Innovation Strategy

Session 3: Innovation Typology

2009-2012, Smart Wave Education No part of this presentation shall be copied, reproduced, shared or transmitted without the prior approval of the author

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Innovators Toolkit Chapter 6, Types of Strategy Case Study - Aravind

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Dyson Fan

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Henderson-Clark Model: A typology for Innovation

Core Design or the Component Knowledge
Reinforced Overturned

How components are linked

System Knowledge

Unchanged

Incremental

Modular

Changed

Architectural

Radical

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Case of Washing Machine

Core Components
motor, pump, drum, programmer, chassis, door and body

Systems Knowledge
How these components interact

Increasing SPIN Speed = ?? Twin tub to Single Drum= ?? 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 firms 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 competenceenhancing. External View An 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 Products 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 noncompetitive and obsolete. .

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Diffusion of Innovation
Revenue growth

Early Majority, Pragmatists Early Adopters, Visionaires Innovators, Lead Users

Late Majority, Conservatives

Laggards, Sceptics

LU

EA

EM

LM

La Time

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Phases in the Market Development Life Cycle

Revenue growth
Mature Main Street

Early Main Street

Declining Main Street

Tornado Bowling Alley Early market End of Life

Time

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Aligning Innovation Types with Market Development Cycle

Revenue growth
Experiential innovation Process innovation Product innovation Application innovation Disruptive innovation Marketing innovation

Business model innovation Structural innovation

No more innovation

Time

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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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What Makes An Innovation Disruptive?

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

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Innovation types run in tandem

Differentiation-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 them Differentiation 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 nonassembling industry

The pulp & paper industry is a typical non-assembling industry, whereas the diaper industry is more assembling
Non-assembling Assembling

Differentiation

Productivity

Differentiation

Productivity

Process innovation Product innovation

Mastering the Dynamics of Innovation; James M. Utterback, 1994

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Business Models
Reinventing the Business Model
2009-2012, Smart Wave Education No part of this presentation shall be copied, reproduced, shared or transmitted without the prior approval of the author

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Reviewing your Business Model

Articulate 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
Repetitive One -off

Few Customers
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Many Customers

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Kinepolis
Since the movie theater industry in Belgium was declining steadily, by the 1980s, many cinema operators (COs) were forced to shut down The COs remained took similar actions in head-to-head competition for a shrinking market In 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 worlds first megaplex with 25 screens and 7,600 seats
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Value Innovation
Strategic Logic of High Growth
2009-2012, Smart Wave Education No part of this presentation shall be copied, reproduced, shared or transmitted without the prior approval of the author

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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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Kinepolis
Since the movie theater industry in Belgium was declining steadily, by the 1980s, many cinema operators (COs) were forced to shut down The COs remained took similar actions in head-to-head competition for a shrinking market In 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 worlds first megaplex with 25 screens and 7,600 seats
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Kinepolis

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Differences
OTHER BELGIAN MOVIE THEATERS - Have small viewing rooms with no more than 100 seats and 35millimeter projection equipment - Screens measure 7meters by 5 meters - Do not have - The average cost to build a seat in Brussels is twice expensive than Kinepolis KINEPOLIS - Up to 700 seats and so much legroom and 70-millimeter projection equipment - Screens measure up to 29 meters to 10 meters and sound vibrations are not transmitted - Located off the ring road circling Brussels. - At Kinepolis, it is about 70,000 Belgian francs.

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Differences

(cont.) KINEPOLIS - The companys value innovation generates a lot of word-of-mouth praise - On the contrary, Kinepolis followed a different strategic logic. The company did all that while reducing its costs. - 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.

OTHER BELGIAN MOVIE THEATERS - They spent money on advertising to attract all customer segments - Most COs were thinking along these lines: movie industry is shrinking, so we should not make major investments - As a result, they improved their performance by competition. - They broadened their film offerings, expanded their food and drink services and increased showing times.

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How Kinepolis achieves profitable growth

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Conventional logic & value innovation

Five dimensions of Conventional logic strategy
Industry assumptions Strategic focus Industrys conditions are given Build competitive advantages to beat the competition Retain and expand customer base through segmentation and customization

Value innovation logic

Industrys condition can be shaped Competition is not the benchmark. Quantum leap in value will make you dominate the market Targets the mass of buyers and let some existing customers go. Focus on commonalities that customers value

Customers

Assets and capabilities

Product and Service offerings

Leverage existing assets and capabilities

Industrys traditional boundaries determine the products and services a company offers.

VI firm is not be constrained by what it already has. It asks What would we do if we were starting anew?
Quest for total solution customers seek, even if that takes the firm beyond traditional boundaries

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Innovation at ACCOR

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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 hotels features 1-star hotels price

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The Three Platforms

Product: physical product

Product

Service

Service: support such as maintenance, customer service, warranties, training for distributors and retailers Delivery: logistics, channel used to deliver the product to customers

Delivery

Compaqs 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 servers capacity.

ProSignia
(run NetWare, file and print only)

1/3
price of SystemPro

Compaqs 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

SmartS tart

Insight Manager

Configuring server hardware and network information to suit a companys operating system and application programs.

Helping customers manage their server networks by, for example, spotting overheating boards or troubled disk drives before they break down.

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.

Compaqs 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 companys sales and profits rose again as its new value curve diverged from the industrys.

Compaqs server business

Compaq is now looking to the delivery platform for a value innovation that will dramatically reduce the lead time between a customers order and the arrival of the equipment.

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?
think about the industrys assumptions, the companys strategic focus, and the approaches

Identify and articulate the companys prevailing strategic logic

Challenge

Four questions for Value Innovation

Which of the factors that our industry takes for granted should be eliminated? What factors should be created that the industry has never offered? Which should be raised well above the industrys standard?

Eliminate

CREATE

RAISE

Which factors should be reduced well below the industrys standard?

Reduce

New Value Curve.

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Driving a Company for High Growth

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.
Migrators

Pioneers

Businesses that offer unprecedented value.

Settlers

Businesses with value improvements

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Businesses with value curves that conform to the basic shape of the industrys.

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.

Testing the GrowthPotential ofaPortfolio ofBusinesses

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Kano's Model
Basic Attributes
The MUST HAVEs 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 Analysis

Starting 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?

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End result : Product requirements / list of features

Kano's Paired Question

If the phone has MMS capability, how do you feel?
1. I like it that way 2. It must be that way 3. I am neutral 4. I can live with it that way 5. I dislike it that way

If the phone DOES NOT have MMS capability, how do you feel?
1. I like it that way 2. It must be that way 3. I am neutral 4. I can live with it that way 5. I dislike it that way

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Kano's Paired Question

Customer Requirements Like Question Mark Reverse Reverse Reverse Reverse

Dysfunctional question
Must be Excite Neutral Excite Live with Excite Dislike Perf. Basic Basic Basic

Functional Question

Like Must be Neutral Live with Dislike

Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Reverse Reverse Reverse

Question Mark

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Kano's Grading the attributes

Product Requirement MMS Single Button Apps 3G E 63.8 7.3 P 21.6 2.3 B 2.9. 49.3 I 8.5 9.5 R 0.7 0.3 Q 2.5 1.5 Total 100% 100% Category Excite Basic

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Isang Litrong Liwanag Project

A Liter of Light

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