Management of Innovation nothes, Appunti di Strategia E Innovazione

Scarica Management of Innovation nothes e più Appunti in PDF di Strategia E Innovazione solo su Docsity! MANAGEMENT OF INNOVATION ➝ What drives the competitivness of a firm? 1. Efficiency 2. Ability to meet clients’ needs 3. Market conditions (monopoly, oligopoly): these factors determine the prices that the company is able to charge and that customers are willing to pay 4. Presence of substitutes 5. Costs of production factors: if the company increases prices accordingly ➝ What is innovation? (By Schumpeter) The introduction of new: Goods, Methods of production, Markets, Sources of supply, Type of organisation. ➝ Distinction between innovation and creativity: Creativity precedes innovation because is the act of generating new ideas without yet economic value which are translated to innovation inside organisations. The creativity stage of this process refers to idea generation, and innovation refers to the subsequent stage of implementing ideas toward better procedures, practices, or products. *Open product: a product that produces revenues along its whole life, not just at the time of sale. For example, Apple products are open because people pay for accessories, iCloud extra storage, Apple music etc. 12 SIDES OF INNOVATION OFFERING Offering entails: Core benefits: price, shape, design, function, packaging, modularity, openness* Extended benefits: pre-sales advice, personalisation, post-sales customer services, insurance, terms of payment Each benefit can become the pivotal element of an innovation strategy leading to differentiation. Differentiation means that the customer perceives the product as different and therefore better than the alternatives, enhancing its value. Mass customisation: offer products or services which meet the demands of each individual customer, but which still can be produced and delivered with mass production efficiency. New word comes between 2 original words: - Mass production - Customisation Servitisation: A current trend consists in the servitization of products, which is the transformation of a product into a service. It’s a business model change. Companies which use this model are usually new companies, stat-ups. It’s about offering an integrated bundle of products and services that require a different revenue/business model (solution). Focus on: why a consumer buys a product, which is the goal of the consumer to buy that product. We must understand the consumer’s needs. EXAMPLE: Rolls Royce case: transform Fixed costs into Variable costs, with free airplane motors delivery and pay by the kilometres they do (Pay-per-use). “It’s an essential business model change. It’s when things that we used to think of as products turn into services, and the different ways that are created of delivering those services and monetising them through a wide variety of pricing models” (M. Cusumano) PLATFORM Firm platform: a set of subsystems and interfaces that form a common structure within the firm from which a company can efficiently develop and produce a stream of derivative products. Supply chain platform: extension of the internal platform concept to the entire supply chain that supplies intermediate products or components to the platform leader or the final product assembler. Platforms at the firm and supply chain level create the preconditions for derivative offerings that can be developed faster and at the minor cost. They are typical of software houses. FIRM and SUPPLY CHAIN LEVEL SOLUTIONS A “solution” consists in the creation of integrated and customized offerings that solve end-to-end customer problems. Example – Interna (furniture) The options for the company were: • Operating abroad --- takes a long time, difficult to implement, a lot of expertise is required • Increasing quality • Changing business model: instead of providing just one product we take care of everything so the client will buy everything furnished ---- higher number of suppliers. DIFFERENCE BETWEEN SERVITIZATION AND SOLUTION STRATEGY - Servitization: Focuses on transforming a product-oriented business into one that offers services or service-based solutions alongside traditional products. - Solution Strategy: Involves providing holistic solutions that combine products, services, and additional components to address specific customer needs and deliver value. CUSTOMERS - Discover unmet customer needs: this activity is difficult because it tries to understand the internal reasons why consumers behave in a certain way. Preferences are formed through mental processes that even the consumers themselves struggle to understand and explain. In an experiment done by Adidas with the marketing company ReD, they hired ex-academics, like anthropologists and ethnologists, to study customers’ motivation. They hired design staff and sent them to spend 24 hours with customers, to find out what made them exercise: they found out that their motivation was to share a lifestyle with others who are similar to them. For athletes, they asked what the competitive advantage of an athlete was; the only thing that cannot be taught is speed, so they developed shoes that improve the speed of athletes. According to the “Jobs to be done theory” by Clayton M. Christensen, what firms need to investigate is what the customer needs to accomplish, the job to be done. Indeed, when we buy a product, we “hire” it to help us do a job; if it performs well, we buy it again, otherwise we “fire” it and look for an alternative. The problem is that most of customer data shows correlation between similar features between customers and product preferences but since correlation does not equal causality, the data is not accurate enough. - Identify new customer segments (through specific techniques): this is necessary to increase the potential market and it can be done with segmentation techniques. • Demographics (age, sex, marital status, income, education, culture) • Behavioural (benefits, usage rates) • Geographic (local, regional, national, international) • Psychographics (personality, values, attitudes, lifestyle) B.O.P.: bottom of the pyramid theory. The base of the pyramid is the largest, but poorest socio- economic group. - Innovate in the positioning to meet more promising and profitable segments. Why do we drink? • Functional dimension: goes between appreciating taste and using it to have fun. • Social dimension: goes between drinking alone and with others. For example, if we buy Aperol, we buy it to have fun with friends; if we buy expensive whisky, it’s less of a party drink and we can appreciate it even on our own. If we buy Belgian beer or expensive wine, we drink it in company, but we appreciate taste and quality. We use more complex models such as this one when we are dealing with particular products, for example expensive ones. CONFUSION MODE The great majority of purchasing acts are simple and do not require specific effort to do them. This is not a case when you buy expensive things, and you look forward some discounts or lower prices to save money. CUSTOMER EXPERIENCE Redesign customer interactions across all touch points and all moments of contact. VALUE CAPTURE Redefine how the company gets paid or creates additional innovative revenue streams. This can be done with additional revenue streams, such as merchandise lines, or new pricing strategies such as different categories of train/plane tickets. Razor and Blade Revenue Model (RM) A complete product is composed by one main item (Razor) with one or more complimentary items (Blades). The main item, the razor, is given for free or sold at a very low price, while the complimentary items (Blades) are highly priced and require replacement after some uses. The reverse razor blade model involves a business attracting consumers with a premium product and then selling them less expensive products over time. Apple was an early proponent of the reverse razor blade model, selling the iPod as the dependent product and songs from the iTunes store as the consumable product. THE FREEMIUM REVENUE MODEL In a freemium revenue model, the service is neither free nor it is paid for once when it is first purchased. Indeed, if we make the customer pay for the app only once, then they will benefit from it and from all future updates forever without providing any extra revenue. On the contrary, in this revenue model there is a free version with limited features, capacity, number of users, effort, support, time, bandwidth or storage space; by paying for the premium version, all of the above are unlocked. The goal is to convert free users into paying users → the ability of the company to succeed in doing so is a KPI (Key Performance Indicator) called “Conversion rate”. Spotify is the n.2 music streaming company in the world, but they haven’t made profits in 12 years. They are a money- burner company. This is because they failed so far to build a real freemium model, and they manage ad-supported and premium subscribers separately. They don’t create much margin with ad-supported users. The company is still alive because investors value the asset of the millions of subscribers the app has, and they keep investing in the company because they believe they will improve the business model and start making profits soon. THE 1 PENNY EFFECT In freemium companies, the logical relationship between price and demand (slight increase in price = slight decrease in demand) does not apply. In companies that offer a service both for free and premium, when a price (even very small, such as 1 penny) the demand drops much more drastically than the increase in price. However, this is not an issue for these types of companies because the initial demand is so high that even by losing 75%/80% of it, the remaining customers, who are now paying, are generating enough revenue for the business model to still be profitable. Is it possible to monetize free users? It is not easy, but not impossible with some options: • Up-selling (unlock features). • Target2Target: invite advertisers to target your users based on the products that are in line with the community base. • Sell intelligence about users’ behaviors to other players in the industry or outside – for example, Google Maps could advise stores on the best location to be situated in based on the most common routes that people take in a certain area. • Build a community from the users and leverage it to provide services, like personalized support. • Sell your platform logic (algorithm etc) to other players in the industry or outside (ex. Websites for booking hotels v. planes) • Donations PROCESS The company redesigns core operating processes to improve efficiency and effectiveness. Production processes • Increase efficiency and reduce lead time (ex. Toyotism, Lean Manufacturing) • Reduce costs (ex. Automation and Robotics) • Improve quality (ex. Zero Defects, Six Sigma) Knowledge intensive processes • 3D and multidimensional design • Simulation software • AI based solutions 1) EFFICIENCY (↓COSTS, = QUALITY) 2) EFFECTIVENESS (↑QUALITY, = COSTS) ORGANISATION The company redefines the way it is structured, teams are organised, duties and responsibilities are spread across people. Typical examples include a functionally-organized company that adopts a divisional structure or a company that lightens its structure by reducing hierarchal levels (but increasing the span of control). Companies can grow also during M&A (merge and acquisition). It is difficult to organise them because of their possible growth. So, they reorganise entirely the group. • New political rules / A shift in regulatory regimes (i.e. EC reduction of CO emissions for the Car Industry; Ban to diesel fueled cars circulation; Incentives to adoption of clean technologies) → Follow preparatory works. Prepare in advance and lobby. Then look at them as innovation opportunities, not constraints. • New consumers’ behaviours (i.e. Environmental conscious consumers) → Monitor consumers’ trends and behaviours (i.e., Management journals, Industry reports) to be informed about emerging trends. • New business models (i.e., Google NEST) HOW CAN COMPANIES REACT? → If they are an incumbent: • In the short-term: adopt a wait-and-see behaviour; limit the “sailing ship effect” through price tactic. According to Porter, to assess what option in the best we must use the price/performance ratio and choose the option that is less costly and offers the best performance. If we are in this situation, we are already losing from the performance pov, so we must focus on convincing customers to buy our product based on its convenient price. • In the long-term: shift to the winning technological trajectory (also through M&A and JV). → If they are a newcomer: • In the short-term: gain as much market share as possible • In the long-term: prepare for tough competition coming from “converted” incumbents. Consider Mergers & Acquisitions or Joint Ventures. DISRUPTIVE INNOVATION Disruptive innovation starts with simpler, lower-cost, or lower-performing products or services, often targeting underserved markets. Over time, it gradually improves and disrupts existing products or services, challenging established competitors and reshaping industries. Attention! Higher technical quality does not translate into higher perceived quality for consumers. We can have a disruptive innovation even if the quality is objectively lower, but it is not significant to the average user because at the same time, the product introduces a new feature that is more valuable than technical quality to users. Example: AirBnb Airbnb started being a platform to find cheap rooms and so it stayed in its own niche, and the incumbents didn’t see it as a threat because they believed to be on another level; however, then its price/performance ratio improved and the range of the offering became wider, to the point that now it has become possible to rent even luxurious villas on Airbnb. At that point, it became a threat for the whole hotel industry because it came after the existing customer Confusing the discontinuous and disruptive innovation – Possible question at exam The main difference between them is the nature of the change and its impact on existing markets. Discontinuous innovation involves significant, breakthrough advancements, leading to entirely new products/ markets. Disruptive innovation starts with incremental improvements, often targeting underserved markets, and gradually disrupts (interrupts) established players over time. HOW CAN COMPANIES REACT? • Going up and up (being aware of the quality trap), being careful not to over-design (= product with so many features that the consumer is not interested in paying for all of them, since they would only use a small percentage of them). An option is to create lock-in effects by servitizing the business, providing solutions to clients and joining forces with other companies, also competitors. • Repositioning down: cutting the quality and the prices – very dangerous because regaining the former position in the market and pricing is very complicated. • Dual positioning strategy: the company tries to position itself in two categories simultaneously, with a product in a lower price target and another one in a higher one. (even through M&A). After locking in the client with the cheaper services, the company tries to “move” them to the more expensive one. This strategy is very common among phone service providers. Never touch prices, and when you do you that, you reposition down your brand BLOCK 2 BUSINESS MODEL INNOVATION The business model is a consistent framework through the which business ideas are converted into economic value by firms. A business model: 1. Identifies a market segment 2. Articulates the value of the proposed offering 3. Focuses on the key attributes of the offering (characteristics of the offering and main benefits for consumers) 4. Defines the value chain to deliver that offering 5. Creates a way for getting paid 6. Establishes the value network and the external conditions needed to sustain the model IDENTIFY A MARKET SEGMENT • Is it possible to segment the market? • Who’s the client / who is the user? Is it a B2B or a B2C one? • Are there underserved needs? • Is there any market potential? Segmentation marketing technique used by businesses to target a specific type of consumer or section of the marketplace. At the base of the strategy there is the assumption that the differences that consumers have in the same cluster are smaller than those between consumers in different clusters: consumers in the same cluster are sufficiently similar that they can appreciate the same products. Examples of segmentation criteria include nationality, age, etc. The criteria is chosen based on the type of product. VALUE DRIVERS Value drivers are the main and most important benefits that we can provide to the client with our product, and the main reason why customers buy a product and choose our company and not a competitor. Mass customization: it is the clash of “mass production” and “customization”. Until the 90’s, products were either mass produced (low prices on the market) or customized (higher prices in specific distribution channels. Mass customization, on the other hand, consists in the production of modular products in which the single components are mass-produced and then assembled however the customer wants. This allows for customized products at low prices. Diversification: create a product that is unique and different from the competition. Price and cost reduction: difference: Price: offering something that is cheap to the user (rulers that is cheaper compared to others) Cost reduction: offering a product that can help the company to reduce the production costs: doesn’t mean that the product is cheap. Service that offers solutions that reduce overall costs in the long run even though initially you incur in a high fixed cost. Risk reduction: reduce uncertainty and risks with insurance (insurance companies but also warranties for cars, phones, laptops) Accessibility: this is connected to platformization, and allows access instead of property, which makes certain goods and services to a wider range of people. (if I want to buy a villa in the Costiera I need millions of dollars, but if I only want to go for the holidays, I can rent it on Airbnb, and it becomes affordable.) Usability: Creating a product with all the value drivers can be counterproductive because it is not economically convenient, it is impossible to convey an effective message to the user, and the customer is not attracted to it. Why do they do that? To establish a stronger connection with the customers; however, the vision is usually an internal issue. 1.b Leadership style A good leader is expected to: • Be bright, alert and intelligent S/he has intuition, analytical capabilities, s/he is able to see/create connections between apparently distant concepts, s/he is able to find creative solutions to routine problems. • Seek responsibility and take charge S/he does not flinch in the face of responsibilities and does not pass the buck. S/he does not ignore emerging problems but faces them immediately. S/he regularly monitors the progresses of the activities/projects s/he is responsible for. S/he regularly checks that all the activities/projects proceed as scheduled. • Be skillful in her/his task domain S/he is able to leverage on her/his experience in the workplace, s/he periodically updates her/his skills, s/he is open and curious. • Be administratively and socially competent S/he is able to persuade people without recurring to the authoritative power of her/his position, s/he able to reconcile people. • Be energetic, active and resilient S/he is able to work under stressful conditions for a long period of time. S/he respect deadlines. S/he can energize people. • Be a good communicator S/he has charisma. S/he has oratorical skills. S/he knows how to convince skeptics. A good team leadership can have a significant impact on team’s performances: the NEGATIVE consequences of a BAD leadership style are HIGHER than the POSITIVE consequences of a GOOD leadership style. 1c. Perceptions and attitudes Perceptions” and “Attitudes” (and Biases as well) impact on human behaviors. Behaviors then in turn impact on perfor- mances; hence, there’s a mediated relationship between attitudes/perception and performances. INDIVIDUAL LEVEL INDIVIDUAL TEAM/FIRM LEVEL INDIVIDUAL TEAM/FIRM LEVEL Micro-fundations of innovation: perceptions, mindsets and believes at the individual level influencing innovative behaviours at the individual team/ firm levels are called micro-fundations of innovation. Examples: 6. Knowledge hiding: people who fear losing their power and position of being critical in the organization start hiding infor- mation from others, because being the only one who knows that is what gives them power. 7. Employee silence: employees do not speak up in meetings about what they think of the company. 8. Time management: managing time in order to maximize productivity. 9. Time perspective: it is important not to fall into the traps of the past. For innovation managers it is important to look at the future. 10. Time pressure: ability to work with deadlines approaching within a very short period of time, while remaining lucid and organized. 11. Cultural intelligence: remaining open and curious about what happens in the world. 12. Idea championing: ability to encourage others to express their ideas. 13. Task conflict: ability to pursue different tasks even if they are in conflict because of the deadline or the content. 14. Idea championing: active and enthusiastic support, promotion of a new concept, project. 15. Flow: psychological state in which people become fully immersed on a particular task/ activity. 16. Innovative work behaviour: generation, development and implementation of ideas, products, services aiming at improving the company’s operations. APPROPRIATE ORGANIZATIONAL STRUCTURE Organizational structure is the framework within which an organization arranges its lines of authority and communication and allocate rights and duties. According to the “contingency school”, the best way for fostering innovation is for there to be some fit between the external and internal environment. EXPLORATION – EXPLOITATION Exploration includes things captured by terms such as search, variation, risk taking, experimentation, flexibility, discovery, and innovation. Exploitation includes such things as refinement, choice, production, efficiency, selection, implementation, and execution. ORGANIZATIONAL AMBIDEXTERITY Organizational ambidexterity refers to an organization's ability to be efficient in the management of today's business (exploitation capability) and at the same time to be flexible/adaptable for coping with tomorrow's changing demand (exploration capability). There are 3 types of organizational ambidexterity: • Contextual ambidexterity: ability of an organization to organize innovation internally so that individuals must make choices between either the exploitation-oriented or the exploration-oriented activities in their daily work. To allow this, it is necessary for the organisation context to be flexible, allowing employees to divide their time between their exploration-oriented and their exploitation- oriented activities. • Sequential ambidexterity: ability of an organization to shift back and forth between different organizational models, focusing on exploitation for a period and then moving into exploration mode. It’s the logic at the base of the design thinking approach to innovation. • Structural ambidexterity: creation of separate organizations or structures for different types of activities - exploitation-oriented and exploration-oriented. “Some have suggested that big companies adopt a venture capital model, funding exploratory expeditions but otherwise staying out of their way.” Companies that are able to radically change their entrenched ways of doing things and then reclaim leading positions in their industries are the exception rather than the rule. Even less common are companies able to anticipate a new set of requirements and mobilize the internal and external resources necessary to meet them. Instead, the commitment to the prevailing strategy usually prevents companies from spotting changes such as a shift in either the market or the technology and leads to a financial downturn — often a crisis — that, in turn, reveals the need for change. Few companies make the transformation from their old model to a new one willingly. Typically, they begin to search for a new way forward only when they are pushed. This raises two important questions for corporate managers. First, is decline inevitable? And second, do companies really need a financial downturn to galvanize change? There are certain tricks to avoid this decline to happen: • The company has 2 teams of senior executives: one group, more senior, focusing on current businesses (exploi- tation) ad another group, made up of younger people, focusing on innovation (exploration). Putting them in competition for resources (money, people, attention etc) will result in tension between the 2 groups. This ten- sion is a positive thing for a company that aims at remaining in equilibrium and with the ability to explore. The tension is therefore purposefully created, institutionalized. KEY INDIVIDUALS Key individuals are those figures that have a critical importance in driving the innovation process and turning an invention into an innovation. • Technical experts are needed when it is necessary to solve the impossible thanks to their expertise in technological capabilities and the latest developments and inventions (especially with the increase in the use of SaaS systems such as iCloud or Microsoft as a technological and management support in the company) • Organizational sponsors are specialized in procuring resources, convincing skeptics and critics; they are usually over-optimistic; they need to have good team management capabilities because they are usually team managers who have a connection with the general management and governance of the company. They also need to have process management capabilities that allow them to carry out a sequence of activities and reach the end goal. • Business innovators are the ones that are good at understanding the market in terms of opportunities for the company and organize the company internally in order to catch these new opportunities. Therefore, they need good market-sensing capabilities. • Technological gatekeepers are an informal bridge between the internal and external environment, so they need good interpersonal capabilities. They manage knowledge flow. Concretely, this corresponds to the figure of the open innovation manager, who has to discover potential opportunities in the external world, bring the knowledge inside the company and provide data about potential collaborations, projects etc. TALENT MANAGEMENT Talent management is the attraction, selection, and retention of employees, which involves a combination of HR processes across the employee life cycle. It encompasses workforce planning, b. Second level: more benefits, job progression, more work/life balance and flexibility (ex. If the employee just came back from maternity leave) c. Third level: offering opportunities for personal growth, giving the possibility to socialize on the workplace d. Fourth level: offering a position as team leader HERZBERG He analyzed job satisfaction or dissatisfaction. He grouped together 1844 events that led to extreme dissatisfaction, and 1753 events that led to extreme satisfaction into families according to what the event was related to. He then started counting, for each cluster, how many events related to them were positive and how many were negative. EXAMPLE: clusters related to supervision, work conditions, salaries, personal life, and administration were mostly associated with negative memories, while achievements, recognition, work, advancement, growth were mostly related to positive memories. Herzberg had an INTUITION: negative memories were usually about factors that are not strictly related to the job itself and its content, but to everything surrounding it. On the contrary, positive memories usually involved the work itself and its content. The factors causing dissatisfaction were called hygiene or dissatisfaction avoidance factors, while the factors causing satisfaction, were called intrinsic motivation factors. Herzberg concluded that satisfaction does not goes linearly from 100% dissatisfaction to 100% satisfaction; on the contrary, satisfaction and dissatisfaction are 2 separate mental constructs (they activate two different parts of the brain. So, we can work with them separately and differently). • We can reduce the level of dissatisfaction until it is 0% and the individual is no longer dissatisfied, by working on hygiene or dissatisfaction avoidance factors. • We can increase satisfaction until it is 100% and the individual is completely satisfied, by using intrinsic motivation factors. Despite the two concepts are different mental constructs and can be acted upon with different triggers, it important that HR managers push to reduce the dissatisfaction before moving to increase satisfaction. CREATIVE CLIMATE AND CULTURE - Culture: it equates to the pattern of shared values, beliefs and agreed norms which shape behavior - Climate: it is the recurring patterns of behaviour, attitudes and feelings that characterize an organization. To build a creative climate it is necessary to: • Create trust and openness: let people feel emotionally safe in relationships o everyone dares to put forward ideas and opinions - Fasten decision-making (good intentions of people can be assumed) - Facilitate problem-solving (motivate people in sharing/not hiding information) • Create challenges and involvement: let people find joy and meaning in their work, they’ll invest more energy - Too few challenges & involvement -> people become apathetic about their work - Too many challenges & involvement -> people show signs of ‘burn out’ - ‘Optimal’ challenges & involvement -> motivation • Give support and space for new ideas - Insufficient time -> people are only concerned with their current projects and tasks; stress and frustration arise - Too much time -> too many ideas to evaluate, bureaucratic and ineffective selections procedures • Manage conflicts and debates - Conflicts are normal: all organization have some level of personal tension - In a climate of trust and openness, conflicts can be constructive to avoid “group think” effect; in a different climate, professional conflicts can degenerate in personal conflicts (that become, soon or later, group conflicts) • Be tolerant towards uncertainty - Do not judge people, but rather evaluate ideas - Too much risk taking -> too many ideas and projects; people get frustrated because nothing is getting done - Too little risk taking -> people will “cover” themselves before taking a decision; innovation processes become long and tedious. • Give independence (freedom) to people who want and deserve it. EXTERNAL FOCUS Do not look only inside the company. Keep open to external contributions. Important figures: service and technology providers, clients, retailers, suppliers… BLOCK 4 RATIONALIST APPROACH It is a linear approach that consists in 3 phases: - Appraise: describe, understand and analyze the environment by using appropriate tools (Pestel, Scenario analysis, Resource gap, SWOT, etc.) and project on-going trends into the long term - Determine: determine a course of action in the light of the analysis. Determine the allocation of investments. - Act: carry out the decided course of action This approach can take a lot of time, especially the appraisal phase can be a long process. However, it is worth it because the more information we collect, the least mistakes we are likely to make. Advantages of a rationalist approach: - Consciousness of ongoing trends in the competitive arena: managers are “forced” to collect objective data and information instead of acting on their gut feelings. - Ensure sufficient attention is devote to the long term, instead of just thinking about day-by- day activities and revenues coming in. - Ensure coherence in action, especially in big and dispersed corporation, so that the strategy decided at the top is communicated to all the business units and applied consistently. Limitations of a rationalist approach: - A certain stability of the external environment is needed in order for the predictions to be accurate; otherwise, the course of action we decide to do based on our predictions will not have the planned results - Firms need to be perfectly aware of technological and market trajectories. - Firms must also be aware of their strengths and weaknesses and be ready to develop new resources and capabilities that meet their strategic objectives; everyone should agree on the strengths, weaknesses and strategic objectives. - An excessive concentration on the "enemy" (competitors) can lead to a lack of interest in discovering unmet market needs. PORTER’S CONTRIBUTION The company should be one of the two, never be in the middle. Innovation leader: studies the market and customer behaviors to identify their needs and create a product that meets these needs. So, these companies need to be close to the market BUT also to tech developers (Universities etc) because it is impossible to produce all the knowledge they need internally in their R&D department. Sometimes it does not pay off to be a leader, and it is better to be an innovation follower. Like Ferrari. Innovation follower is a company that is very fast and effective in imitating what innovation leaders do. Instead of R&D, followers invest in is analyzing competitors, buying their products to do reverse engineering (opening up the product and studying how it works to imitate it without copying it and infringing IPR rules). INCREMENTALIST APPROACH A step-by-step and trial-and-error approach, making smaller investments in different directions, so that the money lost in every investment that goes wrong is contained. If the investment starts paying off, the company starts putting gradually more and more money into it. - Make deliberate steps towards the stated objective - Measure and evaluate the effects of the steps - Adjust (if necessary) the objective and decide on the next step - Be ready to call into question former strategies, re-design everything from scratch and cannibalize your current businesses. ADVANTAGES OF THE INCREMENTALIST APPROACH: - We are always open to new possibilities - Strategic flexibility and AGILITY LIMITATIONS OF THE INCREMENTALIST APPROACH: - Successful strategies could be impossible to replicate (non-reproducible best practices), due to how much they rely on external changes Lead users: experts; users of the product, that have high skills. Use them to develop a product that is good enough to launch it to the mass market. Everyday users: without particolar skills the aim isn’t to develop products to sell only to lead users, but rather to sell them to the rest of market. • "Everyday" users - We learn from their unmet needs and frustrations Why observing and not asking directly? Because if there is an unmet need or frustration, the customer normally solves the problem on their own and then forgets about it, but the company is interested in these small problems to solve them. LEARNING FROM USERS – User-driven innovation Example – Lego In March 2004 Lego selected an adult fan team leader, who set up a secure forum where users could share their designs. A fan involved in the team was in the business of high-tech sensors and he brought some components home and applied the motors to Legos, making them move and sharing the video with the community. LEGO decided, for the first time, to partner with this external vendor and introduce 12 advanced sensors "which greatly expanded its capabilities over prior models". This combination between plastic and digital technology and automation was a radical innovation, since Lego had not foreseen this trajectory and didn’t have expertise. However, they decided to pursue it and enlarge the community. After some months, the CEO of the firm, Jørgen Vig Knudstorp, declared: “We think innovation will come from a dialogue with the community”. Adult fans helped Lego identify new product lines, including one new line featuring models of architecturally significant buildings, through challenges and a high involvement of the community, which also featured experienced professionals. Chicago architect and Lego enthusiast Adam Reed Tucker was involved with great success (White House, Empire State Building, etc.). The architectural kits are now sold around the world in outlets such as museums, souvenir shops and bookstores. Unlike in other cases, the user does not give feedback on preexisting products, but rather help the company ideate new products. It is different from design-driven innovation because in design-driven innovation the idea is developed by the company by trying to put themselves in the perspective of the user. Platform “Lego Ideas”: everyone can submit an idea and if it gets at least 10 000 likes from the community the idea enters the stage 0 of new product development, which consist in idea development. If the idea gets produced, the creator will be rewarded with royalties. Crowdsourcing means involving the crowd and inviting them to take part in a challenge, which is to solve a problem that the company has. This method became more and more frequent and innovation brokers started working as 2-side platforms and became intermediaries between companies who needed help and a community of potential problem-solvers. Crowdsourcing and Crowdfunding are not the same thing: crowdsourcing means getting ideas from the crowd, crowdfunding means getting money (equity, rewarads, donation, lending). CLOSED AND OPEN INNOVATION In 2003 Henry Chesbrough (MIT) highlights the co-existence of two different models of innovation: - One more centered on internal resources and ideas. - Another relying on knowledge flows from and to the company to sustain and accelerate better innovations. Closed innovation: - Companies must generate their own ideas. - Development, manufactoring, market distrubution are controlled by the company. - Self-reliance Open innovation: - Firms commercialize external (as well as internal) ideas by deploying outside (as well as in- house) pathways to the market. - Companies can commercialize internal ideas through channels outside of their current businesses in order to generate value for the organization. - Ideas can also originate outside the firm's own labs and be brought inside for commercialization. - TWO DIRECTIONS OF OPEN INNOVATION OPEN INNOVATION AND SYNDROMES The main obstacles to open innovation are mental: • Not Invented Here (NIH) Syndrome: Dismissive attitude toward ideas or improvements suggested or implemented by others because, if they were worthwhile, "we" would have already thought of them. • Not Sold Here (NSH) Syndrome: Dismissive attitude toward selling ideas or to implement them in partnerships with other firms, because if they were profitable, "we" (and we only) should exploit them. IMITATION Most frequent form of innovation. But what can we imitate? Products, processes, strategies. The role of firms’ absorptive capacity (Cohen and Levinthal) is “the ability of a firm to recognize the value of new, external information, assimilate it, and apply to commercial ends”. Imitation can be done through reverse engineering, which consists in extracting knowledge from a product (often disassembling it) with the aim of improving the product itself or to produce a more efficient or effective version of it. Managerial preconditions for reverse engineering are: - Knowledge is explicit in its form (not tacit) and can be easily codified. - The firm has enough abortive capacity to turn such knowledge into commercial ends. RECOMBINANT INNOVATION Recombinant innovation means applying knowledge that has been developed in other industries and for other aims. You can extract knowledge from a product category and apply it to a completely different one→ Managerial preconditions for recombinant innovation are: - Knowledge can be both tacit or explicit. - If tacit, the firm needs absorptive capacity to understand the value of it. You can recombine colours, materials and shapes to create familiarity between products and make them more attractive. TECHNOLOGICAL FORECASTING DELPHI approach: one project coordinator asks the opinion of a team of experts coming from different backgrounds, and to support their opinions with objective data and facts. Then, the facilitator collects all the forecast and gives to each expert the prediction made by the others, so that each one can revise their own predictions using the material given by others. This leads to both divergence and convergence. Scenario analysis: scenarios are internally consistent descriptions of alternative possible futures, based upon different assumptions and interpretations of the driving forces of change. Technology experts and Futurologists: futurologists are people that are able to identify the weak signals and then to amplify them. LEARNING FROM MISTAKES Mistakes always happen; in that case, what firms should do is: - Activate routines for learning from mistakes - Analyzing "false negatives" For example, in 3M a chemist produced by accident a "not very sticky" adhesive; this mistake led to the invention of the post-it. NORMS AND REGULATIONS They restrict certain innovation streams but can open up new ones and force innovation to proceed along certain technologies streams. BLOCK 6 – PRODUCT DEVELOPMENT NEW PRODUCT DEVELOPMENT ABERNATHY AND UTTERBACK’S 3 PHASES OF INNOVATION • Fluid phase: a new product is invented, and different models and designs are sold in the market. For example, in the market of chargers, there are different types of connectors (USB, USB-C) - Stage 4: Testing and Validation: both physical tests and market tests are run, to collect data about the product itself, the production/manufacturing process, customer acceptance, and the economics of the project. - Stage 5: Launch: full commercialisation of the product - the beginning of full production and commercial launch. The relationship between open innovation and agile strategy is that this process is accelerated: many products are ideated and tested in the market very quickly, and then the ones that they don’t work are withdrawn. The main actors in the Stage-Gate process are: - Project leader(s): Project leaders follow the progress of the idea during the entire process. They provide guidance to the team they lead, leading it to reach the objectives and the standards required in each stage. - Gatekeeper(s): The gatekeepers are responsible for the gate. They check that the project meets the standard required. This function implicitly gives to the gatekeepers the responsibility to ensure that a business idea is in line with the company’s strategy, resources and capabilities (financial feasibility and budget, competitive advantage etc). Gatekeepers are normally organised in cross-functional and multidisciplinary teams. The stage-gate model has some weaknesses: - Too linear ; - Too rigid ; Too planned BLOCK 7 – DIFFUSION OF INNOVATION 1. THE FIRM SIDE There are several barriers to the adoption of innovative technologies, processes, products, procedures. • ECONOMIC: costs vs. expected benefits; access to reliable information; insufficient incentives o inability to turn risk into calculated risk • BEHAVIOURAL: priorities; motivations; inertia; propensity for change or risk o not following up on the projects that are awarded; risk-adverse employees • ORGANIZATIONAL: routines; goals; power and influence; culture • STRUCTURAL: infrastructure; sunk costs Because of such barriers, firms (especially when big and complex) tend to change only incrementally. Big firms become more hierarchal and lose speed of reaction as they grow. Radical changes are frequently managed separately, with different goals, routines, technologies, processes (spin-off). 2. THE MARKET SIDE According to Everett Rogers, we can subdivide the population into segments with different attitudes towards innovation. - Innovators (2,5%): they are up to date with technological innovations, they are open and looking for new technology and accept the subsequent risks. - Early adopters (13,5%): they are open and curious to try the products that innovators first bought. Together, these 2 categories start talking and using the new product, spreading the word to the rest of the population. - Early majority (34%): they buy the product right away but only after being assured that the product works and is worth it. - Late majority (34%) - Laggards (16%): they buy the product only when needed. WHAT FACTORS INFLUENCE THE ADOPTION OF AN INNOVATION? 1. Relative advantage It is the degree to which an innovation is perceived as better than the product it supersedes or competing products. It is a method to benchmark the product on specific attributes against competitors; it comes from the benefit segmentation (marketing) and it assumes people will give a value to each of the attributes of the product and will base their choice by comparing the different competitors by evaluating the value of these attributes. In other words, people will purchase the product that gives the highest perceived value. The communication of the product to the market should focus on the attributes that have a higher value for our product than for competitors. Nowadays, it is important to find out the “job to be done” that clients expect from the product and emphasize that aspect in the communication. Attributes provides benefits. 2. Compatibility It is the degree to which an innovation is perceived to be consistent with the existing values, experience and needs of potential adopters. There are two different aspects of compatibility: - With existing skills (“ability” to use) and practices (“convenience” to use) - With values and norms (“willingness” to use; reprehensibility) 3. Complexity It is the degree to which an innovation is perceived as being difficult to understand or use. The user wants something that is easy to use and simple. 4. Trial-ability It is the degree to which an innovation can be experimented with on a limited basis. The more the consumers can try, the more they will buy. It is important to involve potential users: - Acquire knowledge from lead users - Learn from everyday users - Attain user ‘buy-in’ (user acceptance of the innovation and commitment to its use) 5. Observability It is the degree to which the results of an innovation are visible to others. It is based on the assumption of “epidemic diffusion” of innovation: the increase of diffusion is exponential and equal to 2nd, and the product spreads thanks to exposure and word of mouth until it becomes viral. The more a product is visible to others, the higher the level of vicarious learning (which means learning by observing). The higher the level of these aspects, the higher the rate of success.