Innovation Management Summary - PDF

**Innovation Management** 1. **Technological Innovation** 1/3 sales & profits from products developed within past 5 years key drivers: globalization, advances in (information) technology, faster development cycles "Innovation is essential.. but also really hard!" NPD in pharmaceutical industry:...

**Innovation Management** 1. **Technological Innovation** 1/3 sales & profits from products developed within past 5 years key drivers: globalization, advances in (information) technology, faster development cycles "Innovation is essential.. but also really hard!" NPD in pharmaceutical industry: 3-6years Discovery & Preclinical, 6-7years Clinical trials, 0.5-2years approval Innovation requires a well-crafted strategy: align with resources & objectives, leverage core competences, achieve strategic intent. Firms need in-depth **understanding** of the dynamics of innovation, a well-crafted innovation **strategy**, and well-designed **processes** for implementing the innovation strategy. Ein Bild, das Text, Diagramm, Kreis, Schrift enthält. Automatisch generierte Beschreibung Product vs. Process innovation (can enable each other as well) Radical vs. incremental innovations: 1) degree to which it is new and different, 2) only minor change from existing Architectural vs. component innovations: 1) changing overall design of the system or the way components interact, 2) changes to one or more components of a product without significantly affecting the overall design S-curves: slow improvement at first (lack of understanding), then skyrockets (understanding increases), then tapers off (approaches limits) prescriptive tool  Discontinuous technologies: fulfills a similar market need by means of an entirely new knowledge base (Schallplatte CD) Typology of adopters: Innovators (2,5%) Early Adopters (13,5%) Early Majority (34%) Late Majority (34%) Laggards (16%) Tech can improve faster than customer needs demand low-end tech can evtl. Meet the needs of mass market (feeling of paying for features they don't need) "Segment zero" Kondratiev-wave: timeline: Radical innovation diffusion above average growth structural adaptation, crisis fight for distribution 2. **Innovation Potential of AI** AI = machines imitate traditionally human "cognitive" functions like learning or problem solving General AI = machine that can perform any task, able to repurpose previously learned behavior and use it in new situations, define own goals and pursue them indepently Narrow AI = can only perform one specific tasks (e.g. chess) Drivers of the current AI boom: Data, Algorithms, Computing power Machine learning (ML) learning styles: Supervised learning, unsupervised learning, reinforcement learning Neural networks: basic idea is algorithms that try to mimic the brain improved performance due to data availability Achilles heel: needs a lot of **labeled** data, but its possible to start on a small scale Deep Learning (DL) = just a deeper neural network with even more layers Ein Bild, das Text, Diagramm, Schrift enthält. Automatisch generierte Beschreibung Autoencoders: learn to 1) compress data from input into 2) a representation (encoding) and then 3) uncompress the representation into something "that closely matches the original data" Characteristics of general-purpose technologies (GPT): 1) pervasive, i.e., in wide use; 2) Capable of ongoing technical improvement; 3) enable complementary innovation in application sectors. Many jobs include significant share of automatable activities Levers for management: Foster ability to deal with challenges and risks of AI, mange explainability problem, learn to identify possible applications for prediction. *Individual*: develop skills and continuous learning. *Team*: more cross-functional collaboration and more team-based work. *Organization*: adopt a data strategy, create new business units, more agile ways of working Data strategy: the right data, at the right time, at the right cost! Challenges and risks of using AI: 1) technical issues with implementing AI solutions; 2) explainability; 3) ethical and design issues **2.1 Sources of Innovation** Individual Creativity: Intellectual abilities, knowledge, style of thinking, personality, motivation, environment Organizational creativity: creativity of individuals within the organization, supported by idea collection systems, creativity training programs, organization culture (e.g. google) Innovation is the implementation of creative ideas into something new requires combining creativity with resources and expertise: Innovation by Users, Research and Development by firms, Firm linkages with Customers, Suppliers, Competitors and Complementors, Universities, Government-Funded Research, Private Nonprofit Organizations **Collaborative research** is especially important in high-tech sectors where individual firms rarely possess all necessary resources and capabilities Technology clusters: regional clusters of firms that have a connection to a common technology (may work with same supplier, customer, etc.) -- cluster can improve infrastructure, market grow, attract other firms, etc. Technology spillovers: benefits from research activities spill over to others Knowledge brokers: firms or individuals that transfer information (e.g. Thomas Edison), serving as a bridge between sperate groups of firms **2.2 Standards Battles and Dominant Designs** Technology cycles  Why dominant designs are selected: **Learning curve** (learning to make tech more efficient/effective), **prior learning and absorptive capacity** (builds knowledge base that helps to improve the technology), **network externalities** (benefit from user increase, arise when compatibility or complementary goods are important (windows) BUT attracts producers of complementary goods! "a self-reinforcing cycle ensues"), **Government Regulation** (e.g., color standard in TV in US, general standard for mobile communication in EU) **Result: Winner-Take-All Markets**: natural monopolies, firms supporting winning technology earn huge reward Dominant design can influence/shape future technological inquiry To overthrow existing dominant technology, new tech must offer dramatic technological improvement or/and compatibility with existing installed base and complements Ein Bild, das Text, Schrift, Diagramm, Reihe enthält. Automatisch generierte Beschreibung Network externality benefits to customer rise with cumulative market share, it can sometimes get more value when one technology dominates, but potential for monopoly costs to customers also rise with cumulative market share **2.3 Timing of Entry** **First movers** are the first entrants to sell in a new product or service category: (+) brand loyalty & technological leadership, preemption of scarce assets, exploiting buyer switching costs, reaping increasing returns advantages. (-) high R&D expenses, undeveloped supply & distribution channels, immature enabling technologies and complements, uncertainty of customer requirements **Early followers** are early to market but not first **Late entrants** do not enter the market until the product begins to penetrate the mass market or later Factors influencing optimal timing of entry: 1) customer preferences (well understood?), 2) Innovation provides dramatic improvement?, 3)enabling technologies required? (e.g. long lasting batteries for cell phones), 4) Complementary goods influence the value of the innovation? (e.g. games for consoles), 5) How high is threat of competitive entry?, 6) Increasing returns to adoption?, 7) Can firm withstand early losses? (first mover bear bulk of R&D expenses that can endure a while), 8) Does firm have resources to accelerate market acceptance? (huge capital = can invest in aggressive marketing/supplier/distributor development), 9) Reputation likely to reduce the uncertainty of customers, suppliers, distributors? (well-respected = may be adopted faster) **3.1 Defining the Organizations Strategic Direction** Current position analysis (external): Porters Five-Forces (degree of existing rivalry, threat of potential entrants, power of suppliers, power of buyers, threat of substitutes) & Stakeholder Analysis (who are the stakeholders, what does each want, what resources do they contribute to the organization, what claims are the y likely to make on the organization) Ein Bild, das Kreis, Diagramm, Text, Reihe enthält. Automatisch generierte Beschreibung Stakeholder power-interest grid  Internal analysis: value chain (identify strengths and weaknesses) asses which strengths have potential to be (sustainable) competitive advantage Ein Bild, das Text, Diagramm, Reihe, Quittung enthält. Automatisch generierte Beschreibung Identify core competencies and capabilities: should be significant source of competitive differentiation, cover a range of businesses, be hard to imitate Long-term goal builds upon and stretches firms core competencies (typically 10-20 years ahead, firms should identify resources and capabilities needed to close gap between strategic intent and current position) balanced scorecard **3.2 Choosing Innovation Projects** Development budget: set a fixed R&D budget and rank/order projects (top industries R&D intensity: drugs/biological products, special industry machinery, electronic components, etc.) Financing new technology ventures: large firm fund innovation internally, start-ups externally (funding, angel investors, government funding, family, credits) Quantitative methods for choosing projects: **DCF method** (NPV -- expected cash inflows discounted and compared) provide financial estimate & consider timing of investment and time value of money, BUT only as accurate as original estimates of cash flows & may fail to capture strategic importance of project. **Real options** (applies stock option model to nonfinancial resource investments): cost of R&D program can be considered price of a call option, cost of future investment required to capitalize on the R&D program can be considered the exercise price, Returns to the R&D investment are analogous to the value of a stock purchased with a call option limitations: many projects don't conform to the same capital market assumptions, may not be able to acquire option at small price, value of R&D investment is shaped by the firms capabilities/complementary assets/strategies slide 10 Qualitative methods of choosing projects: **Screening Questions** used to assess different dimension of project decision (role of customer (market, use, compatibility), role of capabilities (existing cap., competitors cap., future cap.), project timing and cost), **Q-Sort**: simple method for ranking ideas on different dimensions (Ideas put on cards for each dimension being considered, cards are stacked in order of performance on that dimension several round to achieve consensus about the projects) Project planning framework/map slide 13 Combining quantitative and qualitative information: **Conjoint Analysis**: estimates relative value individuals place on attributes (Individuals given card with products/projects with different features & prices they rate each in terms of desirability/rank them multiple regression used to assess the degree to which an attribute influences rating). Data Envelopment Analysis (DEA) uses linear programming to combine measures of projects based on different units (e.g. rank vs. dollars) into an efficiency frontier (projects can be ranked by assessing their distance from efficiency frontier, DEA results are only as good as the data utilized) **3.3 Collaboration Strategies** Reasons for going solo: Availability of capabilities, Protecting proprietary technologies, Controlling technology development and use, Building and renewing capabilities Advantages of collaboration: obtaining needed skills or resources quickly, reducing asset commitment and increase flexibility, learning from partner, sharing cost and risk, can build cooperation around a common standard Types of collaboration: **Strategic Alliances** (formal or informal agreements to cooperate), **Joint Ventures** (particular type of strategic alliance that entails significant equity investment and often establishes a new separate legal entity), **Licensing** (contractual arrangement that gives the rights to use anothers intellectual property -- usually in exchange for royalties), **Outsourcing** (procure services or products from another company rather than producing inhouse), **Collective Research Organizations** (Organizations formed to facilitate collaboration among a group of firms) Partner selection: resource fit, strategic fit, impact on opportunities and threats, impact on internal strengths and weaknesses, impact on strategic direction Clear and flexible monitoring required: contractual arrangements, shared equity ownership, relational governance **4. Business Modell Innovation** Disruptive Changes requires response (e.g. Consumer (target market shifts), Regulation (ban of genetically modified food in Europe), market, technology (kodak -- change to digital photos) Why breakthrough strategies fail: inertia, complacency, rigid, unquestioned beliefs, fear, interests, overconfidence, habits & norms, past, uncritical thinking [Magic triangle (Business model definition)]  -- open business model (open platforms, internal/cultural switch mindset, open minded for external input, more collaboration) 90% of all business models are recombinations, 55 basic patterns Razor and Blade pattern: cheap basic product but high cost consumables (e.g. Gilette, HP Drucker, Nespresso) Freemium: basic version for free, with the hope that customer will pay for the premium version (dropbox, LinkedIn, Spotify..) [Business Model Navigator as a structued approach to innovate business models] Ein Bild, das Text, Screenshot, Diagramm, Design enthält. Automatisch generierte Beschreibung Principles for successful integration: 1) Ensure a match between what a firm aspires to offer and its natural resource base 2) Create and capture value, don't limit focus to value creation 3) Ensure full integration of all 4 dimensions "who", "what", "how", "why" (revenue model) -- a well-integrated business model is much more powerful and sustainable **5.1 Organizing for Innovation** [Size and structure of the firm]: Large size (pro) = 1) better able to obtain financing, 2) spread R&D costs over large volume, 3) greater economies of scale & learning effects, 4) taking on large scale or risky projects. - (con) = 1) efficiency decrease, 2) more bureautic inertia, 3) more stratetic commitments. Small firms considered more flexible & entrepreneurial Structure: Formalization, Standardization, Centralization (centralized authority, activities) -- centralized/decentralized R&D. Mechanistic (1) vs. Organic Structures (2): 1) high formalization & standardization good for operational efficiency, reliability but minimize variation = may stifle creativity. 2) low formalization & standardization ("free flowing") encourages creativity & experimentation, may yield low consistency & reliability in manufacturing. "The Ambidextrous Organization" (best of both worlds): some divisions (e.g. R&D) may be small and organic, others (manufacturing) may be larger & more mechanistic. Loosely Coupled Organizational Structures (e.g. Boeing 787): activities are not tightly integrated, less need for integration allows firms to pursue more flexible configurations (specialize in few activities), results in a network of loosely connected firms or division of firms. Not optimal if close coordination is needed or potential for conflict is high Strategies of multinational innovation: *Center-for-global* all R&D centralized a single hub (tight coordination, economies of scale, avoid redundancy, develops core competencies, standardizes & implements innovation) *Local-for-local* each division does own R&D for local market (accesses diverse resources, customizes prdoucts for local needs) *Locally leveraged* each division does own R&D, but firm attempts to leverage most creative ideas across company (accesses diverse resources, customized products for local needs, improve diffusion of innovation throughout firm and markets) *Globally linked* decentralized R&D labs but each plays a different role in firms strategy & are coordinated centrally (accesses diverse resources, improve diffusion of innovation throughout firm & markets, help develop core competencies) **5.2 Managing the new Product Development Process** Conflicting goals: maximize products fit with customer requirements vs. minimize development cycle time (sequential vs. parallel development process) vs. control development goals Involving customers: identify maximum performance capabilities & minimum service requirements of new products, use beta testing to get customer input early in development process, use "lead users" than random sample of customers Involving suppliers: can improve product design & development efficiency, suppliers can suggest alternative inputs that reduce cost or improve functionality Stage Gate (improving the new product development process)  Quality function deployment (QFD): improves communication & coordination, identifies requirements & attributes and weights & use relative importance Ein Bild, das Text, Diagramm, Reihe, parallel enthält. Automatisch generierte Beschreibung Failure modes and effects analysis (FMEA): method to identify potential failures in a system, classify them and create a plan to prevent them evaluated on criteria of risk: severity, likelihood & inability of controls to detect the failure (each criteria given a score 1-5 to prioritize development efforts) **6.1 Managing New Product Development Teams** Team size: variate from few to hundreds, bigger not always better (more admin cost + communication problems), large teams have higher potential for social loafing Team composition: members from multiple functions included ensures greater coordination between functions -- international firms rely on cross-functional teams for their NPD efforts, diversity in functional background (= wide knowledge base of team), other types of diversity can be beneficial (broader base contacts, multiple perspectives) but can raise coordination costs. Primary roles/types: Ambassador (representing team), Task coordinator, Activities scout (scanning for ideas & information that might be useful to the team) Types of structure:  Patterns of virtual international R&D teams Ein Bild, das Text, Fahrrad enthält. Automatisch generierte Beschreibung **6.2 Crafting a deployment strategy** Timing of market launch/entry: take advantage of business cycle or season effects, signals about the generation of technology (too early, may not seen as "next gen"), must be coordinated with production capacity Optimizing cash flow vs. embracing cannibalization: traditionally no introduction of new generation while old gen selling well, this is risky in industries with increasing returns, often its better to invest in continuous innovation and willing to cannibalize its own products to it difficult for competitors to gain technological lead Licensing and compatibility: too little protection can result in low quality complements and clones, too much may impede development of complements. Firm must carefully decide Pricing: What are firms objectives? (survival, maximize current profits or market share?), **Market skimming strategy** = high initial prices (significant innovation, may slow adoption), **Penetration strategy** = very low price or free (driving up volume, requires large production, risky, common when competing for dominant design), **Manipulate customers perception of price** = razor & blade model Distribution: direct selling control of selling process, price and service, but can be expensive/impractical. Using intermediaries **Manufacturers representatives**: independent agents (useful for direct selling), **Wholesalers**: firms that buy manufacturers products in bulk then resell them (provide bulk breaking and carry inventory, handles transactions with retailers and provides transportation), **Retailers**: firm that sell goods to public (provide convenience for customers, enable on-site examination and service), **Original equipment manufacturers (OEMs)**: company that buys products/components from other manufacturers and assembles them or customize them and sells under its own brand (e.g. Dell Computer) Strategies for accelerating distribution: **Alliances with distributors** (providing stake in products success or exclusive contract), **Bundling relationships** (sell in tandem with product already in wide use), **Contract and sponsorship** (provide price discounts, special service contracts, etc.), **Guarantees and consignment** (reduces risk to intermediaries & complements providers) *Marketing*: Major advertising media (s. 12-13) online pay per click, social media, TV, Radio; Newspaper, Magazine, Direct Mail, Billboards, Telephone. Promotions: samples, bundling, discount, etc. Publicity and Public Relations: word of mouth, sponsor events, viral marketing, etc. Using marketing to shape perceptions and expectations: preannouncements and press releases (can build "mind share" in advance, can forestall purchases of competitors product), Reputation (provides signal to market of likelihood success), credible commitments (substantial irreversible investments can convince market of firms confidence and determination) **7. Protecting Innovation** Appropriability: degree to which a firm is able to capture rents from its innovation determined by how easily or quickly competitors can copy the innovation (some are inherently difficult to copy, firms may also attempt to protect innovations through patents, trademarks, copyrights) Patents: rights granted by government **utility patents** protect new and useful processes, machines, manufactured items or combination of materials, **design patents** protect original and ornamental designs for manufactured items, **plant patens** protect distinct new varieties of plants Patent Cooperation Treaty (PCT): most countries are PCT covered Patent strategies: buy for themselves, buy patents to sell rights to another firm, "patent trolling" = buy patents to limit options of competitors and earn revenue through aggressive lawsuits, "patent thickets" = firms buy bundles of patents as a "war chest" Trademarks & Service Marks: a word, phrase, symbol, design that differs Copyright: protection granted to works of authorship Trade Secret: Information that belongs to a business that is generally unknown to others (to qualify: info must not be generally known, must offer a distinctive advantage to the firm) Effectiveness of protection variates: e.g. pharmaceuticals patents are powerful while in tech/electronics they might be easily invented around