1 Innovation Management Oya I. Tukel, Ph.D. Operations Management and Business Statistics Department...

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Innovation ManagementInnovation Management

Oya I. Tukel, Ph.D.Operations Management and Business

Statistics [email protected]

Innovation Management

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““A principle in business is that you cut costs A principle in business is that you cut costs to survive, but you innovate to prosper”to survive, but you innovate to prosper”

Robert Lynch


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• Technological innovation is now the most important driver for competitive success– Many firms earn over one-third of sales on

products developed within last five years

• Product life cycles ( time between product introduction to market and its withdrawal)– Software 4-12 months– Computer hardware 12-24 months– Large home appliances 18-36 months

Why?


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Innovation

• Definitions:– The effort to create purposeful, focused change in an

enterprise’s economic and social potential– The use of new knowledge to offer a new product or

service that customers want.– Invention + commercialization – Prior to 1930s called invention (inventors, no company

existence)– It is the means by which the entrepreneur either

creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth. (Peter Drucker)


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“Today no one needs to be convinced of the importance of innovation-intense competition, along with fast-changing markets and technologies, has made sure of that. How to innovate is the key question.”

HBR editor


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Innovation or Invention

• Innovations– Corporate sponsored – Corporate goals– Processes, algorithms– Innovation factories

(Bell labs, GE labs)– Meet market needs– Knowledge rich

• Inventions– By individuals (Thomas

Edison, over 1000 patents)

– Not necessarily market needs

– Customers are not the right people to ask (fax machine)

– Imagination rich


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Reasons of technological change

• Developments in basic science , metallurgy, genetics, electronics

• Economic development, market growth• Increase of knowledge• R&D expenditures by companies• Defense expenditures by the govt.• Increases in the number of patents


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Other Reasons for Rapid Changes

• Regulatory Changes in Communications• Regulatory Changes in Airlines• Regulatory Changes in Transportation• Regulatory Changes in Utilities• NAFTA• Budgetary Changes at Federal level• End of Cold War


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Innovation Enablers

• Unexpected occurrences: cure for ulcer• Process needs (advertising in New York Times)• Industry and market changes (health care

providers)• Demographic changes: Club Med • Changes in perception: health care magazines• New knowledge: computers; the required

knowledge was available in 1918, the first computer appeared in 1946.


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• Class Practice: the matching game

Please match the pictures of inventors with their names, what they have invented and the year of invention


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Sources of Innovation

• Individuals– Dean Kamen (Segway, IBOT)

• Firms– Applied research (has specific commercial objectives)

• Universities– Basic research (no immediate commercial application in mind)

• Private Nonprofits (Howard Hughes Medical Institute) • Government funded research (NASA)• Incubators

– Collaboration between government, universities, private firms– Incubators (help new start-ups)

• Stanford Research Park• Cambridge Science Park


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U.S. Spending on R&D


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Most frequent collaborations are between firm and their customers, suppliers, and local universities.


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Government-Funded Research

• Governments invest in research through:

– Their own laboratories

– Science parks – Grants for

other public or private research organizations


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>> where change has been explosive…

– Information Technology• Television• Transistors• Fiber optics• Internet• Cell phones

– Health Care• Antibiotics• MRI and CT• Antidepressants• Pacemakers, heart

surgery

– Business• Lean manufacturing• Supply Chain• Venture Capital• ATMs


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>> and where it has been slower…

– Transportation• Radial tires• Jet aircraft• Radar• Helicopters

– Energy• Nuclear power• Solar energy

– Materials• Synthetic fibers

(nylon)• Photocopiers• Instant photography• Microwave ovens


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Innovation and Entrepreneurship

• Innovation and entrepreneurship are critical to the economic development of countries

• Innovation and entrepreneurship are inter-related (definition)

• Innovation without entrepreneurship yields minimal local impact– Innovations are portable– Entrepreneurship is placed based


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Regional Statistics

• In 2004 Cleveland is #8 in

Number of inventors>2000, number of patents granted=854

Minneapolis ranked #1 Number of inventors>6000, number of

patents granted=2546


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World’s Most Innovative Companies (2006)

Apple Product innovation

Google Business Model Innovation

3M Product innovation

Toyota Product innovation

Microsoft Product innovation

GE Product innovation

Procter&Gamble

Product, Process, Business Model


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Was the product….?

New to the world 6.7%

New to the industry 31%

New to the company 9%

A significant upgrade 24%

Minor modification 29%


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Metrics Commonly used to Measure Innovation

• Overall revenue growth• Percentage of sales from new products• Customer satisfaction• ROI in innovation• Number of new products


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R&D Investment as % of Sales:

Microsoft

0

5

10

15

20

25

1999 2000 2001 2002 2003 2004

Procter&Gamble

3.53.63.73.83.9

44.14.24.34.44.54.64.74.8

1999 2000 2001 2002 2003 2004


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Aggregated Innovation Capacity


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Innovation Barriers

• Lengthy development times (32%)• Lack of coordination (28%)• Risk averse culture (26%)• Limited customer insight (25%)• Poor idea selection (21%)• Inadequate measurement tools (18%)


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CEO never forgets his roots..

CEO background Ave. $ spent/employee on R&D

Law $5,629

Operations $6,934

Marketing $10,286

R&D $10,501


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– 20th Century Fox CEO claimed that television would not be in existence within a year since people would be tired of looking at a “small box”.

– Chauncey Depew confessed that he warned his nephew not to invest $500 in Ford stocks because “nothing has come along to beat the horse”.

– In Germany experts claimed that if trains went at the frightful speed of 15 miles an hour blood would spurt from the travelers’ noses, and that passengers would suffocate going through tunnels.

It can’t be done!


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Ideas from Innovators

• BMW: centralized research teams, face-to-face teams

• GE: evaluate managers based on “imagination and courage”

• Infosys: 9 employees under 30 participate in senior management meetings

• 3M: hand down “tales of innovation tradition”• Research-in-Motion: innovation starts from top


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What is Strategy?

• Operational effectiveness: performing similar activities better than rivals perform them.– TQM, benchmarking, time-based competition,

outsourcing, reengineering, change management, etc. (EX: MOTOROLA)

– Japanese corporations are superior in OE.

• Strategic positioning: performing different activities from rivals’ or performing similar activities in different ways.

• OE is necessary but not sufficient. (sustainable profitability)


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What is Strategy?

• “ competition based on operational effectiveness alone is mutually destructive..”

• Managers define strategic positioning in terms of their customers. (ex: Southwest airlines, Ikea)

• Strategic positions:– Variety based (Jiffy Lube)– Needs based (Ikea)– Access based (Carmike Cinemas)

• Strategy is about combining activities


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What is Strategy?

• Fit among activities (competitive advantage grows out of the entire system of activities)


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• Assessing the firm’s position and defining its strategic direction

• Choosing innovation projects in which to invest, including both quantitative and qualitative valuation techniques

• Deciding whether and how the firm will collaborate on development activities, choosing a collaboration mode, and choosing and monitoring partners

• Crafting a strategy for protecting – or diffusing – a technological innovation through such methods as patents, trademarks, copyrights, and trade secrets.

Formulating Strategy


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• A set of integrated and harmonized abilities that distinguish the firm in the marketplace.

• Competencies typically combine multiple kinds of abilities.

• Several core competencies may underlie a business unit.

• Several business units may draw from same competency.

• Core competencies should:– Be a significant source of competitive differentiation– Cover a range of businesses– Be hard for competitors to imitate

Core Competencies


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• Sony– miniaturize• Phillips – optical media • Toyota – engine• 3M – adhesives

• Should a firm develop more than one competency?

Core Competencies


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Models of Innovation

Static Models• Christensen’s Theory• Abernathy-Clark Model• Henderson-Clark Model• Innovation Value-added Chain• Roberts and Berry Model


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Incremental Innovation• The knowledge required to offer a product builds on

existing knowledge. – Most innovations are incremental– Also called Sustaining technology– Sony produced 75 models of its Walkman portable stereo

Radical Innovation• The technological knowledge required is very different

from the existing knowledge; existing knowledge becomes obsolete– Radical innovation look outside the boundaries to innovate– Also called Disruptive technology

Types of Innovation


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Radical Innovation Development Times

Radical Innovation Development Time

Gillette Sensor Razor 13 yrs.

Boeing 767 12 yrs.

Wireless technology 19 yrs.

Fiber Optic technology 11 yrs.


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Types of Innovation

• Competence-Enhancing versus Competence-Destroying Innovation– Competence-enhancing innovations build on the firm’s

existing knowledge base• Intel’s Pentium 4 built on the technology for Pentium III.

– Competence-destroying innovations renders a firm’s existing competencies obsolete.• electronic calculators rendered Keuffel & Esser’s slide rule

expertise obsolete.

– Whether an innovation is competence enhancing or competence destroying depends on the perspective of a particular firm.


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Types of Innovation

• Architectural versus Component Innovation– A component innovation (or modular innovation)

entails changes to one or more components of a product system without significantly affecting the overall design.• adding gel-filled material to a bicycle seat

– An architectural innovation entails changing the overall design of the system or the way components interact.• transition from high-wheel bicycle to safety bicycle.

– Most architectural innovations require changes in the underlying components also.


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• Strategic Incentive to Invest– Incumbent fear of cannibalizing

incremental innovations

– New entrants no other products in the market radical innovations

– Familiarity Matrix• Technology and market familiar incremental

innovation develop internally (capable to innovate)


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• Organizational Capabilities

– Incumbent old technology is a handicap incremental innovations

– New entrants build capabilities from scratch radical innovations


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• New Knowledge– Bulk processing

• Heavy on natural resources and light on know-how (ex: lumber, coal, etc.)

– Knowledge based products • low on natural resources and heavy on know how

(ex: computers, telecommunication products, etc.)• Positive feedback (cost of development high, per-unit

thereafter is low)


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Tacit and explicit knowledge• Explicit: spelled out, verbalized,

codified• Tacit: learning by doing

• Imitability and complementary assets:– Can technology be imitated?– All the other capabilities that the firm

needs to exploit the technology


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Technology S-Curves

•Both the rate of a technology’s improvement, and its rate of diffusion to the market typically follow an s-shaped curve.

•S-curves in Technological ImprovementTechnology improves slowly at first because it is poorly understood.

Then accelerates as understanding increases.

Then tapers off as approaches limits.


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Technology S-Curves

•Technologies do not always get to reach their limits– May be displaced by new, discontinuous technology.

• A discontinuous technology fulfills a similar market need by means of an entirely new knowledge base.– switch from carbon copying to photocopying, or vinyl records to

compact discs• Technological discontinuity may initially have lower

performance than incumbent technology.– first automobiles were much slower than horse-drawn carriages.

– Firms may be reluctant to adopt new technology because performance improvement is initially slow and costly, and they may have significant investment in incumbent technology


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Technology S-Curves

• S-Curves in Technology Diffusion– Adoption is initially slow because the technology is

unfamiliar.– It accelerates as technology becomes better

understood.– Eventually market is saturated and rate of new

adoptions declines. – Technology diffusion tends to take far longer than

information diffusion.• Technology may require acquiring complex knowledge or

experience.• Technology may require complementary resources to make it

valuable (cameras not valuable without film).


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Technology S-Curves

• S-Curves as a Prescriptive Tool– Managers can use data on investment and

performance of their own technologies or data on overall industry investment and technology performance to map s-curve.

– While mapping the technology’s s-curve is useful for gaining a deeper understanding of its rate of improvement or limits, its use as a prescriptive tool is limited.• True limits of technology may be unknown• Shape of s-curve can be influenced by changes in the

market, component technologies, or complementary technologies.

• Firms that follow s-curve model too closely could end up switching technologies too soon or too late.


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Technology S-Curves

• S-curves of diffusion are in part a function of s-curves in technology improvement– Learning curve leads to price drops, which accelerate

diffusion


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• Christensen’s Theory– Xerox vs. Canon– Sears vs. Wal-martWhy great firms fail when confronted with

radical innovation?– They listen to their customers carefully– They track competitor’s actions carefully– They invest resources to design and built

higher performance, higher quality products that will yield better profits

Christensen Theory


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• Sustaining Technologies– Give customers something new or better in the

attributes of a product they already value– Established markets, loyal customers who are

willing to pay premiums– Stay close to customers– Profit margins are high (cheap to retain loyal

customers, ex: Nike shoes) – Risk is relatively low– Fast response time– Minimal change in production processes

Christensen Theory


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• Disruptive Technologies– Existing customers do not value performance

attributes of the product– They perform worse on certain attributes– Financially unattractive: small markets, low

profit margins– Difficult to predict the growth rate of the

market– Requires new manufacturing processes

Christensen Theory


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Christensen Theory


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• The slope of the technology trajectory is steeper than the slope of the trajectory of customer need.– How much time customer have to learn the

new technology?– Regulations– Life styles

Christensen Theory


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• Why incumbents fail to develop disruptive technologies?– Rigid business model– High ends of the market promise more profits(ex: DuPont’s Kevlar, HP’s Kittyhawk)– As companies grow big they become risk

averse– Managers short term oriented (stakeholder

wealth)– Habitual methods lead to new ideas similar to

old ones

Christensen Theory


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• Successful incumbents..– To develop disruptive technologies they create

small companies– They plan to fail early and inexpensively– They develop new markets for disruptive

technologies rather than introducing it to established markets.

Christensen Theory


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• Class Practice: read the two short articles about the two products and identify whether they are sustaining or disruptive technology. Explain your reasoning


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• Basis of Competition– Definition: product attribute for which customers will

most readily pay a price premiumFunctionality Reliability Convenience Price

Functionality Reliability Convenience Price

Apple iPODEar implants from MedtronicRobot floor vacuum

Web browsersUtility services

Insulin PensXerox copiersCell phonesPacemaker

DVD playersCD players3M Post it notes

Christensen Theory


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• Capabilities of a company– New entrants: reside in human resources– As company moves toward sustaining

technologies capabilities reside in processes and procedures

Christensen Theory


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• Abernathy-Clark Model– Incumbents may outperform new entrants with “radical

innovation”• Two kinds of knowledge that underpins technology:

Technological and market knowledge

Regular Revolutionary

Niche Architectural

Preserved Destroyed

Preserved

Destroyed

Technical Capabilities

Market Capabilities

Abernathy-Clark Model


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Incremental Architectural

Modular Radical

Enhanced Destroyed

Enhanced

Destroyed

Architectural knowledge

Component knowledge

Henderson-Clark ModelWhy some incumbents have difficulty innovating “incremental innovation”?

•Component knowledge and architectural knowledge (tacit knowledge)

Henderson-Clark Model


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Innovation Value-Added Chain• What the innovation does to firm’s supplier,

customer, and complementary innovators

Value-Added Model


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Roberts and Berry model– Familiarity matrix

• If technology and market are familiar to a firm (sustaining technology) then the firm is better off developing the innovation internally (has the capability)

• If both technology and market are new and unfamiliar (disruptive technology) then the firm should look outside of its boundaries for help (venture capitalism)

Roberts and Berry Model


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Familiarity Matrix

Roberts and Berry Model


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Tools for Finding Markets for New Products

Many mistakes in history: DuPont-Kevlar, HP-disk drives

Tools• Discovery Driven Planning (Gunther et al.)• Technology Adoption Life Cycle (Crossing

the Chasm by Moore)• Intended vs. Emergent Strategy Making

Process (Christensen)


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• Discovery Driven Planning (DDP)– New ventures are inherently risky– Planning for a new venture should be different

than conventional planning (platform based approach)

– Platform based approach is based on past experience and solid knowledge

– For new ventures use discovery planning • DDP acknowledges that at the start of a new venture

“little is known and much is ASSUMED”

Discovery Driven Planning


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• DDP systematically converts assumptions into knowledge as the venture unfolds

• The new data incorporated into the evolving plan• Initial assumptions are revisited

– How platform based approached failed – two examples

• Euro Disney– Platform based planning (using data from other Disney

Theme parks)– High admission price, 4day stay vs. 2 day stay, restaurants,

merchandise

• IKEA – Entering the US markets with cheap, modular furniture



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Steps:• Reverse Income Statement• Pro-forma Operations specs• Key Assumptions Checklist• Milestone Planning Chart



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An illustrative case of DDP: KAO Corporation

Company profile (1988):• Supplier of surfactant to floppy disk

industry• Moving to floppy disk production is

attractive• Demand: 500mil. in US, 100 mil. in

Europe, 50mil. in Japan


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• By 1993 market volume 3bil. (1 bil. in OEM market (OEM: original equipment manufacturer, IBM, Apple, etc.)

• 1993, 180 yen per disk

Start with Reverse Income Statement• Use it to determine whether the venture brings

significant returns• Start with reasonable assumptions



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• 1988: net sales= 500 billion yen• Income before taxes = 40 billion yen• ROS (Return On Sale) = 7.5%• ASSUMPTION 1: Profit margin 10% of

sales• ASSUMTION 2: Revenues= 40 billion yen• ASSUMTION 3: unit selling price= 160

yen



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Total Figures

Required Profits 10%(40 bil. yen)=4 bil. Yen

Necessary Revenues 40 bil. yen

Allowable Cost 36 bil. Yen

Per Unit Figures

Required Unit Sales (160 yen per disk)

(40 bil./160)= 250 mil. Disks

Necessary world market share of OEM

25% (250 mil./ 1bil.)

Allowable cost per unit 144 yen


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• Conclusion of Reverse Income Statement: keep a lid on expenses (cost/disk= 144 yen)

Second, lay out all the activities needed to run the venture

Pro forma operations specs:1. Sales2. Manufacturing3. Shipping4. Equipment and depreciation


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• Sales* Indicates assumptions

Req. disk sales 250 mill.

Average order size* 10, 000

Orders required 250 mill/10,000= 25,000

Number of call to make a sale*

4

Sales calls required 4x25,000= 100,000

Calls/day/salesperson* 2

Annual salesperson days 100,000/2= 50,000

Sales force for 250 days per year*

50,000/250= 200

Salary per salesperson* 10 mill. yen

Total cost of sales person salary

2 bill. yen


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• Third, track all assumptions• Fourth, revise the reverse income

statement• Finally, test assumptions at milestones


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Emergent vs. Intended Strategies


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Intended vs. Emergent Strategy Making Process

• Deliberate (Intended): Analytically formulated. Analyze customers, market, competitors and then define a strategic course of action.

• Emergent: Ex-post recognition and rationalization of actions that the company has already taken.

Emergent vs. Intended Strategies


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Technology Adoption Life Cycle


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• Innovators: technology enthusiasts. – First customers for anything brand new– Techies– have influence on mainstream markets– Gatekeepers to the rest of the life cycle– Desire to explore the new capability

• Early adopters: visionaries.– Revolutionaries – Want to break with the past and start new future– Desire to exploit the new capability



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• Early Majority: Pragmatists. – They believe in evolution not revolution– Natural about technology– Adopt only after a proven track record

• Late Majority: Conservatives. – Pessimistic about their ability to gain any

value from technology– Price sensitive, highly skeptical, and very

demanding.



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• Laggards: skeptics. – Ever-present critics– Not potential customers

Marketing strategy:Introduce product to techies who will educate

visionaries, make sure visionaries are satisfied so they can influence pragmatists. Generate sufficient volume and reliability as well as low price to meet conservatives.



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• The chasm between visionaries and pragmatists • New products enjoy a warm welcome in the early

market then fall into a chasm, then to mainstream market

• Mainstream market wants the whole product: the minimum necessary to ensure that the target customer will achieve his or her compelling reason to buy.

• Has something for everybody fails, must have one group 100% satisfied. (quality function deployment)



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• Win a niche foothold in the mainstream as quickly as possible to cross the chasm.

• Life cycle can be divided into six zones:

Early market- the chasm-the bowling alley-the tornado-main street-end of life.



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Managing the new product development process

• Before mid-1990s, most US companies used sequential NPD process; now many use partly parallel process.

• Partly parallel process shortens overall development time, and enables closer coordination between stages.

• In some situations, however, a parallel development process can increase risks.


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• As of 2001, 68% of North American firms, 58% of European firms, and 48% of Japanese firms reported using senior executives to champion their NPD projects.

• Benefits of Championing– Senior execs have power to fight for project– They can gain access to resources– They can communicate with multiple areas of firm

• Risks of Championing– Role as champion may cloud judgment about project– May suffer from escalating commitment– Others may fear challenging senior executive


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• Involving Customers– Customer is often best able to identify the maximum

performance capabilities and minimum service requirements of new product.

– Customers may be involved on NPD team.– Firms may also use beta testing to get customer input

early in the development process.– Some studies suggest that it is more valuable to use

“lead users” than a random sample of customers.• Lead users: Customers who face the same general needs

of marketplace but experience them earlier than rest of market and benefit disproportionately from solutions.


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• Software development projects• Waterfall model

– Traditional approach– Does not move to the next stage until all activities of

the previous stage have been completed (finish-start relationship)

– Good model when user requirements are well understood.

• Prototype and spiral models develop a series of prototypes to show to customer. Throw away after customer specs are well understood.


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• An Example use of Spiral Model– Internet Explorer version 3

• Alpha Release– 30% of final functionality– Get meaningful feedback on how the product worked

• Public Beta Releases– First Beta- 50-70% functionality– Second Beta- 70-90% functionality– Customers get a change to influence the design of the product

“if customers test the products early in development, when the product have low functionality, the final products are likely to have higher quality”


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– Involving suppliers on NPD team or consulting as an alliance partner can improve product design and development efficiency.

– Suppliers can suggest alternative inputs that reduce cost or improve functionality.

Involving Suppliers


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– Utilize tough go/kill decision points in the development process help filter out bad projects.– Each stage is multi-functional

• Requires resources from functional areas

– Each stage costs more than the preceding stage– 68% of U.S. firms, 56% of European firms and 59% of Japanese firms use some type of stage-gate process to

manage their NPD process.

Stage Gate Process


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Gate 2

Approvalto SpendMore $$

•Business Case•Customer input•Market input•Competition

•Functional Specs•Risks•Plans

Stage 3

DevelopmentTesting &Validation

IdeationGate

0

•What is the product?•Who is the customer?•How is need being met?

Stage 1

PreliminaryAssessment

ClearProductConcept

Is it aWinner?

•Prelim. Tech.•Prelim. Comml•Simple financials•Manuf. feasibility•Killer assumptions•Plans

Stage 2

DetailedAnalysis

Gate 1

LaunchDecision

Stage 4

•Product & Mfg specs•Launch Plans

•Mktg & advertising•Ops/Manufacturing

•Business Plan

Commercialization& Launch

Gate 3

PostLaunchAudit

Post Audit

Gate 4

Stage Gate Process


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• The time and cost of projects escalates with each stage, thus stage-gate processes only permit a project to proceed if all assessments indicate success.

Stage Gate Process-Cost


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Stage-Gate Process-Gatekeepers

• Gatekeepers represent different functional areas

• Decision-making group comprised of product managers

• Senior management involves at later and expensive stages


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• QFD improves communication and coordination between engineering, marketing, and manufacturing.

Quality Function Deployment


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1. Team identifies customer requirements.2. Team weights requirements in terms of relative importance.3. Team identifies engineering attributes that drive performance.4. Team enters correlations between different engineering

attributes.5. Team indicates relationship between engineering attributes and

customer requirements.6. Team multiplies customer importance rating by relationship to

engineering attribute and then sums for each attribute.7. Team evaluates competition.8. Using relative importance ratings for engineering attributes and

scores for competing products, team determines design targets.9. Team evaluates the new design based on the design targets

Steps for QFD


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• Few product development projects fully deliver on their early promises– Delays are common– Poor leadership– Lack of skilled resources

• Real reason they lack aggregate project plan

Aggregate Project Plan


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• APP Aggregate Project Plan


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• Classify the projects based on degree of change in product types and degree of change in the manufacturing process– Research and advanced development projects– Derivative, platform, breakthrough projects (all

commercial development Projects)

Derivative projects: add-ons or enhancements ex: packaging changes, minor change in material used, minor change in manufacturing

Platform projects: in the middle, more product and process change (ex liquid tide) better in marketing, engineering, manufacturing involvement



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Breakthrough projects: significant changes to existing products and processes, more resources needed, longer in time, different skill set ex: fiber optics, 3M post it notes.

Research and advanced development projects: not commercial development type, compete with commercial development projects for resources

Alliances and partnerships: partnership in development of new products and processes, can be in any form

“The more mature the industry, the more important it is to focus on platform projects.”



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“The companies that introduced new platforms at the fastest rate are usually able to capture the greatest market share over time.”

European car companies 12 yearsUS car companies every 8 years Japanese every 4 years.



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– Product development may not be crucial to your business

– When to outsource:• PD is cheap• PD process does not

rely on collaborations with other internal processes

• Example: BIG Corporation

Outsourcing Product Development


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Protecting Innovation

• Firms must decide whether and how to protect their technological innovations.

• Protecting innovation helps a firm retain control over it and appropriate the rents from it.


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• Patents: rights granted by the government that excludes others from producing, using, or selling an invention.

• In 1998, many software algorithms became eligible for patent protection.

• Paris Convention for the Protection of Industrial Property

• Patent Cooperation Treaty (PCT)



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• Copyright: a form of protection granted to works of authorship.

• Trade Secret: information that belongs to a business that is generally unknown to others. – Firm can protect proprietary product or

process as trade secret without disclosing detailed information that would be required in patent.



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Finding the Balance: Intellectual Property in the Digital Age

• IP (Intellectual Property) is protected by:– Patents– Copyrights– Trademarks– Trade Secrets (Coca-Cola)

• IP laws are intended to balance the rights of the inventor and the needs of the public.


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Intellectual Property

• IP issues resulting from the digitalization of content (music, movies, internet programs)

• Consumers do not like anti-piracy technologies • Technology: VCR, radios, photocopiers, and

recently digital technology • Acts:

– 1992 Audio Home Recording Act: does not allow a second generation copy to be made

– Length of copyright protection: • 1976-from 28 yrs to life of the author+50 yrs


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• 1998- life of the author+70 years• “works made for hire”-95 yrs after publication or

120 yrs after creation

– Digital Millennium Act: illegal to de-encrypt an encrypted work, illegal to manufacture technology that enables users to de-encrypt of copyrighted work.

– Consumer Broadband and Digital Television Promotion Act (2002): the new hardware (TVs, computers, etc.) to block unauthorized copying of copy righted work.


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• Emergence of DRM technology: Digital Rights Management. CDs with DRM technology, Sony key2audio program


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“the only good indication that a professional will be highly creative in the future has been demonstrated high creativity in the past.”

Environment for Creativity• The educational environments in

childhood – high creators come from families where

parents put little stress on grades

• The organizational environment in adulthood

Creativity


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Dominant Characteristics of Creative Organizations

• Open channels of communication• Managements encourages experiments

with new ideas• Decentralization is practiced• Risk-taking is encouraged• Not rigid business structure• Employees have fun

Creativity


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The Process of Creating• Preparation

– “chance only favors the prepared mind” Louis Pasteur

– Soak yourself in the problem– Dr. Marshall’s discovery of Ulcer treatment

• Incubation– Subconscious stage– Multi tasking (3M post-it-notes)

Creativity


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• Illumination– Aha!!

• Verification– Tedious, time consuming

stage

Creativity


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Creativity from the viewpoint of the manager

• Hiring– Hire creative professionals

• Look for past evidence of creativity (patent holders)

• Motivation– Management should provide incentives for risk taking

and for “far out ideas”– Usually money or status is not a good motivator


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• Providing the necessaries– Availability of resources for initial creative

efforts (15% free time at 3M)– Educational programs (patenting techniques)

• Managing– Hands-off management is a good approach– Assign creative individuals to multiple projects– cross functional teams (new product

development projects)



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• Organizations– Form hubs or committees for submission of

creative ideas– Reduce too many administrative procedures

and forms



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• Resistance to change..• Historical examples: curing Ulcer, Gunfire

at Sea• The perspective of every innovator is

constrained by the physical, social, technological and business context in which he is working.

Creativity and Resistance to Change


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• Many breakthrough innovations get resistance from communities

• Inventors do radical acts to prove their points• How should general managers spot creative

ideas?

“often creative ideas simply come by standing in another place”

Creativity and Resistance to Change


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NPD Team Structures

• Team structures:– Functional– Lightweight– Heavyweight– Autonomous


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Functional development team


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Lightweight development team


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Heavyweight development team


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Autonomous development team


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Genius is one percent inspiration and ninety-Genius is one percent inspiration and ninety-nine percent perspiration. nine percent perspiration. Thomas EdisonThomas Edison


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Even a mistake may turn out to be the one Even a mistake may turn out to be the one thing necessary to a worthwhile thing necessary to a worthwhile achievement. achievement. Henry FordHenry Ford


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When one door closes another door opens; When one door closes another door opens; but we often look so long and so but we often look so long and so regretfully, upon the closed door that we regretfully, upon the closed door that we do not see the ones which open for us.do not see the ones which open for us. Alexander Graham BellAlexander Graham Bell

1 Innovation Management Oya I. Tukel, Ph.D. Operations Management and Business Statistics Department...

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Transcript of 1 Innovation Management Oya I. Tukel, Ph.D. Operations Management and Business Statistics Department...