Innovation search strategies for exploration - R&D search investments tend to include big projects with high strategic potential, patenting and intellectual property strategies aimed at marking out and defending territory, and rigid key technological trajectories - Market research aims to get close to customers but to push the frontiers via empathic design, latent needs analysis, etc. - Specialized groups - Strategies for reframing - Searching a space where alternative architectures are generated, exploring different permutations and combinations of elements in the environment - Working with elements in the environment not embraced by established businesses models - Favors entrepreneurs on the outside of established organizations - Strategies for co-evolution - Co-evolution is when different interacting elements begin to converge on a particular solution - Can be amplified through feedback - Be in the game early - Be in there actively and prepared to experiment - Be prepared for failure - Be aware of others in the system, picking up weak signals and amplifying what seems to work - Open innovation - Innovation is a multiplayer game - Open innovation involves the recognition that 'not all the smart guys work for us' - Open up search, engagement and stakeholder participation - Innovation networks - Important for accessing and working with other people's knowledge - Collective efficiency, learning, and risk-taking - Intersection of different knowledge sets - Knowledge management - Mobilizing employee ideas and knowledge around incremental product and especially process innovation - Bringing the 'voice of the customer' into all areas of the organization and using that to focus and draw out relevant ideas and knowledge - Using our understanding of social networks and how ideas flow within and across organizations - Using 'communities of practice' where people with different knowledge sets can converge around core teams - Intrapreneurship - Learning to search - Enable an R&D balance between applied research (exploit) and 'blue sky' activities (explore) - Managing innovation is a dynamic capability - Absorptive capacity: as environments change, learn new tricks and let go of older ones which are no longer appropriate - Acquiring and using new knowledge involves multiple and different activities around search, acquisition, assimilation and implementation **Ways of forecasting emerging opportunities for innovation** - Customer or market surveys - This is less effective for novel and complex product and services - Internal: brainstorming 1. Keep a relaxed atmosphere -- disciplined but informal 2. Get the right size of team, usually between five to seven people 3. Choose a neutral chairman who will check if everyone understands what's going on and why 4. Define the problem or objectives clearly 5. Generate as many ideas as possible 6. Do not allow any evaluation or discussion 7. Give everyone an equal opportunity to contribute 8. Write down every idea -- clearly and where everyone can see them 9. When all the ideas are listed, review them for clarification, making sure everyone understands each item. Eliminate duplications and remove ideas the group feels are no longer appropriate 10. Allow ideas to incubate - External: benchmarking - Systematic comparison between two things - Establishes realistic goals - Improves performance - Achieves better practice - Aids implementation and change - A strong commitment from top management to act on any major opportunities for improvement that are revealed is needed - You also need a small amount of training and guidance for employees who will have to gather the information needed to identify and analyze best practice - Authorize employees to spend some of their time on benchmarking activities - External: Delphi - Used where a consensus of expert opinion is required on the timing, probability and identification of future technological goals or consumer needs and the factors likely to affect their achievement - Good for making long-term forecasts 1. Postal survey of expert opinion on what the future key issues will be, and the likelihood of the developments 2. The response is analyzed and the sample of experts resurveyed with a new, more focused questionnaire 3. This procedure is repeated until some convergence of opinion is observed, or conversely if no consensus is reached - Scenario development - A scenario is.. - an internally consistent view of what the future may turn out to be not a forecast, but one possible future outcome - a disciplined methodology for imaging possible futures in which organizational decisions may be played out - that part of strategic planning which relates to the tools and technologies for managing the uncertainties of the future 1. Define the system level, boundaries and time horizon 2. Develop the focal questions 3. Identify trends, drivers, and uncertainties 4. Analyze the structures and relationships 5. Build alternative scenarios and assess the consequences 6. Develop an action plan and communicate to stakeholders - A strong scenario is consistent, plausible, transparent, differentiated, communicable and practical - Lead users: active and interested users that are often well ahead of the market in terms of innovation needs. They... - recognize requirements early - expect high level of benefits - develop their own innovations and applications - are perceived to be pioneering and innovative - One strategy around managing innovation is to identify and engage with lead users to co-create innovative solutions - Those seeking to develop innovative complex products and services should identify potential lead users to contribute to the co-development and early adoption of the innovation - Lead users, as early adopters, can provide insights to forecasting the diffusion of innovations - Extreme users: users in the toughest environments may have needs which by definition are at the edge -- so any innovative solution which meets those needs has possible applications back into the mainstream - 'Crowdsourcing' is where an organization makes an open call to a large network to provide some voluntary input or perform some function - The open innovation model emphasizes that firms should acquire valuable resources from external firms and share internal resources for new product/service development - Prospector strategy: firms will proactively seek out external opportunities - Open innovation and internal innovation capabilities are complementary - 'Partnership/Japanese' supplier relations: long-term relationships where suppliers make a significant contribution to the development of new products - Fewer suppliers, longer-term relations - Greater equity -- real 'cost transparency' - Focus on value flows -- the relationship, not the contract - Vendor assessment, plus development - Two-way or third-party assessment - Mutual learning -- share experience, expertise, knowledge and investment - Licensing your intellectual property rights has the following benefits: - Reducing or eliminating production and distribution costs and risks - Reaching a larger market - Exploiting other applications - Establishing standards - Gaining access to complementary technology - Blocking competing developments - Converting competitors to defenders - Motives for strategic alliances: - To build critical mass through co-option - To reach new markets by leveraging co-specialized resources - To gain new competencies through organizational learning - Motives for transitory alliances versus formal joint ventures: - Speed -- transitory alliances versus careful planning - Partner fit -- network versus dyadic fit - Partner type -- complementarity versus familiarity - Commitment -- aligned objectives versus trust - Focus -- few, specific tasks versus multiple roles - The success of an alliance depends on a number of factors, but organizational issues dominate, such as the degree of mutual trust and level of communication - Open innovation is a very broad and therefore popular concept, but needs to be applied with care as its relevance is sensitive to the context. The appropriate choice of partner and specific mechanisms will depend on the type of innovation project and environmental uncertainty - A high proportion of exploitative ties in an alliance portfolio, which is a form of functional diversity, has a negative return on assets effect - Alliance portfolios with greater organizational and functional diversity and lower governance diversity were associated with higher net profit, whereas partner diversity has a non-linear relationship with this specific firm outcome - The performance impact from the alliance portfolio partner diversity (APPD) tends to be higher for incremental innovations in comparison to more radical innovations due to the fact the former innovations are more technological proximate to existing products, predictable, and less risky - Alliance portfolios bring new managerial challenges - An organization needs to assess to what extent the composition of its alliance portfolio is in fit with its strategic needs - While building its portfolio, it has to deal with competition that might grow between individual partners in the portfolio - It has to ensure that the synergetic benefits that accrue from complementary alliances in its portfolio are actually reaped by the firm - Technology management is the capability to stimulate the effective use of technical knowledge and skills - There is an inverted U-shaped relationship between a firm's level of alliance portfolio partner diversity and its level of innovation outcomes - The level of alliance portfolio partner diversity that maximizes innovation outcomes is higher for incremental innovations as compared to radical innovations - For the APPD level resulting in the maximum level of innovation outcomes, the outcome level is lower for radical innovations as compared to incremental innovations - The relationship between alliance portfolio partner diversity and a firm's innovation outcomes is positively and significantly moderated by the use of technology management tools when APPD is higher - The effect of the composition of a firm's alliance portfolio on its performance can be altered by conscious managerial actions - As long as a firm maintains relatively low levels of APPD, the deployment of TM-tools does not add much to a firm's innovative performance - With regard to the latter, our findings show that organizations at high levels of APDD, that want to make the most of the knowledge diversity of their alliance portfolio, should conduct three specific types of managerial actions, namely... - mapping the internally available knowledge - scanning the external environment for valuable knowledge - making forecasts about future technological trajectories and development **Lecture notes Fundamentals of Business Innovation W47L8** **(FoBI-L08.2) - Dylano Paans** **Sources of innovation** - Not one person's eureka moment - Technologies → knowledge push (e.g. mRna, ASML) → innovation - Customer needs → need pull (e.g. Thuisbezorgd, Zoom) → innovation - Recombination in innovation - Include customizations in your business model -- users become innovators - Extreme users (users that use your products to the extreme level) give the best feedback - Users drive you to incremental innovation - Users don't know what they want - Crises -- shocks to the system (e.g. covid vaccine, video conferencing tools) - Regulation (e.g. EU forcing Apple to use USB-C chargers) - Accidents (e.g. Post-it notes, Viagra) - Imitation (e.g. McDonalds, Visa, Walmart) **Design-driven innovation** - Not just delivering what the customer asks/wants - Customer observation/feedback **might** be the starting point - Iterative process where you switch between developing and feedback - Co-create - Prioritize different parts of the feedback and go for a 'good enough' approach - Don't over perfect **How to forecast** - Short and medium term (knowns) - Trend extrapolations - Technology roadmapping (i.e. looking at new patents) - Customer and market research - Benchmarking - Longer term (unknowns) - Scenario analysis -- what if? - Good scenario's - Consistent - Plausible (even if a bit far fetched) - Transparent in assumptions - Differentiated - Communicable - Actionable **Innovation is searching** - Sometimes you find the unexpected and sometimes you find nothing at all - There are no 'pure' innovation strategies - You need both push and pull - Just push gives invention but often (market) failure - Just pull gives you incrementalism - You need radical and incremental improvement - Radically new opens up new markets and opportunities - Exploiting (new) markets with incremental improvements and better/cheaper versions also brings great dividends - Over time more focus on process and less on product innovation **Adoption and diffusion** -  **Old frame -- new frame** - It's difficult to think outside the 'box'/existing frame - Firms should explore uncharted territories **Co-evolution** - Co-evolution is when different interacting elements begin to converge on a particular solution **Open innovation and innovation networks** - Open innovation is the practice of businesses and organizations sourcing ideas from external sources as well as internal ones. This means sharing knowledge and information about problems and looking to people outside the business for solutions and suggestions - - Innovation networks are people, institutions and companies that are outside the firm. They are intellectual assets that companies can link up with to solve problems and find ideas, while beginning to think about those assets as an extended part of their organization -  **Connecting the internal and the external** - Mobilizing employees and enabling intrapreneurship - Bringing in consumers and customers - Use your (social) network - Link to communities of practice - Organize absorptive capacity → the ability to recognize the value of external knowledge, assimilate it into the organization and apply it to create value - Strong link to dynamic capabilities but with a focus on doing so based on external resources **Open innovation** - Including other parties in your innovation process (e.g. Android) **Outsourcing and licensing** - Benefits of sourcing - Cost-saving - The honing of ideal suppliers - The establishment of a long-term relationship with suppliers **Strategic alliances and joint ventures** - Working together with your suppliers (e.g. Heineken, Coca Cola, Innocent, Starbucks, Uber) **Successful open innovation requires internal innovation management** - Pros - More (diverse) knowledge - More feedback - Cons - Information overflow - Coordination costs - Higher risks of opportunism - **Technology management tools** - Tools to identify and select externally available knowledge and match it to internally available complementary resources - Technological audits of the own organization - Core competence assessment of the own organization - Intellectual property audits - Project portfolio management - Competitor analysis - Industry analysis - Market analysis - Technology monitoring - Technology forecasting - Competitive technological intelligence - Diffusion is the means by which innovations are translated into social and economic benefits - The benefits of innovations can take 10-15 years to be fully effected - Most innovations fail to be adopted widely - According to Rogers, diffusion is: the process by which an innovation is communicated through certain channels over time among members of a social system - Adoption is the decision to do or acquire something - Three types of decision-making relevant to adoption of an innovation (Rogers): - Individual -- individual is the main decision maker - Collective -- choices are made jointly with others - Authoritative -- decisions to adopt are taken by authoritative individuals - Opinion leaders are critical to diffusion - Cultural factors play an important role in diffusion - The pattern of adoption of an innovation will depend on the interaction of demand-side and supply-side factors: - Demand-side factors -- direct contact with or imitation of prior adopters, adopters wit different perceptions of benefits and risk - Supply-side factors -- relative advantage of an innovation, availability of information, barriers to adoption, feedback between developers and users - The Bass model assumes that potential adopters are influenced by two processes: - Individual independent adopters -- influenced by personal, private assessment and trials - Later adopters -- more influenced by interpersonal communication, social media and mass-marketing channels - Bandwagons may occur where an innovation is adopted because of pressure caused by the sheer number of those who have already adopted an innovation, rather than by individual assessments of the benefits of an innovation - Bandwagons occur because of competitive and institutional pressures - Bandwagons require only limited information to flow from early to late adopters - There are many barriers to the widespread adoption of innovations: - Economic -- personal costs vs. social benefits, access to information, insufficient incentives - Behavioral -- priorities, motivations, rationality, inertia, propensity for change or risk - Organizational -- goals, routines, power and influence, culture and stakeholders - Structural -- infrastructure, sunk costs, governance - Five factors explain most of the variance in adoption of an innovation: - Relative advantage - Compatibility - Complexity - Trialability - Observability - Relative advantage is the degree to which an innovation is perceived as better than the product it supersedes, or competing products - Primary attributes of an innovation -- size and cost -- are invariant and inherent to a specific innovation irrespective of the adopter - Secondary attributes -- relative advantage and compatibility -- may vary from adopter to adopter, being contingent upon the perceptions and context of adopters - An attribute gap is the discrepancy between a potential user's perception of an attribute or characteristic of an item of knowledge and how the potential user would prefer to perceive that attribute - Compatibility is the degree to which an innovation is perceived to be consistent with the existing values, experience and needs of potential adopters - Two distinct aspects of compatibility: - Existing skills and practices - Values and norms - Complexity is the degree to which an innovation is perceived as being difficult to understand or use - Trialability is the degree to which an innovation can be experimented with on a limited basis - Observability is the degree to which the results of an innovation are visible to others - Vicarious learning is earning from the experience of others - Demonstrations are good for getting early adopters - Crossing the chasm (Moore): the transition from the niche market and needs of early adopters through to the requirements of more mass markets - Epidemic models assume that innovations spread by communication and imitation between adopters, but this is not always the dominant mechanism. The Bass model adds the role of individual decision makers - Managing knowledge involves five critical tasks: - Generating and acquiring new knowledge - Identifying and codifying existing knowledge - Storing and retrieving knowledge - Sharing and distributing knowledge across the organization - Exploiting and embedding knowledge in process, products and services - Organizations can acquire knowledge by experience, experimentation or acquisition - Hierarchy of knowledge: - Data -- set of discrete raw observations, numbers, etc. which are easy to structure, record, store, and manipulate electronically - Information -- data that have been organized and grouped or categorized - Knowledge -- information that has been contextualized and given meaning - Two types of knowledge: - Explicit knowledge -- can be codified, expressed in numerical, textual or graphical terms and is more easily communicated - Tacit or implicit knowledge -- personal, experiential, context-specific and hard to formalize and communicate - The transformation of individual knowledge into organizational knowledge involves four cycles: - Socialization -- tacit to tacit knowledge, in which knowledge is shared with others. - Externalization -- tacit to explicit knowledge, through which the knowledge is made explicit and codified in some persistent form - Combination -- explicit to explicit knowledge, where different sources of explicit knowledge are pooled and exchanged - Internalization -- explicit to tacit knowledge, whereby other individuals or groups learn through practice - Components of organizational memory: - Intangible -- assets not on the balance sheet - Positional -- results of previous endeavors - Functional -- individual or team skills and know-how - Cultural -- traditions and norms in the company - Knowledge sharing and distribution is the process by which information from different sources is shared and leads to new knowledge or understanding - The process of connecting different knowledge and people is underpinned by 'communities of practice' - A community of practice is a group of people related by a shared task, process, or the need to solve a problem, rather than by formal structural or functional relationships - Within communities of practice, people share tacit knowledge - Mechanisms to help knowledge transfer between communities of practice: - An organizational translator -- an individual able to express the interests of one community in terms of another community's perspective - A knowledge broker -- participates in different communities rather than simply mediating between them. They are loosely linked to several communities - A boundary object or practice -- something of interest to two or more communities of practice. Provides an opportunity for discussion and debate - Cross-functional team working can improve knowledge sharing - The issue of a patent requires certain legal tests to be satisfied: - Novelty -- no part of 'prior art' - Inventive step -- not obvious to a person skilled in the art - Industrial application -- utility test requires the invention to be capable of being applied to a machine, product or process. Patent must specify an application for the technology - Patentable subject -- e.g. discoveries can't be patented - Clear and complete disclosure - Patent data reflect the corporate capacity to generate innovation - Indicators of innovation based on patents: - Number of patents -- indicates the level of technology activity - Cites per patent -- indicates the impact of a company's patents - Current impact index (CII) -- the number of times the company's previous 5 years of patents were cited from the current year, divided by the average citations received - Technology strength (TS) -- indicates the strength of the patent portfolio and is the number of patents multiplied by the CII - Technology cycle time (TCT) -- indicates the speed of invention and is the median age in years of the patent references cited on the front page of the patent - Science linkage (SL) -- indicates how leading edge the technology is and is the average number of science papers referenced on the front page of the patent - Science strength (SS) -- indicates how much the patent applies basic science, and is the number of patents multiplied by science linkage - Copyright is concerned with the expression of ideas, not the ideas themselves - Design rights are similar to copyright but mainly apply to three-dimensional articles, covering any aspect of the shape or configuration - Licensing intellectual property rights (IPR) can have a number of benefits: - Reduce or eliminate production and distribution costs and risks - Reach a larger market - Exploit in other applications - Establish standards - Gain access to complementary technology - Block competing developments - Convert competitor into defender - A business model is an explanation of how value is created for customers - Value creation is the result of a structured process - Generic business models: - Product or service provider - Ownership of key assets and renting them out - Finance provider - Systems integrator - Platform provider - Network provider - Skills provider - Outsourcer - Business models are useful for a number of reasons: - They provide a roadmap for how an innovation can create value - They provide a way of sharing the idea with others - They offer a helpful checklist of areas to consider in making sure the idea and the route to creating value with it is well thought out - Build a business model by answering a few key questions - What? -- the value proposition - By whom? -- the supply side - For whom? -- the demand side - How? -- the key activities by the supply side to create value for the demand side - Core trends in business model innovation: - User-driven instead of supplier led - 'Servitization' -- manufacturing operation are being reframed as service offerings - Rent not own - A robust business model should set out the value proposition, the target market, the supply side and the cost and revenue aspects. Building the model will be the focus of much discussion, but this helps ensure that innovation proposals are robust and well thought through - We can map the benefits from changes in products/service offerings, process changes or position innovations on a business model framework. But changing the business model itself is also a powerful source of innovation, especially since it often involves changing the underlying system/architecture rather than just the components - To enable effective learning about how to manage innovation better, we need to: - Capture and reflect on our experiences, trying to distill patterns from them about what does and does not work - Create models of how the world works and link these to those we already have - Use our revised models to engage again in innovation - There are many ways to help this process: - Rather than simply stepping back for a reflective pause, we could employ some structured question framework. - We can develop our own concepts but we can also use, adapt, and try out new ideas developed elsewhere - We can learn from others' experiences - Successful innovation is a complex and risky process of transforming ideas into things which make a mark and needs organizing and managing in strategic fashion - Developing innovative capability needs to begin with an audit of where we are now **Lecture notes Fundamentals of Business Innovation W48L10** **(FoBI-L010.2) - Dylano Paans** **Invention is not innovation and innovation isn't success** - An innovation has to create value - Some innovations (like Google Glass) can fail **Adoption** - Decisions are made by: - Individuals (e.g. PS5 -- others don't influence your willingness to purchase) - Collectives (e.g. Tikkie -- it only works when multiple people adapt it, and the more people adapt it, the higher the peer pressure to adapt it) - Authoritative individuals -- products adopted by for example governmental or regulatory organizations who can enforce these adoptions on a large populus - Adoption follows an S-curve 1. A few innovators (2.5%) 2. Some more early adopters (13.5%) 3. The early majority (34%) 4. The late majority (34%) 5. The laggards (16%)  - Different technologies have different adoption speeds - Modern technologies are often adapted more quickly - Path dependency in adoption - What is rational to do now depends on past decisions/events. E.g. we use the qwerty keyboard because everyone is used to it and our whole infrastructure is built around this fact - Barriers to adoption - Economic - Behavioral - Organizational - Structural **Factors influencing adoption** - Relative advantage - Is it better than the alternatives? - For which parts of the adopters/consumers? - How can I showcase this? - Compatibility - Is it consistent with the values and experiences of adopters/users? - Skills and practices: can I use this easily? - Values and norms: do I want to use this? - Complexity - Trialability - Can I try this out at no/low costs? - Observability - Can I see others use this innovation? - Who is the adopter? - Businesses vs. Consumers - How to capture value? - **The role of data, information, and knowledge** - A business model based on tacit knowledge is harder to copy/imitate - Explicit knowledge can be protected with IP-protection -  - Know what you know **The business model** - A representation of where and how value is created and how and by whom it is captured - What do we do → the value proposition - How is value created → the supply side - For whom → the demand side - How is the value captured → - **Bringing it all together** -  - Search - Internally - R&D - Knowledge management - Externally - Open innovation - Consumers - Select - Too much projects to pursue - Selecting under uncertainty - Don't gamble - Reduce uncertainty by stage-gating - Be prepared to kill your darling - Capture - Where is value created - Who is going to pay for that value - How much - How often - How do we ensure they come back **Wrap up** - Firm activities result in a value proposition - Adoption results in value creation - Cost and revenue structures result in value capture - All come together in a business model - Activities from search to capture should be strategic - Doing this in a running firm is hard - Think back to behavioral theory of the firm - Unless organizations change what they offer and the ways in which they create and deliver those offerings, they risk falling behind - Two types of innovation: - Doing what we do, but better - Creating something completely different - Incremental innovation favors established businesses, but when a market shock occurs, the market shifts to favor new and more innovative players - Established players can also take on the new and use it to enhance their competitive position - Standing still in the face of change is not an option - Market shocks can occur as a result of new technologies, business models or changing customer demands - Discontinuous innovation: an innovation that is significantly different from what was previously done (e.g. from carved ice to refrigerators) - Innovation patterns change over time - Abernathy and Utterback describe an innovation pattern that consists of 3 phases: - Fluid phase - High uncertainty along two dimensions: the target -- what will the new configuration be and who will want it -- and the technical -- how will we harness new technological knowledge to create and deliver this - There is extensive experimentation because no one knows the right configuration of technological means and market needs - Gradually, these experiments start to converge around a dominant design - At this point a bandwagon begins to roll and innovation options become increasingly channeled around a core set of possibilities - Transitional phase - The dominant design emerges - Emphasis shifts to imitation and development around the dominant design - Activities move from radical concept development to more focused efforts geared around product differentiation - Specific phase - Incremental innovation becomes more significant - Emphasis shifts to factors like cost - Bigger focus on scale economies - Product innovation is increasingly about differentiation through customization to meet the particular needs of specific customers - The scope for innovation becomes smaller - Technological overshoot: markets are offered more and more features which they may not ever use or place much value on but which come as part of the package ('bloatware') - Fringe markets can eventually take over the main market - Low-end market disruption has the potential of upsetting the current market - Established organizations can deal with discontinuity by building dynamic capabilities - Social innovations are usually new combinations or hybrids of existing elements, rather than being wholly new in themselves - Implementing social innovations involves cutting across organizational, sectoral or disciplinary boundaries. They create new social relationships between previously separate individuals and groups, contributing to the diffusion and embedding of the innovation and increasing potential for further innovations - Social innovation is also seen as building on the inherent capacities of individuals and communities which makes the notion of open innovation especially relevant - The growth in social innovation has been accelerated by open and user-led innovation - Corporate social responsibility (CSR) is becoming a major function in many businesses - Sometimes social entrepreneurship spins out of mainstream innovative activities - Sometimes it begins with an individual and grows into a trend which other players see as relevant to follow - Most of the time, innovation in the public sector is incremental - Social innovation has a major role in improving living standards - When searching for opportunities, social entrepreneurs need both passion and vision - In selecting opportunities, it is important to build coalitions of support. It is also useful to provide practical demonstrations of what otherwise may be seen as idealistic pipedreams - During the implementation phase, networking is very important for social entrepreneurs because social innovation requires extensive creativity in getting hold of the diverse resources to make things happen - Vision is critical for innovation strategy, but because social entrepreneurs can easily be accused of idealism, there is a need for a clear plan to translate the vision into reality - Unlike traditional entrepreneurs, social entrepreneurs primarily seek to generate social value rather than profits - There are several reasons for organizations to pursue social innovation: - Securing a license to operate - There is a growing pressure on established businesses to work to a more socially responsible agenda - Triple bottom line: not just focusing on financial, but also on environmental and social performance - Aligning values - Most people want to work for organizations in which there is a positive benefit to society - Organizations that align with the values of their staff have better retention and the chance to build on the ideas of their staff - Social innovation as a learning laboratory - Social innovations often arise out of a combination of urgent need and severe resource limitations - Making social entrepreneurship happen will require learning and absorbing a new set of skills to sit alongside our current ways of thinking about and managing innovation - Emerging markets are very different from established once and represent one of the major drivers for innovation in products and services - The current wave of innovation expansion has seen a focus on BRICs countries (Brazil, Russia, India, and China) - Possibilities for innovation exist in catering to Bottom of the Pyramid (BoP) customers -- people who live below the poverty line, with an income of less than \$2 per day - It is not countries, but firms who carry out most of the research and development - On the demand side of innovation, the pattern has shifted out of all recognition in the past decade. Most population growth is in the regions of the world where economic growth is also accelerating, driving rising incomes and expectations and creating an explosion of market demand - Sustainability is becoming a major driver of innovation - The global market for green products is big and growing - Sustainability is innovation's new frontier - The journey towards full sustainability consists of three key dimensions - Innovation's focus -- technology -- People - Firm's view of itself in relation to society -- insular (focused on itself) -- Systemic (part of the organizational ecosystem) - Extent to which innovation extends across the firm -- stand-alone (involves a single unit/department -- integrated (is in the organizations DNA) 1. Operational optimization a. Approach: eco-efficiency b. Innovation objective: compliance, efficiency -- doing the same thing but better c. Innovation outcome: reduces harm d. Innovation's relationship to the firm: incremental improvements to business as usual 2. Organizational transformation e. Approach: new market opportunities f. Innovation objective: Novel products, services, or business models -- doing good by doing new things g. Innovation outcome: creates shared value h. Innovation's relationship to the firm: fundamental shift in firm purpose 3. Systems building i. Approach: societal change j. Innovation objective: novel products, services, or business models that are impossible to achieve alone -- doing good by doing new things with others k. Innovation outcome: creates net positive impact l. Innovation's relationship to the firm: extends beyond the firm to drive institutional change - Sustainability-led innovation (SLI) involves changes across the innovation space - SLI poses challenges across the innovation process model. In particular, working at the higher levels of the model, towards organizational transformation and systems building will require developing new routines - Frugal innovation is a resource-efficient innovation - Different dimensions of innovation: - Drivers/antecedents: the reason for innovation - Characteristics of the innovation output: a new product, service, or business process that is frugal, affordable, resource-efficient, and adaptable - The innovation method: an inclusive, bottom-up, grass-roots R&D process - Frugal innovation will be considered exclusively as the innovation output dimension - Resource efficiency creates value by delivering more for less - Two main pathways of value creation - Frugal innovation happens mainly at the firm-level itself - Frugal innovation happens in the external environment of the firm at the customer-level - Resource constraints have been identified as drivers for innovation behavior - There are two types of resource constraints: - Firms experiencing resource constraints directly (firm resource constraints) - Firms operating in an environment where customers face resource constraints (firm environment resource constraints) - - Internal, firm-level resource constraints generate operational barriers and are likely to reduce firm performance - Negative performance feedback is the signal when a firm's performance falls below its aspirations - Firms experiencing a high level of internal resource constraints are more likely to produce firm-level value frugal innovations (H1) - Opportunity discovery and recognition are among the key factors of entrepreneurial success - Opportunity driven innovation: firms operating in a high-resource constrained external environment are more likely to produce customer-level frugal innovations (H2) (**rejected)** - Interaction effect: High firm environment constraints have a negative interaction effect with firm-level environment constraints on the likelihood of firms engaging in firm-level frugal innovations (H3a) - Interaction effect: High firm-level resource constraints have a negative interaction effect with firm environment constraints on the likelihood of firms engaging in customer-level frugal innovations (H3b) (**rejected)** - Interaction effect: Managerial experience has a positive interaction effect with firm-level constraints for firm-level frugal innovations (H4) - R&D status has a high predictive effect on frugal innovation behavior. Firms that engage in formal or informal R&D activities are more likely to produce an innovation - Larger firms are more likely to introduce firm-level frugal innovations - Countries with lower GDP PPP and higher government effectiveness ratings have more companies with frugal innovations - Frugal innovation is at least partly a logical extension of the concept of problemistic search - Sufficient managerial experience is a key boundary condition for firm-level frugal innovation (internal constraints), but has no effects on customer-level frugal innovation (external constraints) **Lecture notes Fundamentals of Business Innovation W49L12** **by Dylano Paans** **Steady state vs Discontinuous innovation** - Discontinuous innovation: an innovation that represents a break with previous technologies (e.g. landline to mobile phones). Products with different underlying technologies - General purpose technologies: technologies that influence multiple products, markets, etc. that can influence our whole economy (e.g. steam engine, AI, etc.) - Kondratieff waves: 50 year waves of **prosperity**, to **recession**, to **depression**, to **improvement**, that can be linked to major technologies -  - Many sources of discontinuity/disruption: - New technology - New market - New political rules - Industry saturation - Sea change in market behavior - (De)regulation - Business model innovation - Unthinkable events - Shifts in techno-economic paradigm (i.e. new general purpose technologies) - Disruption can disrupt the power balance between established players and new entrants **Managing/dealing with disruption** - Try to spot it early - Prepare for different scenarios - Cultivate opposing voices that challenge your strategy - Build dynamic capabilities - When it goes sour: cut your losses and get out - Disruption will kill business models **Impact and value capture** - The issue of social, environmental and economic impact is primarily about 'who' captures the value of an innovation - Partially a choice of the value creator - Partially a result of what kind of innovation projects an organization pursues - The distinction is not always clear (i.e. the book calling social innovation 'innovation for the greater good') - The same innovation can capture value in different ways - Not social or environmental innovation, but social or environmental impact of innovations - If your mission is to create social value, this should feed into your organizational goals and, hence, every strategic decision of the company **Case summary W50T13 by Dylano Paans** **The every company** - Arturo never thought he would become a founder - He was inspired by the first synthetic meat burger - He went to Silicon Valley because of his mentor's advice. His mentor told him that going to Silicon Valley (San Francisco) is what he really wanted, instead of working for the Obama Administration. Arturo was afraid that he would regret not taking the opportunity to go to Silicon Valley. He gave himself 6 months to make it work and kept working for the government as a backup plan - He focused on eggs because eggs don't have any cells, they're mostly just proteins, fats and water. Creating chickenless eggs is much more feasible from a technological standpoint - Eggs, especially egg whites, were very expensive around the time that Arturo was starting his company, because a lot of business (like subway, and mcdonalds) started selling products containing egg at that time - He worked with business (B2B) because he wanted to work with brands that consumers were already buying - It doesn't happen often that people use technologies from one sector and apply it in another sector - The every company uses 3d printed dna sequences to produce their chickenless eggs - They take dna sequences from certain proteins and add them to yeast, causing the protein's dna sequence to be integrated with that of the yeast - They needed approval from certain agencies in different countries before they were able to release their product onto the market - There is no political support/capital for 'protein independence' (= sufficient amount of synthetic proteins) - Political capital is a major hurdle for scaling - He wants to create value for both other business and consumers - He says that to solve major global issues, consumers, businesses, governments, and other organizations need to partner up - He never thought that you could make money while doing good, but he learned that creating more social and environmental value doesn't mean generating less financial value - Alternative proteins are proteins produced from plants or animal cells, or by fermentation and are designed to taste the same as or better than traditional animal products - The every company has received investments from AB InBev and raised around \$175 million in it's series C round, bringing their total funding to \$233 million **Protix** - Protix has a circular production process - Their ingredients are supplied by the black soldier fly, which lives on low-grade food waste - Protix makes animal food based on vegetable residues from the food industry, using insects