SC Summary: Strategy & Change PDF

lOMoARcPSD|32021228 -  Over-reliance on nancial metrics Stage-Gate Innovaon vs. Discovery-Driven Planning o Focus  SG focuses on management of innovaon process, from idea generaon to launch and involves a series of gates  DD focuses on early stages of innovaon, where there is high uncertaint...

lOMoARcPSD|32021228 -  Over-reliance on nancial metrics Stage-Gate Innovaon vs. Discovery-Driven Planning o Focus  SG focuses on management of innovaon process, from idea generaon to launch and involves a series of gates  DD focuses on early stages of innovaon, where there is high uncertainty and ambiguity and aims to idenfy and manage key assumpons and risks associated with a project o Flexibility  DD is more exible than SG, as it allows for more iteraon and learning during the innovaon projects  DD recognizes that innovaon is an uncertain process and inial assumpons may need to be revised once new informaon becomes available o Risk Management  DD places greater emphasis on risk management by idenfying and tesng assumpons early in the innovaon process and adjusng plans accordingly  SG focuses on managing risk at specic decision points Case Study 3: HBR Case – Intrapreneurship at Alcatel-Lucent - - What about? o Eorts of Alcatel-Lucent to foster innovaon and entrepreneurship within its own organizaon o Challenges Alcatel-Lucent faced in the highly compeve telecommunicaons industry o The strategies Alcatel-Lucent developed to encourage intrapreneurship Takeaways o Create an internal venture capital program o Build a culture of innovaon o Encourage risk-taking and experimentaon o Measure and track progress o Empower employees Endterm Material Week 4 – External Corporate Venturing Article 9: Chesbrough (2003) – The Era of Open Innovation - Why not Internal R&D? o Fundamental shi in how companies generate new ideas and bring them to the market - Closed Innovaon Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 - - o Generate your own ideas and then develop, manufacture, market, distribute and service themselves Open Innovaon: o Firms commercialize external (as well as internal) ideas by deploying outside (as well as in-house) pathways to the market o Companies can generate value for the organizaon by commercializing internal ideas through channels outside of their current business Modes of Innovaon o Funding Innovaon  Innovaon investors and benefactors  Focused primarily on supplying fuel for innovaon re  Innovaon Investor  Used to be R&D budget, now VC, angel investor, etc.  Can supply valuable advice to startups and business ideas  Innovaon benefactors  Provide new sources of research funding  Focus on early stages of research discovery o Generang Innovaon  Innovaon Explorers  Specialize in performing discovery research  Innovaon Merchants  Acvies are focused on narrow set of technologies that are then codied into intellectual property and aggressively sold to others  Innovate, but with commercial goal in mind  Innovaon Architects  Provide valuable service in complicated technology worlds  Develop architectures that paron this complexity Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 Innovaon Missionaries  Consist of people and organizaons that create and advance technologies to serve a cause  Do not seek nancial prots o Commercializing Innovaon  Bringing innovaon to the market  Innovaon Marketers & Innovaon One-Stop Centers  Marketers o Keen ability to protably market ideas o Focus on developing an understanding of the current and potenal needs in the market  One-Stop Centers o Provide comprehensive products and services o Take the best ideas and deliver those oers to their customers at compeve prices  Article 10: Miles & Covin (2002) – Exploring the Practice of Corporate Venturing: Some Common Forms and Their Organizational Implications - Corporate Venturing o Direct Investment  Larger rm invests in smaller rm o Indirect Corporate Venturing  Larger rm invests in a venture capital fund that serves as a nancial intermediary between the corporaon and the entrepreneurial ventures  Presence of investment intermediaon depends on  (1) Level of commitment to entrepreneurial iniaves  (2) Preferred degree of control over the iniaves  (3) Ability to accept and manage entrepreneurial risks  (4) Desired level of market diversicaon  Intermediaries add value by  (1) Pooling funds from various sources, resulng in diversicaon and the amelioraon of risks faced by corporate investors  (2) Minimizing the costs to the corporaon of due diligence assessments  (3) Subjecng the venture to objecve, market-based assessments - Direct-Internal o Simplest form of corporate venturing o Employees with a business idea are permied or encouraged to develop and then commercially exploit that idea within the corporate structure o Idea was generated within the organizaon and funded, developed and commercialized ulizing internal resources o Advantages  Can create real opons by developing the organizaon´s capabilies, tangible resources, and intangible resources Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 Innovave acvies associated with venturing can help make autonomous entrepreneurial behavior acceptable and bring about desirable cultural change and human resource development within the organizaon  These advantages can help a rm to beer recognize and exploit entrepreneurial opportunies o Disadvantages  Costliest form in terms of managerial involvement  Resource commitments tend to be high  Intrapreneurs might leave  Can contribute to intra- and interdepartmental conicts Direct-External o Takes place when, without using a dedicated new venture fund, a corporaon acquires or purchases equity in an external entrepreneurial rm, oen with the objecve of facilitang the transfer of technology, resources, capabilies between the business enes o Advantages  Access to new markets, innovave technologies, and other forms of learning  Enhanced reputaon  Potenal tax benets  Enhanced potenal for nancial gain  Enhanced access to acquision candidates o Disadvantages  Potenal damage to corporaon´s reputaon  Possibility of legal liability if there are dierences in social, environmental or ethical conduct  Internal stakeholders perceive they are not obtaining their fair share of resources  Corporate governance and level of diversicaon corporate stakeholders prefer  Most eecve when used to create mutually benecial long-term strategic relaonships between organizaons with complementary capabilies and resources  - - Indirect-Internal o When the corporaon invests in a venture capital fund designed to encourage employees to develop internal ventures o Typically originates and operates within the corporaon and managed by corporate employees o Advantages  Can encourage “boom-up” or emergent entrepreneurial behavior  Funds provided by the investment intermediary can somemes be used to buy venture teams me back from their former business units, allowing the teams to devote all their eorts to the entrepreneurial project o Disadvantages  Same as direct-internal Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 Possible involvement of an external equity partner will typically necessitate the sharing of nancial rewards, which can create resentment among company insiders  Forced objecvity of an “independent” third-party assessment of the feasibility of the venture and its value in the market Indirect-External o Corporaon invests in a venture capital fund that targets external ventures in specic industries or technology sectors o Two variants  VC may originate outside and be managed by non-corporate employees  VC may originate within the corporaon and be managed by corporate employees o Advantages  Create and expand markets for the corporaon´s products and technologies  In case of external venture fund with mulple investors, corporaon´s due diligence costs per screened venture may be reduced  Corporaon may be privy to venture-specic informaon allowing the corporaon to acquire tacit knowledge about new markets o Disadvantages  Limited to the corporaon´s nancial investment  Benets are also limited to nancial investment  - Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 Case Study 4: HBR Case – Corporate Venture at Eli Lilly - - - - What about? o Eli Lilly´s use of corporate venture capital to invest in external startups and technologies in order to drive innovaon and growth within the company Corporate Venture Capital o primarily goal is to nurture and develop start-ups for the parent company, and the payo is typically strategic, such as access to innovaon or support for the viability of the parent´s business objecve How CVC diers to tradional VC o Oering more complementary assets o Being less focused on nancial returns o Having invesng interests that may be viewed as less aligned with start-ups o They are able to make investments that are earlier stage than regular VCs Takeaways o Provide CVC with dedicated resources and support o Align corporate strategy with innovaon iniaves Week 5 – Digital Change: the Pace of Change, the Impact of Technology, & its Trends Article 11: Porter & Heppelmann (2015) – How Smart, Connected Products are Transforming Companies - Smart, Connected Products o All SCPs share physical, smart and connecvity components o Require a whole new supporng technology infrastructure, which provides a gateway for data exchange between the product and user and integrates data from business systems, external sources, etc. o Serves as a plaorm for data storage and analycs o Enable new product capabilies - Ideas in Brief o Radical Shi  SCPs force companies to redene their industries and rethink nearly everything they do, beginning with their strategies Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 - - o New Relaonships  Unprecedented data and capabilies that SCP provide are changing the way rms interact with their customers  Relaonships are becoming connuous and open-ended o New Processes  New product capabilies and infrastructure and the data they generate are reshaping the work of virtually every funcon in the value chain  Far more intense coordinaon among funcons is now required o New Structures  New forms of cross-funconal collaboraon and enrely new funcons are emerging  Unied Data Organizaons; units to connuously improve products post sale; groups charged with opmizing customer relaonships Changes o Products can monitor and report on their own condion and environment, helping to generate previously unavailable insights into their performance and use  monitoring data o Complex product operaons can be controlled by users through numerous remote-access opons  remote control by users o Combinaon of monitoring data and remote-control capability creates new opportunies for opmizaon algorithms o Combinaon of monitoring data, remote control, and opmizaon algorithms allows autonomy Transforming the Value Chain: o Shi from mechanical engineering towards soware engineering o Product design principles  Low-Cost variability  In convenon products costly, in SCPs much cheaper  Evergreen design  SCPs are connuously upgraded via soware  New user interfaces and augmented reality  Less costly to implement and easier to modify  Ongoing quality management  SCPs enable connuous monitoring of real-world performance data, allowing companies to idenfy and address design problems that tesng failed to expose  Connected service  Product designs need to incorporate addional instrumentaon, data collecon capability, and diagnosc soware features  Support for new business models  Products are increasingly delivered as services; these must capture data so that customers are appropriately charged  System interoperability  As products become components of broader systems, the opportunies for design opmizaon mulply o Manufacturing Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 SCP create new producon requirements & opportunies Smart factories: Industry 4.0 & smart manufacturing Simplied components: as physical complexity decreases, quanty of sensors and soware rises  Connuous product operaons: SCPs cannot operate without a cloudbased technology stack Logiscs  SCPs take tracking to a new level  Rich informaon about locaon, condion & environment Markeng & Sales  Focus is shied from company´s customer relaonship from selling to maximizing customer´s value  New ways to segment and customize  Data provides much sharper picture of product use  New customer relaonships  New business models  Goal of salespeople becomes customer success over me rather than just making the sale  A focus on systems, to discrete products  Partnerships may be necessary Aer-Sale Service  SCPs improve service and eciency and enable fundamental shi from reacve service to prevenve, proacve, and remote service  One-Stop Service  Diagnose problems remotely, so parts needed for repair can be in their trucks at arrival  Remote Service  SCPs make delivering service via connecvity feasible  Prevenve Service  Using predicve analycs, organizaons can ancipate problems and take acon  Augmented-reality-supported Service  Data creates new ways for service personnel to work individually, together and with customers Security  IT security spreads among all funcons of the value chain Human Resources  Manufacturer of SCP is a cross between a soware company & tradional product company  New experse needed  New skills needed to design, sell and service SCPs  New cultures needed  More coordinaon across funcons  New compensaon models needed  How to aract and movate talent Implicaons for Organizaonal Structure  Collaboraon between IT and R&D must assume a more central role  Unied Data Organizaon    o o o o o o Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 Dedicated data groups must be created that make data insights available across all funcons and units  DEV-OPS  New funconal group, responsible for managing and opmizing ongoing performance of connected products aer they have le the factory  Customer Success Management  Third new organizaonal unit responsible for managing the customer experience and ensuring that customers get the most from the product  Shared responsibility for security o Making the Transion  Stand-alone business unit  Unit aggregates talent and mobilizes technology and assets needed to bring such new oerings to market  Center of Excellence  Separate corporate unit houses key experse on SCPs  Cross-business-unit steering commiee  Involves convening a commiee of thought leaders across various business units, who champion opportunies, share experse and facilitate collaboraon  Article 12: Porter & Heppelmann (2014) – How Smart, Connected Products are Transforming Competition - History o 1st IT Wave (1960-1970): automated individual acvies in the value chain; producvity of acvies dramacally increases; led to standardizaon of processes across companies o 2nd Wave: rise of the internet; allowed coordinaon and integraon across individual acvies  Product itself largely unaected Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 - - o 3rd Wave: IT is becoming integral part of the product itself; dramac improvements in product funconality and performance Technology Stack o Enrely new technology infrastructure o Includes modied hardware, soware applicaons and an operang system embedded in the product itself What can SCPs do? o Monitoring  Monitoring of a product´s condion, operaon and external environment through sensors and external data sources  Can alert others to changes in circumstances  Allows customers/companies to track a product´s operang characteriscs o Control  Can be controlled through algorithms embedded in the device or cloud  These direct the product to respond to changes in its condion o Opmizaon  SCPs generate rich ow of monitoring data, which, combined with control capabilies, enables companies to opmize performance in new ways o Autonomy  All together, these capabilies allow SCPs full autonomy  Improves safety  Value grows exponenally as products become more connected Case Study 5: HBR Case – Digitization of an Industrial Giant: GE Takes on Industrial Analytics - What about? o How GE is leveraging industrial analycs to transform itself from a tradional industrial company into a digital industrial company - Creang Value: o Predicve maintenance  Brings more revenue; increase output and lower unit costs; potenally extend the useful life of engines o Opmized producon  Customers had high xed costs, so opmizaon increased throughput/output; in industries where companies were stuck with low or declining price power, direct cost savings or lower unit costs due to higher output represented extraordinary value - Takeaways o Embrace digital technology o Collect and analyze data o Build new capabilies o Partner with customers Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 Week 6 – Digital Transformation and Business Models Article 13: Porter & Heppelmann (2014) – How Smart, Connected Products Are Transforming Competition - Porter´s Five Forces and SCPs o Bargaining Power of Buyers  SPCs will expand opportunies for product dierenaon, moving compeon away from price alone  Knowing how customers use products allows segmentaon, customizaon and seng prices to beer capture value, and extend value-added services  SCPs allow closer customer relaonships  Switching costs increase through product data  SCPs allow rms to reduce their dependence on distribuon or service partners  SCPs can increase buyer power by giving buyers a beer understanding of true product performance, allowing them to play one manufacturer o another  Product as a service business models or product sharing can increase power by reducing switching costs o Rivalry among Competors  SCPs have potenal to shi rivalry, opening up numerous avenues for dierenaon and value-added services  SCPs tailor oerings to more specic segments of the market and customize products for individuals  SCPs broaden the value proposion beyond products  Higher xed costs and lower variable costs, as there are higher upfront costs of soware development, more complex product design and high costs of developing technology stack  Vulnerability to price pressure  SCPs can increase rivalry as there is a broader product system o Threat of New Entrants  New obstacles  High xed costs, embedded technology, and mulple layers of new IT infrastructure  Broadening product denions can raise barriers even higher  SCPs can increase buyer loyalty and switching costs, further raising barriers  Incumbents may prefer hardware-based strengths, opening the door for new compeon o Threat of Substutes  SCP can oer superior performance, customizaon, and customer value relave to tradional substute products, reducing substuon threats and improving industry growth and protability  Create new threats such as wider product capabilies  Could reduce demand for a product overall o Bargaining Power of Suppliers Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 SCPs are shaking up tradional supplier relaonships and redistribung bargaining power  Physical products can be replaced by soware  SCPs introduce new suppliers Redening Industry Boundaries o SCPs expand industry boundaries o Basis of compeon shis from discrete products to product systems consisng of closely related products, to systems that link an array of product systems together SCPs & Compeve Advantage o Design  Whole set of new product principles  Hardware standardizaon through soware-based customizaon o Aer-Sale Service  SCPs oer major improvements in predicve maintenance and service producvity o Markeng  SCPs allow companies to form new kinds of relaonships with customers  Product usage data allows gaining insights into how products create value for customers, allowing beer posioning and more eecve communicaon of product value  Works best when products can be quickly and eciently tailored at low marginal cost through soware o Human Resources  Need to recruit new skill sets, which are in high demand  Talent must be added in soware department o Security  SCPs create need for robust security management to protect the data owing to, from and between products  New authencaon processes needed, as well as secure storage of data, protecon against hackers, etc. Implicaons for Strategy o 10 new strategic choices  Which set of capabilies and features should the company pursue?  Decide which features deliver real value  Value of features will vary by market segmentaon  Incorporate those capabilies that reinforce compeve posioning  How much funconality should be embedded in the product and how much in the cloud?  Cost is a factor  Response me: quick response me -> should be in physical product  Automaon: full automaon -> should be in physical product  Network availability, reliability & security: embedding soware in product minimizes network dependence  - - - Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 Locaon of product use: products operated in remote locaons can migate dangers and costs by hosng funconality in cloud  Nature of user interface: complex interface -> should be in the cloud  Frequency of upgrades: cloud-based applicaons allow to make product changes and upgrades easily Should the company pursue an open or closed system?  Closed system o Create comp. advantage by allowing a company to control and opmize all parts of the system o Control over technology is remained o Requires signicant investment and works best when single manufacturer has dominant posion  Open System o Enables end customers to assemble the parts of the soluon from dierent companies o Enables any enty to parcipate with the system o Could boost sales Should the company develop the full set of SCP capabilies and infrastructure internally or outsource to vendors and partners?  Developing the technological stack for SCPs requires signicant investment  Companies that develop SCPs in-house internalize key skills and infrastructure and retain control over features, funconality and product data; may also capture FMA What data must the company capture, secure, and analyze to maximize the value of its oering?  Firms must consider how each type of data creates tangible value for funconality  Firms must consider producon integrity, security & privacy risks How does the company manage ownership and access to rights to its product data?  Companies may pursue outright ownership of product data or seek joint ownership  Firms must determine their approach to transparency in data collecon and use Should the company fully or parally disintermediate distribuon channels or service networks?  SCPs can enable rms to maintain direct and deep customer relaonships, which can reduce the need for distribuon channel partners  Companies can also diagnose product performance problems and failures, reducing reliance on service partners  Can boost margins, improve knowledge of customer needs, and strengthen brand awareness Should the company change its business model?  SCPs allow radical alteraon of tradional business models        Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228   Should the company enter new businesses by monezing its product data through selling it to outside partners?  Addional data can lead to new businesses / sales Should the company expand its scope?  Should a company expand into related products or other parts of the system of systems?  Should a company seek to provide the plaorm that connects the related products and informaon, even if it does not make or control all the parts? Case Study 6: Bock, Wiener, Gronau & Martin (2019) – Industry 4.0 Enabling Smart Air: Digital Transformation at KAESER COMPRESSORS - What about? o About the eorts of KAESER to embrace digital technologies and Industry 4.0 technologies to remain compeve o By developing a new digital plaorm, KAESER was able to improve the eciency and performance of its systems, reduce maintenance costs, and enhance customer sasfacon Case Study 7: Staykova & Damsgaard (2019) – Dual-Track´s Strategy for Incumbent´s Transformation: The Case of Danske Bank Adopting a Platform Business Model - What about? o About the digital transformaon journey of Danske Bank o How Danske Bank adopted a plaorm business model to transform its business and remain compeve in the face of changing customer demands and increasing compeon from ntech startups o Dual-track approach: transform its business while maintaining tradional banking operaons o Challenges  Build new capabilies  Change organizaonal structure Downloaded by Rishi Srinivasan ([email protected]) lOMoARcPSD|32021228 -  Manage risks associated with introducing new digital services o How did they manage?  Invesng in new talent  Partnering with ntech startups  Leveraging agile development methodologies Takeaways o Adopt a dual-track approach o Build new digital capabilies o Partner with ntech startups o Leverage agile development methodologies Downloaded by Rishi Srinivasan ([email protected])