innovation strategy s3
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Innovation Strategy
Session 3: Innovation Typology
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For Next week
Innovator’s Toolkit – Chapter 6, Types of StrategyCase Study - Aravind
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Dyson Fan
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Henderson-Clark Model: A typology for Innovation
Incremental
Architectural
Modular
Radical
Unc
hang
ed
Chan
ged
Syst
em K
now
ledg
e H
ow c
ompo
nent
s ar
e lin
ked
Reinforced Overturned
Core Design or the Component Knowledge
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Case of Washing Machine
Core Components motor, pump, drum, programmer, chassis, door and body
Systems Knowledge How these components interact
Twin tub to Single Drum= ??
Increasing SPIN Speed = ??
Dyson ContraRotator = ??
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Dyson DC 35
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Sony Walkman
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Loco
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HDD
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Incremental Innovation
‘a change that builds on a firm’s expertise in component technology within an established architecture
- Christensen (1997)Internal View:An incremental innovation will build upon existing knowledge and resources within a certain company, meaning it will be competence-enhancing.
External ViewAn incremental innovation will involve modest technological changes and the existing products on the market will remain competitive.
.
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Modular Innovation
‘an innovation that changes a core design concept without changing the Product’s architecture.
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Architectural Innovation
leaves the core technological concepts of components intact but changes the way they are designed to work together
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Radical Innovation
‘Radical innovation establishes a new dominant design, that are linked together in a new architecture
- H&C (1990)Internal View:
A radical innovation, will require completely new knowledge and/or resources and will be, therefore, competence-destroying
External View A radical innovation will instead involve large technological
advancements, rendering the existing products in the market non-competitive and obsolete.
.
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Diffusion of Innovation
Time
Revenue growth
Innovators,Lead Users
Early Adopters, Visionaires
Early Majority, Pragmatists
Late Majority, Conservatives
Laggards, Sceptics
LU EA EM LM La
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Time
Revenue growthMature Main Street
Declining Main Street
End of Life
Early Main Street
Early market
Bowling Alley
Tornado
Phases in the Market Development Life Cycle
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Aligning Innovation Types with Market Development Cycle
Time
Revenue growth
Disruptive innovation
Application innovation
Product innovation
Experiential innovation
Business model innovation
No more innovation
Process innovation
Marketing innovation
Structural innovation
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Disruptive innovation
A disruptive innovation helps create a new market and value network, and
It goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology
“Technology” is not just machines or devices but methodology, scientific knowledge and anything else affecting the way production is carried out
Technological (or process) enablers allow problems to be addressed on smaller scale, with lower costs, and with less human skill than was historically needed
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Elements of Disruptive Innovation
Christensen et al (2009) p. xx
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It is not just the magnitude of the advance If it works to sustain the existing business model, it is not disruptive A change in business model from the existing one to a new one which is more efficient and/or better addresses the demands of consumers is the key
What Makes An Innovation Disruptive?
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Innovation types run in tandemDifferentiation-creating innovation and productivity-creating innovation measures must be conducted in tandem
Productivity measures without simultaneous differentiation innovation allow you endure the forces of commoditization or hostile disruption a bit longer, but never to overcome themDifferentiation innovation without productivity measures ensures a death sentence by the inertia demon
Differentiation Productivity
Differentiation Productivity
Differentiation Productivity
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Productivity phase comes faster in the non-assembling industry
The pulp & paper industry is a typical non-assembling industry, whereas the diaper industry is more assembling
Non-assembling Assembling
Freq
uenc
y of
Inno
vatio
ns
Process innovation
Product innovation
Mastering the Dynamics of Innovation; James M. Utterback, 1994
Differentiation Productivity Differentiation Productivity
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Business ModelsBusiness Models
Reinventing the Business Model
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Reviewing your Business ModelArticulate what makes your existing model successful.
For example, what customer problem does it solve? How does it make money for your firm?
Watch for signals that your model needs changing, such as tough new competitors on the horizon.Decide whether reinventing your model is worth the effort.
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Identify when a new model may be needed
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4 Quadrants
One
-off
Repe
titive
Few Customers Many Customers
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KinepolisSince the movie theater industry in Belgium was declining steadily, by the 1980s, many cinema operators (COs) were forced to shut downThe COs remained took similar actions in head-to-head competition for a shrinking marketIn 1988, Bert Claeys created Kinepolis. In its first year, this company won 50% of the market in Brussels and expanded the market by about 40%Kinepolis is the world’s first megaplex with 25 screens and 7,600 seats
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Value InnovationValue Innovation
Strategic Logic of High Growth
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What separates high-growth firms from the pack
The success or failure of a company relies on it fundamental, implicit assumption about strategy
High-growth companies paid little attention to matching or beating their rivals while less successful companies have contrary strategies
They sought to make their competitors irrelevant through a strategic logic and we call it “Value Innovation”
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KinepolisSince the movie theater industry in Belgium was declining steadily, by the 1980s, many cinema operators (COs) were forced to shut downThe COs remained took similar actions in head-to-head competition for a shrinking marketIn 1988, Bert Claeys created Kinepolis. In its first year, this company won 50% of the market in Brussels and expanded the market by about 40%Kinepolis is the world’s first megaplex with 25 screens and 7,600 seats
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Kinepolis
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DifferencesOTHER BELGIAN MOVIE THEATERS KINEPOLIS
- Have small viewing rooms with no more than 100 seats and 35-millimeter projection equipment
- Up to 700 seats and so much legroom and 70-millimeter projection equipment
- Screens measure 7meters by 5 meters
- Screens measure up to 29 meters to 10 meters and sound vibrations are not transmitted
- Do not have - Located off the ring road circling Brussels.
- The average cost to build a seat in Brussels is twice expensive than Kinepolis
- At Kinepolis, it is about 70,000 Belgian francs.
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Differences (cont.)
OTHER BELGIAN MOVIE THEATERS
KINEPOLIS
- They spent money on advertising to attract all customer segments
- The company’s value innovation generates a lot of word-of-mouth praise
- Most COs were thinking along these lines: movie industry is shrinking, so we should not make major investments
- On the contrary, Kinepolis followed a different strategic logic. The company did all that while reducing its costs.
- As a result, they improved their performance by competition. - They broadened their film offerings, expanded their food and drink services and increased showing times.
- In order to give most moviegoers a package they would value highly, the company put aside conventional thinking about what a theater is supposed to look like.
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How Kinepolis achieves profitable growth
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Conventional logic & value innovationFive dimensions of strategy
Conventional logic Value innovation logic
Industry assumptions Industry’s conditions are given Industry’s condition can be shaped
Strategic focus Build competitive advantages to beat the competition
Competition is not the benchmark. Quantum leap in value will make you dominate the market
Customers Retain and expand customer basethrough segmentation and customization
Targets the mass of buyers and let some existing customers go.Focus on commonalities that customers value
Assets and capabilities
Leverage existing assets and capabilities
VI firm is not be constrained by what it already has. It asks “What would we do if we were starting anew?”
Product and Service offerings
Industry’s traditional boundaries determine the products and services a company offers.
Quest for total solution customers seek, even if that takes the firm beyond traditional boundaries
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Innovation at ACCORInnovation at ACCOR
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Quantum leap in value for customers
Overcapacity
Stagnation
Budget hotel industry in
France
Value Innovation Logic
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Market segments
1
No star & 1-star:Average price per room was between 60 and 90 French francs Customers came just for the low price.
2
2-star:Average price of 200 francs, offering a better sleeping environment than no star & 1 star hotel.
Identify what customers of all budget hotels wanted
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Formule 1
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Formule 1
+ Average cost of building a room dropped 50%.+ Staff costs dropped 25 – 35%.
Accor Hotel has a:2-star hotel’s features1-star hotel’s price
The Three Platforms
Product: physical product
Service: support such as maintenance, customer service, warranties, training for distributors and retailers
Delivery: logistics, channel used to deliver the product to customers
Service
Delivery
Product
1/3 price of
SystemPro
Compaq’s server business
In 1989, Compaq introduced SystemPro(it can run SCO UNIX, OS/2, Vines, NetWare, DOS and many application programs)
The majority of customers used only a small fraction of a server’s capacity.
ProSignia(run NetWare, file and print only)
Compaq’s server business
Competitors tried to imitate the ProSignia and value curves in the industry began to converge.
Compaq took another leap, this time from the service platform.
ProLiant 1000(SmartStart + Insight Manager)
ProLiant 1000
Configuring server hardware and network information to suit a
company’s operating system and application programs.
Helping customers manage their server networks by, for
example, spottingoverheating boards or
troubled disk drives beforethey break down.
SmartStart
Insight Manager
put companies that had been skeptical of their ability to configure and manage a network server, at ease.
creating a superior
value curve and
expanding market.
Compaq’s server business
By focusing on customer value, Compaq
introduced the ProLiant 1000 Rack-Mountable
Server, which allows companies to store servers
in a tall, lean cabinet in a central location.
The company’s sales and profits rose again as its
new value curve diverged from the industry’s.
Compaq is now looking to the delivery platform for a value innovation that will dramatically reduce the lead time between a customer’s order and the arrival of the equipment.
Compaq’s server business
• By achieving value innovations on all three platforms, Compaq has been able to maintain a gap between its value curve and those of other players.
Driving a Company for High Growth
How can senior executives promote value innovation?How can senior executives promote value innovation?
Identify and articulate the company’s prevailing
strategic logic
Challenge
think aboutthe industry’s
assumptions, the company’s
strategic focus, and the
approaches
think aboutthe industry’s
assumptions, the company’s
strategic focus, and the
approaches
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Four questions for Value Innovation
Eliminate
ReduceRAISE
CREATE
What factors should be created that the industry has never offered?
Which should be raised well above the industry’s standard?
Which of the factors that our
industry takes for granted should be eliminated?
Which factors should be reduced
well below the industry’s standard? New Value Curve.
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Businesses that offer unprecedented value.
Settlers
Migrators
Pioneers
Businesses with value curves that conform to the
basic shape of the industry’s.
Businesses with valueimprovements
For managers of diversified corporations, the logic of value
innovation can be used to identify the most promising possibilities for
growth across a portfolio of businesses.
Driving a Company for High Growth
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Testing the Growth Potential of a Portfolio of Businesses
If both the current portfolio and the planned offerings consist mainly of settlers, the company has a low growth trajectory and needs to push for value innovation. The company may well have fallen into the trap of competing.
If current and planned offerings consist of a lot of
migrators, reasonable growth
can be expected. But the company is not
exploiting its potential for growth
and risks being marginalized by a
value innovator.
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Kano's Model• Basic Attributes
• The MUST HAVE’s• Presence of these attributes will
not increase satisfaction• Absence will cause dissatisfaction
• Performance attributes• That ONE Dimension which if
fulfilled more will increase customer satisfaction
• Explicitly demanded by customers
• Excitement attributes - WOW• Generally unknown to clients• Its presence can lead to
unparalleled satisfaction• Absence will not cause any
dissatisfaction
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Kano's – Hidden Need AnalysisStarting point is analyzing Customers problems (and not desires)4 Questions:1. What associations does the customer make when using
the product X?2. What problems/defects/complaints does the customer
associate with the use of the product X?3. What criteria does the customer take into consideration
when buying the product X?4. What new features or services would better meet the
expectations of the customer? What would the customer change in the product X?
End result : Product requirements / list of features
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Kano's – Paired QuestionIf the phone has MMS capability, how do you feel?
1. I like it that way2. It must be that way3. I am neutral4. I can live with it that way5. I dislike it that way
If the phone DOES NOT have MMS capability, how do you feel?1. I like it that way2. It must be that way3. I am neutral4. I can live with it that way5. I dislike it that way
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Kano's – Paired Question
Customer Requirements
Dysfunctional questionLike Must be Neutral Live with Dislike
Functional Question
Like Question Mark Excite Excite Excite Perf.
Must be Reverse Indifferent Indifferent Indifferent Basic
Neutral Reverse Indifferent Indifferent Indifferent Basic
Live with Reverse Indifferent Indifferent Indifferent Basic
Dislike Reverse Reverse Reverse Reverse Question Mark
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Kano's – Grading the attributes
Product Requirement E P B I R Q Total Category
MMS 63.8 21.6 2.9. 8.5 0.7 2.5 100% Excite
Single Button 7.3 2.3 49.3 9.5 0.3 1.5 100% Basic
Apps
3 G
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“Isang Litrong Liwanag” Project
A Liter of Light