Management of Technology & Innovation …...into promotion, marketing and sales to generate growth. What must be monitored is the “cost per acquisition” (CPA). The margin between

©Mazzarol 2015 all rights reserved

Management of Technology & Innovation MKTG5603 &

Biotech Commercialisation MKTG5604

Workshop 1 Part B: Business

Model & Innovation Strategy Professor Tim Mazzarol – UWA Business School

UWA Business School MBA Program

M Biotech Program

[email protected] MOTI MKTG5603

BC MTKG5604



Four Strategic Environments

Administrator • Operational planning

CEO • Formal strategic

planning

Shopkeeper • Informal operational

routine planning

Salesman • Informal intuitive

strategic planning

Certainty Uncertainty

Simple Problems

Complex Problems

Source: Mazzarol & Reboud (2009)

RISK


Four Strategic Environments

Administrator • Operational planning

CEO • Formal strategic

planning

Shopkeeper • Informal operational

routine planning

Salesman • Informal intuitive

strategic planning

Certainty Uncertainty

Simple Problems

Complex Problems

Source: Mazzarol & Reboud (2009)

RISK

Known

Knowns

Known

Unknowns

Unknown

Unknowns

Known

Unknowns


Strategy

Business Strategy

Development

Business Program

Development

Disciplined Execution

Strategy as a Process


Seeing Innovation in Strategic Terms


Threats

External analysis

Factors largely beyond the control of people in

the organisation

Unfavourable circumstances or events

S W

O T

Strengths Internal analysis

Factors within an organisations control

Advantages over competition

Weaknesses

Internal analysis

Factors within an organisations control

Disadvantages over competition

Opportunities External environment

Factors largely beyond the control of people in the organisation

Favourable circumstance of event, potential or existing

Checklist: Strengths + Weaknesses Management Employees Finance Legal Products and services Purchasing Research and development Distribution Marketing Facilities Position in the industry Opportunities + Threats Political Economic Social Technical

SWOT Analysis


Learning and Inventing

Breaking

connections

Source: Basadur and Gelade (2003)

Familiar

Strange Making the

familiar strange

Making the

strange familiar

Making

connections

Two halves of a

continuous process of

learning and inventing.


Strategy

Business Strategy

Development Business Program

Development

Disciplined Execution

Strategy as a Process

Where do we

compete?

How do we

compete? What is great

performance?

How will we

achieve our

targets?

What are our

levers?

How do we

create an

annual plan?

How do we

get it cone?


Creating Value with Capabilities

Customer Value Proposition

Distinctive Competencies

Processes

Positions

Paths

Products & Services

Dynamic Capabilities

Opportunities Threats

Weaknesses Strengths

• Competitive rivalry • New market entrants • Substitutions • Regulatory • Supplier power • Buyer power • Social & demographic • Environmental

• Unmet market needs • Ability to add value • Ability to reduce cost • Niche or mass-market • Product innovation • Process innovation • Market innovation

Process weaknesses: • Management • Organisation Learning Positional weaknesses: • Technical, financial &

physical assets • Systems Path weaknesses: • History, culture

• Valuable • Rare • Difficult to copy • No substitutes • Organisational ability Types of assets: • Tangible - Intangible • Isolating mechanisms

Path

dependencies

Gaps in

knowledge

& resources

Technical,

financial &

Physical

assets

Coordination &

Learning

© Mazzarol 2014 all rights reserved

VRIO

framework

Business Model Analysis

Lean Canvas Lean Start-Up


What is a Capabilities System?


What is a Business Model?

A business model is a conceptual tool

containing a set of objects, concepts and

their relationships with the objective to

express the business logic of a

specific firm.

It is a description of the value a

company offers to one or several

segments of customers and of the

architecture of the firm and its network

of partners for creating, marketing, and

delivering this value and relationship

capital, to generate profitable and

sustainable revenue streams.


Elements of the Business Model

•The Core Competencies Required

•Partnerships & Alliances Required

•Team structure

•Physical facilities needed

• Distribution Channels

• Customer relationships

• Value configuration

• HRM systems & Culture

• Operational management

• Rules, policies, metrics

•The Revenue Model

•Cost Structure

•Margin Model

•Resource Velocity (e.g. break-even, cash cycle, cost-profit-volume)

•Customer Value Proposition (CVP)

•Target Customer Characteristics

•Target Market Segments

PRODUCT PROFIT

FORMULA

KEY RESOURCES

KEY PROCESSES

Sources: Osterwilder, Pigneur & Tucci (2005) & Johnson, Christensen & Kagermann (2008)


Lean Canvas for Business Model Design

The Lean Canvas for Business Models

Strategic Partners Key Activities

Key Resources

Value Proposition Customer Relations Customer Segments

Channels

Cost structure (how much it cost?) Revenue Stream (Monetizing)

Sources: Osterwalder (2010)

The Lean Canvas for Business Models

Strategic Partners Key Activities

Key Resources

Value Proposition Customer Relations Customer Segments

Channels

Cost structure (how much it cost?) Revenue Stream (Monetizing)

Sources: Osterwalder (2010)

Who is the customer? What are their main problems or needs? What goals do they have? Demographics? Psychographics?

How does the product or service help the customer : • Save money • Save time • Add value • Increase profits

How do you reach your customers? How can you deliver value to them? Can you do this directly or do you need to work via others?

What are the customers’:

• Acquisition costs? • Retention costs? • Switching costs? • Life time value?

How much is the customer willing to pay? How many customers will pay? How frequently will they pay? Cash cycle & cost-profit-volume analysis

Core competencies ? Team structure? Physical resources? Financial resources?

Operations management CRM systems Financial control systems HRM Systems Rules, policies, metrics

Do you need to work

with others or can you proceed alone? If you need others who are the: • Lead customers? • Key suppliers? • Resource network

actors?

What are the main over head (fixed) costs? What are the anticipated variable costs? What is the anticipated gross profit margin? When will the business break even?


The Lean Start-Up Process

IDEAS

DATA PRODUCT

LEARN BUILD

MEASURE

Lean Start-Up Process

Assumptions • Customer Value hypothesis • Growth hypothesis

Innovation Accounting • Use minimum viable product • Fine-tune towards ideal goal • Persevere or pivot

Focus on Metrics • Actionable – cause & effect • Accessible – simple to understand • Auditable – systematic & transparent

Business Plan Pivot • Be ready to change direction • Multiple options • Flexibility is the key

Adapt Innovate

Small batches Experiment

Sticky Viral Paid

Review problems Make mistakes once

Portfolio Thinking Resources; autonomy,

ownership

Batch Grow

Source: Ries 2011


Pivots

Sources: Ries (2011)

Pivot Type Description

Zoom-in Pivot What was once thought to be a single feature of a product becomes the whole

product.

Zoom-out Pivot What was previously considered to be the whole product becomes a single

feature of a much larger product.

Customer Segment Pivot Product solves a real problem for customers but not the type of customers

originally targeted.

Customer Need Pivot Recognition that the problem you thought you were solving is not very important

to the target customers, thus requiring product redesign.

Platform Pivot Shifts the product from a component within a wider platform to the actual

platform, or vice versa.

Business Architecture Pivot Shift from high margin low volume (complex systems model) to low margin high

volume (volume operations model) or vice versa.

Value Capture Pivot Changes to the way a product captures value using different revenue models.

Engine of Growth Pivot Change to the nature of the Growth Engine underlying the Business Model.

Channel Pivot Change to the channel structure used by the company to reach its customers.

Technology Pivot Change to the way that solutions are delivered using different technology.

A “Pivot” is a change in the firm’s strategy designed to test a fundamental

hypothesis about the product, business model and engine of growth.


Engines of Growth:

The Sticky Engine of Growth


Sticky Growth Engine

Description: This growth engine is focused on the capture and retention of customers. Typically it uses database

technology as the foundation where a customer has their own products or services hosted . This is

most common in the case of websites and point of sales systems (e.g. iTunes). Once a product or

service is built on top of a database technology it becomes difficult for the customer to switch.

Customers in IT sector become “locked into” the vendor they choose. This type of engine requires

that it offer the customers compelling new capability to get them to risk being locked into a single

vendor.

Key issues: • Relies on having a high customer retention rate.

• Requires tracking of customer retention and attrition rates (Churn rate).

• Churn rate = % of customers in period who cease to engage with the product.

Rules: • If the rate of new customer acquisition exceeds the churn rate the product will grow.

• The speed of growth is determined by the rate of compounding or the natural rate minus the churn

rate.

• Key focus should be on improving customer retention rates.

Engines of growth are a way to focus the new business model around a few key

metrics to help concentrate their limited resources.


Engines of Growth:

The Viral Engine of Growth


Viral Growth Engine

Description: This growth engine is focused on the ability to get existing customers to bring in new customers. This

can take the form of referrals via word of mouth, using online connections (e.g. Hotmail), or peer to

peer marketing and sales (e.g. Tupperware). The Viral Engine is powered by a measurable feedback

loop known as the “Viral Loop”. This can be measured using the “Viral Coefficient”. The higher the

“Viral Coefficient” the faster the product will spread.

Key issues: • Relies on having a high rate of customer referrals to bring in new customers.

• Requires tracking of the “Viral Loop” and “Viral Coefficient”.

• Viral Coefficient = how many new customers will use a product as a result of each new customer

that signs up (e.g. number of referrals per new customer).

• Viral Coefficients > 1 will grow.

Rules: • Focus on increasing the Viral Coefficient more than anything else.

• Many viral products do not charge customers directly but rely on indirect revenue (e.g. Facebook

advertising).

• The value of a customer may not be measured purely in monetary terms but in their willingness to

bring in new customers.




Engines of Growth:

The Paid Engine of Growth


Paid Growth Engine

Description: This growth engine is focused on two things: increasing the revenue from each customer, or lowering

the cost of acquiring a new customer. It is powered by a feedback loop, which is the amount of

money that a customer spends with the product/firm over their “life time”. This produces the concept

of the “life time value” (LTV) of each customer. Profits generated from this value are invested back

into promotion, marketing and sales to generate growth. What must be monitored is the “cost per

acquisition” (CPA). The margin between the LTV and the CPA determines the rate of growth.

Key issues: • Relies on customer life time value (LTV).

• Requires tracking of customer LTV against cost per acquisition (CPA)

• Margin between LTV and CPA determines the rate of growth.

Rules: • The margin between the LTV and CPA is the “marginal profit”.

• If the LTV is greater than the CPA the company will grow.

• If the LTV is lower than the CPA the company’s growth will slow.




7 Principles of Lean, Rapid & Profitable NPD

Sources: Cooper & Edgett (2005)

Customer Focused

Front-end loaded

Spiral development

Holistic & Cross-functional

Metrics

Portfolio management

NextGen Stage-Gate®


1. Customer Focused


Key principles:

• Offer new products that

provide benefits customers

want.

• Offer customers new and

unique benefits.

• Provide better value for money

for customers.

• Offer products that are

superior to competitors in

meeting customer needs.

• Offer products that offer

superior quality to competitors.

Key actions:

• Work with lead customers to

develop new products.

• Understand unmet customer

needs, problems and value.

• Conduct ‘voice of customer’

market research.

• Collaborate with end users during

product development.

• Seek insights into buyer behaviour

to identify benefits sought.

• Involve NPD development team in

field work.

• Start early and expand the end

user base.


2. Front-end loaded


Key principles:

• Focus on the ‘front-end’ of the project.

• Scope the project via ‘desk research’.

• Build a ‘business case’ (business

model).

• Define the product and project.

• Collect information to allow future

“Go/Kill” investment decisions.

Key actions:

• Preliminary market assessment – Market size;

– Customer interest, needs, value offer

– Competitors

• Technical assessment – Technical complexity & risk

– IP rights issues

– Need for alliance partners

• Source-of-supply assessment – Key suppliers

– Operations

• Market research – Voice of customer research

• Concept testing – Prototype “minimum viable product”

• Value-to-the-customer assessment – Comparison with competitor product offering

• Business and financial analysis – Develop business case assessment

Product

Definition

Project Scope

Target Market

Project Concept

Positioning

(plus pricing)

Value

Proposition

Benefits to be

Delivered

Features, Attributes,

Requirements

High Level

Specs


The Front-End Work Process


Gate

1 Stage 1 Gate

2 Stage 2 Gate

2 Stage 3

Idea

Screen

Second

Screen

Go To

Development

Discovery

(Ideas)

Project

Scoping

Build

Business

Case

Development

The Front-End Work


3. Spiral development

Sources: Cooper & Edgett (2005) Sources: Cooper & Edgett (2005)

Gate

2 Stage 2 Gate

3 Stage 3 Gate

4 Stage 4

VoC User

needs &

wants

study

Testing &

Validation

Build

Business

Case Development

Full

Proposition

Concept

Test

Rapid-

Prototype

& Test

First

Prototype

& Test

Next

Prototype

& Test

Field Trial

Beta Test


4. Holistic & cross-functional


Key principles:

• Team for NPD is cross-functional. – (e.g. financial. technical, sales,

marketing, production)

• Projects undertaken by clearly

assigned team of experts.

• Team follows project through from

end-to-end (no hand-offs).

• Clearly identified project team

leader.

• Leader from beginning to end of

project.

Key actions:

• Select project team carefully, all

should be volunteers

• Team leaders are

“entrepreneurial-leaders” with: – Leadership skills

– People skills

– Vision for project

– Credibility within the company

– Goal focused

– Technically skilled

• Team’s need: – Excellent cross-functional

communication & cooperation on

project

– Shared & centralised IT systems

– Support from senior management

– Autonomy in day-to-day activities

– Accountability for project outcomes


5. Metrics


Key principles:

• Have clear performance metrics to

measure project success/failure.

• Establish team accountability for

results.

• Build in learning and

improvement.

Key actions:

• Put performance metrics in place – Revenue vs. forecasted sales

– Profit vs. forecasted profits

– Profitability (NPV, Gross Profit Margin)

– Customer feedback & satisfaction

– Market share

– Time to market

– Performance against budget

– On-time performance (launch)

• Hold teams accountable project

outcomes

• Practice continuous improvement

& retrospective analysis

• Conduct Post-Launch Reviews – First Review (interim): 1-2 months after

launch

– Final Review: 12-18 months after

launch


6. Portfolio management


Business Strategy &

Product Innovation

Strategy

Strategic Buckets & Product Roadmap

Portfolio Review: • Holistic

• All projects reviewed for:

• Right priorities

• Right mix

• Alignment

• Sufficiency

• Resource adequacy

• By senior management

Stage-Gate Process: • Individual projects

• In depth evaluation

• Quality data available

• Go/Kill decisions

• Resources allocated

• By senior management

1. Strategic

Portfolio

Decisions

2. Tactical

Portfolio

Decisions:

Project selection

prioritization &

resource allocation


Strategic Buckets


Platform Projects

• (Change the basis of competition)

Other Projects

• (Extensions, Modifications, Cost reductions, Fixes)

New Product Projects

Focus Resources into

High Productivity

Buckets

The business strategy dictates the split of resources into buckets.

Projects are then rank ordered within buckets, but using different

criteria in each bucket.

Key issues: • Size of buckets should reflect

the strategic priorities of the

business.

• Use metrics & benchmark data

to determine where to invest

money.

• Look at historical data to make

allocation decisions.

• Measure yields from past R&D

investments.


7. NextGen Stage-Gate®


Idea

Stage

Stage

1

Stage

2

Stage

3 Stage

4

Stage

5 Gate

1

Gate

2

Gate

3

Gate

4

Gate

5

Discovery Scoping Business

Case

Development Testing Launch

Idea Screen 2nd Screen Go to Develop Go to Test Go to Launch Post Launch

Review

Driving New Products to Market


Gates are a Two-Part decision


Pass Go is resourced:

becomes Active

Project

Kill

Pass/Kill Priorities

Placed On Hold

Project is

evaluated against

Must Meet &

Should Meet

criteria. Does it

“pass” these

tests?

Project is compared to Active &

On-Hold projects. Does it improve

the portfolio? Resources are

allocated

Part I Part II

Customer Value Proposition

Distinctive Competencies

Processes

Positions

Paths

Products & Services

Dynamic Capabilities

Opportunities Threats

Weaknesses Strengths

• Competitive rivalry • New market entrants • Substitutions • Regulatory • Supplier power • Buyer power • Social & demographic • Environmental

• Unmet market needs • Ability to add value • Ability to reduce cost • Niche or mass-market • Product innovation • Process innovation • Market innovation

Process weaknesses: • Management • Organisation Learning Positional weaknesses: • Technical, financial &

physical assets • Systems Path weaknesses: • History, culture

• Valuable • Rare • Difficult to copy • No substitutes • Organisational ability Types of assets: • Tangible - Intangible • Isolating mechanisms

Path

dependencies

Gaps in

knowledge

& resources

Technical,

financial &

Physical

assets

Coordination &

Learning

© Mazzarol 2014 all rights reserved

VRIO

framework

Business Model Analysis

Lean Canvas Lean Start-Up


Group Discussion

Working in teams

• Review the firm’s innovation

strategy.

• Prepare a business model

using the “Lean Canvas”.

• Highlight major areas for

future action and focus.

End of Presentation

Documents

Management of Technology & Innovation …...into promotion, marketing and sales to generate growth. What must be monitored is the “cost per acquisition” (CPA). The margin between