Innovation 4.0 New realities, opportunities, and challenges for managing innovation in the age of smart products & factories

@masscustom (Frank T. Piller)

RWTH Aachen University | School of Business and Economics | TIME Research Area

Responsibilities

Head of RWTH Technology & Innovation Management Group and Professor of Management at TIME Research Area at RWTH Aachen University

Academic Director of RWTH Executive MBA, offered by RWTH Aachen & Fraunhofer Gesellschaft

Co-Founder, MIT Smart Customization Group, Massachusetts Institute of Technology, Cambridge, MA

Research Interests and Expertise

Strategies for Customer-Centric Value Creation, like mass customization, innovation co-creation, additive manufacturing, managing the frontend of innovation

Open Innovation, i.e. technology transfer, R&D partnership models, crowdsourcing

Managing Disruptive Business Model Innovation and supporting organizational structures and cultures (especially facilitated by Industrie 4.0 and Digital Transformation)

Entrepreneurial Activities

Co-Founder, Investor, and/or Member of Board of Directors of several companies, including Competivation (innovation consultancy) ThinkConsult (process management and concept testing), MVM.com (personalization and virtual models), Hyve AG (customer co-creation), Dialego AG (innovative online market research), Corpus-e AG (low-cost high-quality 3D body scanning and “best fit” solutions for eCommerce), DOOB AG (3D printing and 3D modelling)

Real life achievements: Only German in “Top50 Profs on Twitter” list; Kloutscore >60; Google Scholar Citations ~10,500; H-index >44

Frank T. Piller

More info: frankpiller.com Follow me on Twitter: @masscustom

Did you thank the guys who made it happen that we are all here?

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Vint Cerf & Bob Kahn

Networking ability, enabling collaboration productivity,

is at the core of Industrie 4.0

(and don’t forget Blockchain)

And what do we do with all this capacity?

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What is the „job“ of this innovation?

(Do we really need this?)

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A fundamental principle of innovation every manager should know

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Job-to-be-Done

Context-specific problem facing a

customer

Objectives or Outcomes

Functional, emotional, social

metrics

Barriers

Factors inhibiting getting job done

(pains / gains)

Solutions

Products, services, compensating

behaviors

J O B S

Solution Job What? Why?

“People don't want to buy a quarter-inch drill…

…they want a quarter-inch hole!" - Theodore Levitt

Read on: M.W. Johnson: Seizing the white space, 2010

Job-to-be-Done

Context-specific problem facing a

customer

Objectives or Outcomes

Functional, emotional, social

metrics

Barriers

Factors inhibiting getting job done

(pains / gains)

Solutions

Products, services, compensating

behaviors

J O B S

Read on: M.W. Johnson: Seizing the white space, 2010

Customers don‘t want a circulation pump …

… they want a cozy and warm home.

„… your digital business model innovation here

…“

Job-based thinking is more important than ever …

… as your customers in the end do not care about digitalization (or

customization, or smartness…) at all!

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But: The pacifier becomes an open platform …

expect 100s of baby apps

If there is one pattern of digital business models, it is that of

a platform (“business ecosystem”).

And, as in any business ecosystem, there are plenty of

complementary products

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Planning

Smart Production

Logistics / Smart Supply Chains

Industrie 4.0 (Industrial Internet of Things)

Statistics Resources

Process

Intra-Logistics

Quality Control

Automation

Just-in-Time

Documentation

Tracking

Internet of Things (Smart Solutions)

Energy

Security

Heating

Sportswear

Wearables

Smartphones

New Means of Transportation

Connected Cars

Optimized Wayfinding

Source: RWTH TIME

Home Automation

Personal Digitalization

Individual Mobility

A major IoT application is …

The Defining Characteristics of Smart Products

Source: Bechtold et al., 2015 / CapGemini Consulting Framework

The connected shoe, reinvented.

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Much work for an innovation professor

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Source: Bechtold et al., 2015 / CapGemini Consulting Framework Based on Bechtold et al., 2015 / CapGemini

Usage stage

The Innovation Dimension: Digitalization enables new dimensions of open innovation in

business ecosystems along the entire lifecycle

Innovation for smart products (I):

What to put in the “base” product: What hardware capabilities (sensors,

actors) enable future innovation capabilities of the ecosystem best?

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Smartness of products is a great opportunity to provide customization – if the right solution space is provided

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Use Targeted Smart Customization that takes advantage of continuously

collected individual consumption data to offer targeted

(individualized) excitement features to existing customers gradually

Excitement attributes Performance

attributes

Threshold (basic) attributes

Use Mass Production to manufacture these

required basic features with lowest possible costs

Use Mass Customization to strategically balance performance/price in

order to remain competitive on market

Based on ideas by Stephen Lu, USC / RWTH. Source of the Kano illustration: http://www.microtool.de/en/what-is-the-kano-model/ (nice interactive Kano tutorial) 31

Use Mass Production to manufacture these

required basic features with lowest possible costs

Use Mass Customization to strategically balance performance/price in

order to remain competitive on market

Use Targeted Smart Customization that takes advantage of continuously

collected individual consumption data to offer targeted

(individualized) excitement features to existing customers gradually

Innovation for smart products (II):

What do we want to capture? How do we create a purposeful “digital shadow” of our product to enable future platform growth?

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The “digital shadow” of a product is the core enabler of new models of value

creation

Real-time simulation and “digital shadow”

of plant, equipment, and products

Globally harmonized PLM solutions

Source: Bechtold et al., 2015 / CapGemini

Innovation for smart products (III):

How to manage (and build & nurture) the ecosystem? How to survive competition

in a “platformed” industry?

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Why will one win and the other fail?

An integrated, isolated product

A service („App“) as part of an existing platform

Platforms (business ecosystems) beat products every single time.

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THE crucial question:

App or Plattform?

The added value lies not so much in the smart product itself but in its connections

Source: Based on: Porter et al: How Smart, Connected Products Are Transforming Competition, HBR 2014

Potential Added Value | Increase in Management Complexity

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365FarmNet as a platform for agriculture: Facilitated by Claas as an open

platform for complementors, but also competitors!

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THE STRATEGIC DECISION:

How to survive competition in a “platformed” industry: App or Platform?

For Platforms: How to manage (and build & nurture) the ecosystem?

For Apps: How to become a preferred partner in an ecosystem (in which one)?

How to set the right degree of openness?

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So what is the problem?

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How we think about something ...

shapes the way we manage it.

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How we think about something ...

shapes the way we manage it.

Assumptions

Knowledge

Exploration (“the white space”) Exploitation

The challenge: The more we move to the “white space” (= engage in

exploration), the more we have to build and manage assumptions

Source: M.W. Johnson: Seizing the White Space, 2010 52

(1) Iterative „Design Thinking“ approach: - Agile process with continuous iterations and strong

user focus - Open, collaborative task in responsibility of every

product manager - Early use of many BM prototypes (Primotypes) - BM Canvas as a communication tool: Ability to

map BM alternatives - Intuitive approach, at the same time systematically - Today, often company-specific canvas

(2) BM patterns for systematic search for new BM: - Successful BM are based on recurring patterns - Derivation of general and company specific libraries of

BM patterns - Systematic problem solving based on TRIZ approach

(3) Rapid experimentation and validation in field - BMI means to develop alternatives – and to test

assumptions - Ability to generate quick and cheap experiments (e.g.,

5x5x5x5x5 logic by Schrage) - Experimentation template

THE AACHEN BUSINESS MODEL INNOVATION (BMI) APPROACH*

* more information: bmi.rwth-aachen.de 53

One more thing …

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We can see this competition also differently:

An integrated, isolated product

A service („App“) as part of an existing platform

An ambitious and brave business

experiment (from prototype or perish

to deploy or die)

„Business as usual“

Who is the more ambitious corporate entrepreneur?

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We often make one BIG mistake when managing innovation:

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Innovation is not just ideas.

(MIT Media Lab: Earlier: “demo or die” instead of „publish or perish“. Today: „deploy or die“)

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And innovation is not just a PPT slide deck with a decision template

based on an elaborated business case

5 x 5 x 5 x 5 x 5

5 x 5 x 5 x 5 x 5

5 Teams … with 5 members … do 5

experiments each ... in not more than 5

weeks … for max. €5000 per

experiment

Read on: M. Schrage, The Innovator‘s Hypothesis, 2014

A core ability of innovation is to experiment: Test and validate quickly

your assumptions behind a (product, service, biz model) concept.

Michael Schrage, MIT, suggests a simple formula:

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How to implement this mentality in our company?

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DAIMLER: Spin off company Moovel -- after 3 year internal incubation as “business innovation idea lab”, reporting to CEO.

Open, Design thinking approach. Lead function: Sales, IT

Today: different location, 1200+ employees, very different culture. 5 actives ventures

SIEMENS: Internal BizMo team (~15 FTE) in Corporate Technology (CTO).

Fully integrated into current processes and organization, “BMI from within”

Internal consulting approach, how-ever mandatory in many development projects.

Strong focus on processes and templates, train the trainer. BM software development

General Electric (GE): “Fast Works” Management innovation to change the corporation. Build on “Lean Startup” idea; driven by Industrial Internet (“Industrie 4.0”)

Shall become new basic management style. Trained 60K persons

There are different ideas in companies how to organize explorative activities

(BMI) best: in a spin-off, as an consulting capability, as a state of mind

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DAIMLER: Spin off company Moovel -- after 3 year internal incubation as “business innovation idea lab”, reporting to CEO.

Open, Design thinking approach. Lead function: Sales, IT

Today: different location, 1200+ employees, very different culture. 5 actives ventures

SIEMENS: Internal BizMo team (~15 FTE) in Corporate Technology (CTO).

Fully integrated into current processes and organization, “BMI from within”

Internal consulting approach, how-ever mandatory in many development projects.

Strong focus on processes and templates, train the trainer. BM software development

General Electric (GE): “Fast Works” Management innovation to change the corporation. Build on “Lean Startup” idea; driven by Industrial Internet (“Industrie 4.0”)

Shall become new basic management style. Trained 60K persons

The “Fast Works” approach of GE is a bold attempt to implement a new

management & decision making style to cope with Digital Disruption

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Digitalization demands

faster decision making

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#WeAreNotWaiting

67 Dana M Lewis

68 Dexcom G4 CGM

#WeAreNotWaiting

„They told me as a child that there will be a cure

for diabetes, and I am still waiting.

But I will not wait for a better

Artificial Pancreas System (APS).“

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The manufacturer Dexcom, Inc.: “Great ! We will bring this to market (open innovation rules). But this will take 5+ years for FDA

approval.”

Dana: „???? We are using this already !!!!“

User communities organized and got FDA approval in less than 4 weeks!

#WeAreNotWaiting

Innovation in Open Ecosystems

= new speed to market (usage)

ffwd: 85

This creates news challenges

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Cody Wilson

This may demand new technology and IP policies

on the governmental level …

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… but especially asks for new strategies for value capture!

(Think about it like this:

“What is the ‘concert’ of a manufacturing company?”)

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Managing disruptive (business model) innovation is not simple

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Thankfully!

Otherwise is could not become a competitive advantage

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Conclusions

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+ What is the “job” of your smart solution?

Which relevant problem of your customers can you solve now?

+ Digitalization demands the skill of orchestrating an

open eco-system: Innovation co-development in distributed

infrastructures – products are always in beta / the platform

creates the solutions

+ Supplementing stage-gate by agile, highly-iterative open

business model innovation processes: From idea management

to experimentation and rapid validation: Prototyping, testing,

and an open customer-centric culture

Industrie 4.0 and Smart Products demand a new innovation system

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Offers for further interaction

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Customization 4.0 MCPC 2017: The 9th World Conference on

Mass Customization & Personalization Aachen, Germany, November 20-22, 2017

mcpc2017.com

RWTH Zertifikatskurs für Führungskräfte: Business Model Innovation 5 Tage in zwei Teilen, plus unternehmensbezogenes Projekt Dieser Kurs ist auch als individueller Inhouse-Kurs zu flexiblen Terminen möglich!

RWTH Zertifikatskurs „Business Modell Innovation“

Termine unter bmi.rwth-aachen.de

Lernen Sie die Methode für systematische Geschäftsmodell-Innovation

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Der RWTH TIM Expertenkreis: 4 Treffen p.a., 25+ Experten, unbezahlbarer Erfahrungsaustausch & Networking für Innovations- und F&E-Verantwortliche http://frankpiller.com/innovation-expert-circle/

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Unsere großen Plattformen für die Zusammenarbeit

RWTH Aachen Invention Center http://www.invention-center.de

RWTH Aachen Center Smart Services

http://center-smart-services.rwth-campus.com

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Dates and locations (BMW, Siemens, Festo …) for 2017:

theleadershipnetwork.com/courses/future-manufacturing

Exclusive Smart Factory Masterclasses & Factory Tours

Berufsbegleitender EMBA Studiengang an der RWTH Aachen und Univ. St. Gallen mit Fokus auf Innovation, Technologie und Leadership

Start des 14. Durchgangs im Sept. 2017 | Studienleitung: Prof. Dr. Frank T. Piller emba.rwth-aachen.de

Der RWTH Executive MBA

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A unique blended-learning program in innovation for young professionals

www.academy.rwth-aachen.de/en/mme-time

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Berufsbegleitend zur Promotion: Der RWTH DBA

Der Doctor of Business Administration (DBA) erstreckt sich über einen Zeitraum von insgesamt acht Semestern. Die Kursinhalte der ersten beiden Semester setzen sich aus interaktivem Unterricht, Diskussionen, Fallstudien etc. zusammen und ermöglichen so einen optimalen Wissensaustausch zwischen renommierten Dozenten der RWTH Aachen und den Studierenden. In den folgenden sechs Semestern widmen sich die Studierenden der unabhängigen, angewandten Forschung einer betriebswirtschaftlichen Thematik aus ihrem Unternehmen. Der Austausch von Vortragenden und Studenten ist ein essenzieller Teil des Studienkonzeptes im ersten Jahr. In den darauffolgenden Jahren wird vor allem die Intensität mit dem betreuenden Professor stark in den Vordergrund gerückt. Das Alumni Netzwerk der RWTH Aachen und der Maastricht School of Management komplettieren den langfristigen Netzwerkgedanken. Der DBA der RWTH Aachen richtet sich an Manager und Unternehmer, die durch ein tiefes, grundlegendes Verständnis der Geschäftsprozesse technologische Innovationen gestalten und führende Entscheider in ihrem Unternehmen sind oder werden wollen.

http://weiterbildung.rwth-aachen.de/de/management

Frank T. Piller, Prof. Dr. RWTH Aachen University

TIME Research Area Technology, Innovation, Marketing & Entrepreneurship

Kackertstrasse 7 | 52072 Aachen | Germany

piller@time.rwth-aachen.de @masscustom (Skype, Twitter, Facebook) time.rwth-aachen.de/tim | frankpiller.com

Expertly assisted by: Monika Heer, +49 (0)241 809-3577 | heer@time.rwth-aachen.de

Contact industry alliances: Christian Gülpen +49 (0)241 809-6660 | guelpen@time.rwth-aachen.de

Open for interaction