executive summary (1) the book is about managing innovation and overcoming inertia in established...

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Executive Summary (1)

• The book is about managing innovation and overcoming inertia in established enterprises.

• Its major thesis is that most companies love to innovate but hate to take risk, the net result being lots of me-too innovations

that lack economic impact because they do not have the force to distinctively differentiate their offers.

• Its primary prescription is to pick a single vector of innovation and march so far down it that your competition either cannot or

will not follow. • The book describes fourteen innovation vectors all told.

Different types are privileged at different points in the category maturity life cycle, so that innovation strategy must adapt to

life-cycle dynamics. The overall model is used to help management teams winnow down innovation vector choices to

one or two and align the bulk of their investment behind that choice.

Executive Summary (2)

• The book includes two secondary prescriptions.• The first is that companies can fund innovation by extracting

resources out of context to repurpose for core. This funding strategy has the added benefit of reducing inertia, which builds

up in context activities. • The second is that they should focus resource management around balancing the disciplines of invention, deployment, and

optimization. Most people think established enterprises lack invention capability, but in actual fact they invent plentifully but have trouble deploying their inventions. The reason why is that

their deployment resources are stuck trying to grind out the next quarter's numbers from an increasingly aging prior set of

innovations. If these companies could better optimize their resource utilization in established markets, they could free up the necessary resources to build the market for their next set

of inventions.

Value Engineering InnovationValue Engineering Innovation DefinitionDefinition An innovation type in the operational excellence zone An innovation type in the operational excellence zone

that differentiates a mature market position by extracting that differentiates a mature market position by extracting costs from an established product or process design.costs from an established product or process design.

ExamplesExamples Complex Systems Model: TSMC (Silicon foundries)Complex Systems Model: TSMC (Silicon foundries) Volume Operations Model: BIC (Ballpoint pens)Volume Operations Model: BIC (Ballpoint pens)

Key InsightKey Insight To differentiate on this type requires relentless focus. To differentiate on this type requires relentless focus.

Once you start down this path, you must never look Once you start down this path, you must never look back.back.

Integration InnovationIntegration Innovation DefinitionDefinition An innovation type in the operational excellence zone that An innovation type in the operational excellence zone that

differentiates a mature market position by integrating a set of differentiates a mature market position by integrating a set of established products and services into a single more easily established products and services into a single more easily managed offering.managed offering.

ExamplesExamples Complex Systems Model: SAP (Enterprise Resource Planning)Complex Systems Model: SAP (Enterprise Resource Planning) Volume Operations Model: Victorinox (Swiss army knives)Volume Operations Model: Victorinox (Swiss army knives)

Key InsightKey Insight This type is optimal for a mature market where the complexity of This type is optimal for a mature market where the complexity of

maintaining the system is exceeding the perceived value of the maintaining the system is exceeding the perceived value of the offering.offering.

Process InnovationProcess Innovation DefinitionDefinition An innovation type in the operational excellence zone that An innovation type in the operational excellence zone that

differentiates a mature market position by reengineering differentiates a mature market position by reengineering fundamental processes to create exceptional gains in cost fundamental processes to create exceptional gains in cost reduction, quality, or time to market.reduction, quality, or time to market.

ExamplesExamples Complex Systems Model: Celera (Shotgun sequencing human Complex Systems Model: Celera (Shotgun sequencing human

genome)genome) Volume Operations Model: McDonald’s (Fast food)Volume Operations Model: McDonald’s (Fast food)

Key InsightKey Insight The most potentially disruptive innovation type in a mature market, it The most potentially disruptive innovation type in a mature market, it

can redefine business models by disintermediating players in the can redefine business models by disintermediating players in the current value chain.current value chain.

Value Migration InnovationValue Migration Innovation DefinitionDefinition An innovation type in the operational excellence zone that An innovation type in the operational excellence zone that

differentiates a mature market position by transferring focus from a differentiates a mature market position by transferring focus from a value-losing element in a value chain to a value-gaining one. Two value-losing element in a value chain to a value-gaining one. Two classic value chain migrations seen in maturing markets are the classic value chain migrations seen in maturing markets are the shifts from product to consumables and from products to services.shifts from product to consumables and from products to services.

ExamplesExamples Complex Systems Model: IBM (Products to services)Complex Systems Model: IBM (Products to services) Volume Operations Model: Gilette (Products to consumables)Volume Operations Model: Gilette (Products to consumables)

Key InsightKey Insight This type of innovation pivots the offering while keeping the This type of innovation pivots the offering while keeping the

customer relationship constant. It is the most internally disruptive of customer relationship constant. It is the most internally disruptive of all innovation typesall innovation types

Platform InnovationPlatform InnovationDefinitionDefinitionAn innovation type in the product leadership zone that An innovation type in the product leadership zone that differentiates a growth market position by consolidating the differentiates a growth market position by consolidating the interface to a legacy environment in service to a next generation interface to a legacy environment in service to a next generation of emerging offerings.of emerging offerings.

ExamplesExamplesComplex Systems Model: Oracle (Relational databases)Complex Systems Model: Oracle (Relational databases)Volume Operations Model: Sony (Game machines)Volume Operations Model: Sony (Game machines)

Key InsightKey InsightNormally platform franchises are a second-generation outgrowth Normally platform franchises are a second-generation outgrowth of a product franchise where the company achieved dominant of a product franchise where the company achieved dominant market share. This allows the platform to inherit ubiquity at birth, market share. This allows the platform to inherit ubiquity at birth, the challenge being to convert what was a closed product into the challenge being to convert what was a closed product into what now must be an open platform.what now must be an open platform.

Product InnovationProduct InnovationDefinitionDefinitionAn innovation type in the product leadership zone that An innovation type in the product leadership zone that differentiates a growth market position by R&D to improve.differentiates a growth market position by R&D to improve.

ExamplesExamplesComplex Systems Model: Medtronic (Pacemakers)Complex Systems Model: Medtronic (Pacemakers)Volume Operations Model: Cuisinart (Food processors)Volume Operations Model: Cuisinart (Food processors)

Key InsightKey InsightThis innovation type is optimal for grabbing share in high-This innovation type is optimal for grabbing share in high-growth markets where the category has been accepted and growth markets where the category has been accepted and now it is features and functions that are driving customer now it is features and functions that are driving customer preference. Time-to-market is at least as key as design preference. Time-to-market is at least as key as design imagination to success with this type.imagination to success with this type.

Disruptive InnovationDisruptive InnovationDefinitionDefinitionAn innovation type that initiates a growth market by An innovation type that initiates a growth market by creating a new category through one of two mechanisms: creating a new category through one of two mechanisms: discontinuous technology or value-chain disruption.discontinuous technology or value-chain disruption.

ExamplesExamplesComplex Systems Model: Genentech (Biological Complex Systems Model: Genentech (Biological engineering)engineering)Volume Operations Model: eBay (Online auctions)Volume Operations Model: eBay (Online auctions)

Key InsightKey InsightThe one type of innovation that requires a “crossing the The one type of innovation that requires a “crossing the chasm” approach to strategy and program development.chasm” approach to strategy and program development.

Application InnovationApplication InnovationDefinitionDefinitionCreating differentiation by finding and exploiting a new application Creating differentiation by finding and exploiting a new application or use for an existing technology. The cornerstone of solution-or use for an existing technology. The cornerstone of solution-oriented marketing.oriented marketing.

ExamplesExamplesComplex Systems Model: Sun and Sybase (Wall St. trader Complex Systems Model: Sun and Sybase (Wall St. trader workstations)workstations)Volume Operations Model: Citibank (Automated Teller Machines)Volume Operations Model: Citibank (Automated Teller Machines)

Key InsightKey InsightThis form of innovation is optimal for penetrating mainstream This form of innovation is optimal for penetrating mainstream markets. The critical success factor is to fuse domain expertise markets. The critical success factor is to fuse domain expertise with technology understanding and design the system from the with technology understanding and design the system from the ground up to revolutionize a problematic business process.ground up to revolutionize a problematic business process.

Line Extension InnovationLine Extension Innovation

DefinitionDefinition An innovation type in the customer intimacy zone that An innovation type in the customer intimacy zone that

creates a new sub-category to engage a new customer or creates a new sub-category to engage a new customer or re-engage an old one by targeting their unique preferences.re-engage an old one by targeting their unique preferences.

ExamplesExamples Complex Systems Model: Boeing (737 line of aircraft)Complex Systems Model: Boeing (737 line of aircraft) Volume Operations Model: Johnson & Johnson (Tylenol Volume Operations Model: Johnson & Johnson (Tylenol

products)products)

Key InsightKey Insight This innovation type is optimal for extending the growth of This innovation type is optimal for extending the growth of

a market that is just beginning to mature. It applies design a market that is just beginning to mature. It applies design focus to more actively engage with customer-specific focus to more actively engage with customer-specific concerns in underserved market segments.concerns in underserved market segments.

Enhancement InnovationEnhancement Innovation


differentiates a mature market position by leveraging a modest R differentiates a mature market position by leveraging a modest R & D investment to create a large increase in the perceived value & D investment to create a large increase in the perceived value of an established offer to re-stimulate customer interest.of an established offer to re-stimulate customer interest.

ExamplesExamples Complex Systems Model: Caterpillar (Cabs of construction Complex Systems Model: Caterpillar (Cabs of construction

equipment)equipment) Volume Operations Model: Swatch (Fashion watches)Volume Operations Model: Swatch (Fashion watches)

Key InsightKey Insight This type is optimal for mature markets where core functionality is This type is optimal for mature markets where core functionality is

perceived as a commodity and secondary attributes are driving perceived as a commodity and secondary attributes are driving customer preference. This is a bitter pill for engineering-driven customer preference. This is a bitter pill for engineering-driven technology companies to swallow.technology companies to swallow.

Marketing InnovationMarketing Innovation


differentiates a mature market position through novel go-to-differentiates a mature market position through novel go-to-market programs affecting interaction with the prospective market programs affecting interaction with the prospective customer, typically in marketing communications and customer, typically in marketing communications and distribution channels.distribution channels.

ExamplesExamples Complex Systems Model: McKinsey (Relationship marketing)Complex Systems Model: McKinsey (Relationship marketing) Volume Operations Model: Mattel (American Girl)Volume Operations Model: Mattel (American Girl)

Key InsightKey Insight The most trumpeted marketing innovations all come from The most trumpeted marketing innovations all come from

volume operations model enterprises. Virtually all of them are volume operations model enterprises. Virtually all of them are counter-productive when used by a complex systems model counter-productive when used by a complex systems model company.company.

Experiential InnovationExperiential Innovation


differentiates an otherwise commoditized offer in a mature market differentiates an otherwise commoditized offer in a mature market by modifying the customer’s end-to-end experience from initial by modifying the customer’s end-to-end experience from initial encounter to ultimate disposition.encounter to ultimate disposition.

ExamplesExamples Complex Systems Model: World Economic Forum (Davos Complex Systems Model: World Economic Forum (Davos

conference)conference) Volume Operations Model: Starbucks (Coffee houses)Volume Operations Model: Starbucks (Coffee houses)

Key InsightKey Insight This type is optimal for highly commoditized markets where the This type is optimal for highly commoditized markets where the

offer itself has no further opportunity to differentiate. It is offer itself has no further opportunity to differentiate. It is particularly rewarding for volume operations companies who can particularly rewarding for volume operations companies who can perform it at scale cost-effectively.perform it at scale cost-effectively.

Organic InnovationOrganic Innovation DefinitionDefinition An innovation type in the category renewal zone that An innovation type in the category renewal zone that

differentiates a declining market position by migrating differentiates a declining market position by migrating resources from a declining category to a growth one, resources from a declining category to a growth one, typically through in-house R&D.typically through in-house R&D.

ExamplesExamples Complex Systems Model: Alcatel (From voice to video)Complex Systems Model: Alcatel (From voice to video) Volume Operations Model: Apple (From PCs to consumer Volume Operations Model: Apple (From PCs to consumer

electronics)electronics)

Key InsightKey Insight This type of innovation is most challenged by inertia and This type of innovation is most challenged by inertia and

requires a dedicated resource recycling commitment to requires a dedicated resource recycling commitment to bring off.bring off.

Structural InnovationStructural Innovation DefinitionDefinition Creating differentiation through acquisition and divestiture, Creating differentiation through acquisition and divestiture,

regardless of whether you are the acquiring or acquired regardless of whether you are the acquiring or acquired party.party.

ExamplesExamples Complex Systems Model: EMC (From storage hardware to Complex Systems Model: EMC (From storage hardware to

software)software) Volume Operations Model: Altria (From tobacco to food & Volume Operations Model: Altria (From tobacco to food &

beverage)beverage)

Key InsightKey Insight In this type of innovation it does not matter whether you In this type of innovation it does not matter whether you

are the acquiring or acquired company. All that matters is are the acquiring or acquired company. All that matters is the competitiveness of the company that results from the the competitiveness of the company that results from the merger.merger.