Innovation Management PDF

INNOVATION MANAGEMENT VALERIA CHIAPPA INNOVATION-INTRODUCTION IM 1 NESPRESSO - a big commercial success for Nestlé and a great example of innovation. 1) It was a long journey (innovation is a process): the innovative project...

INNOVATION MANAGEMENT VALERIA CHIAPPA INNOVATION-INTRODUCTION IM 1 NESPRESSO - a big commercial success for Nestlé and a great example of innovation. 1) It was a long journey (innovation is a process): the innovative project was born in the 70s and experiments were conducted in the 80s but it was a failure and nobody was interested in the product. Slowly, it became a huge success after the second attempt of launching it on the market. In fact, Nestlé used a startup approach and picked some talents within the company to create a corporate startup (a separate unit/entity). They started working on a strategic concept of variety: several new innovations started to leverage on customization in this new century (the user is the center). Before Nespresso, the key concept was one brand, one taste/style (“if I am the coffee producer, I am the expert and my coffee is the best one”). They started to reshape the pillar of the coffee industry and the idea is to create a system in which the consumer is the center and chooses the preferred coffee. There is a pleasure of discovery, we taste and choose: Nespresso took inspiration from the wine industry but also from stores in which the purchasing process is an experience such as jewelry or perfume industry. This is not the main source of revenue for Nespresso (more loss than revenue because it was established in renowned streets among other luxury stores), they had only a few shops and focused on exclusivity. The goal was to grow reputation: the main goal was to establish Nespresso as something completely different →Therefore, Nespresso was not in supermarkets, only in stores and online (main source of revenue). Nespresso is an ecosystem of players with marketing at the center, software development for ecommerce and external parties like coffee producers, etc → The majority are independent entities. Innovation is a series of phases. It is not always a linear journey in which we have clear steps: it can require adaptation and changes along the way. Innovation is a management activity (technology may help a lot but innovation is not for engineers), that’s why managers play a crucial role. The size of the company doesn’t matter, innovation is for startups, SMEs and large-sized companies. INNOVATION IM 2 - What is innovation? Who is the buyer? Sometimes companies misunderstand (“dogs don’t buy food for dogs”). 1) iPhone is an innovation because of the product business to platform business. Steve Jobs presented the iPhone as three new novelties: it is a brand-new phone (form), new version of iPod, new device that is portable and with which we can browse on the web. 2) The rainbow croissant is on the edge of innovation and non-innovation, it did not change our life but it is novelty (it is created in a new way), it creates value (maybe not for everyone). 3) 3D TV is NOT an innovation because there is no impact. There is no creation of value. 4) PlayStation I is an innovation because their consoles existed before but it was mainly for kids. The PlayStation realized that adults also were interested in playing video games (they started playing on computers at work because they needed a powerful device). 5) Amazon is an innovation because it is the first business to sell online, even though delivery existed before this business. Amazon gave the opportunity to other businesses to also sell online, to connect resellers to consumers. Amazon is NOT the first e-commerce but it tried to transform advertising into a service that is useful: Amazon started to analyze the behavior of customers to understand preferences. It is the first one to advertise in a customized way, Amazon is the first to have such a business model. 6) Salads in plastic bags could be an innovation too since they bring a new solution to customers but it is less innovative than other products because it could be copied very easily. The combination of plastic bags and salads is an innovation. It is useful to consumers; we pay four times more for a ready-made salad. There are two KEY INGREDIENTS to innovation: 1. NOVELTY: it refers to the newness or originality of an idea, product, service, or process. It involves creating something that has not been done or seen before, or significantly improving existing ideas. 2. IMPACT: it measures the value or effect that innovation has on individuals, organizations, society, or the environment. It is about the practical application and significance of the novelty → Innovations with significant impact are more likely to be embraced and widely adopted. SUSTAINABLE INNOVATION - 3 perspectives of impact Innovation is something that needs to create value: it needs to be economic, social, environmental… 1. Economic→ it involves creating products or services that generate revenue and economic value; it ensures financial viability to sustain the innovation long-term. 2. Social→ it focuses on solving societal challenges (e.g., inequality, education, healthcare) + it improves the quality of life for communities. 3. Environmental→ it minimizes environmental harm and promotes sustainability + it involves eco-friendly products, renewable energy, and waste reduction From one side you need to be careful: you have to convince people to buy something. It is not just marketing, but the communication aspect is also very important: if the product is something completely new, you need to be specific, otherwise people don’t understand the value or meaning of the product. (Ex. phones were used only by the navy or the army, now we all have a mobile phone). The first tablet was not publicized as a “bigger smartphone”, it then created value. Another aspect: perception is not connected to communication in marketing, but to preferences and differences that are a part of anybody’s mind. Value is not absolute: it is not identical for everybody, not only is it subjective but it depends on the preferences of different people. Price makes a difference: pricier products attract less customers (or fanatics of millionaires), cheaper products attract more customers but which type of customer (?). Why you need an innovation strategy - IM 3 Business strategy is a way to achieve a goal (definition of strategy in general). A business strategy is the definition of the competitive drivers. The goal of the company is to achieve a good profit and an acceptable approach to sustainability. Why do customers choose our product instead of others? We need an answer to WHY→ The strategy is the answer to the question why (example, higher quality product). There are many types of strategies but we can group them into two main categories: a. cost leadership→ when a company can manufacture a product at a lower cost BUT with decent quality →It is a competitive advantage if the price is lower AND with decent quality, but it is not when the price is low but the product is awful; b. differentiation strategy → a product that is superior to others in terms of quality, brand, fashion… The brand could be really unique: innovation = competitive drivers The vast majority of companies say that innovation is a top priority BUT they do not know WHY they would like to innovate and HOW they will innovate. Example: you are the chief executive, analysis with cost/benefits and have lots of details of five projects but you have money only for one project. Which should we invest in? It depends on the objective & other factors: a new innovative product? digitalization (how to apply AI, introduce chatbots)?environmentally sustainable projects?, use new ways of working to become more agile (quick and agile)?... Companies take innovation as contingent; they analyze the situation and go for one project. You need a strategy for innovation → It seems absurd but companies always have a business strategy (usually functional strategies, for example market strategy with the target market, where to invest, what kind of communication, etc.), but not an innovation strategy (business strategy and innovation strategy are NOT the same). BUSINESS → the overall plan that outlines how a company achieves its long-term goals and sustains a competitive advantage in its industry. Focus: it defines the company’s vision, mission, and objectives and determines competitive positioning (e.g., cost leadership, differentiation). Example: expanding market share by offering the lowest prices in the industry. → LONG-TERM → WHAT AND WHY (commitment to a set of coherent, mutually reinforcing policies or behaviors aimed at achieving a specific goal) INNOVATION → it is a specific subset of the business strategy that focuses on how a company develops, implements, and captures value from new ideas, products, processes, or business models. It defines the role of innovation in achieving the company’s goals and determines the resources, processes, and culture needed to foster innovation. Example: investing in research and development to create groundbreaking technology → SHORT/LONG-TERM → HOW A good innovation infrastructure consists in three pillars: 1. innovation strategy → create an innovation strategy that makes sense for the company 2. innovation system → set of solutions, mostly organizational, but they could also be technological (for example, what is established within the company in order to promote innovation) 3. innovation culture → set of values (social, country, ethnicity…) The real goal of an innovation manager is to create a company that continuously creates value. The goal is more of a higher level-> the three need to be quite strong. Innovation strategy What is the direction I want to follow? Many companies have a lack of clear sense of innovation objectives, while others have a clear objective but do not put in place the right strategy: Innovation strategy is the art of asking the right questions: how much to invest in existing products vs potentially new platforms? how do we leverage our existing capabilities without letting them hamstring us? How do we preserve our winning culture as we become larger and more complex? Every day is different, it is not wise to protect an “old” idea, customers preferences change over time so we have to adapt. Why is it too risky to renew everything by investing 100% of my budget? Innovation is risky by definition, even though I'm a fan of innovation I have to balance out my decisions. The two main useful questions to decide the best innovation equilibrium are: 1. How does the company want to use innovation to create and capture value? We distinguish between → a. short term exploitation (fastest as possible); b. long term exploration-> (not something to achieve rapidly, it is very risky because it may lead either to something good or bad, it is a jump in the dark). 2. Priorities among different types of innovation opportunities: changing innovation strategies every single day is not having a strategy, it’s necessary to make a choice/trade-off between strategies. APPLE EXAMPLE Innovation strategy: Apple is not just innovative products, there is consistency among the value proposition of innovative projects → (make the user experience easy and delightful through intuitive interfaces, integrated systems, and seamless integration of different aspects of our (digital) lives). If you are a customer buying their products, you need to only buy their products. An innovation strategy is also needed to focus the organization’s resources and energy on building the right set of capabilities. An organization’s capacity for innovation stems from an innovation system: ideas are synthesized into business concepts and product designs + which projects get funded are selected. Innovation strategy is about finding the balance of trade offs 1. Vision about the future What can happen in 5 to 10 years? We have to make a personal bet: how will the world be in 10 years? 2. Innovation portfolio: Find the right balance between different strategies → New products or a better version of an existing product? The first option is leverage on existing competences (what I know, what I'm good at); the second option is a need for new competences. Following the first option: leverage existing business models and following the second option we have the creation of new business models. The combinations of these 2 types of focuses create different strategies. We distinguish between 4 types of innovation strategies: EXISTING COMPETENCES AND MODEL - ROUTINE It is a mix of my capabilities and an existing business model (ex. improving an industrial model).  NEW COMPETENCES AND MODEL - ARCHITECTURAL Innovation requires new skills, competences, investments in training and it simultaneously requires a new business model-> an example is Apple: they moved from traditional computers to the ipod. NEW COMPETENCES AND EXISTING MODEL - RADICAL It needs new competences or technology but it doesn't mean a new business model is needed. EXISTING COMPETENCES AND NEW MODEL - DISRUPTIVE I need a new business model but with technologies and strategies I already have. The best suggestion is to cover all 4 areas →This is important for established companies, on the other hand, start ups don’t have enough resources, so it is better to choose a specific type of project (this is one of the main reasons why the vast majority of startups fail →you can’t balance all four options). 3. Close vs open innovation: Close innovation is the main stream of innovation based on the assumption that if you are the inventor of something you are the only that needs to control the entire process of production. The more the competitor knows all the steps, the lower are the returns on investments → it is easier to copy. It works in theory but it’s too complicated in practice, that is because no matter how big a company may be, it is very likely you may not have enough resources to fully control everything. SO, even though there are risks of opening the process, it sometimes leads to better results. Open innovation It is about recognizing that the complexity of innovation is high, so if you are opening up your innovation process and engaging with other actors in the ecosystem, you have more chances to win. It is better to create an open system and engage/consider other actors even though there are disadvantages (find the right benefits for everyone and still be in the right position). PIXAR EXAMPLE They invented a very innovative software for rendering animations leading to very high quality movies. Theoretically they should have protected the software in order to have an advantage, but they did the opposite: they created a second business area (the first one is movies) → an organization that sells and rents softwares to everybody. RISK: losing the advantage to competitors. It apparently looks like a strategic mistake but it wasn’t: relatively small companies have less resources (since they were still growing compared to other big companies they had to make more money rapidly → selling the software at a high price gave them a chance to acquire resources fastly). Their strategy is not quality of pictures but of stories: their stories needed to be for kids and for adults, they needed to be great. They thought it was better to invest in great stories: by using the money raised from selling their softwares they were able to pay a large sum of money to professional storytellers. IM 4 - BUSINESS MODEL INNOVATION Business Model Innovation All organizations have a business model. We think of innovation as a new product or service but we can also innovate at the business model level (creative way, so that the product/service can be the same). A business model describes the rationale of how an organization: 1) Creates value → department (marketing?), designers, any creative person in the company, employees… Developing products or services that meet customer needs; Focus: Innovation, quality, solving problems 2) Delivers value→decisions could be physical, digital, a mix, resellers, etc. There are plenty of actions. Ensuring customers can access and experience the value; Focus: Distribution, customer experience, communication. 3) Captures value→ if a business may be successful but is not sustainable, it does not capture value. Retaining part of the value as revenue or profit; Focus: Monetization, pricing, sustainability. A portion of the value has to be retained by the company. Exam – what is the difference between creating, delivering, and capturing value? A successful business model should work in all three areas. Creating value is always crucial for any business but when it comes to innovation, the notion of capturing value is EVEN MORE important. In terms of innovation, the concept is more unclear, it is more difficult to identify. Communication on the value of an innovation is also more difficult. THE NETFLIX CASE Blockbuster - business with physical stores, DVDs existing before Netflix. In terms of delivery, people have to go to the store. Netflix started with physical DVDs and was a competitor. Then, it reinvented the business model, so that people can watch movies in an easier way. In the first version, booking was possible through their website and it is delivered (just like pizza). How Netflix innovates: ▪ Reinventing Business Model – make the experience more easy/lazy–rent and watch movies but in an easier way with delivery – at home without going to the store ▪ Leveraging on data to improve the catalogue – extract value ▪ Moving to streaming (watch wherever you want) - on demand Before Netflix, movies were the main business, then it shifted to TV shows. From a traditional way to on-demand, Netflix has even affected what is considered successful and consumers’ preferences. Netflix realized that content has to be changed. Shows had to be simple before, easy to understand even with skipping → after some time, a business model can affect the product/service. TUNE HOTELS Tune Hotels is a network of hotels based on a simple value proposition: sometimes, all you need from a hotel is a hot shower and a good night’s rest → bed/bathroom (no shampoo, no towels, no TV, nothing included). Everything is an add-on (pay for what you want). It makes Tune Hotels very affordable for the essentials and the add-ons are expensive. This is an innovative revenue model (capturing of value). →Strategy (why is it new, competitive drivers, lead to value proposition which is what kind of value to who) is DIFFERENT from Business Model (a way to put into practice the strategy). Strategy and Business models are intertwined into each other, they MUST be consistent. Sometimes the problem is at the strategy level, sometimes it is on the Business Model. How to create a business model There are several ways to create a business model: 1. Business Model Canva The Business Model Canvas (BMC) is a strategic tool that provides a clear and visual framework for describing, analyzing, and designing a business model. It breaks down a business into nine key components, allowing organizations to systematically understand and align how they create, deliver, and capture value. 2. Value creation architecture (what do I need? how does the business work? how to add something innovative?) and revenue model. It is possible to analyze the value creation architecture considering three main subdimensions: a. Focus: what are the most important activities of the value creation architecture? It is about relevance and prioritization of these activities, to achieving a critical milestone. b. Locus: does location matter or not? physical location of something, sometimes it is important, sometimes, it does not matter. Offices in London, Milan, etc. The decision about the location may generate value. c. Modus: the way different activities are executed 3. Revenue model: How do you make money? What are the revenue streams of your business? → Data-driven: You can collect a lot of data and optimize your revenue model. You may have more than one revenue stream: define the rules for each revenue streams (level of price →which define a part of the strategic position and relationship between revenue and cost), flexible pricing → no unique price (it is frequent for services, especially online – cloud services, car with add-ons), dynamic pricing→ price is different depending on the time (flight tickets, utilities, booking, amazon likelihood to buy). Which is the best metaphor for a perfect business model? The dimensions to analyze a business model are as follows: 1) Clock → time (business model can change overtime) 2) Gazel → agility (business model is adapted overtime and not stable) 3) Santa Claus → team (value proposition for children, an entire organization) 4) Burger → factors (different layers combined all together) SCALABILITY Potential to generate growth in revenues significantly faster than its cost base. Since growing revenues increase the operating margin, scalable business models have the potential for earning very high profits. It is about the evolution of the relationship of the costs with revenues, not only the structure of the company grows, the costs also increase. Depending on the number of aspects it can be different, especially for the distinction between fixed and variable costs. A typical example for low scalability is a restaurant. Good scalability: has high fixed costs. Digital companies have the highest scalability. A good business model is a model that focuses on reaching high levels of scalability (ex. consultancy). The perfect business needs to be: innovative, efficient, consistent (the strategy needs to be consistent and coherent → strategy means priorities, missions… APPROPRIABILITY OF THE COMPETITIVE ADVANTAGE If the business is successful, other companies will try to imitate your idea and steal your customers. If you want to protect something, you are forced to disclose all the details of your business, you have to move faster than competitors. You need a patent so your company is protected from people that actually want to steal your idea. LEGAL MECHANISMS - OPTION 1 Patents →protect a new technology: the first one that registers the patent wins, no matter if he is the inventor or not (in the US, if you can show that it is yours, you can get the patent). A patent is the right to produce and commercialize a technology for a certain number of years, depending on the type of technology and country (more or less 20 years). Design Models → protect aesthetic or economic features of something: usually used in fashion. Trademarks → protect a brand name: rules are industry specific (Apple was in the electronic industry, so it was allowed but not in the agricultural sector). Copyright → protect the creativity of people: a movie, song, poetry, software. STRATEGIC MECHANISMS - OPTION 2 STRATEGY: BRAND There are strategies that are stronger than legal strategies (like patents): one is brand reputation → once you have a strong reputation, even strong legal strategies that prevent people from stealing are weaker. Once you have a specific reputation, it doesn't matter if people steal from you, it doesn't matter if someone copies your idea, brand reputation is an insurance, people won't buy from the copycat. Can a startup leverage this kind of protection? Sometimes it may happen to startups, especially in technology, it is not frequent or common but it may happen that a startup may build a radical innovation. STRATEGY: COMPLEXITY If a product is complex by definition, it is more difficult to copy by definition → this is the case of a.i. There are two different types of complexity: one is technological ( it is something that protects you from imitation, but if the competitor is full of abilities it may not be as effective); another type is business model complexity or organizational complexity: it is very difficult to imitate the organization of the company, that is because this type of information is not accessible to everyone. AW: CONTINUOUS RENEWAL A continuous innovation makes it literally impossible to copy your idea. The paradox is that from one side this could be the strongest strategy (in theory), but it’s too difficult to do it. On average the best is the web design business model. AW: FREE SHARING Another option is to not protect your business at all, i want to concentrate on something else → i want to build up a business on people that want to copy me (this is common softwares). You can make money: thanks to consultancy (to get the best out of the software), to training… how to learn and exploit a software? If the answer is no, I need help to customize the software, if you do it alone it's ok, but there are also people that help you but you have to pay. The perfect mechanism does not exist, the best is putting together more than one solution, one option will advantage you partially, the best is mixing leading and strategic strategies. MVP (minimum viable product) and the lean way - IM 5 lez. 24/10/2024 We have to validate the business through real data and facts, we are not yet in the daily life of the company, we may have a chance of becoming successful. Very frequent mistakes and bias: we fall in love with something and we automatically think people actually want it → too self confident. The traditional way of double checking that something works is complicated: is the idea profitable or not? How can we collect evidence needed to evaluate if the idea is profitable? With market research → surveys used to collect information. cons: they take a lot of time and are really expensive (especially if you are a startup). The main issue of surveys when it comes to innovation (disruptive ideas) is: we may have an idea that doesn’t have a market yet-> if we have something really innovative, the actual answers may not exist, the product may seem unclear (how it works and what it’s used for). THE INNOVATION PROCESS It is a linear process consisting in a series of consequential steps This logic is called the waterfall model → once the water is down it cannot go back→ the stream of water does not change directions: Exploration: browse the web looking for novelties, do some marketing studies, understand the concept and trends… Idea Generation: brainstorming leads to kinds of different ideas Idea Evaluation and Selection: we have to select the best idea Test and Prototyping: used to double check if it works → tests are made with people that give feedback → pivoting: changing the features of my product according to the results of the different tests i do → changing directions but staying grounded to what i’ve learned. Routine Adaptation: if we need to offer a new service we have to adjust how the company works and what the actual organization is. Commercialization and Communication: we need a marketing strategy Fine-Tuning→end The Stage-gate model is for companies that explicitly define the steps of the innovation process. The project team can go on after validation for a certain phase (what do you need to go to the other gate). This model has a lot of weaknesses, it considers the process as linear but in a complex context that is hard to predict a linear model does not work. It's almost impossible planning all these steps in a linear and complete way. It was a good scheme for 20-30 years. Nowadays it's more unstructured → one alternative to the waterfall model is the lean startup way →it's an option for large companies too. It’s an innovation process (shift from an idea to success) → iterative process, there is not a fixed sequence, there is a series of different experiments, where every single one is like a kind of entire waterfall model. Every experiment is an entire innovation process. The goal is to learn and to collect validated knowledge (not validated market). At every step, we do not look for a yes answer but we look for rich information to improve and learn. Pivoting is the key concept: it is the ability to change directions but stay grounded to what we have learned. THE LEAN STARTUP LOOP Build: Try to have a first easy version as fast as you → Develop the MVP quickly using minimal versions & resources. Measure: We need real feedback and then measure to check if what you have done is appreciated or not. Learn: Once you have data, you have to learn what needs to be adjusted before launching the product on the market. It is mainly used to collect validated pieces of data/feedback-> validated means confirmed data (through surveys or experiments) about my project or product. The loop repeats itself until achieving product-market fit. VALIDATED LEARNING It is the demonstration of empirically valuable truths or evidence about a new idea/business model. It is more concrete, more accurate and faster than market forecasting. We need something to learn thanks to real data: MVP (minimum viable product) → it is a simplified version of a product or service that lets us collect data about customers with the least effort. It has to be: 1. Good → customers should have a sense of what you’re trying to do 2. Fast → it should be creative to test an aspect rapidly. In one year, it could be a prototype and NOT an MVP. It can be done in days/hours → speed is essential. 3. Cheap → To afford a long series of tests (because this process is trial and error) I have to invest limited amounts of money. 4. Measurable/observable → No learning possible if it is not measurable, it would be subjective. Difference between MVP and prototype: with an mvp, you don't need a perfect replication of a product you want to sell to the market, you don't need something perfect; On the other hand, a prototype is something highly reliable, similar to what I want to sell. At the end of the day I need to have a validated product → present the idea and ask for funds. If I give more information about the product, the customer is more prone to giving answers. I have to design my product/give enough information, to minimize the risk of bad reputation. An mvp is not just a version of your new product, an mvp is a simple and smart way to test your business. 28/10/2024 QUESTIONS FOR A NEW PRODUCT What’s my target? What is the main problem I'm trying to solve? Is it easy to use? Is it intuitive? Is the target I'm trying to sell my product to, the right one? DIFFERENTIATION BETWEEN MVP AND PROTOTYPE SUBJECT OF THE TEST Prototype: the main goal is to concretely see and test the product or service; MVP: the main goal is to test a business idea or a late stage of a business model; FEATURES Prototype: Everything is more or less is important MVP: only what is essential for the experiment AUDIENCE Prototype: full version of the overall idea, everything of the first version but analyzed by a few people (within the company); MVP: essential product, broadest audience possible → the goal is to collect feedback about my hypothesis, so fewer people may give biased feedback-> it is similar to a marketing survey (even though it’s not). What is the difference? Marketing survey: i refer to intentions and opinions → it’s more subjective; MVP: i try to capture the realest feedback i can get. MINDSET MVP: quick and dirty → you want to place the product ton the market asap Prototype: prevention → it’s better wasting more time but getting a better version of the product i want to sell. MVP TECHNIQUES When is it more difficult applying MVP? In the vast majority of situations I can use an MVP → it is a mix of creativity: to test hypotheses, the higher the creativity, the better are the results of the tests, the shorter the time of experimentation + discipline: rules, suggestions… make the process easier. TECHNIQUES TO DESIGN AN MVP PIECEMEAL MVP You leverage existing surveys to design an easy version of a business idea: for example it uses google forms to ask questions about a product. It’s a way to double check if my business is appreciated by other people WIZARD OF OZ You “cheat” by testing the product with automated services-> using AI i can get information about my idea→ are people available for my product or service? I don't use “humans” but automated elements. RAPID PROTOTYPING AND DEMOS Create low-cost representations of a product to gather feedback early. LANDING PAGE MVPS Describe a project, letting people think they are already using the product. I collect real data→ I simulate the existence of a product. I get real data and numbers CROWDFUNDING AND PRE-SALES Crowdfunding: I get money for my business by getting small donations from different investors: I check if there are actually people that want to invest in my idea. A variation is pre-sales: A/B TESTING Compare two versions of a product to check which one performs better with users → you let people experience these two versions without them knowing they are in an experiment. Someone is provided with version A, some with version B: you collect data of each version and choose the better performing version. I reduce the risk of a biased opinion-> this is very frequent in digital marketing (different slogans, images… to see which ones perform better). SPRINT (VARIATION OF THE LEAN WAY) It was used for testing google services for a week. It provides a structured way to go from idea to user tested prototype in a week. It is ideal for quickly validating ideas without long-term commitment. DESIGN A BUSINESS EXPERIMENT 1. Define the goal of the step and write down an hypothesis: the best is having a concept which is clear and testable → example: hypothesis-> if i introduce this feature, my engagement will increase by 15% 2. Design the experiment to minimize bias and unintended feedback: in this part I check if something influences the experiment, so that the results are attributable to the change and not external factors 3. Choose metrics to maximize learning: select specific metrics that provide deep insights. The chosen metrics should offer a clear view of success and failure. 4. Identify and Engage the right audience: this could be a specific customer segment or an employee group. 5. Establish a control group: rerun the experiment with a group that doesn’t experience the difference made by the product. 6. Set a short experiment duration: brief time frame, sufficient for gathering data 7. Objectively analyze results: avoid biases and look at all relevant data, whether it confirms or refutes the hypothesis. 8. Document Learning and plan next steps: Summarize the findings and document key insights. Use the results to inform decisions on scaling, iterating, or discontinuing  the idea. Outline clear next steps, highlighting recommendations for future experiments. 4/11/2024 DEALING WITH A MARKET THAT DOESN’T EXIST YET - IM 6 Where does innovation come from? There are two main sources of innovation: 1. Technology push→ it’s when you have an internal unit or person (creative person), you have a disruptive idea, you are a creative person). It’s an idea which is not directly requested from the market. 2. Market pull→ it refers to the need/requirement for a new product or a solution to a problem, which comes from the marketplace. PROS OF MARKET PULL We have some signals that people are not directly asking for something. If a company understands innovation in terms of analyzing the market that means we are reducing the risk of being wrong. In the case of market pull we have less risks: it’s the outcome of an analysis of the market. CONS Likely we have a lot of competition; PROS OF TECHNOLOGY PUSH It’s more likely that we find something disruptive and radical, market pull it’s an improvement of something that already exists. I need to find something original CONS Trying to convince the customers that they have a need for something that doesn’t exist → it cannot give feedback about the idea. COMBINED APPROACH The vast majority of companies tend to have an approach to innovation which can be similar either to technology push or market pull. The main goal is trying to reach a balance between the two → ambidextrous organizations: it uses both ends in trying to make a strategy. An example is Tesla. The initial idea of Tesla was to combine something innovative and visionary without really understanding what the market really wanted. It was more intended to save the planet (as an alternative to the classic car) → oil fuel is expensive, electricity is cheaper: you have a car that costs less in terms of fuel. The first electric cars were utility cars (very small) → The autonomy was very limited: it could be used for shorter rides, small cars consumed less… Tesla is a type of car which is really innovative and different from the others→ it also has an understanding of which segment they had to focus on: the technology of electric cars is very expensive (you cannot offer to the market an utility car for 60k), so Elon Musk thought about targeting the higher end of that specific segment, people that are prone to paying more money for an electric car. He also understood that higher spending people were looking for something innovative and luxurious: what are the keywords of higher spending people? Status, comfort, high speed, sport… It's a kind of customer well defined. IMPORTANCE OF UNDERSTANDING MARKET AND COMPETITION FOR NEW PRODUCTS Identifying Market Gaps and Defining Unique Selling Proposition It’s a variation of the concept of value proposition: it's something (a solution) unique that addresses a specific need. Mitigating Risks Launching a new product is inherently risky, so a strong understanding of competitors reduces the risk of misalignment with customer needs or market expectations: Direct competitors: they are companies that solve the same problem with the same solution. Indirect competitors: they solve the same problem through very different solutions (for example for Cartier an indirect competitor may be shops that sell different types of gifts for the same price [for 3k you can buy a ring, a vacation, a computer…]. It’s important to understand what leads people to buy something. When it comes to innovation there may not be direct competitors→why is my product better than the ones that already exist? When it comes to something really innovative in most cases there are indirect competitors. If we are sure there are no competitors then: 1. It’s a Super innovative idea; 2. There’s actually no need for that idea (warning) → useless. If we have lots of direct competitors we may not be so innovative→ it’s better to have indirect competitors (it’s a proof that there is a market for you→ people satisfy the same need differently, we have to convince that our product is better). DIFFERENCES COMPARED TO MAINSTREAM PRODUCT LAUNCHES Mainstream products benefit from existing market knowledge but they have harsher competition When it comes to innovation it’s more difficult trying to get more information, to get people to trust you… Market Awareness: Mainstream products often benefit from existing market knowledge, brand reputation, and customer loyalty. New products lack this familiarity, needing more extensive efforts in education, marketing, and customer trust- building. Competitive Intensity: Established products compete within known market boundaries, focusing on incremental improvements and brand loyalty. New products must differentiate against both direct competitors and alternative solutions from indirect competitors. CUSTOMER TARGETING Mainstream launches typically target a broad audience familiar with the brand or category. New product launches often target early adopters or niche segments willing to try unfamiliar solutions. At first it’s ok to target people that want something new (small circle of people): you have to convince people to try your product, which are excited and that share their experience with others. It’s very important: several new projects tend to be affected by the network effect→ it’s the situation where the value of a product is proportional to the number of users. In this case we have a direct or indirect effect: Direct: if I buy an ergonomic chair I'm not interested in how many people buy that chair, I get the value of the chair by using it. The network effect is almost zero. In the case of social networks it’s important that it’s used by many accounts (strong network effect) → I see the value of something only if there are a lot of users. Indirect: I can use it alone but the higher the number of customers, the higher the value. An example is netflix: I can use it alone but the higher the number of users, the higher is the possibility of investments for the company to create more series and films. Lots of innovative products tend to be affected by the network effect: we have to be aware because indirect effects tend to be a problem→maybe people think the idea is good but everybody is waiting for people to start using it. Turning point: it’s the theoretical minimum number of people that makes your innovation perceived as useful. if there is a network effect, after that minimum threshold (of people using the product) people start seeing value. What is the minimum number of Instagram users? Nobody knows. It’s very difficult to acquire new customers at the start, after that turning point everything goes well. The first goal is trying to achieve a turning point: a good strategy is the bubble strategy. The tipping point is reaching a number of people that actually want to use the product, it’s proportional to the number of users in the market. If the size of the market is big then the turning point is higher and vice versa. The main goal is to self reduce the size of the market and enlarge it step by step. For example: Zuckerberg launched Facebook only for his friends’ circle (limited number of people). It was easy to convince people to try the social network. After the first trial, the number of users grows pretty fast. In just a couple of weeks facebook was becoming viral. If social media is useful, Zuckerberg’s suggestion was to invite other people to use that social media→he decided to make that social network open to Harvard students only (the bubble is bigger). After that facebook decided to open the social network to other universities in Boston, as the number of users grew, at a certain point he decided to remove the bubble and open it to the public. BLUE OCEAN STRATEGY The idea is to create a market which is totally new so that the competition is irrelevant, with a strong and unique selling proposition that combines differentiation and leadership. Create new market spaces, make competition irrelevant, unlock new demand; 1. Value Innovation: Simultaneously pursuing differentiation and low cost to open up new markets and drive growth. 2. Reconstruction of Market Boundaries: Look beyond existing industry definitions to redefine what and how products or services are offered. 3. Reduced Competition: No direct competition as new market spaces are created. 4. Customer Loyalty: Unique offerings can attract strong customer loyalty and brand recognition. RED VS BLUE OCEAN What is the competitive driver? What is the target? 11/11/2024 RED VS BLUE OCEAN BLUE The goal of a good strategy is to find a strategic position in which you are better than the competition. We are talking about the satisfaction of a latent or direct need. We can also satisfy the same need with completely different solutions. Different solutions to one problem. Often, innovation cannot pursue simultaneously cost leadership and differentiation. The logic of blue ocean makes you explore latent needs in the market, and the way to do that is to consider the so called non-customers and non-market. FIRST-TIER The soon-to-be is the closest type of customer to the traditional one, it suggests improvement for innovation. People don’t buy my product because there is an obstacle. Not every time a cheap product attracts customers: in the 90s Maserati tried to sell a cheaper version of their cars, the result was negative → they started to lose sales for their expensive cars too. How can I expand my market by leveraging soon-to-be? Price, supply, geographical reasons such that it is too far, social reasoning/inappropriateness, religion, etc. SECOND-TIER Refusing customers is better for startups because they want to fight against “big” players. In this case it’s a preference, it’s a simple choice of refusing to buy it. The idea is to catch the attention of customers that don’t know what they want. THIRD-TIER Unexplored: this is the most complicated market→ these are the people who are simply not interested in the product. It’s both the most promising and complicated: I don't have a starting point. The main goal is trying to understand the preferences of this type of market: it’s useful to collect feedback and adjust the strategy according to the results I get. EQUITY STAGE MARKET AND FINANCIALS FOR INNOVATION FIRST OPTION We can ask family, friends and fools… SECOND OPTION The philosophy why i want to get in debt, is because there is the insurance that i will give it back. If I ask for a significantly high amount of money, it’s possible that the bank wants a guarantee → they don’t want to take risks. In this case I have a mortgage (ipoteca) for buying a house. This is typically not the best way to get the money I need. THIRD OPTION Equity stage market: a market where you don't share stocks but equity. VENTURE CAPITALISTS VS BUSINESS ANGELS Venture capitalists are organizations with professional people that invest in high risk activities as their job. They are really competent in analyzing the potential of a startup: I can already see in the startup whether it will be successful or not → there’s proof the project will be successful (not so risky). Maybe the company sells a lot but spends more money than what it gets from sales. The startup already has some figures and data that confirms the idea is valid. Business angels are similar to venture capitalists: they are open to investing in startups but the difference is that usually a business angel is someone that as a secondary activity loves to invest in startups (it’s not their main job), usually they are very rich. 1. If I have a lot of money I can invest in bonds (low risk activities). 2. I spend money on useless things 3. I invest in startups (high risk investment): i invest in those because of the mindset → why do i have a lot of money? Probably because the person is a firm entrepreneur → so if I am a relatively young entrepreneur I'm open to investing in that specific startup. Risk is catchy for this type of person. CHARACTERISTICS BUSINESS ANGELS →Individuals who contribute their time, knowledge, contacts and/or money to growth businesses in exchange for equity; Often entrepreneurs, managers, business consultants or finance professionals retired or still in activity Structured, semi-professional investors driven by the objective quality of the entrepreneurs and their ideas rather than their familiarity with them Generally like to invest in areas that they have worked in or are comfortable with; May be very involved or not involved at all, depending on their personal style. GROWTH PROCESS Pre-Seed / Seed growth – creation and initial growth Early-stage – implementation and initial expansion Later-stage – scaling up and larger-scale expansion Exit – some form of ‘liquidity event’ allows investors and founders to cash out. At day 0 → the value of the startup is 0. As time goes by, its value grows steadily (i start talking with people, experts…). Typically the growth curve is similar to an S curve. A business angel wants to enter before the exponential growth, likely in the middle of the growth. → Why? Because at this moment it’s cheaper to invest, with a relatively small amount of money I can get a significant share of the company. What is the value of the company right before the plateau (before reaching its full potential)? maybe ten times the value of it at the start, but still, business angels dip out right before reaching the top of the profit. The business angel pays a fee to be in the network, they invest in different startups: like shark tanks. “Smart” money: money + expertise (the value comes from a social network of professionals) Competence... Contact network  Client lead Opportunities Reputation May be part of Advisory Board LEZ 18/11/2024 Investment process Screening groups: they interview and make a preliminary evaluation (quick and dirty) done by the people of the network (is it interesting or not?) Screening committee: given the subject of the startup, an opinion about its potential is made by experts not common people. General assembly Due diligence: divided in legal and business diligence. The goal is to double check that everything that the owner of the business idea said is true. Investment: it’s the final step. Not every investment process is the same → it’s possible that not all steps are followed exactly as shown. VALUATION Valuation is simply the value of a company something that may or may not happen: room for assumptions and educated guesses. Valuation matters because it determines the share of the company they have to give away to an investor in exchange for money; Valuation at the early stages is about the growth potential, as opposed to the present value → that is because, at first, the value of the company is close to zero. There are two types of approaches: 1) The first one is called Benchmarking → this is the case of a startup that is very similar to the one you have and if you find out that it has been financed by somebody with a specific valuation, you can use it as a benchmark to make a reasonable valuation. BUT It’s very difficult to put into practice: 1. it’s difficult to find data (most of the time it’s confidential) → if they make this data available there’s a trick ??? 2. difficult to find a comparable company. 2) The second one is called reversed engineering of the negotiation phase→ it comes from a negotiation between the entrepreneur and the investor leading to a pre-money valuation that generates a share that makes sense. CHIEF INNOVATION OFFICER 18/11/2024 pomeriggio Innovation manager= someone in the company in charge of innovation related topics. The chief innovation officer is always one → he’s at the top of the innovation hierarchy. There are pros and cons: we have to define the scope of his goal. It is a managerial and coordination position. The formal role is to accelerate innovation. It’s a very different job from jobs like innovation managers → that is because they are families of activities that you can aggregate with each other (innovation managers). CONS Innovation works only if it’s spread across the organization: if there is someone that thinks innovation is related only to the CIO because there is just an officer, the mindset becomes limited → innovation comes only from that office (for ex. accounting isn’t innovative) → bad assumption. pros and cons + daily activities of the ceo 1. needs to control and create collaboration with different departments 2. Needs to always think about innovative approaches to different topics (market, customers, competitive advantage…)  3. Holistic view of the organization → always have an open mind while dealing with their daily activities lez 25/11/2024 IDEA MANAGEMENT Intangible things are super powerful, but I need facts to develop soft skills. Ideas are a great asset: the main issue of ideas from a managerial perspective → ideas can be evaluated → it’s necessary to integrate managerial systems in order to fully explore the idea and evaluate it. There’s no chance to fully formalize the way ideas are created in an organization. There are employees that think that the idea they have doesn’t have to be shared because it’s not “good enough” or because they don’t know who to talk to. Formal platforms for collecting ideas → it could be a site, a set of rules that encourage sharing ideas. That means sharing, evaluating and putting them into practice. Value added through collabs → it means taking into consideration people outside the company (for example clients). The company keeps track of these ideas that may be good for solving specific problems. IDEA MANAGEMENT: KEY FUNCTIONS 1. Reward and recognition system → formal and official way to encourage people to think of new ideas and share them. people must feel that there is a climate of acceptance. It should feel as if there was no one that judges. It’s formal procedures: those ensure traceability and retrieval. What can a manager do? a. Creating a procedure where everybody can share their ideas anonymously. b. (example 20% project → employees can work on their own projects for 20% of their time). c. monetary incentive → the best idea gets a reward (such as a bonus), there’s no penalty, only plus. 2. Idea sharing → If function 1 works, people are prone to sharing ideas, I need then something formal to ensure that ideas arrive to the right people. With sharing I make sure that ideas do not stay with one person, but they are shared across the department. A site where ideas are collected can be really effective because ideas can be stored, are collected and can be anonymous. The fact that they can be stored it’s essential: an idea can at first be rejected, but with the passing of time the idea could become successful thanks to the evolution of the market. It’s similar to the garbage can model (?). Snowball idea management: everybody that has a good idea has to submit it to five people within the organization that may be interested or may have the expertise to see if the idea is good or not. Those people have 2 options: i believe that it’s a good idea and i start working with the creator of the idea; viceversa i (person that received the idea) have to submit the idea to 5 other people, and that cycle repeats itself for at least 5 times. 3. Innovation pipeline Management → library where ideas deserve to be stored: these are ideas that are not projects but they’re at the early stages. Used for inspiration 4. Idea assessment → sooner or later someone needs to choose the ideas that have potential. To make this decision, I need to do an evaluation.  5. Implementation and feedback → it’s formal: it’s something that makes the idea automatically implemented. Everything is pointless if there’s no formal decision: the idea becomes a real project. Idea management doesn’t have to be focused on all 5 functions, but should implement all 5. MY STARBUCKS IDEA vedi slide? Feasibility impact matrix I have a preliminary assessment to select the best ideas. I then select ideas according to 2 variables: 1. Impact → it can be multifaceted: it could be reduction of costs, positive impact on reputation, increase of profit… The main question is: what is the expected impact? High or low? 2. Feasibility → is it something easy to implement or complicated? High: not a big investment, easy to do in a small amount of time; low: in this case, if we decide to implement that concept, we need to be aware it takes a lot of money, investments… These two variables are not really collegated (weak correlation). I have 4 different cases: a. High feasibility and high impact→ easy winner → if it’s something easy to do and with high impact, it needs to be prioritized, BUT it’s quite rare to have this combination. b. Low feasibility and low impact → dream drawer → i need a lot of time, money, people… the decision is to not follow this path. However, the innovators always give a chance to something: we do not completely abandon it. I can store these ideas so that every 6 months, year etc. they can be discussed and reconsidered (conditions that made the idea “bad” are now different). c. High impact and low feasibility → rough diamonds → the project is expensive but the impact is high: this is not the main priority but it’s necessary to find internal procedures to make them more “sustainable” for the company. d. Low impact and high feasibility → will-o’-the-wisps → we have the expectation of low impact and high feasibility: it’s something very easy to do but leads to little to no impact. Even though it is easy, it consumes resources. How can these ideas be managed? They are not the top priority → it’s best to analyze them better. Sometimes a good suggestion (for innovative companies) is to pursue the idea anyway, at your own risk. I create the feeling that the organization goes on, I create a positive environment… that’s a great return. This category is the best to achieve this goal. This matrix makes sense if you don’t have much time to evaluate all ideas you receive. Another great value of this matrix: the portfolio of innovative ideas can show if the situation of the company is healthy or not. → if it is unbalanced we can see the weakness of the company: if most of the ideas fall into the dream drawer there's a problem with creativity. If we have too many rough diamonds there’s potential but no budget, so if it’s true the company needs to consider having a higher budget for innovation. If there’s too many will-o'-the- wisps people are concrete, people are ignoring what really matters. If we have many easy winner projects: it’s the best scenario ever but it’s not realistic. In this case we have a problem of assessment, the reality is that we are too optimistic. uaio mo cacc a pistol, staje senz pensier pascal pigghia a scupa ?????e scupa i scale ok uaglio 28/11/2024 THE PARADOX OF INNOVATIVE CULTURES: IT’S NOT ALL FUN AND GAMES The three pillars of innovation 1. Innovation system 2. Innovation culture → the problem is that in theory it could be the ideal situation, in reality it’s impossible that this can happen. 3. Innovation capability These three pillars generate a cycle that keeps the company going. What are the most important values of innovation culture? they may be diversity, networking, collaboration, BUT there is no consensus of what innovation culture is. WHAT’S CORPORATE CULTURE? Culture consists of shared values and social behaviours of members of an organization. Culture can be thought of as a shadow organizational system → you cannot always see it but you feel its effects all the time. Possible values can be a lot, beliefs are something in your mind which is taken for granted (such as stereotypes or experiences that you have lived) → for example: to achieve something it’s necessary to work hard. All of us have to deal with the tension about interplay between different cultural levels: 1. I have my own personal culture 2. i’m embedded in at least one social culture (I absorb some values of people living in a specific setting, such as people from different countries). 3 levels of values: 1. individual level → friendship, collaboration, inclusiveness, etc., that is relatively stable. 2. social level →country/nation culture 3. corporate culture → medium/big sized have a known set shared values. The bigger the company, the higher is the possibility of developing a specific corporate culture: a strong company culture is evident in big organizations (big and multinational). Why? → if we’re talking about multinational companies it’s better to have a strong culture. Customer-centered culture: an example is given by digital products. INNOVATION CULTURE - PARADOX What is an innovative culture? 5 main principles: extremely powerful in fostering innovation but also extremely unstable: 1. Tolerance for failure → error needs to be tolerated because if not no one is willing to try something new. Learning is done with a series of trial and error. It’s important to stimulate knowledge sharing. If I do something wrong and I expect to be punished, then ideas aren’t shared. BUT → i also need intolerance for incompetence: tolerance for failures is ok but unfortunately it’s risky because if I accept too many mistakes then people start to act incompetently and the company collapses. 2. Psychological safety → people think that this is the right place to be innovative, people are open to share ideas and to speak up. We should NOT limit creativity.  BUT you also have to be→ Brutally frank → If everybody agrees to be brutally frank, even to criticize, to disagree. People say too many things, and everyone needs to feel free to disagree. It can be risky to be too open. 3. Willingness to experiment → people are happy and curious to try, a direct kind of learning. BUT also Highly disciplined → disciplined experimentation (not improvisation but with a methodology, it is about having a clear sense up front about the criteria for moving forward with, modifying, or killing an idea – feedback over personal idea!). Projects that deserve to be closed or to proceed? 4. Collaborative – within the company and external partners (correlated with successful innovative projects) and this is because it absorbs a lot of time and resources. You cannot do it alone because it is complex. Collaboration is a way to share the risks, mitigating the possible negative effect that something goes wrong. BUT also Individual accountability → collaboration only works with individual accountability (clear definition of task and responsibility for each person). At a certain point, the project fails and the problem is everybody. Everybody does everything, nobody wants to do it: “there is a big success because of me, if it is a failure, it is because of you”. We need a final responsibility. 5. Flat organization → not a lot of hieratical levels, not a lot of bosses or supervisors. Everyone is on the same level BUT also Strong leadership → risk that there is a lack of leadership, we need a boss even though there is no formal title. We need strong charisma, leadership to afford flat organizations. lezione 2/12/2024 WHAT IS NOT MEASURED DOES NOT EXIST? After a certain amount of time, innovation becomes the new status quo → something that was not common becomes ordinary. Why isn’t it measured? 1. Innovation is considered a temporary problem, it will pass 2. It is completely different every single time, i start from scratch It has KPI → for example they are return on investment, sales… so can it be measured? What’s the meaning of measuring innovation? What do we measure? We can measure the progress: if we try to measure the progress of a company we have to try to be aware of different KPIs, all together simultaneously. INNOVATION METRICS There are 3 main areas of measuring: there is at least 1 KPI for each measure. 1. INPUT Indicators that measure the resources allocated to innovation processes → example: RandD budget. 2. PROGRESS Indicators to monitor the progress of innovation processes and execution phases → example: milestones achieved, development time. 3. OUTPUT Indicators to measure the results of innovation  There are dozens of KPIs for each area, but every single type of project has different performance indicators → example: registered patents, new revenue from innovation products. context exercise: 1. a product 2. try to imagine the highest number of indicators per area (minimum 3→1 per area)