Innovation Strategy S3

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Innovation Strategy

Session 3: Innovation Typology

Nurturing leaders of tomorrow

For Next week

Innovator’s Toolkit – Chapter 6, Types of StrategyCase Study - Aravind


Dyson Fan


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


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 = ??


Dyson DC 35


Sony Walkman


Loco


HDD


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.

.


Modular Innovation

‘an innovation that changes a core design concept without changing the Product’s architecture.


Architectural Innovation

leaves the core technological concepts of components intact but changes the way they are designed to work together


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.

.


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


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


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


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


Elements of Disruptive Innovation

Christensen et al (2009) p. xx


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?


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




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



Business ModelsBusiness Models

Reinventing the Business Model


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.


Identify when a new model may be needed






4 Quadrants

One

-off

Repe

titive

Few Customers Many Customers






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



Value InnovationValue Innovation

Strategic Logic of High Growth


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”


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


Kinepolis


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.


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.


How Kinepolis achieves profitable growth


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


Innovation at ACCORInnovation at ACCOR


Quantum leap in value for customers

Overcapacity

Stagnation

Budget hotel industry in

France

Value Innovation Logic


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


Formule 1


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)


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.


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.


• 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


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.


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


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.


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


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


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


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


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


“Isang Litrong Liwanag” Project

A Liter of Light

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Innovation Strategy S3