Innovative Entrepreneur's Workbook

Innovative Entrepreneur’s Handbook A guide to Innovators and Entrepreneurs By SMU Institute of Innovation & Entrepreneurship

Professor Desai Arcot Narasimhalu, Director Kristabel Quek Jingyu, Idea Generator

i

Contents Foreword by Professor Desai ..................................................................................................................................... vii

Introduction: What is innovation? .............................................................................................................................. 1

Difference between invention and innovation ................................................................................................. 1

Difference between creativity and innovation ................................................................................................. 2

Value of Innovation ...................................................................................................................................................... 3

Three Axioms of Successful Innovation ............................................................................................................... 5

Chapter 1: Identifying Innovation Opportunities ................................................................................................ 6

QaDIM™ -‐ Quick and Dirty Innovation Method ................................................................................................ 7

QaDIM™ for Product Innovation ............................................................................................................................. 9

Value Chain Analysis .................................................................................................................................................. 11

Innovation Lines .......................................................................................................................................................... 14

Service Innovation ...................................................................................................................................................... 15

ii

Contents

Product-‐based Service Innovation ....................................................................................................................... 18

Innovation Rules .......................................................................................................................................................... 19

Value Progression Innovation .......................................................................................................................... 21

Macro Trend Innovation ..................................................................................................................................... 29

Alternative Innovation ......................................................................................................................................... 37

Modularity Innovation ......................................................................................................................................... 41

Customization Innovation .................................................................................................................................. 49

Community Connecting Innovation ............................................................................................................... 55

Buyer Experience Innovation ........................................................................................................................... 57

Chapter 2: Qualifying Innovations ............................................................................................................................ 63

The Three Key Questions ......................................................................................................................................... 64

Innovation Cube Framework ................................................................................................................................. 65

Understanding Market Shift ................................................................................................................................... 66

Macro Market Shifts .............................................................................................................................................. 66

iii

Contents

Micro Market Shifts ............................................................................................................................................... 67

Understanding Technology Shift .......................................................................................................................... 67

Macro Technology Shift ....................................................................................................................................... 68

Micro Technology Shift ........................................................................................................................................ 68

Identifying Adoption Hurdles ................................................................................................................................ 68

Innogorithm™ ............................................................................................................................................................... 70

STEP 1: Identifying Promising Innovations ................................................................................................ 71

Step 2: Short-‐listing Plausible Innovations ................................................................................................. 72

Step 3: Select Feasible Innovations ................................................................................................................ 73

Step 4: Choosing Possible Innovations ......................................................................................................... 74

Step 5: Qualifying Innovations .......................................................................................................................... 76

Chapter 3: Validating Innovations ............................................................................................................................ 77

Intellectual Property Intelligence ................................................................................................................... 79

Technology Intelligence ....................................................................................................................................... 80

iv

Contents

Market Intelligence ................................................................................................................................................ 82

Chapter 4: Commercializing Innovation ................................................................................................................ 83

Evaluating Returns ..................................................................................................................................................... 84

Determine Total Costs .......................................................................................................................................... 84

Choose a Metric & Compute the Returns ..................................................................................................... 84

Normalize for Comparison ................................................................................................................................. 84

Ascertaining Reuse ..................................................................................................................................................... 85

List Resources Needed ......................................................................................................................................... 85

Determine Current Resource Reuse Efficiencies ...................................................................................... 85

Evaluate Purchased Resource Usage Efficiencies .................................................................................... 85

Determine Attractiveness ........................................................................................................................................ 86

Evaluate Initial Cash Flow Requirement ...................................................................................................... 86

Add Cash Flow for the Life Cycle of Innovation ........................................................................................ 86

Estimate Realistic Revenues .............................................................................................................................. 87

v

Contents

Derive an Attractiveness Metric and Normalize for Comparison ..................................................... 87

Assess Time to Market .............................................................................................................................................. 88

Establish lists of Suppliers .................................................................................................................................. 88

Determine the Lead Time ................................................................................................................................... 88

Provide Contingencies .......................................................................................................................................... 88

Determine the Probable Release Time .......................................................................................................... 89

Normalize for Comparison ................................................................................................................................. 89

Mitigate Risk .................................................................................................................................................................. 90

List of Anticipated Risk ........................................................................................................................................ 90

List of Mitigation Plans, ....................................................................................................................................... 90

Confidence Factors and Management Metric ............................................................................................. 90

Chapter 5: Planning the Development .................................................................................................................... 92

Entering the Market ................................................................................................................................................... 92

Modularizing Development .................................................................................................................................... 93

vi

Contents

Parallelizing Development ...................................................................................................................................... 94

Managing Innovation Development .................................................................................................................... 95

Distributing Development ....................................................................................................................................... 96

Staying in Control of Integration .......................................................................................................................... 97

Design Module, Component, Subsystem and System Level Tests .......................................................... 98

Tests for All Necessary Bugs .................................................................................................................................. 99

Intellectual Property Strategy ............................................................................................................................ 100

vii

FOREWORD BY PROFESSOR DESAI I hope you will learn something new about how to identify, qualify and prioritize business innovations. I sincerely hope that you would apply the knowledge that you have gained by reading this booklet and enrich this world by creating innovations that benefit human and other societies. I also hope in so doing, you will end up enriching yourself not only with material wealth but with inimitable knowledge and experience that can only be gained by doing.

A number of people have asked me to describe the qualities required to be a successful entrepreneur. My answer almost always shocks my audience. My answer has been gathered by interaction with several successful and not so successful entrepreneurs and innovators. And the answer really is that one has to be a passionate fool to be an entrepreneur intending to commercialize innovations.

The reason I come to this conclusion is very simple. Translating innovations into marketable products and services is a complex process and the journey will come with many twists and turns. It is only those with passion who will survive such a demanding and unpredictable journey. That explains the first part of my description.

viii

Foreword by Professor Desai

The process of creating a start up based on business innovations is very complex indeed. It requires many different elements to come together. Examples are business mentors, good employees, excellent IP advisors, diligent finance people, smart investors and most of all founders who know when to lead and when to cede control to professional management. There is also the danger that others as smart as the founders might also be pursuing a similar journey. And any one of these elements going wrong can disrupt the journey. Only founders who are foolish enough to think that are capable of pursuing the journey which is really laden with a lot of obstacles will even begin the journey. Hence, the second part of my description.

Why do I say this? It is important to know that if you are faint hearted and not a passionate fool it is best that you work with such individuals to bring your innovation to the market. This requires you to share the glory with others who might not have been at the starting line of the journey. And, you should really be ready to do so with the objective of getting a smaller slice of a larger pie than all of a tiny pie. So, do yourself a favor. Surround yourself with people smarter than yourself if you really want to bring an innovation to the market.

Good Luck,

Desai

1

IN·NO·VA·TION Pronunciation: [in-‐uh-‐vey-‐shuhn]

Function: noun 1. Introduction of something new

2. New idea, method, or device: Novelty

INTRODUCTION: WHAT IS INNOVATION? Innovation is the process of creating value for users and delivering it as an intuitively useful solution that helps to address the user’s pain or satisfy a need. It can be in the form of a new product or process that the users are willing to pay for.

DIFFERENCE BETWEEN INVENTION AND INNOVATION Invention is the creation of something patentable. It must be novel, non-‐obvious and utility. It could possibly have recognizable utility to the inventor and patent examiner but not the market. An invention usually involves using converting money into ideas.

Innovation is the creation of value. It usually builds on the past and is not required to be non-‐obvious. It must have recognizable utility to its target audience. An innovation usually involves converting ideas into money.

2

DIFFERENCE BETWEEN CREATIVITY AND INNOVATION Innovation is defined as a novel product, service or process that meets the needs of a community of customers and is available at a price that customer base can afford. Several groups of people were asked on how many of them would buy the three objects shown.

The object on the left is a creative door knob. Most people said they like the creativity but will not buy it. This is an example that not all creative objects can be innovations.

The object in the middle reduces the pain of eating dark toasted bread. More than 60 % of those who viewed it said they will buy it if it is affordable given that they can control the extent of browning of the bread. This was a clear winner as an example of a creation that can be labeled as an innovation.

The object in the right reduces of the pain of having to hold a plate of cookies (biscuits) in one hand and a cup of coffee on the other hand. Notice that the left-‐handers will have a hard time using it since the cookies will fall when they try to sip or drink their beverage. This is an innovation that is targeted at a market segment made up of right-‐handers.

3

VALUE OF INNOVATION It is important to understand the value of innovation in order to deliver a product or service that the market truly wants. Here are three observations made on the value of innovation that will help you decide whether the innovation is worth pursuing.

OBSERVATION ONE:

The value of an innovation that is a solution to a pain is directly proportional to the product of the acuteness of the pain and the number of people suffering from the pain.

LESSON ONE:

Look for innovation opportunities that address acute pains for a large enough community of customers. Ignore innovation opportunities addressing shallow pain for a small group of potential customers.

4

OBSERVATION TWO:

The solution for a demand for enhanced experience is most likely fulfilled by the market leader unless it is a first of a kind product or solution. For example, when there was a demand for colour televisions with larger screens, it was mostly the market leaders who were able to respond to the market need.

LESSON TWO:

It is best to leave alone innovation opportunities that respond to demands for enhanced experience if they are not the first of their kind.

OBSERVATION THREE:

Markets will respond very favorably to an innovation that addresses a NEED than to an innovation that addresses a WANT.

LESSON THREE:

Focus on the needs since they will need lesser marketing effort. Give lower priority to the wants.

5

THREE AXIOMS OF SUCCESSFUL INNOVATION Axiom One

Successful innovations are the solution for a pain or the demands for a pleasure of a group of customers.

Axiom Two Successful innovations are created when both the markets and the

technology were ready.

Axiom Three Successful innovations are priced

right and fulfilled the market demand before its substitutes.

By understanding the key characteristics of successful innovations, it can be used as a litmus test whenever we identify an innovation. We list seven characteristics

1. Successful innovations addressed the pain of a group of (potential) customers.1 2. Successful innovations catered to (potential) customers demand for enhanced experience (pleasure). 3. Successful innovations were created when the markets were ready. 4. Successful innovations were created when the technology was available. 5. Successful innovations were priced right for the value they delivered. 6. Successful innovations were delivered to the market to meet most if not

all of the demand. 7. Successful innovations did not violate any ethical, ethnic, moral,

religious, social and such other norms.

1 A solution to a pain is equated a pill to cure a disease, while the solution to a demand for pleasure is equated to a vitamin that enhances your health.

6

CHAPTER 1: IDENTIFYING INNOVATION OPPORTUNITIES In this chapter, the following four methods for identifying innovation opportunities will be introduced in detailed. QaDIM™, also known as the Quick and Dirty Innovation Method, is used for identifying incremental product and service innovations. Value Chain Analysis (VCA) is a generalized version of the Business Utility Matrix defined in the Blue Ocean Strategy2 and is useful in identifying innovations that are not necessarily triggered by novel technologies. Service Innovation is gaining increased attention and hence it is given a special treatment based on Service Innovation Opportunity Identification method3. Innovation Rules is derived from Innovation Cube4 that leverages both market and technology changes to identify innovation opportunities.

2 Blue Ocean Strategy : How to Create Uncontested Market Space and Make the Competition Irrelevant, W. Chan Kim and Renee Mauborgne, Harvard Business School Press, 2005, ISBN 1-‐59139-‐619-‐0 3 Service Innovation Opportunity Identification, Annual Conference of the International Society of Professional Innovation Management, Vienna, 2009 4 Innovation Cube – Triggers, Drivers and Enablers of Successful Innovations, Annual Conference of the International Society of Professional Innovation Management, Porto, 2005

7

QADIM™ -‐ QUICK AND DIRTY INNOVATION METHOD At the heart of QaDIM™ is that anyone and everyone can identify incremental innovation opportunities using the following simple matrix.

Complementary functions

Develop complementary product for the existing product

Add a feature Add a new feature

to the existing product

Embed Embed the existing product into another product or vice versa

Combine two products

Combine existing product with another to deliver higher value

Existing Product

Separate into two products Separate existing product into two different products

Substitute components materials Substitute the components in the existing products to for better

value

Remove a feature Remove an unnecessary or rarely used feature from the product

Reduce components or size Reduce the components or size of the product

8

Chapter 1: Identifying Innovation Opportunities

You can take an existing product and apply eight different QaDIM™ operators to identify incremental innovation opportunities. It is important to note that it may not be possible to apply all the eight operators to every single product you consider to result in eight incremental innovations. However, it should always be possible to identify at least one incremental innovation for every product using this methodology.

QaDIM™ can be used as a method for both product innovation and service innovation. We will be considering mobile phone and airline services to identify incremental innovation opportunities.

9


QADIM™ FOR PRODUCT INNOVATION Let us consider mobile phone as the product that we will use to identify incremental innovation opportunities. Application of the eight QaDIM™ operators will result in the following incremental innovation opportunities

Complementary functions Using mobile phone as an

organizer = Phones with organizer functions

Add a feature Add a GPS (map) capabilities = Navigation applications

Embed Embed a camera into the phone

= Camera phones


Combine mobile phones and entertainment devices

= Phones that play games, music, etc.

Mobile Phone

Separate into two products Separate memory storage

= Separate memory card from phone

Substitute components materials Substitute metal casing for hard

light plastic = Lighter phones

Remove a feature Remove the clumsy SIM card socket

= External SIM card socket

Reduce components or size Reduce the length of the phone

= Calm shell design

10


QaDIM™ for Service Innovation

Often time, one wonders whether QaDIM™ can be used for identifying incremental service innovations. We will discuss this using airline service as an example.

Complementary functions

Booking of hotels at special prices

= Overall travel solution

Add a feature Large screen for entertainment = Better entertainment system

Embed Embed air travel as part of a tour

= Tour package


Combine purchase of air tickets with car rentals = Travel package

Airline Service

Separate into two products Separate memory storage

= Separate memory card from phone

Substitute components materials Substitute metal knives with

plastic knives = Precaution against flight

terrorism

Remove a feature Remove the smoking area = No smoking flights

Reduce components or size Reduce the cost of operation

= Budget airlines

11


VALUE CHAIN ANALYSIS We encounter many value chains in our everyday life. Each value chain consists of numerous stages or links. By identifying innovation opportunities at different parts of the value chain, we can create better values.

There are three typical value chains that can be used to identify innovation opportunities.

1. Buyer’s Value Chain starts from the moment the customer decides to buy a product to the point when customer disposes the product.

2. Seller’s Value Chain begins when the seller identify a demand to the point where a product is sold to meet the demand.

3. Product / Service Developer’s Value Chain beings with identifying an innovation opportunity and continues into prototype, ending with after sales services.

Here is a list of common values that can be considered:

Convenience Higher quality Lighter Cheaper Faster / Slower Higher / Lower Smaller / Bigger Colors Ease of use Robustness Environmental friendly Shapes Simplicity Productivity Emotional well-‐being Managing risk

12


Buyer’s Value Chain :

Seller’s Value Chain:

Product / Service Developer’s Value Chain:

Search for product Buy product Take product (or delivery) Use product Buy consumables Repair product Dispose product

Iden?fy demand Source vendor Nego?ate terms Acquire stocks Train sales people Sell product

Iden?fy innova?on Design prototype Build prototype Test prototype Test market

Build a bill of material Source suppliers Source contract manufacturers Nego?ate terms Acquire material

Manage inventory Quality assurance Deliver to distributors and dealers Register customers Provide aGer sales

services

13


Value Chain Analysis Sample

Existing Product : The Washing Machine Value Chains Links Identified : Values Considered for Improvement : Cheaper, simplicity and managing risk

Buying Delivery Use

Cheaper Cheaper washing machines

Cheaper delivery services

Green machines that have lower energy consumption

Simplicity Simpler purchasing options, such as on credit or installments

Simpler or personalized delivery services that allows customer to

decide the time and day of delivery

Easy to use programs and dials on the washing machines

Managing Risk Freedom to exchange if the machine is faulty

Insurance for potential damage during delivery

process

Maintenance plan for repair service if the machine breaks down

*Notice that not all are product innovations. In fact, a number of them are service or business model innovations.

Buying Delivery Use

14


INNOVATION LINES The first introduction of innovation almost always focuses entirely on the function. For example, when the car was invented the attempt was to get a vehicle that is self propelling. There was no intention to focus on robustness, colour, shape, lowering the cost or offering a service using the car. When Ford focused on producing Model T, General Motors took the market leadership by producing different colours and shapes of cars. The Japanese focused on fuel efficiency and lower manufacturing costs. There are situations when a customer needs a car for one of several reasons such as when they are in a foreign land, when they need a car only sometimes or when they cannot afford a car. It is opportune to consider starting a TAXI service under such circumstance.

Innovation Lines matrix represents the different types of innovation opportunities that can be created around a current product using four operators.

15


SERVICE INNOVATION Service Innovation can be of two kinds – those visible to the customers and those not visible. In either case, the lifecycle of service innovation is often very short. The visible service innovations are copied very quickly while those invisible take a slightly longer time to copy.

Let us take the case of a food outlet that creates a new combo plate. Any competitor looking at this combo plate can replicate the same combo within days. Take the example of McDonald’s hamburgers, however much they guarded the recipe and the process, Burger King and a host of others replicated their service model. It is therefore

Variety based innova?on Cost down innova?on

Service innova?on using the product Higher quality product

Current product

16


important to understand that service innovations have short life cycles.

Service Innovations are often addressed at the time a service is offered to a customer. However it would be important to address innovations before and after the service is offered as well.

Once the pains and pleasures (demands for enhanced experience) are identify you can design solutions for them. You can use a similar matrix to identify the pains and pleasures that could be the basis for innovations for a service.

17


The following is a table that gives an example of services offered to movie goers before, during and after viewing a movie.

Value addressed Before During After

Pains

Ticket purchase, choice of seats, directions to the movie house, etc.

Preventing the use of mobile phones,

excessive chatter from those around.

F&B requirements

Pleasures

Valet Parking, Baby

sitting, etc.

Better audio visual experience Fine dining

Visible service innovations are usually copied very quickly, it is therefore essential to identify the intellectual properties that can be protected. Learn more about IP strategies on page ???.

18


PRODUCT-‐BASED SERVICE INNOVATION Introduction of an innovative product into the market place may offer opportunities for creating service innovations. Some products are either too expensive for some customers to own or they are not needed all the time by some customers. In both cases there is an opportunity for creative service innovations.

Two examples are cars and planes. Some customers cannot afford to buy a car and would use Taxi as a service innovation. Many of us do not need to own a plane and would be most willing to use airlines as a service innovation. There is another kind of service innovation that takes care of the maintenance of a product when the owner has no capability to self-‐maintain the product.

The first type of service is rental or for-‐hire service and the second type of service is maintenance. The following table captures the parameters that can be used to identify product-‐basedservice innovation opportunities.

Parameter Value Is there a service

innovation opportunity

Comments

Affordability High No Low Yes Pay Per Use Model

Usage Frequency High No Low Yes Pay Per Use Model

Maintainability Easy No Difficult Yes Pay per repair Model

19


INNOVATION RULES

Innovation rules are observations on how certain innovations evolved over time. This section discusses the basic philosophy behind innovation rules. Each rule captures the introduction and evolution of successful innovations, representing the manner in which a market shifts or market trends over time. Some of these innovation rules are based on market demands and others are based on technology pushes

An innovation rule is made up of two or more stages with each stage representing an innovation. An innovation normally starts from the first stage and then transits from one stage to the next. However, there are situations when an innovation skips some intermediate stages, or some of the intermediate stages can be interchanged without losing the generality of the innovation rule. When an innovation rule is observed, we want to identify what new innovations can follow that innovation.

20


We will define some approaches to identify innovation opportunities using some of the rules. Some of these are based on market demands and others are based on technology pushes. For example, when main frame computers were deployed for corporate accounting and other management purposes, this surely denied the departments of an enterprise access to computing. When the demand for department level computing gets very real then it is time to create a computing innovation. This happened to be called minicomputers. If the market demand is clearly identified and relevant technology is available, then you can proceed to create the computing innovation for departments. You will need to invest in creating the relevant technology if it is not readily available.

The beauty behind the concept of innovation rule is that the set is both extensible and customizable. You are encouraged to write your own innovation rules or you may choose a set or subset of rules that are best suited for you or your company.

21


VALUE PROGRESSION INNOVATION It has generally been observed that the early adopters of any innovation are happy with a product or service meeting their need. The first generation products and services are often not robust. This results in a new innovation opportunity – to build reliable or robust products and services. Customers become cost conscious once robustness has been addressed. This is the next innovation opportunity. Although lower cost is generally preferred by most customers, there is often a segment that is willing to pay a premium for differentiated products – in the case of autos on color, shape, model etc. That is the next innovation opportunity. The desire for differentiated product is quickly followed by the desire for good after-‐sales service. It is important to realize the service is an innovation opportunity that almost always follows innovations for the consumer products.

Func?on Robustness Cost Variety Service .........

22


The history of automobiles began with carts on wheels, followed by horse drawn carriages before motor cars came about. It used to be a status symbol for the wealthy to own a car until Ford Motor Company built the Model T cars, making cars the commodity it is today.

Henry Ford was neither the inventor of the automobile nor assembly line. He changed the world by using an assembly line technique to produce affordable, reliable and easy to drive car. However, have you ever wondered why Ford Motor Company failed to sustain its leadership?

Henry Ford’s famous quote “I will give you any color on your car as long as it is black” resulted from his obsession with cost reduction to make cars affordable. As black paint dries faster, it resulted in high productivity. By 1927, the company was able to produce an automobile every 24 seconds. The customers did not care about the color of the cars as long as they could at one that they can rely on.

23


Over the years, Ford further innovated by producing a better car model every year, but it is all in black. Soon it is no longer about producing cheaper or better car, and the innovation value progressed to the giving the customers choices. General Motors innovated and become the first automobile manufacturer to offer different colored cars.

Today, there are many car manufacturers producing cars with different specifications to suit different needs and wants. It ranges from economical cars from Toyota and Mitsubishi, to sports cars from Mazda and Rolls-‐Royce. Cars now come in many different colors and interior components, with many innovative after-‐sales services and memberships.

24


Value Enhancement Innovation

The amazing evolution of human transportation systems is a form of value enhancement innovation. The initial mode of transportation available to mankind was walking. While hunting, in order to get away from a predator, walking began to evolve into running. Humans began to tame wild horses to increase the speed of travel. This resulted in travel over longer distances. However, bare back riding must have been uncomfortable and hence resulted in the saddle as an innovation.

Soon, mankind exploited the invention of wheels to assemble carriages that could take more than one or two riders on a single horseback. Single horse drawn carriages soon gave way to a team of horses drawing a carriage over longer distances with greater speeds than what a single horse can do. This promoted travel over longer distances and led to exploring newer geographies.

Ini?al product Increased capacity Wider coverage Longer range Increasing delivery speed

25


The same could be said of other modes of transportation. This innovation rule does not apply to transportation systems alone. It also applies to other innovations such as telecommunication networks, fax networks and email systems.

Value Diffusion Innovation

Have you ever thought about how we ended up with the smart phones such as the iPhone?

Computer is one example of an innovation that took roots for a niche application. It all started with the Department of Defense in the US requesting for the development of computers for their use. These were primarily meant for simulating war games of different types in order to train the armed forces. Over the years IBM and the BUNCH5 decided to reposition this innovation for corporate use in large firms.

5 BUNCH Stood for Burroughs, Univac, NCR, CDC and Honeywell

Special Enterprise Division Personal Mobile Consumer ......

26


When firms started using computers, there was a contention for the use of their central computer. The divisions within the firm wanted to use them but the corporate applications always took precedence. The demand for computing from the divisions resulted in the birth of the Minicomputer. Digital Equipment Corporation, Sun Microsystems, Apollo Computers, HP and others addressed this new market.

When divisions improved their productivity using computers, individual users clamored for their own computers. This demand from individual users resulted in companies such as IBM creating the personal computer.

Individual employees were very happy with the personal computer and wished they can take it along with them where ever they went. This led to the demand for portable computers including the lap tops.

Once consumers enjoyed the benefits of laptops they wanted smaller sized products. This resulted in the Personal Digital Assistants. We call this evolution of products in the same family an Innovation rule.

You could observe similar progression in several other products such as Photocopiers, Printers and Fax machines. Now can you write down other products that you think had followed this progression. Can you identify innovation opportunities using this Innovation Rule?

27


Value Integration Innovation

Over the years, technologies are integrated together to give us product such as 4-‐in-‐one printer where the printer can function as a scanner, photocopier and also a fax machine. Mobile phones have also been integrated with camera, music player, gaming and computing capabilities to become the smart phones we have today.

The value of integrating several related functions into one product or service is certainly very appealing. It saves space and also helps drive down the cost of providing multiple functions by purchasing four different machines. However, it is important to note that randomly combining functions into an integrated product does not often succeed.

Decades ago, there was a product that integrated the radio, VCR and computer into one device. The market’s inability to make sense out of the benefits of such integrated device could lead to its failure. Therefore it is important to pay special attention to usability when multiple functions are offered through an integrated product.

Stand alone innova?ons Integrated innova?ons

28


Miniaturization Innovation

Miniaturization innovations once designated for larger applications that later get redesigned for smaller, but not lesser, applications. For example, the Magnetic Resonance Imaging (MRI) machines were invented initially for the scanning of the brain and were later used for scanning other parts of the body. However, the early versions of the MRI machines still required a person to be put on a bed and scanned through the central hole of a toroid-‐like structure regardless whether the whole body was being scanned or just an arm or a leg was being scanned. Therefore, innovators constructed MRI scanners with a smaller toroid to scan just an arm or a leg to reduce the cost of the medical procedure and also the complexity of the procedure.

Another example of miniaturization is the transition from vacuum tubes to transistors, and transistors to integrated circuits. Even up till today, integrated circuits continue to progress from small scale integration to medium scale, large scale and ultra large scale integration.

Innova?on for larger applica?ons Innova?on for smaller applica?ons

29


MACRO TREND INNOVATION

Trends are observed from time to time. A movement is generally termed as trend when there is a monotonic increase in the number of people embracing the movement and there is no possibility of looking back on the movement. Some movements end up as trends and others remain as weak movements or fizzle out.

Furby6 was a cute little toy to replace having a real life pet. When it was first launched, many parents hunted for the toy across several stores in their respective cities and countries. However, after a few years no one cared about Furby anymore. So, the frenzy initiated by the introduction of Furby is perhaps better described as a fad.

For example, there are currently two major trends in play. A first trend is that a large majority of the world’s population is graying. And a second trend is that there is an increasing awareness to keep our environment

6 Furby was a toy introduced by Tiger Electronics. See http://en.wikipedia.org/wiki/Furby for more details.

Global trends Innova?on following the trends

30


clean.

Many companies are beginning to focus on elderly friend products and services due to the trend of aging population. Products such as fall-‐detectors that can alert others of a fall, and alarm that can be set off at the press of a button to put the aged person in touch with an operator can be readily found in the market.

As our concern for environment rises, the number of environmentally friendly products increases day by day. Toyota is an early leader in identifying and responding to this trend by designing and manufacturing the eco-‐friendly Prius7 model of hybrid cars that run on both petrol and electricity.

Here is a list of macro trends identified for 2015 and beyond which look at the society and tomorrow’s people in order to innovate for future products.8

1. Globalization/Globalization Increasing global connectivity and integration between nation-‐states, corporations and individuals leads to increased interdependence. The increases in human migration, International trade, free capital flow, and finally of the widespread diffusion of technology affects us all on a global level.

7 Prius is a hybrid car manufactured by Toyota. See http://en.wikipedia.org/wiki/Toyota_Prius for more details. 8 MACRO TRENDS 2015+ -‐ Looking at society and tomorrow’s people in order to define tomorrow’s products by Anne Lise Kjaer, a London-‐based futurist.

31


2. Asia and New Economies Asia and other new economies have become major players that will define future businesses, science and leadership agendas. These new Superpowers are presenting both a wealth of new challenges and opportunities.

3. Convenience Technology Convenience technology provides today's people with a tool that empower them and give them a degree of ease in a hectic world. We can now control and juggle our life in a ways unheard of just 15 years ago.

4. Connected People are increasingly putting their faith in information delivered through ‘social software’ from a virtual network. Friendship networks grow and people are forming tribes across cultures, beliefs and borders as never before.

5. Smart Technology One of the greatest benefits of digital technology has been the empowerment of individuals. Technology is faster, better smarter, and, in this accelerated, borderless, wireless world, we are making instant choices about who we are, what we do, and what we want.

32


6. Transparency Transparency implies openness, communication, and accountability. Businesses and governments must have an attractive ethical dimension and practice a ‘genuine caring attitude’. Tomorrow’s citizens want fair trade and traceability – he wants more meaning.

7. Global Sustainers The influential and informed individual practices sustainability by applying it to all levels from product preference to lifestyle. Businesses must have an attractive ‘green policy’ as well as an ethical and caring attitude.

8. Rethinking Energy The reality of Global warming has caused us to rethink energy. Both on a personal scale in the way we consume and live and on a much larger, society scale. There are positive new avenues to be explored. Renewable energy resources and many other innovative projects and ideas will shape the future of energy resources.

9. The Creative Class In U.S. alone it is estimated that this group has 38 million members, constitutes more than 30% of the workforce, and profoundly influences work and lifestyle issues. These are high-‐achieving individuals -‐ a responsible, cohesive group interested in the common good.

33


10. Ageing Population The ticking retirement time bomb is a growing concern – will it become an unsustainable burden for future taxpayers? Will we have raise retirement age and work till we are 70? On the positive side we slowly see attitudes shift to a more positive social, cultural and corporate mindset of age and aging.

11. Female Empowerment After an uncomfortable alliance between the sexes -‐ with women mimicking traditional masculine power relations to get ahead in a 'man's world' -‐ we are now witnessing the emergence of the new woman. Many women are now better educated than their male counterparts. Already, there are more female than male entrepreneurs and these female icons inspire others around the globe and have influence across culture and class.

12. Health and Wellness Health concerns have changed the face of the Western culture. Certain health issues have already reached epidemic levels. A healthy body and mind will become a new form of future capital in the century ahead. We feel comfortable with the universal values of the Eastern mindset and seek the calm, the healing and recovery it offers.

34


Market Triggered Innovation

From time to time the markets evolve due to regulations or otherwise. Watching for these market shifts allow better evaluation of the innovation opportunities available. The following are examples of broad market shifts that have resulted in innovations.

1. New regulations -‐ SOX compliance9 imposed by SEC in the USA 2. Deregulations – Freeing of broadcast frequency spectrums in mid 1980s 3. User maturity with respect to new skills – Use of computers for communication purposes 4. User familiarity with new technologies – Short Messaging System (SMS) 5. New residential and commercial geographies – Evolution of towns into cities 6. New user preferences – easy to use and colourful hand phones

9 Sarbane-‐Oxley Act is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms.

35


Technology Triggered Innovation

Every time a new technology is introduced, a number of innovations follow. The introduction of iPhone gave rise to a number of innovations. There are many bright minds waiting to create innovations around every new technology. It is therefore important to focus on identifying the innovation opportunities around the latest technologies.

Every technology innovation offers a new value. For example, a number of innovative applications emerged when a camera phone was introduced. It opens up the opportunity for the combination of image capture and transmission within the same device.

Therefore, whenever there is a new technology introduced, you should try to understand its value proposition. Create a list of the pains and pleasures that can be addressed using the value proposition of the new technology and identify a sample set of technology innovations and the corresponding value propositions and innovation opportunities.

36


Technology Innovation Value Proposition Pain/Pleasure Innovation

Opportunity

Camera phone Image capture and

transmission within a single device

Medical specialists are not readily available in all remote places

Remote consultations for specialized

healthcare services

iPhone Ease of use and high level of applications customizability

Unwanted applications built into phones and tedious to customize

Apps for laymen

Multi-‐touch technology

Concurrent interactions on large interactive

surfaces Messy discussions

Team orientated applications such as brainstorming

37


ALTERNATIVE INNOVATION

Biometrics is a technology that is often used to validate the identity of a human being. The early biometric systems used finger prints as the means of establishing the identity of a person. Finger printing worked very well in certain circumstances such as for prison inmates. However, there were some countries where finger printing was used only for registering criminals and foreigners. In such countries use of biometrics for identifying other members of their population became a taboo. Some other societies considered using scanners to scan finger prints to be unhygienic. So, for several reasons there was interest in finding alternatives.

Hand print, retina, facial features based identification systems have since emerged as alternatives to the finger print based identity verification systems.

We can observe many such examples. Diskettes replaced floppy disks and USB10 disk storage devices or

Thumb drivesTM have replaced diskettes in turn. Digital cameras have replaced film based cameras. In other words, the same function is achieved by a different technology.

10 USB stands for Universal Serial Bus

Innova?on using a technology Innova?on using a replacement technology

38


Disruptive Innovation

Disruptive Innovation is a concept first enunciated by Professor Clayton Christensen of the Harvard Business School. He was studying the evolution of the disk drive industry when he came across an interesting observation. He found that the incumbents in an industry almost always missed the opportunity to exploit the next stage of an innovation rule. New innovations in an industry often came from a different firm, typically a start up.

Let us take the example of computers. The main frame market was dominated by IBM. However, Digital Equipment Corporation was a leader / pioneer in the minicomputer market. IBM created the personal computer market. Toshiba is often credited with promoting the laptop market. The PDA market was successfully created by the Palm computers.

He also noticed that there are incremental or sustaining innovations that keep improving an existing innovation in small steps to meet the increasing demands from the market. He called it the sustaining innovations. He observed that the disruptive innovation can occur either at the high end of the products as New Market Disruption or at the lower end of the product spectrum as Low End Disruption. For more information on his observations, please look up his book titled “Innovator’s Dilemma.”

Ini?al innova?on New market disrup?ve innova?on Low end distrup?ve innova?on

39


Innovation from Obsolete Technologies

Technology progresses over time. Computers initially used 4 bit and 8 bit CPUs (Central Processing Units). Over time, Intel and other chip makers started to make 16 bit, 32 bit and 64 bit CPUs. When technology progresses forward, system developers tend to stay lock step with new technology and create new products. For example, PC and Laptop makers were creating even more powerful computers every time the chip makers provided them with better CPUs. When chip makers focus on 64 bit CPU chips, they pretty much consider the earlier CPUs obsolete. History shows us that clever entrepreneurs have made use of the small bit length.

40


Translational Innovation

We have witnessed the immense value of the steam engine used in locomotives (rail engines for example). Their value to the transportation systems of the world is immeasurable. They were the forerunners of the modern day internal combustion engines that run on other sources of power.

Have you ever wondered whether steam engines were originally invented for powering locomotives? Actually the earliest application of steam engine was to pump water from coal mine to the surface or ground level. However, the value derived from the humble steam engine has been most felt in railroads and other early forms of vehicles for transportation.

There are many other examples of innovations meant for an initial application creating a major impact in other situations. Take computers for example. They were originally invented as calculating machines. We now use them for managing information and data, communication and a variety of other functions. Similarly, the transistor was originally invented as a switching device. However, it now forms the building block of computers and several other electronics devices for consumer and corporate markets.

Innova?on to meet a market need New applica?on of the innova?on

41


MODULARITY INNOVATION

Have you ever wondered why there are companies making just bolts and nuts?

It turns out when an innovation is first commercialized most of the innovative firms try to make all the parts required for a product themselves11. This continues for a period of time until competitors emerge in the market. No matter how sophisticated the product, there are bound to be competitors who will introduce similar products in the market, whether of same quality or different. Competition drives down profit margins. This continues until such time one of the firms decides that it no longer makes business sense for it to make all the parts or components. This is the inflection point when new entrants can enter the market to produce components at lower prices. 11 There are exceptions. Sun Microsystems chose to make a workstation using components available in the marketplace. When VCs invested in Apple, they also proactively invested in a company to produce the floppy disks that were to be used in the Macintosh computers.

Monolithic products Modular products

42


The need to get third parties to make parts or components results in the definition of standards. In a number of cases, the competitors get together at some point in time to define a common set of standards so that they can enjoy the benefits from the economies of scale provided by third party component suppliers. The third party new entrants can produce larger volumes of components at lower business costs given their smaller size.

A very important service innovation opportunity often presents itself at this stage. Given that the parts manufacturers may not always be located next to the buyers, there emerges a need for delivery or supply chains. Great benefits await those who can optimize such supply chains. Dell and Olam are examples of companies that greatly benefitted from efficient supply chains.

43


Component Innovation

We discussed about the evolution of computers, and how parts or component manufacturers come into play when the profit margins for a product shrink over time due to increased competition.

As customers embrace an innovation, they ask for increased performance. An example can be increased computational speed on a personal computer. When the market’s demand for product performance rises, it has a ripple effect on the parts or components used in the product.

In the case of a personal computer, faster computation will impose demands on faster computing chips and perhaps larger memories, both main and cache. When a personal computer is repositioned or repurposed as a media distribution device, then there is increased demand for storage size and faster transfers between the computer and its storage.

These are some examples of how the continuous innovations in product performance have a tangible impact on continuous innovations on the components or parts of the products. The reverse is also true. When Intel produces faster computer chip, personal computer manufacturers tend to produce better products as well. This innovation rule can also be observed to be in play in automobile and consumer electronics.

Product innova?on Component innova?on

44


Enhanced Customization Innovation

In the early days of personal computer era, we normally visited a computer store and looked at different preconfigured models of computers from different vendors before we made a decision on which model to buy.

All that changed when Dell computers offered enlightened users the option to customize their computers. Suddenly users did not have to buy the computers that the vendors offered. They could decide on the screen type and size, the amount of main memory, the number of gigabytes of disk storage they wanted in their computer and many other options. Letting the customers configure what they want was a clever means of Dell giving customers total control over the products they wanted to

Standard products Customized products

45


purchase.

The new approach introduced by Dell was very successful and those computer makers who depended on wholesalers and retailers to distribute their products were caught flat footed. Dell saved the money they would have normally paid the channel partners and instead passed on some of the savings to their customers by giving them better products for their money.

Dell created several other innovations such as having the customers pay for their purchases first. This reduced pressure on their cash flows significantly. Dell also ensured that the inventories were supplied to the assembly lines just in time. Dell also harmonized their internal processes with those of their suppliers for achieving optimal results.

46


Innovation Simplification

When an innovation is first introduced by a company, competition soon follows. As the market for the innovative product stabilizes, the competitors tend to differentiate their products from others by introducing additional features – often features that are not useful to a majority of the customers.

Sometimes customers have no choice but to pay for the additional features because those were the only models available in the market. At other times, customers end up buying products with lots of additional features not realizing that they would not be using those features. Either way, it is important to realize over-‐engineered products appeal to a limited customer base.

An example of simplified innovations is the Point-‐and-‐Shoot genres of cameras. Early cameras were meant for professionals. It is the simplified version of the cameras that enlarged the market for cameras. So, if a product innovation targeted for professional or high end customers hits the market it often offers an opportunity to create a simplified version of the product that is easy to use by the masses.

Innova?on Simplified innova?on

47


Relocation Rule

When a new innovation is introduced to the market by a company, there are often many competitors who offer products with near about similar features. This soon results in intense pressure on profit margins. This pressure on profit margins forces companies to look for relocation to new places that offer cost advantages of several kinds including tax holidays, lower wages, and lower logistics costs.

The need to relocate creates many service innovations opportunities including OEM, ODM, BPO, KPO, BA12 and Research outsourcing. Such relocation also drives need for training of additional human capital. This new demand for well trained human capital further offers opportunities for establishing new training institutions in the new locations.

12 OEM stands for original equipment manufacturers, ODM for Original Design Manufacturer, BPO stands for Business Process Outsourcing, KPO stands for Knowledge Process Outsourcing, and BA stands for Business Analytics.

Ini?al manufacturing loca?on Lower cost manufacturing loca?on

48


Sometimes the relocation may also be driven by an unanticipated need. A classic example is the emergence of the IT industry in India. The Y2K13 problem forced a number of American companies to look for additional computer literate manpower that could provide solutions within a short span of time. India had such manpower and could deliver the solutions requested and the rest is history.

Examples of relocation include contract manufacturing in electronics and printing services.

13 Y2K problem refers to the attempts to rewrite several applications given that the data fields in these software may give rise to costly errors at the turn of the century.

49


CUSTOMIZATION INNOVATION

Re-‐engineering original innovations for a niche group has been practiced for many years. Some of the examples include bicycles for ladies and sports products for left-‐handed players. Whenever an innovation hits the market, it would be fruitful to examine whether that innovation could be re-‐engineered for a special class of customers. One recent example is a mobile phone with a compass that allows the followers of the Islamic faith to determine the directions for their prayer.

We need to be careful in understanding this Innovation Rule and hence the innovation opportunity. The idea is not to create a new to the world product but to address a subgroup of customers whose requirements are different from the features provided by the original product. The markets for such niche innovations will surely be smaller than the original innovation. However, the market size may be still substantial enough to warrant the creation of a niche product.

We can list many additional examples of niche innovations – cameras for the layperson, light weight cameras for ladies, and suits for young people. Accor hotel group created Formula 1 hotel chain in response to a market need for budget business travelers. This is also an example of a customized service innovation.

Original innova?on Customized innova?on for a special group of users

50


Accessory Innovation

When a company introduces cameras for the first time there arises opportunities for innovating several accessories. Each one of them addresses some pain that a photographer would experience.

For example, flashes were introduced as accessories to allow photographers take good quality pictures in dark conditions including night photography. Tripods were introduced to ensure that photographers can get their pictures shake free and hence without a blur. Filters were introduced to create different types of effects. All these are some examples of how when an innovation is created there are opportunities to create innovations that can enhance the effective usage of the original innovation.

Swatch is an example of another product innovation that allowed for the creation of accessories. Swatch created a line of watches wherein the rims can be changed to match the dress of the watch owner. This accessory appealed to the emotions of the customer.

iPhone is an innovation with plenty of rooms for accessory innovations and is a huge marker to target.

Innova?on Accessories for the innova?on

51


Complementary Innovation

At times, the introduction of a new innovation creates room for a complementary innovation. Let us consider Television as an innovation. Some of us could not watch our favorite programs at the time they were broadcast. The need for us to watch a broadcast program at a time convenient to us resulted in the innovation opportunity for a Video Cassette Recorder.

Once a Video Cassette Recorder was invented, it in turn created the opportunity to innovate a video camera. The innovation of a video camera in turn gave the opportunity to create automatic video editing software.

So, complementary innovations are not always terminal. An innovation that was created as a complementary innovation to an original innovation can in turn create the opportunity for other complementary innovations.

Flashes, tripods, lenses, and carrying and cleaning kits can all be considered innovations complementary to a camera, the original innovation.

Innova?on Complementary innova?on

52


Mobility Innovation

Can you imagine a life today without a mobile phone? Almost every one appears to be carrying at least one mobile phone, sometimes including the pre-‐teens.

Phones were initially developed as fixed line connections at homes. Pay phones were invented when people needed access to a phone when they were outdoors. The fixed line phones were very limiting even within homes. When a phone was located in the living room and the family was in the dining room then someone had to get up to answer an incoming phone call. While this was

perhaps not as troublesome, there were other situations such as when one was sleeping in a bed room that were more bothersome. One solution to this pain was to create multi-‐location phones that carried a single phone number. Even this

solution was limiting in the sense one had to go to the location where the phone was placed. The need for comfortable access to a phone

anywhere in a home led to the development of the DECT14 phones otherwise known as cordless phones. 14 DECT stands for Digital Enhanced Cordless Telecommunications

Original innova?on Mobility enhanced innova?on

53


The appearance of cordless phones for near field wireless voice communications should have foretold the coming of the hand phone as we know it today. Of course, hand phones offer us the ultimate freedom to communication anywhere and anytime as we please. While phones were the first devices that became wireless globally, there are other devices that are following the DECT model.

Some examples are keyboards and mouse for the computers. There are certainly wireless versions of the keyboards and mouse for the home computers. And, the computers themselves are becoming wireless as in laptops and PDAs that work in wireless environments.

Innovation for Indoor

A number of us have enjoyed a day at some beach some time in our life. Some of us go to the beach to get a tan. Those desiring to get a tan often use a sun tan lotion from a reputed manufacturer to get that beautiful tan. So, there were many opportunities for innovations to produce different kinds of sun tan lotions. There were different flavors such as coconut, banana and strawberry, introduced into normal suntan lotion to cater to the customer preferences.

However, what about those who cannot get to a beach and would still like to get a tan? Some clever people came up with a great innovation called the tanning machine. Customers can spend between 12 to 20 seconds inside a tanning machine of their choice and step out with a glorious tan.

Innova?ons for outdoor use Innova?ons for indoor or in-‐home use

54


The tanning machine is an example of an innovation that pretty much brought about the same effects of an equivalent innovation for outdoors, viz., tanning lotion plus the sunny beach.

Coffee-‐makers for the home are an example of an innovation for home use to achieve the same outcomes as coffee machines used in restaurants. Other examples are home entertainment centers. Nintendo and others brought arcade game experiences into homes. In each case, it is indeed true that the innovations meant for home use are often not as rich / perfect in their features as those meant for large scale out of home use.

55


COMMUNITY CONNECTING INNOVATION

Would any of us be startled if someone asked us “Have you browsed today?” In this day and age it would appear as trivial as the question “Have you brushed your teeth today?” We have gotten used to searching and browsing for information on a daily basis. This was possible only through an evolution involving a chain of innovations.

Although we know that no firm or individual is an island, initially computers were invented for a firm or individual’s use. Very soon there was a demand for connecting computers through a network.

Once networks were in place users embraced software such as email and other groupware to increase the efficiency of the group.

Emergence of the above groupware was followed by the establishment of service providers such as Information Service Providers, aggregators and OEM for aggregators.

Proliferation of service providers offered innovations in tools to support such service providers.

Other examples of this innovation rule include transportation, telephone networks and publishing.

Standalone systems Networks Groupware Aggregators OEM for aggregatos

56


Upstream Innovations

While most innovations normally flow from enterprise markets to consumer markets, some innovations move in the opposite direction, from consumer markets to enterprise markets.

A good example is the use of Wikis. Wikipedia was initially set up as an open source encyclopedia. As the popularity of Wikipedia grew, businesses realized the value of using Wiki’s for corporate applications.

Skype is another example. Skype was initially introduced as a consumer to consumer communication tool. Businesses, especially the Small and Medium Enterprises adopted Skype very quickly to reduce their communication costs.

Yet another example is the use of Internet Messenger. Many businesses have begun using Messenger as a group communication tool.

Consumer focused innova?on Enterprise focused innova?on

57


BUYER EXPERIENCE INNOVATION

Chan Kim and Renee Mauborgne shared in their book titled “Blue Ocean Strategy” identifies a process that they labeled “Buyer Experience Cycle”. This Innovation Rule is derived from the Buyer Experience Cycle.

Many of us buy products such as washing machines from time to time. The process starts with our looking for a product of interest to us. This might mean we are looking out for the model of interest to us and the retailer who offers the best deal for the chosen model. Notice that the Buyer Experience Cycle does not include this part.

Once we identify the store and the product we often go down in person to look at the product. Exceptions are standard products such as books and music CDs that do not come in different models. When we end up in a store we expect to get good service from a knowledgeable service person.

Product iden?fica?on Product purchae Delivery and installa?on Consumables

Upgrades Maintenance Disposal ......

58


Once we purchase a bulky product we need to decide how to get the product home. In such situations, we need the product to be delivered to our home at a fixed time on a preferred day. This results in opportunity for innovations in services.

Some of the products need to be installed by the manufacturers or their service agents. This has to be aligned with the scheduled delivery date and time. Further, some of the products use consumables such as detergents. These offer innovation opportunities as well. Some products can be upgraded in situ. This requires support for upgrades. We will need maintenance of the products as well as a service for disposal of the product when their usefulness comes to an end.

Each of the links in the Innovation Rule offers an innovation opportunity. Although we discussed washing machines, the same applies to other products such as printers, fax machines, copiers and television sets. Apple Store is an excellent example of buyer experience innovation.

59


Temporal Service Innovation

A number of service companies believe that service quality matters beginning when the customer is on their premises. While this is indeed true, I have noticed several instances when service quality could have been addressed before the customer arrives at the service provider’s premises and also after they leave the premises.

Taking healthcare services as an example, how wonderful it would be if we are given the freedom to choose our meeting schedules with doctors based on our convenience. How nice would it be if we were informed about the delays long before we arrive at a healthcare facility? And, how welcome it would be if someone followed up the consultations with the doctor with enquiries on quality of service and ask for suggestions for improvement.

There is room for market segmentation in service industries all within perhaps the same premises. There are several examples of service industries such as air travel, dining and cinema where service qualities can be significantly improved before, during and after servicing a customer.

Before During AGer

60


Disintermediation Innovation

We know very well that any product or service, however original and innovative it might be, attracts imitators and hence competition arrives soon after its introduction into the market. The imitators are many, fast and furious especially if the innovation is hugely successful and promises a large market size. We observe this phenomenon in products ranging from consumer electronics to aircrafts for civil and military use.

Companies often add bells and whistles to their innovative products once the competition gets intense. It is also at this stage, the product and service providers become more dependent on their channels, i.e. wholesalers and retailers.

This was quite true for a long time since the original manufacturers of products or providers of service could not reach the different corners of their market directly. However, the advent of Internet changed this dramatically. E-‐Commerce allowed vendors to reach out to their customers in any part of the world

Product source Wholesalers and retailers E-‐tail plaVorms Customers

61


using Internet. This gave rise to E-‐Commerce and E-‐tailing15 platforms such as Amazon and E-‐bay. Currently, many companies are moving onto the M-‐commerce platform, selling through mobile phones.

Service Innovation

When innovations are first introduced for the businesses, they are normally priced high and often include maintenance costs on an annual basis. However, when these innovations are reengineered to address consumer markets, it is very difficult to expect

annual maintenance contracts. Consumers are often content on making use of service providers to repair their possessions when they break down and pay a fee on a need basis.

15 E-‐tail is a term used to denote retail on E-‐commerce platforms.

Innova?ons in consumer products Innova?ons in services

62


Let us discuss a washing machine as an example. When we buy a washing machine, there is normally a warranty period that could range from a few months to a few years. Often the warranty is split between parts and labor. Many times the period for parts replacement is longer than the warranty for labor. It is very rare for consumers to purchase additional maintenance contracts for parts and labor beyond the default initial warranty period that comes with the purchase. Once the warranty period is over then

the consumers prefer to pay for fixing a broken washing machine on a need basis.

Such consumer behavior or preference immediately offers an opportunity for creating a service innovation. While still on washing machines, there is yet another service innovation creation opportunity. In some countries, there may be some segment of the market that cannot afford to buy washing machines. Such a situation offers the opportunity to set up Laundromats as a service innovation.

63

CHAPTER 2: QUALIFYING INNOVATIONS Innovation opportunities abound in this world. They lie hidden just beneath the surface of the labyrinth of our daily lives. A good method for discovering or qualifying such innovation opportunities will lead to improving our lives significantly.

With the ability to identify innovation opportunities, it is important to learn to identify the promising innovations from the list gathered. When we use the word “Innovation” we refer to business innovation – innovation for which market is willing to pay a price.

Determining whether market is ready first before creating the relevant technology leads to optimal use of investments in technology innovation. Technologies developed without this consideration have generally been found to have no impact. It is therefore best to source for technology first before setting out to create it. This is a desirable strategy from “Time to Market” perspective and to actively manage “Not Invented Here” behavior.

Identifying an innovation opportunity is only the beginning. Translating an opportunity into a product or service is not always simple.

64

Chapter 2: Qualifying Innovations

THE THREE KEY QUESTIONS Whenever you have an “exciting” new business innovation, ask yourself to consider finding the truthful answers to three simple questions.

Why? How? Who? Why would anyone buy your product or service?

How much will your customers pay for the product or service?

Who will pay for your product or service?

This question will help you establish whether there is either a need or want for your product or service.

The larger the pain or desire for enhanced experience, the higher the sum the customers would be willing

to pay.

The answer will help you determine the size of the market.

Why would they buy this product or service only

from you? How often will they pay? From which market

segments? This powerful question will make you think about your unique selling point (USP) and get you to think about how you could erect entry barriers.

The answer to this question will help you determine whether there is room

for regular revenues.

The answer to this question will help you prioritize the geographies and the segments of the markets that you

would like to address.

65


INNOVATION CUBE FRAMEWORK Innovation Cube Framework will help determine whether your innovation is ready to be accepted in the market place. Innovations that satisfy the innovation drivers, triggers and enablers are often warmly accepted by the market place.

1st Dimension DRIVER

Pain or Pleasure?

2nd Dimension TRIGGER

Market & Technology Ready?

3rd Dimension ENABLERS Price right?

Successful innovation must satisfy either a “need” or a “want” of target

customers.

A need opens up opportunities for new product or service whereas a want often is an improvement over an existing product or service. Need is defined as a must-‐have solution to a problem faced by a community of customers. Want is defined as a good-‐to-‐have solution for a group of customers. Either need or want is a driver of a successful innovation.

Some innovations failed despite being a need or a want. In such

cases, it was clear that the markets and technology were not ready.

Market and technology shifts are

the triggers of successful innovation. Hence, for a solution to a need or a want to be successful as an innovation, the market should be ready and the required technology

should be available.

Some innovations had failed despite satisfying the “driver” and “trigger” conditions. It was clear that there were another pair of attributes that

determined their success.

The price point at which the innovation was introduced to the market and the rate at which the

innovation attain market leadership is the enablers of successful

innovations.

66


UNDERSTANDING MARKET SHIFT It is essential to gain some understanding of the concept “market shift” when short-‐listing plausible innovations. Market shifts can be at either Macro or Micro level.

MACRO MARKET SHIFTS Macro market shifts are large scale and typically result in global impact. One category of macro market shift is new regulations or deregulations. For example, when the telecom sector was deregulated it created tremendous opportunities for new entrants who could create innovative business models for competing with the incumbents. Another example of macro market shifts are e-‐tailing (electronic retailing) where people could buy and sell goods and services without leaving the comfort of their homes. Ageing, environment friendliness (green movement), and global warming are some other examples of macro market shifts. Such macro shifts have a universal impact on a number of countries.

67


MICRO MARKET SHIFTS Micro market shifts on the other hand are often local. The improved literacy of women in a generally male oriented country is an example of micro market shift. Other examples include the rise in the size of middle income earners in countries such as India and China. Computer literacy, desire for branded goods, and increased filial piety are also examples of micro market shifts. Regulations specific to a country is another example of a micro market shift.

Market shifts in general offer opportunities for innovations. They trigger new innovations for the global or local markets. Innovators should keep a constant vigil for market shifts and leverage the shifts for creating new innovations.

UNDERSTANDING TECHNOLOGY SHIFT It is important to understand Technology Shift when identifying feasible innovations.

Universities and research labs around the world pursue basic and applied research for new discoveries and technology innovations. A number of engineers have the tendency to first create technology innovations and then search for the problems that can be solved using the technologies.

For example, large panel LCD displays were initially invented to address the television market. However, it was the MP3 player and Mobile phone manufacturers who ended up being the largest consumers of that technology.

68


MACRO TECHNOLOGY SHIFT Macro technology shifts are technology shifts that affect the world at large. Internet and mobile phones, like many macro technology shifts, create market tsunamis of significant impact. They give rise to a plethora of product innovation opportunities.

MICRO TECHNOLOGY SHIFT Micro technology shifts are those which affect only one or two products. Examples of a micro technology shift included the improved audio device for hearing aids and the improved lens technology for underwater cameras. Micro technology shifts create small ripples in limited markets and often lead to sustaining or incremental innovations.

IDENTIFYING ADOPTION HURDLES After identifying your innovations, it is important to remove those with obvious adoption hurdles. The table shows only a limited set of adoption hurdles, other adoption hurdles can be added to this list.

It is important to remove those with obvious adoption hurdles because adoption hurdles will derail even the best of innovations. It is important to understand the role of regulators. Sometimes they could be the hurdle between you and your customers yet at other times they could be the bridge between you and your customers.

69


Hurdles Advise for further action

Economic Drop all innovations that would require unreasonable investments.

Should ignore all innovation opportunities that have obvious Economic, Environmental, Ethical, Ethnic, Moral, Political, Religious and Social hurdles.

Environmental Drop all innovations that cause environmental harm for the target markets.

Ethical Drop all innovations that violate the ethical norms of the target markets.

Ethnic Drop all innovations that violate ethnic sensitivities of the target markets.

Moral Drop all innovations that violate the moral norms of the target markets.

Political Drop all innovations that violate the political sensitivities of the target markets.

Religious Drop all innovations that violate the religious sensitivities of the target markets.

Social Drop all innovations that violate the social norms of the target markets.

Market

Flag all innovations for which the markets are not ready.

Should wait for the markets to be ready if you sense a market hurdle for the innovation opportunity you have identified.

Technology Flag all innovations whose technology requirements are not ready.

Should either develop the required technology or find a technology partner when you encounter a technology hurdle for the innovation opportunity you have identified.

70


INNOGORITHM™ The word Inngorithm™ was derived by combining the first four letters of Innovation with the last seven letters of algorithm. Inngorithm™ is a five-‐step method that can be used to identify successful innovation opportunities.

Iden%fying Promising Innova%ons • List pains and pleasures • Examine one innova?on rule at a ?me • Ascertain the relevance • Generate a list of promising innova?ons

Short-‐lis%ng Plausible Innova%ons • Consider one promising innova?on at a ?me • Ascertain market readiness • Create a list of plausible innova?ons

Selec%ng Feasible Innova%ons • Consider one plausible innova?on at a ?me • Assess technology readiness • Create a list of feasible innova?ons

Choosing Possible Innova%ons • Scru?nize one feasible innova?on at a ?me • Determine the price that the market is willing to pay • Assess the cost required to bring the innova?on to market • Establish scalability of innova?on • Create a list of possible innova?ons

Qualifying Innova%ons • Consider one possible innova?on at a ?me • Qualify only if there are no adop?on hurdles • Create a list of qualified innova?ons

71


STEP 1: IDENTIFYING PROMISING INNOVATIONS The first step of Inngorithm™ uses Innovation rules and the pain pleasure dimension of the Innovation Cube framework to generate a list of promising innovations. This list has to be scrubbed to produce a short list of plausible innovations.

Start by creating a list of pains suffered by the customers that is ordered with the pain listed on the top being the severest and suffered by largest number of customers. Add to this list the pleasures or enhanced experiences sought by customers and once again order it such that the pleasure listed on the top is the most sought after by the largest number of customers.

Consider one innovation rule at a time. For each innovation rule determine the current stage of innovation and whether the next stage of innovation will address the pain. If the next stage of innovation will address either a pain or a pleasure in the list, then it is certainly a promising innovation opportunity.

72


Let us consider the Innovation Customization Rule. Start with any current innovation in the market, look at the pains that a subset of customers using that innovation might be suffering from and discover an innovation opportunity.

For example, we start with an original innovation such as fishing lines. There are some people who like to fish during night times and fishing lines are not visible during night time. As a result, small boats or animals may stray into a fishing line. The night fishermen themselves may wish to know where the line is leading to. For these reasons, a promising innovation opportunity is luminous fishing lines.

STEP 2: SHORT-‐LISTING PLAUSIBLE INNOVATIONS The second step of Inngorithm™ uses the market readiness from the innovation trigger dimension and the adoption hurdles to reduce the list of promising innovations to plausible innovations.

Earlier, the luminous fishing line for night time fishermen is identified as a possible innovation opportunity. Now, we will examine whether we could short list this as a plausible innovation.

It is essential to identify that there are enough night time fishermen. Firstly, anyone watching television serials such as Lobster Wars or Deadliest Catch can easily see there is massive night time heavy duty fishing activity. These are professional or enterprise markets. However, it would be useful to find out whether luminous lines, either fishing or in their case ropes, would be of useful for such fishermen. A quick check with the captains of such boats would validate the need for such an innovation.

73


Secondly, one could talk to amateur fishermen who go crab or crayfish fishing at nights. They are likely to be more in numbers than the professional fishermen.

If the total of these two markets is big enough then the innovation should be considered seriously. If the numbers are still small it would be better to wait for more professional or amateur fishermen take to night time fishing. Such increase in night time fishermen would be a market shift.

The adoption hurdle could appear if one uses toxic material for achieving luminescence. There should not be any adoption hurdle otherwise since the innovation is neither immoral nor illegal nor unethical. It will not cause any new inconvenience or damage to either human beings or creatures of the sea. Hence, one needs to only ensure that the material used is non-‐toxic to clear the adoption hurdles.

STEP 3: SELECT FEASIBLE INNOVATIONS The third step of Inngorithm™ uses the technology shift from the innovation trigger dimension of the Innovation Cube framework to identify feasible innovations.

After short-‐listing the luminous lines for fisherman as a plausible innovation, we will determine whether it is a feasible innovation.

Once the fishermen of the world interviewed have unanimously agreed that there was indeed a great benefit from such luminous line then it is important to check out whether the technology for creating this product is available. If the technology for a plausible innovation is available then such an

74


innovation is selected as a feasible innovation. The question then is what should one do if the technology is not available? There are two possible approaches, one reactive and the other proactive.

If one is really very busy with creating other business innovations then it would be prudent to put this innovation on the backburner and wait for the necessary technology to come along. This is obviously a passive or a reactive approach.

The other and recommended approach would be to find a technology development partner to create the required technology. It would generally not be advisable to undertake the technology development in house even in the case of large companies. The early development is best carried out in partnership with an academic partner. It is important to reward the academic partner appropriately, either by giving them immediate or deferred rewards.

STEP 4: CHOOSING POSSIBLE INNOVATIONS The fourth step of Inngorithm™ uses the innovation enabler dimension of the Innovation Cube framework to generate a list of possible innovations.

In order to narrow down the list of possible innovations from a list of feasible innovations, consideration of the three major aspects – cost, price and scalability is required.

It is first important to determine the price the markets would pay for a feasible innovation. This sets the upper bound for the product or service innovation in terms of price. One can ascertain the price either

75


by direct or indirect means. Direct means will be to ask those who had expressed an interest in the product or service on a range of price they would be willing to pay for the innovation. Indirect means will include finding a proxy in the current market and use it as the basis to derive the price the market will be willing to pay for the innovation.

Once having determined the price that the markets are willing to pay, it is important to ensure that the product or service can be manufactured at a cost that offers significant margins in the early stages of the innovation’s life cycle thus providing for reduced profit margins in the later years. It is for this reason an innovation with an initial razor thin margin may not be sustainable under competitive pressures.

The last aspect to consider is the innovator’s ability to fulfill the perceived market demands. It is important that an innovator is able to become the Gorilla of the target market and not let the competition become a market leader. Hence, issues such as availability of raw material, parts and other elements required to create the innovation and the ability the manufacture them in the required scales and deliver them to the customers in good time are all aspects that need to be thought through thoroughly before deciding the proceed with an innovation.

A feasible innovation that satisfies the price, cost and scalability is ready to be labeled as a possible innovation. It is at this stage one can become confident that they have the makings of a successful innovation.

76


STEP 5: QUALIFYING INNOVATIONS The last step of Inngorithm™ will the further prioritize the list of possible innovations for investment purposes or to be taken up later. The innovations can be prioritized based on their return on capital as an investment, the amount of capital required to bring an innovation to market, the time taken to bring the innovation to market and the risk in commercialization.

The reuse of available technical and other resources are encouraged as they usually require less capital, less time and have lower risks.

It is important to understand that even the best of innovations will be commercially unsuccessful if the consumers do not accept it for any reason. It is therefore important that every possible innovation be examined against a list of potential adoption hurdles to ensure it does not face any adoption hurdles before it becomes a qualified innovation.

Qualified innovations offer the potential to create successful entrepreneurial companies, but its successful is highly dependent on the team that led the innovation and its execution.

77

CHAPTER 3: VALIDATING INNOVATIONS This section is written especially for first time innovators and entrepreneurs.

As a first time innovator and entrepreneur, you will be faced with the pleasant challenge of deciding which of the several innovations opportunities you have identified ought to be commercialized first. This requires some means of prioritizing the innovation opportunities based on factors that will determine the likely success of bringing them to market at the earliest possible time with the least challenges.

Be your own harshest critique and try to list out the reasons why the markets may not embrace your innovation. You should find an honest means of addressing every one of the reasons in the list.

You may feel compelled to hold your innovative ideas close to your chest lest others steal them and benefit by them. The general observation about successful entrepreneurs is that they freely discussed their ideas with several people in order to refine it before starting up their company.

The real challenge in building a company is in the execution and not in the idea. Hence it is very important that you should seek out trusted and experienced serial entrepreneurs or business mentors to get your ideas refined.

78

Chapter 3: Validating Innovations

Here are some things that you should do before moving on to build your company.

1. Consult a business mentor or an investor 2. Observe/talk to potential customers on whether they need the innovation and on how much

they will pay for it. 3. Attend trade shows to confirm that there is still room for the innovation and talk to

potential business partners on how to market it. 4. Find proxies in the market as a means of confirming the innovation opportunity.

You can find truthful answers to the following questions to validate the innovation opportunity. The first question helps establish the market need, the second helps establish the value and the third helps establish the market size.

1. Why would anyone buy your product / service / solution? And why from you? 2. How much will they pay and how often will they pay? 3. How many will pay and from which geographies?

79


INTELLECTUAL PROPERTY INTELLIGENCE Once you have chosen an innovation to commercialize, you should immediately pursue an intellectual property (IP) search – often a patent search. After determining that you have the freedom to monetize the innovation that you have chosen, check whether someone has already claimed that innovation through a patent.

Patent Search can be done using several tools. For those in Singapore you could use SurfIP (www.surfip.gov.sg). Patents are territorial as patent in every country that you intend to market your innovation has to be filed separately. Therefore, even when your innovation may be protected in certain markets, there may be other markets where you could sell your innovation. You could continue developing your innovation if the markets available to you are significant.

Patent search normally make use key words, however, it is advised to make use of synonyms and a combination of specific terms and their generalizations in order to ensure that your search is exhaustive.

It is important to ensure that you do a thorough patent search in countries of interest to you, ensure that you have the freedom to market your innovation in those markets before you take the next step.

80


TECHNOLOGY INTELLIGENCE Technology intelligence has two parts. The first part is for you to ensure that you have the technology required to realize the innovation that you have identified. The second part is to make sure that there are no equivalent technologies that might be more attractive than the one that you have chosen to use for realizing your innovation.

There was once a group of researchers who had developed a face recognition technology. They had come up with the best face recognition technology in the world. It is important that you realize that face recognition is only one of many ways of validating the identity of a person. So, it easily satisfied the first part.

Face recognition belongs to a family of solutions for identifying a person referred to as biometrics. Finger print recognition, Retina recognition and hand contour recognition are some examples of other biometric solutions. Finger print recognition was recognized as a mature technology for biometric applications.

81


However, early enthusiasts of face recognition technology promised 90% accuracy and yet delivered only 20% accuracy. The markets hence lost confidence in face recognition’s ability to provide a robust biometric solution. Thus, part 2 of the technology intelligence was not satisfied.

Moreover, biometrics was often part of a more comprehensive solution. Hence, those offering biometric solutions alone ended up at the mercy of the prime contractors who delivered whole solutions.

Despite all the enthusiasm, the face recognition solution did not succeed as well as expected. This was a lesson learnt the hard way. It is important that you ensure that you have chosen the right technology before you take the next step.

82


MARKET INTELLIGENCE Once you have identified an innovation for commercialization and you have ensured that you have chosen the best technology to realize the innovation and have determined that you have the freedom to operate in the markets of your choice, you are now ready to conduct market intelligence.

Market Intelligence has two parts – Determining the market priorities and potential competition.

First list the number of customers in each of the countries that you would like to market your innovation to give you a sense of the size of the market. Then list the relative ease with which you can enter the markets in each of the countries. For example, in a number of cases US is considered to be the primary market and one which embraces innovations rather willingly. On the other hand, Singapore is a much more conservative market that accepts only proven innovations that have been successful elsewhere. You should then combine these two pieces of information to derive a prioritized list of countries where you intend to market your innovation.

Next, make a list of the potential competitors in the markets of interest to you. These may be companies already in a similar space or companies that could very quickly move in as a competitor to your innovation. It is then important to assess how prepared they may be and what kind of risks they might pose as a disruptor. You should finalize the prioritized list of countries you wish to market your innovation based on this information.

83

CHAPTER 4: COMMERCIALIZING INNOVATION Once qualified innovations have been identified, it is important to decide which of the qualified innovations should be commercialized first.

Prioritizing Innovations for Commercialization

Evaluate returns

Ensure that there is adequate return on investments. Every innovation chosen for commercialization ought to have healthy return on investment. It is best not to pursue those that do not promise reasonable return on investment.

Ascertain reuse Determine whether some of the existing resources could be reused for the manufacturing of the innovation.

Determine attractiveness Guide the innovator or entrepreneur to pick the most attractive of the possible innovations for commercialization.

Assess time to market

Determine the time it would take to bring a possible innovation to market. One has to think very long and hard to assess whether to commercialize an innovation that might take too long to bring to market.

Mitigate risk Ensure that all risks are identified and managed. This is also the step where one should plan a mitigation strategy for any identifiable risks.

84

Chapter 4: Commercializing Innovation

EVALUATING RETURNS

DETERMINE TOTAL COSTS Often first time innovators and entrepreneurs do not take into account total costs involved in bringing an idea to market. The “idea to market” process will include the cost in human capital, prototype development, marketing and sales costs, logistics cost, intellectual property protection costs, cost of establishing channels, travel costs, insurance and many more.

CHOOSE A METRIC & COMPUTE THE RETURNS As a first time innovator or entrepreneur, it is important that choose the appropriate metrics for evaluating returns. Return on Capital Employed, Net Present Value (NPV) and Internal Rate of Return (IRR) are some of the metrics often employed to assess the wisdom of launching a product in a company. Returns for all qualified innovations should be calculated under consideration using the chosen metric.

NORMALIZE FOR COMPARISON Next, normalize the returns based on the total costs involved. It may turn out that two innovations yield the same return and one of them requires lesser investment than the other. Normalizing the returns with respect to the total costs and sorting the innovations on a descending order of normalized returns will yield an ordered list of innovations such that the innovation at the top of the list would be the most attractive.

85


ASCERTAINING REUSE

LIST RESOURCES NEEDED There is often a tendency amongst the first time entrepreneurs to buy new equipment of all sorts for developing their innovation. While this should not be ruled out, it makes immense sense to consider efficient use of existing resources. Resources could include human capital, equipment, channels and office space.

DETERMINE CURRENT RESOURCE REUSE EFFICIENCIES First check whether existing resources can be reused for building the new innovation. If you do not have the required resources, check whether you could hire, rent or lease the required resources. Outsourcing the parts such as manufacturing but retaining control over the final assembly can be considered to manage resource usage efficiencies.

EVALUATE PURCHASED RESOURCE USAGE EFFICIENCIES If there is a need to acquire new resources, check whether the resource can be used for more than one purpose. The more you can benefit from a new resource the more effective your organization can be.

86


DETERMINE ATTRACTIVENESS A number of innovations do not reach the customers because of poor cash flow planning. Proper cash flow planning is essential for determining the attractiveness of an innovation.

EVALUATE INITIAL CASH FLOW REQUIREMENT To establish the true cost of developing an innovation, it would require an in depth understanding of a product development process and knowledge of the costs of materials and services required for the development of the innovation. It would be wise for an innovator to engage a product development and product marketing expert in the industry to help assess the initial costs to ascertain the cost of manufacturing, distribution, marketing and sales as accurately as possible.

ADD CASH FLOW FOR THE LIFE CYCLE OF INNOVATION Make an honest assessment of the life cycle of the qualified innovation identified for commercialization. The costs should include all costs involved in the life cycle of the innovation including expansion into new geographies.

87


ESTIMATE REALISTIC REVENUES Be very realistic in the revenue estimations over the life cycle of the innovation. Realistic estimates result in the formation of promising start ups. Investors often use a thumb rule which is to double the time taken and resources consumed to develop the innovation and to halve the projected revenues.

DERIVE AN ATTRACTIVENESS METRIC AND NORMALIZE FOR COMPARISON Finally, take all qualified innovations and normalize them with respect to some criteria. Criteria for normalization could include estimated total cost of development and the amount of capital that can be raised in the environment where the innovation is being developed. List all the qualified innovations according to the descending order of attractiveness and choose the top three to five innovations.

88


ASSESS TIME TO MARKET Evaluate the top four of five short listed innovations for its time to market by determining the time it would take to bring a possible innovation to the market.

ESTABLISH LISTS OF SUPPLIERS First, determine the list of component or subsystem suppliers. It is best to have a large number of suppliers from whom the components and the subsystems could be bought. Competing suppliers will ensure lower costs and reliable alternative sources of supply.

DETERMINE THE LEAD TIME Then consider the lead time required by each of the suppliers. The sooner a supplier can get the required supplies to the innovator, the smaller would be the time to market.

PROVIDE CONTINGENCIES Plan for contingencies by identifying what might or could go wrong with the suppliers. Cross border trade spats can easily affect the supplies. Hence, when choosing multiple suppliers, ensure that they are located in different countries thus reducing any potential disruptions in supply chains from any one country.

89


DETERMINE THE PROBABLE RELEASE TIME Always factor in additional buffer time in planning the development of the qualified innovations. It is important that you make such provisions in order to accommodate unexpected events.

Armed with all this information you can now make a realistic estimate of the most likely release time of the four or five qualified innovations.

NORMALIZE FOR COMPARISON Normalize the shortlisted qualified innovations with respect to the time to market. All things being equal the innovation that can be released to the market quickest should be the one chosen for commercialization.

Normally, all things are never equal. Hence it is important to establish rules for trade off. While a qualified innovation may be the quickest to market, if the challenges in raising all the capital required is difficult then you should choose the one that requires lesser effort for raising capital.

90


MITIGATE RISK Being an innovator or entrepreneur is not just about taking risk, but also managing risk and taking calculated risk. Therefore, the final step is risk management.

LIST OF ANTICIPATED RISK List all possible risks for the qualified innovation chosen for commercialization in a very objective and methodical manner. The probability of occurrence and the likely impact caused should be listed for each of the identified risks. This should be followed by a proper risk management process.

LIST OF MITIGATION PLANS, Identifying the risk is not enough, it is essential to make plans to either avoid or overcome the risk.

CONFIDENCE FACTORS AND MANAGEMENT METRIC The high probability and high impact risks should be actively analyzed and all the required steps should be taken to avoid, minimize or manage them. The high probability low impact risks are generally tolerated if the impacts are not likely to affect successful launch of the innovation or are actively managed otherwise. The low probability high impact risks merit contingency plans. These plans will outline the trigger conditions and the responses required in case such a risk comes into play. The low probability low impact risks are often recorded for information. There is generally not much attention paid to this category of risks.

91


For every tasks, identify the Exception Trigger, an event or a status of a task that will trigger the exception handling process. Devise Plan B and Plan C as Mitigation Strategies for handling the exceptional situation and a worst case plan as strategy when the situation for the task is dire.

Normally start ups do not have such plans. That is also the reason why many start ups fail. The time spent in listing the likely exceptions and the mitigating strategies is an investment that would contribute greatly to the success of an innovation development projects

92

CHAPTER 5: PLANNING THE DEVELOPMENT

ENTERING THE MARKET The most important step in planning the development is to decide how and when to enter the different markets. It is important to plan the globalization strategy from day one.

It is important to study each of the markets of interest and find out the best means of staging an entry. Remember that it may be prudent at times to engage partners in local geographies for the initial years of the operation. Several companies have taken the approach that they will focus on one market for the first few years and then expand into other markets. This might work for innovations with very strong intellectual property strategy.

Some innovations may easily be copied or modified or reverse engineered. For such innovations, it may be best to start planning multiple market entries within a shorter space of time. For such innovations it might be worthwhile to work with incubators or accelerators in the preferred geographies so that you can launch the innovation in those markets within a few months of time. Such directed multiple market entry is the best solution to stave off the possibility of losing some critical markets to copy cats and reverse engineers.

93

Chapter 5: Planning the Development

Such an approach might require creation of subsidiaries in the different markets that are financed by local investors and manned by local management. The revenue and profit share arrangements in such instances are likely to be much lower than if you were to do it alone. However, doing it alone would require sequenced market entry and that in turn might result in loss of markets. Hence, do not be greedy and share a good percentage of the revenues and profits with local investors and management to ensure that your innovation reaches these markets without any opportunity costs.

Remember, if you fail to plan your globalization strategy from day one you are really planning to fail in globalizing your technology. And an important market to enter first would be the primary market for your innovation. And the primary market may not be your own local market.

MODULARIZING DEVELOPMENT It is the best to break down the development of innovation into small modules. Smaller modules are easier to develop and much more manageable. However, when breaking down the innovation into smaller modules, take great care in ensuring that the flow of control and data between the different modules are well designed and verified for completeness.

Breaking down your innovation into modules allows for different teams to focus on developing those parts of the innovation that match their strength. In the case of software innovations it is almost always possible to divide the development into user interface, application or middleware and backend. The backend takes of communication and data management while the application or middleware captures

94


the key innovation and the front end or user interface should address ease of use for the customers. Designers often make the mistake of failing to develop a platform or middleware. Often times it is important to take a step back and ask whether the application is an instantiation of a middleware of the software platform. It is best to take a Software Development Kit (SDK) approach to developing the application or platform so that the application can be embedded within other applications. This also allows you to open up the platform to third party developers and benefit from the transactions generated by them. A good example is the Appstore that Apple opened up on its iPhone.

The approach is much more straightforward in the case of hardware innovation. You need to identify the modules that can be bought from the existing products and identify that central unit that is your innovation and ensure that all the subunits have the right hardware interfaces and the data and control flows that will permit the entire unit to work as a whole. You should further identify how you might offer an interface to your entire system from other systems that wish to utilize your innovation. This would ensure that your innovation is able to produce multiple revenue channels – sold as a stand-‐alone unit and also as a subsystem to a larger system.

PARALLELIZING DEVELOPMENT Once the development of your innovation have been modulized, the next step is to determine whether any of the developments can be carried out in parallel.

95


Parallelizing the innovation development has its advantages and pitfalls. The major advantage is the ability to reduce the development time. The time taken to develop the innovation can be significantly reduced if all the components can be developed in parallel. This seldom is the case. As an innovative entrepreneur you should plan to maximally parallelize the development of the innovation.

Such parallelized development’s biggest pitfall is that the different modules do not work with each other after the completion of the individual modules. You should therefore spend sufficient time on the design phase of the innovation development to ensure that you have defined the required flow of information (data and control signals) across the different units as well as the correct software and physical interfaces for hardware innovations.

Do spend sufficient time on identifying the parallelizing opportunities given that the time for innovation development is fast shrinking resulting in the imperative of compressing development time through managing a development project that is optimally parallelized.

MANAGING INNOVATION DEVELOPMENT Managing innovation development is not very different from managing any other project. Your team should have a sponsor who signs off on the parameters of the project – scope, budget, timeline and quality. Use Critical Path Method to identify the critical parts of your innovation development. Also have key milestones identified and have regular reviews. Use tools such as GANTT charts to keep track of the progress of the innovation development.

96


There are many free project management software that are available on the web. Some of them are desk top software and some others are web based. Download a desktop based project management software given that much of what you would do should remain confidential.

Make sure that you do not end up tracking tasks at a very fine level of granularity, making your project management charts very cluttered and clumsy. Finding the right level of module, component or task granularity is critical. It should be a balance between the number of items that can be tracked effectively and the level of detail to which a component development ought to be tracked. The balance often comes with experience. It is therefore best that you talk to someone with significant project management experience to help you strike that balance. The person that you will talk to should be someone worthy of your trust – a business mentor, an investor or an academic advisor, who will not compromise your interest even by accident.

Remember the saying “If you fail to plan, you are planning to fail.” Be wise, use project management tools to plan your innovation development process. And, provide for handling exceptions using a table similar to the one below.

DISTRIBUTING DEVELOPMENT Once you have divided your innovation into modules and identified the potential for parallelization of at least some of the parts of the development, the development transitions into a project management

97


exercise. Quickly use PERT (Project Evaluation and Review Technique), CPM (Critical Path Method) and GANTT charts to set up the distributed development plan.

Distribute the development if the core innovation development team does not have some key skills or if you have limited resources and do not think it is prudent to hire more human capital into your team. You can also distribute the development if you find that some parts of the development could be developed at lower costs elsewhere in the world.

In all these cases, identify an owner of each of the components of the innovation. The owner of the component of the innovation is responsible to ensure that the module is developed in time and at or below costs. This does not require that the owner to develop the innovation. The development team can be outside the core team. However, the component or module owner is responsible for the development, testing and integration of the module into the entire innovation.

STAYING IN CONTROL OF INTEGRATION It is sometimes prudent to outsource the prototyping or manufacturing of your innovation but make sure that you do not outsource the entire manufacturing to one vendor. Given that you would have already decomposed the innovation into modules and parallelized the different modules of components you should now be clever in engaging different vendors to develop different components so that you minimize if not avoid the possibility of reverse engineering which is pervasive in some countries. In the

98


case of critical components or modules, you may wish to outsource their development to vendors in countries that have good IP protection regimental even though they may be marginally more expensive.

Must make sure that the final integration of the modules or components are entirely within your supervision and control. This is one way to ensure that the intellectual property does not take flight from under you own nose without your knowledge.

If the components or modules can be compared to the ingredients of a dish then the integration process can be compared to the recipe. The integration process can be maintained as a “trade secret” for the purposes of your innovation. There are other examples of how expert designed plant unnecessary components in an innovation to mislead the reverse engineering squads.

The motto you can follow diligently should be “never reveal the recipe”.

DESIGN MODULE, COMPONENT, SUBSYSTEM AND SYSTEM LEVEL TESTS Develop testing procedures for every module of the innovation. These tests should address both the functional aspects of a module and its interface to the other modules of the innovation. This is called unit or module or component level testing.

Then test connecting modules or components one pair at a time. Such testing will ensure that the two modules will work together as per design. After testing them one pair at a time you would want to bring

99


together all the modules in a subsystem and test them as a subsystem. You can plan a system level test once all the subsystems have been individually tested.

Draw up test plans for each of the tests. Each test plan should have a set of tests clearly outlined. Each test should have the inputs (data or signals) to the module and the expected outputs (data or signals) and criteria for assuring that the module has passed the tests.

TESTS FOR ALL NECESSARY BUGS Do not fall into the trap of testing for the sake of testing. Take sufficient time to design the tests that are a must to ensure that your innovation is marketable. It is important that you develop the core functionality of the system first and hence the first suite of tests will target these core functionalities.

If you had architected the system well, then it should be easy to add bells and whistles to your system as the competition creeps in and the innovation hits the main street. You will have to design the test plans for the added features when you decide to implement them.

The first version of the product should almost always focus on the core functions and hence the test plans should address the likely problems in the core functions.

100


INTELLECTUAL PROPERTY STRATEGY It is very rare that an innovation is built around a single intellectual property. You should work with an experience IP strategy expert in the domain in which the innovation is being created to decide on the following aspects of your innovation.

1. Should you use copyright, patent, trademark, or trade secret as IP for your innovation? 2. Should you seek IP using more than one of the above categories? 3. Does your IP position give you the right to operate? 4. Is your IP position likely to expose you to your competition? 5. What additional IP does the innovation need to ensure that you have a robust IP position? 6. Is the additional IP to be licensed or created? 7. If the additional IP is to be licensed, who are the potential licensors? 8. What should be the licensing terms – exclusive, non exclusive, time and geography limited? 9. Can your IP be easily made irrelevant by your competition? 10. Are there possible counter measures to protect your IP position from your competition?

101

Explore Your Ideas

EXPLORE YOUR IDEAS

Documents

Innovative Entrepreneur's Workbook