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Theoretical concepts and practical considerations
Guest lecture by Todor Stoykov02/05/2012
How to define innovation?No single, uniform definition of the term
“innovation” existsOxforddictionaries.com: “a new method, idea,
product, etc.”Schumpeter (1934): Innovation is the realisation
of a new combination (or recombination) of existing cognitive and material elements
Freeman (1974): From an economic perspective, innovation is defined as the first real commercial transaction of a new product or process
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Why the need to innovate?The principal benefit of innovation is that it
provides a source of strategic advantage to enterprises
Tidd et al. (2005): Mechanisms through which innovation provides strategic advantage to an enterprise:Offering something no-one else canOffering something in ways others cannot match –
faster, lower cost, more customised, etc.Offering something others cannot unless they pay a
license or other feeChanging the basis of competitionObtaining early-mover advantages
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How are innovations generated?The necessary first step to innovation is
creativityA multi-factor model of organisational
creativity (Woodman et al., 1993):
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Employing the creative product to a business use (value appropriation) is what constitutes the innovation
What is being innovated?
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Product innovations
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Tablet PCs
Glaceau’s Vitamin Water
Service innovations
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Apple’s iTunes store
RIM’s Blackberry mobile service
Process innovations
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• Mining company: installed a computerised maintenance management system to enhance the performance of its equipment maintenance process
Business model innovations
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Low-cost airlines
…moving away from the industry standards
Innovating away from the competitionKim and Mauborgne (2004): Blue ocean strategy
Red ocean: an industry with defined boundaries where players try to outperform each other in a chase to capture a larger market share. Over time, prospects for profit and growth decrease, products become commodities, and competition turns the water bloodier
Blue ocean: creating an entirely new industry or redefining the boundaries of an existing industry. Demand is created instead of fought over, and the new industry provides ample opportunity for profits and growth
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Cirque du SoleilThe circus industry in the US and Canada
before CdS:A shrinking market where competitors tried to
attract audiences by securing the most famous lion tamers and clowns (traditional circus acts)
No significant alteration of the circus experience audience numbers decrease rising costs without corresponding increases in revenues a typical “red ocean”
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Cirque du Soleil (cont’d)How CdS approached the circus industry:
Offer the fun and excitement of traditional circus together with the artistic sophistication of a theatrical performance
Reevaluated the components of the traditional circus acts and found that many of them were unnecessary and often times too costly Animal acts “Star” performers Three-ring shows
Concentrated on what they found really makes people go to the circus (clowns, classic acrobatic acts, the tent)
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Cirque du Soleil (cont’d)Included new elements, borrowed from theatre
and other performing arts (ex. ballet) Each show has a theme and a story line Multiple productions based on different themes and
story lines (ex. Saltimbanco) Each show has an original musical score which drives
the performance, lighting, and timing of the acts (instead of the other way around)
By simultaneously decreasing costs and driving up buyer value, CdS innovated away from the competition and created its own “blue ocean”
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Key takeaways from the CdS case
Continuously question:What features of our current offering really
add to the client’s experience? What can be deleted? What new elements add value? Is the new offering necessarily more
expensive?
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IKEADIY furniture assemblyOptional services (ex. delivery)Sourcing from suppliers around the worldSeparate vending of components (ex. wardrobe
frame doors)
What is IKEA innovating? Product?Service?Process?Business model?All of the above?
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What is the degree of change which the innovation brings?
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Degree of change
One definition of incremental and radical innovations (Gatignon et al. (2002)):
• Incremental innovations: improve price/performance at existing rate of progress
• Radical innovations: advance price/performance frontier by much more than existing rate of progress.
Radical and incremental innovations: an exampleRadical innovation: the introduction of the
automobile
Incremental innovation: the models’ improvement over time
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The impact of innovations on firm competencesTushman & Anderson (1986) and Anderson &
Tushman (1990): Competence-enhancing vs. Competence-destroying innovationsCompetence-enhancing innovations: build on
the existing competences of the firmCompetence-destroying innovations: destroy
the existing competences of the firm Ex. typewriter manufacturing industry was
practically wiped out after the introduction of the personal computer and the text-editing software
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Innovating towards individualised experiencesPrahalad & Krishnan (2008):
Commodities solutions experiences individualized experiences
Particularly relevant in view of increasing speed / need to innovate away from competition
Ex. TATA Group (India): Tea: From plantation to individualized wellness /
health / beauty company (and from $ 0.20 to $20 per box ☺)
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Open innovationDefinition: getting hold of innovative ideas from the
outside world which could be applicable inside the enterprise
Powell et al. (1996): interorganisational innovation and networks with partnersBreakthroughs often the result of diverse network of
contributorsInternal and external knowledge are (often) not
substitutes, but complementary and reinforce each other over time
Firms that initiate and maintain diverse alliances and alliance experience, work themselves to the center of the ecosystem
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Open innovation (cont’d)A central position, as an active participant, helps
the company to get at the forefront of new advances, become an attractive employer, develop a common understanding & shared principles of cooperation with partners
Networks also reduce uncertaintyResult: medium- and long-term growth, success
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Some conclusions about open innovationDoing everything by yourself is a “broken model”;
tapping ideas/technologies/new products from outside
If you got your internal innovation process right, and the set of external strategies, you are still only half way. You also need the right processes, organization, capabilities for open innovation.
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…final remarkSuccessful innovation is about seeing the
right opportunities, even when you are not looking for them
How many passes does the team in white shirts make?
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ReferencesAnderson, Philip. Michael L. Tushman. “Technological discontinuities and dominant designs: A cyclical model of
technological change”. Administrative Science Quarterly, 1990
Freeman, Christopher. “The economics of industrial innovation”, 1974
Gatignon, Hubert. Michael L. Tushman. Wendy Smith. Philip Anderson. “A structural approach to assessing innovation: Construct development of innovation locus, type, and characteristics”. Management Science, 2002
Hill, Susan. Harry Barkema. Lectures for course MG427 “Analysis and design of organisational practices”. London School of Economics and Political Science, 2008
Kim, W. Chan. Renee Mauborgne. “Blue ocean strategy”. Harvard Business Review, 2004
Powell, Walter W. Kenneth W. Koput. Laurel Smith-Doerr. “Interorgazational collaboration and the locus of innovation: networks of learning in biotechnology”. Administrative Science Quarterly, 1996
Prahalad, C.K. M.S. Krishnan. “The new age of innovation”
Schumpter, Joseph. “The theory of economic development”, 1934
Tushman, Michael L. Philip Anderson. “Technological discontinuities and organizational environments”. Administrative Science Quarterly, 1986
Woodman, R.W. J.E. Sawyer. R.W. Griffen. “Toward a theory of organizational creativity”. Academy of Management Journal, 1993
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