© 2011 SAP AG. All rights reserved. 1 Internal
Innovation Strategies
How to put the theories of innovation to work in creation
© 2011 SAP AG. All rights reserved. 2 Internal
Who I am…
Maxwell Wessel
VP of Innovation Strategy
• Think tanker with Clayton Christensen
• Member of the WEF Agenda Council
• Investor with NextGen Angels
© 2011 SAP AG. All rights reserved. 3 Internal
Innovation is a terrible word
Innovation Invention
Commercialization
Platform
Reverse
Incremental
Continuous Discontinuous
Business model
Sustaining
Step-out
Disruptive
Big-bang
Breakthrough
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“More fundamentally, I think long-term thinking squares the circle. Proactively delighting
customers earns trust, which earns more business from those customers, even in new
business arenas. Take a long-term view, and the interests of customers and shareholders
align.”
- Jeff Bezos, Amazon.com CEO
Companies that innovate systematically, grow
© 2011 SAP AG. All rights reserved. 5 Internal
“More fundamentally, I think long-term thinking squares the circle. Proactively delighting
customers earns trust, which earns more business from those customers, even in new
business arenas. Take a long-term view, and the interests of customers and shareholders
align.”
- Jeff Bezos, Amazon.com CEO
"If you don't cannibalize yourself, someone else will”
- Steve Jobs, Apple CEO
Companies that innovate systematically, grow
© 2011 SAP AG. All rights reserved. 6 Internal
“More fundamentally, I think long-term thinking squares the circle. Proactively delighting
customers earns trust, which earns more business from those customers, even in new
business arenas. Take a long-term view, and the interests of customers and shareholders
align.”
- Jeff Bezos, Amazon.com CEO
“The heart of a company’s business model should be game-changing innovation. This is not
just the invention of new products and services, but the ability to systematically convert ideas
into new offerings that alter the very context of the business.”
- AG Lafley, Procter & Gamble CEO
Companies that innovate systematically, grow
© 2011 SAP AG. All rights reserved. 7 Internal
Innovation doesn’t take outsized expenditures…
…just smarter expenditures
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Today we’re going to talk about 5 concepts
1
2
3
4
5
The types of innovation you’re predisposed to fail in…
How to evaluate whether your business model fits…
How to think about scenario planning and valuation…
How to create the right tests…
How to predict if your product is worth testing at all…
© 2011 SAP AG. All rights reserved. 10 Internal
Why do large, well-resourced, organizations fall behind?
Incumbents nearly always
win
Disruptors nearly always
win
Pro
du
ct
Pe
rfo
rma
nc
e
Time
© 2011 SAP AG. All rights reserved. 11 Internal
Businesses innovate both commercially and technically
Incremental improvements to existing
technologies
Integrate seamlessly with legacy formats
Example: • A traditional engine that generates 20% more
horsepower than its predecessor
Technological innovation that bypass the
existing paradigm; often cited as a step-
change
Can or cannot integrate with legacy formats
Example: • An solar engine that generates 20% more
horsepower than its gasoline predecessor
Dis
co
nti
nu
ou
s
Co
nti
nu
ou
s
Categorization of tech innovation
Dis
rup
tive
S
usta
inin
g
Categorization of competitive innovation
Innovations that integrate with the profit
models of incumbent firms
Can be derived from either continuous or
discontinuous innovation
Example: • A solar engine integrated into a Ford coupe
and priced at a premium
Innovations that do not integrate with profit
models of incumbent firms
Often lower quality to existing products, but
cheaper and more accessible
Example: • An solar engine used to power a cheap,
around-town bicycle for city commuters
© 2011 SAP AG. All rights reserved. 12 Internal
Customer
Value
Business
Interest (Short-term)
Maximize
personal utility
Unconcerned with
how a problem is
solved
Maximize return
on assets
Maximize
investments in
additional
assets
Normally these
interests are aligned,
in instances of
disruption and
business model
innovation they are
not
Some innovations are more interesting than others
© 2011 SAP AG. All rights reserved. 13 Internal
Disruptive innovation Before Description
Retail health clinics $5603 • Over the past 2 decades, retail health
clinics have emerged to offer basic
healthcare services w/out expensive
overhead of primary care offices
Personal computing ~$120-
160K1
• In the late 1970’s, companies arose to
manufacture computers using existing,
modular, technical components, thereby
decreasing cost of production
Mobile digital
learning
100M
w/out
access to
education
• Educational platforms being developed to
provide access to the more than 100M
children that do not attend school across
the globe
After
$1103
~$1.3K2
N/A
Disruption brings services to more customers by dramatically reducing
costs and increasing accessibility
Disruption brings more users and larger markets
1) DEC VAX 11/780 Computer Specifications. ed-thelen.org/comp-hist/vax-11-750. Accessed 6/15/2012
2) The Encyclopedia of Consoles, Handhelds, & Home Computers, pg. 19
3) Comparing Costs and Quality of Care at Retail Clinics… Annals of Internal Medicine, Sept 2009, pg. 324
© 2011 SAP AG. All rights reserved. 14 Internal
R.P.P.
Business models generate the internal tension
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Business models are core to challenges with innovation
“In a new-market disruption, the unserved customers are unserved
precisely because serving them would be unprofitable given the
incumbent’s business model.
In a low-end disruption, the customers lost typically are unprofitable
for the incumbents, so the big companies are happy to lose them.”
- Andy Rachleff, CEO Wealthfront
© 2011 SAP AG. All rights reserved. 16 Internal
What is your business model… RPP
PROCESSES:
Ways of working together to
address recurrent tasks in a
consistent way: training,
development, manufacturing,
budgeting, planning, etc.
PRIORITIES:
Values of the company, core
mission, etc.
THE VALUE PROPOSITION:
A product that helps customers
do more effectively, conveniently
& affordably fulfill a need
RESOURCES:
People, technology, products,
facilities, equipment, brands,
and cash that are required to
deliver this value proposition to
the targeted customers
© 2011 SAP AG. All rights reserved. 17 Internal
Our business models guide how we see the world
2002
• Total Assets: $6.24 Billion
• Total Sales: $5.57 Billion
• Employees: 85,200
• Stores: 8,500
• Brand Recognition: 100%
2010
BANKRUPT
• Total Assets: $131 Million
• Total Sales: $150 Million
• Employees: 381
• Market Cap: $164 Million
• Total Assets: $982 Million
• Total Sales: $2.2 Billion
• Employees: 2,180
• Market Cap: $4.02 Billion
“Obviously, we pay attention to any way people are getting home entertainment. We always
look at all those things. We have not seen a business model that is financially viable in the
long-term in this arena. Online rental services are ‘serving a niche market’.”
-Blockbuster Spokesperson in 2002
© 2011 SAP AG. All rights reserved. 19 Internal
Most businesses invest in predictable cash flows…
Probability
$ Value =Pre commercial experiment
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Truly innovative projects are less predictable
Probability
$ Value =Pre commercial experiment
=Post successful commercial experiment
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Investing in innovation requires scenario planning
An idea
Some basic scenarios
Some complex scenarios
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Modeling innovation is critical to winning
Always scenario model – your best guess is never right
• 93% of businesses that IPO change their business model
• Use scenarios to test sensitivity of the business to different variables
• Seven of ten venture backed businesses will fail to return capital
Question all your assumptions – you have a ton
• Knowing all your assumptions helps mitigate operational risk
• Calling out each assumption lets you benchmark against others
Model over long time horizons – 5 years is too short
• After 6 years, Google did <$1B. It takes a while to build a business
• Make realistic cash assumptions. Growth is expensive
• Know how long it took similar businesses to be built
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Great innovators invest to learn.
Learning the right things minimizes risk
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Pursuing the unknown requires experimentation
Ask a
question
Do
background
research
Construct
hypothesis
Test with an
experiment
Analyze
results
Report
results
True
False The scientific method
© 2011 SAP AG. All rights reserved. 27 Internal
Business is no different. Experiment to learn more.
Build
Measure Learn
Goal
Discovery
Growth P
roc
es
s C
od
ifica
tion
V
alu
e
Entrepreneurial endeavor requires a
process of learning to identify value
proposition and de-risk scalable product
Once understanding of value proposition is
solidified, resources can be scaled and
processes and priorities developed effectively
Entrepreneurial
discovery…
Must always occur before
process codification…
© 2011 SAP AG. All rights reserved. 28 Internal
Discovery driven planning increases success chances
1
2
3
4
5
Identify your most sensitive business assumptions
Test the most important of those assumptions quickly and cheaply
Iterate your business based on feedback, where necessary
Identify the new assumptions and repeat
Develop a vision and a plan for your business
© 2011 SAP AG. All rights reserved. 29 Internal
The more certainty, the more valuable the business
$200M
$10B
SpaceX before certainty
SpaceX after certainty
© 2011 SAP AG. All rights reserved. 30 Internal
Finally. Make sure you’re pursuing a market that exists.
© 2011 SAP AG. All rights reserved. 32 Internal
A Knife
A Compass
A Satellite Phone
Get me home, safely Entertain me, now
Make the world better
for my children
Board games
Television
Netflix
The products we “hire” to complete these jobs, do change.
The jobs don’t.
Investments in infrastructure
Investments in parkland
Investments in sustainability
© 2011 SAP AG. All rights reserved. 33 Internal
Identify the Job-to-be-done
Determine what experiences
are necessary to complete
the job
Integrate your “whole”
product around those
experiences
1
2
3
Determine the fundamental need
that causes a consumer to draw
your product into their life
Identify the relevant experiences
are necessary to complete the job
Integrate product design,
distribution, and support to deliver
those services
Successful product development integrates around the job
Functional Emotional Social
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