Innovation and Entrepreneurship –Ducker

Thursday – Session 1 (10 & 11)

How do you define entrepreneurship? Write answers on the board

How does it differ from traditional business? Write answer on the Board

How do you define Innovation? Write on board

Where does innovation come from? Sources? Write on the board.

What are some examples of innovation? Why are they innovations? Take 5 min to think and write it down.What is the difference between and innovation and an improvement? Can they both be the same? Write on board

How does innovation and entrepreneurship relate to each other?

Entrepreneurship is the means to recognize and detect an opportunity.Then how to apply good management practices to take advantage of the opportunity thru application of innovation.

Innovation is the source that allows the entrepreneur to take advantage of the opportunity.  Not all innovation relates to something no one has ever done before.  It could be applying an existing approach(s) better than anyone else or applying a non-traditional way of doing something.

-selling online

- a different application or use

- a different market

The practice of InnovationEntrepreneurs need to:Search purposefully for the sources of innovationThe changes and their symptoms to indicate an opportunity

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How to apply the principles of successful innovation

Systematic entrepreneurshipFrench economist J.B.Say 1800 about   Entrepreneurs shifts economic resources out of an area of lower and into an area     of higher productivity and greater yieldDrucker notes that the US and Germany have succeeded to recover quicker from past economic downturns is thru the application of management principles.

Example: McDonalds

Management is the identification and application of resources in the creation of a good or service.Innovation as applied to Management is the understanding of the process, both structural and operational. Then redesigning the process to meet the needs of the end item or service.This includes the redesign or invention of the tools to support the process to provide repeatability and consistent quality.

Define value as understood by the customerDefine qualitySet standardsDefine trainingSet compensation

Example:   Foundry's use of NC machines to convert a batch process into a flow process.   The technology is not new, the process concepts are not new, the application is     new.

Is entrepreneurship and innovation restricted to small startup businesses?

Drucker notes that entrepreneurship is the willingness to make a decision.  Therefore, since decisions typically involve risk an entrepreneur must be willing to take a risk.  

Drucker identifies this as a behavior and therefore can be learned.It's foundation is on theory and concept not intuition.Behaviors are based on experience and expectations.

Schumpeter identifies entrepreneurs as "creative detractors”-what does this term mean

Entrepreneurs  believe that change is good,They search for change, respond to it, and exploits it as an opportunity

Though this differs from traditional economic thoughtWhat is good today will be the cause of failure on the future.

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IPhone, Microsoft, PC

Failure in entrepreneurship is due to not applying the right methodology and well known practices.  Ducker

Purposeful Innovation and the Seven Sources for Innovation Opportunities

Innovation  Specific instrument of entrepreneurship  Act that endows resources with a new capacity to create wealth.  Creates a resource  Resources can only be meaningful when they can provide value added to the consumer      Mold, oilExamples Ambulances  Helicopter  Mash. Mobile army surgical hospital

Q3:  what are some examples of French innovation. (Take 10 min in a group go 3)        Explain why it is an innovation

Hot air balloon

- Though the Chinese (220AD), Peruvians(450ad) and Portuguese(1709) all experimented with hot air ballons, it was the Montgoflier brothers who had the first manned flight (untethered) in 1783.

- The first military use was in 1794 by the French during the battle of Fleurus.

- Gambetta used to rally help from the countryside during 1870 Franco-Prussian war.

France vs GB, Germany, Netherlands and Dutch

Innovation does not have to be a physical machine or technology.  It could be a policy or philosophy that enhances the process.    Insurance    Installment plan    Keiretsu in japan,  need to check on current validity

Innovation can be more than a new product.

Innovation can be products, process, marketing and organization

Product innovation: A good or service that is new or significantly improved (technical, materials, software, user friendliness

- blue led vs red led-

Process innovation: New or significantly improved production or delivery method Tech, equip, software

BOF

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Continuous Casting

Marketing innovation: Product design, packaging, placement, promotion or pricingo Easy to use bottleso Sizes to fit needso Data gathering for individual marketing

Organizational innovation: Business org or practice, external relations

o No offices, no defined hierarchical structure, floating teams. Chief technical officer. Others?

Can there be social innovation?Q4: is the French form of health care an innovation?  Why or why not?

Churches could not keep up with wounded from WW 1.

Innovation is an economic or social rather than a technical term. Change success has always been about individual acceptance rather than the specific change.

Entrepreneurs should not stumble across innovation. True entrepreneurs use a systematic method for finding opportunities and the corresponding innovations.

Systematic innovation therefore consists in the purposeful and organized search foe changes and in the systematic analysis of the opportunities such changes might offer for economic or social innovation.

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Thursday - Session 2 (10 & 11)

Assignment

Work in groups of 3

Define three innovations

- State type of innovation: Product, Process, Marketing, Organizational

- State why you think it is an innovation and not just an improvement.

- One of the innovations must French – relate.

- You have 20min

- Be prepared to present to the class

- You can use any source.

- If you Google it then all will be the same, I will ask why you chose these innovations.

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Friday – Session 3 (10 & 11)Innovation exploits changeSystematic innovation means monitoring seven sources for innovative opportunities.

The first 4 sources lie within the enterprise1. The unexpected: the unexpected success, failure, the unexpected outside event2.  The incongruity- difference between actual reality and reality as it ought to be.3.  Innovation based on the process need4.  Changes in industry structure or market structure that catch everyone unaware.

The next 3 sources involves changes outside of the enterprise5.  Demographic changes6.  Changes in perception, mood and meaning7.  New knowledge, both scientific and non-scientific

Note: There can be overlap

Source 1: the unexpected success A perceived failure initially but resulted in a success typically by discovering an alternate use.

Story:In the 1950's, Decker spoke with RH Macy, CEO of Macy's department store in New York.  Macy complained that appliance sales were eclipsing that of the fashion sales.Traditionally, fashion was 70% of store sales but with the introduction of appliances accounted for 60% and fashion only 40%.Decker wondered why Macy was concerned as overall store sales increased significantly.Q: why do you think Macy was concerned?

Was Macy measuring success using an outdated metric? The question we must pose is how should we measure the success.

o The degree of success is only relevant based on the metric.

o What if we are looking at the wrong metric?

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o This begs another question what is the right metric?

If we are constantly changing the metric then how can we establish comparisons? Trends.

But if the environment is rapidly changing then should we be using past data to predict the future?

Does the metric help use determine when the source of the unexpected success is a trend or a fad?

JB Say noted that entrepreneurs shift resources from low to high productivity areas.

o If so the, Macy should move more store assets to appliances?

o More store space, more advertising, more sales people.

o Does this mean he should give up the fashion focus?

o What about Louis Vuitton or YSL moving to watches?

If we use net revenue as our metric can we naively lose our focus and be chasing a fad or do we blindly follow the traditional path?

We will focus more on this when we get to Financial Measurements.o Long terms vs short term

o Local vs global metrics

Using current metrics will seek to optimize by focusing resources on the current products.

The result is that we may miss opportunities by not placing the correct emphasis which will allow us to be successful in the future.

o Remember the concept of life cycle.

o What is the right mix of resources?

o That is the tough question.

 The answer will drive which method of innovation we will utilize. This analysis of metric success sources relates also to traditional and non-

traditional customers and uses. This also applies not only to the product but to byproducts and waste.

Go to examples on slide

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THE UNEXPECTED FAILURE

Let’s say that we do make a mistake.

The mistake could be in the product development, timing of release, wrong structure, misunderstanding of customer needs.

Q: Does a failure provide an opportunity?There is a philosophy in US entrepreneurship.

“Fail Fast, Fail Cheap”Q: What does this mean?

Q: what does a failure provide us? We learn either how to do something or how not to do something from every

event.A failure is simply telling us how not to do something.

The trick is to find out what is not being done well. It can be the product/service, the marketing, the pricing, new competition or

a change in customer demand.Example: Edison statement on making the light bulb.

Q: Why do we sometimes not recognize we are moving down the wrong path?

I taught a class on Decision Making under Uncertainty.  In the class I ask students if they are bias?  Most indicate No.But a bias is based upon beliefs as the result of experience or information gathered from someone we respect.This bias causes us to minimize the impact of results that do not match what we had expected, a failure.

o Like picking a stock and staying with it even though the metrics say otherwise

o Remaining in a relationship even though both it is going nowhere

o Sunk cost

There are two types of bias associated with this believe.

1. We do not wish to say that we are wrong. (ego)

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2. We only gather and accept data that supports what we believe. (data bias)

To avoid these biases, we need to establish a clear metric on how to establish success.

o Stick to it

Innovation metrics could be defined as our systematic review of this failure relative to our bias to see if this result changes our belief.

Innovation is more than just research; it is an onsite investigation of the causes of the failure, according to Drucker.

THE UNEXPECTED OUTSIDE EVENT

Another cause of a failure is a change in the competition or environment. This outside event could be caused by a competitor, new invention that

indirectly competes, change in customer perception, global/national/local event.

Examples:o Computers

Tablets and booksRussian products, due to Ukrainian issue

o Oil embargo in the 70s, smaller cars

o Hijacking an airline; resulted in innovation in bullet proof doors

o New coke, 1985.

Can the event impact small businesses?o New stadiumo New trailo Cross state bicycle ride – RAGBRAIo New law on smoking

    In US, heaters and shelters for patios Each disruption can be an opportunity

o Floodingo Conversation of one product or service to meet a unique need.o Develop examples of need and how could you meet those needs using

an existing product or service. (class exercise) Who is impacted? What do they need? What are the traditional sources? What alternate sources could be developed?

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Source 2: Incongruities

Definition: the difference between what is and what " ought to be"                 What is and what everyone assumes it to be.

The recognition of an incongruity is the potential for an opportunity.

These differences are typically qualitative not quantitativeQ: what is meant by this statement?

    Qualitative reviews are based on metrics that are measuring the customer views our current products, processes and trends.     If the market changes then these qualitative metrics may not show it.    To see this change requires surveys, talking with customers.

Quantitative can also lead to wrong conclusions if the constraints and variables of the equation

There are several kinds of incongruity1. Between the economic realities of an industry2. Between the reality of an industry and the assumption about it3. Between the efforts of an industry and the values and expectations of its customers4. Internal within the rhythm or the logic of a process

Incongruous Economic Realities

Issue is what is perceived as a positive change in the economy may not result into a positive outcome for our company, if the traditional thinking and actions are used.

Bigger is more capable of handling increased industry demand- Steel mills and mini mills- Paper mills

Why would a rising demand not result into higher profitability.

Could be because an external macro force such as the economy is the barrier- By increasing labor it moves you to a different status regarding labor laws- Demand is international and tariffs and gov’t trade regulations - Need to find a non-traditional solution such as a merger, partnership, new

interpretation of the laws

Another could be because the industry is at a max level and any new demand requires added capacity which is a costly step function.I.e. Marginal Cost is not linear to the increased demand    Example: if you have a bakery which can produce 300 loaves of bread a day. If you have an increase in demand you will need to buy another oven, added shelves

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maybe another store.  All adds costs which reduces your profitability.

But if you can find a way to reduce the baking time or eliminate a step then you can use the same equipment but gain added yield.

Incongruity between Reality of an industry and the assumptions about it.

This incongruity relates to placing effort in the wrong place when faced with an issue.

- Shipping industry, focus on reducing per ship costs not on down time

This cause by a lack of understanding of the process or supply chain.Goldratt tells us that we should look for and take action on the bottleneck.

- Automation will result in lower unit costs

Example would be for us to make our facility the fastest and most efficient but not considering the global supply chain.- Lowering inventory without a corresponding process change.

Example:  my son worked for a company that printed mailers.  His job was to reduce the time it took to complete an order for 1000 pcs.  He was focusing in on reducing the time by a matter of minutes.But it did not reduce the time from when a customer placed an order till the time to deliver.  Why?  Because time it took to order the paper was a matter of days.So if it took 2 days to get the paper. And it took 3 hrs to create the mailer, the end result is the customer was still getting his order in 2-3 days.

Incongruity between the efforts of an industry and the perceived and actual customer values and expectations

The opportunity here is like it sounds. Finding an inconsistency in what the customer wants.

The difference is not knowing what the product or service means to the customer.Is it a thing or does it satisfy a more personal need.

Definition of quality: does what I want, when I want, at right place, at right price.- Any one of these could be an opportunity for innovation.

Example:  what does the stock market mean to each investor?Some it is a place to earn wealth, some it is a place to earn money for retirement.Each has different expectations.  Short vs long term needs.Gain vs protection of money

What causes customers to buy?  Product or perception of quality or trust?

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Internal,Incongruity within the rhythm or logic of a process

I view this incongruity both as an internal and customer force.- Internally, it relates to what prevents the flow regarding the production and delivery of 

the product or service.o Relates to total process not just a single one

- Customer wise, what causes hesitation in the willingness to buy.

What causes the biggest concern in a processWhere is the anxiety which slows the process even for a moment.Typically must have a thorough knowledge of the total process.

Example, my dissertation on part flow thru the FMSExample, rush hour traffic or an accident.Example, placing off ramp on the left

Example: I was visiting Cat in Decatur. They were doing a review of processes and found that in the paint area sometimes the process was slowed because they did not have caps to cover the parts they did not want to paint. The solution was to enter into a new arrangement where a supplier would come to the facility and review the stock and send an order without receiving a purchase order instead.This technique has been used in various places but not at Cat. This was an innovation for CAT.

An insider.Use of options.  Farmer vs investor

Source 3: Process Need

This focuses more on the improvement of an existing process than that of an opportunity

This also focuses on the supply chain and topics found in theory of constraints.

Solutions typically come from within.

Look for weak spots

Question: what will be the technical, labor and social challenges the EU will be facing in the next 10 years.   How will these challenges impact the EU ?

Example:

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Company in Brazil Indiana finding employees to fill skilled labor needs.

Example:After WW II companies formed around feudal families.  The Mc Arthur plan eliminated these groups.  This left avoid.  The Japanese then form Keirtsus.  These were groups which formed around a large bank and did business with members of that bank.

The social welfare system in France.Prior to WWI social services were relegated to the cities and administered by the church and prominent citizens.After WWI the need for services from the returning soldiers was too much for the cities, which resulted in a need to create a national social service.

A successful innovation requires 5 basic criteria1.  A self contained process2. One weak or missing link3. A clear definition of the objective4. That the specifications of the solution can be defined clearly5.  Widespread realization that there ought to be a better way

Caveats1.  The need must be understood2. we may understand a process and still not have the knowledge to do the job

3. We know what we need but not how to get it.4. the solution must fit the way people do the work and want to do it.

Source 4: industry and market structures

If a change in the industry is significant then all must change or those who do not will lose.Examples: Vinyl records  CDsBook stores in USCigarettes in US (moved to other markets) Mostly europe france 59; US 51GMO labeling in some states in US (Farmers)Can you think of others. FranceOPEC embargo in 1973The internet

The market structure could be impacted by:WagesInterest rates Customer perceptionsWorld events

The industry structure is impacted by Supply chain (EU and Russian provided oil) (Luxury Sheets)

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 Capacity Competition  Govt regulation/deregulations

The opportunity from a change in structure

The opportunity is recognizing that a structural change is imminent and finds a way to satisfy this new need.

What about the phone service called Free.Is this an innovation?Is it a change in the structure or us it a refinement of the existing process?

Impact of Fracking in US on Oil market? - Russia- Middle East

Four indicators of need for structural change1.  Rapid growth in the industry ,  none is looking at opportunities.2.  By the time sales volume has doubled, the way it perceives and services the industry is likely to have become inappropriate.    -Focus is on the main product, service and customer but not on those who are on fringes.3. The convergence of technology4. The way it does business is changing rapidly.

Friday 10 & 11 - Session 4

I have attached a list of innovations on my webpage.Your group will be asked to classify which of the 4 Internal sources best fits each of the innovations.Describe in detail why you made your choice.Take 15 minutes to write your answers with the names of all in your group.You will then identify each member of your group and present your analysis. 

Friday 10 & Sat 11 - Session 5

Source 5: DemographicsThe first four sources are the caused primarily measured thru internal means.The remaining three sources are external, due to changes in the social, philosophical, political and intellectual environment.The change in demographics whether it is ethnic or age or gender changes the marketplace.The ability to recognize these demographic changes is critical in the recognition of opportunities.

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Examples:

- Working women

- Size of families

- Aging workforce

Why do decision makers overlook changes in demographics?

- Based on historical assumptions

- Do not recognize the immediate impact, lots of time.

- Indicators are insufficient

- Is the demographics segmented correctly?

Source 6: Changes in Perception

This source relates to the relative nature of how people perceive a statistic or result.

1. Though the stat or result is increasing it may not be considered to be increasing sufficiently.

Examples could be:

• Social Innovation- though strides have been made in reducing cancer or infant mortality or unemployment. There will always be a need or opportunity to reduce to zero.

• Though risk has not changed or slightly reduced it is not at a zero or acceptable level as defined by the current customer.

• Travel could be another, when people started climbing Mount Everest it was an adventure accomplished by only a rare few hardy people. Now they offer tour packages with multiple amenities.

2. Desire to move up the socio economic

Definition: Socioeconomic status is commonly conceptualized as the social standing or class of an individual or group. It is often measured as a combination of education, income and occupation.

Examinations of socioeconomic status often reveal inequities in access to resources, plus issues related to privilege, power and control.

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So as groups change in education, income and occupation so does that of the demographic

• Perception of what is adequate housing; 50 years ago a 1200 sqft house was adequate but now it needs to be 2000+.

• Isn’t this the reason for luxury goods

3. Half full vs half empty

a. Even though significant changes have been made the changes have not satisfied the goal, which maybe total inclusion or meeting all the criteria.

b. Relates to an impacted group who looks at what is missing not what they have achieved or possess.

4. A resource or customer changes their perception of themselves

a. An entrepreneur that recognizes this shift in perception can exploit it for sometime usually because others refuse to can their beliefs.

b. If the demographic redefines itself (goals and importance change)

5. Changes in perception is the change in meaning towards a group.

a. Change could be in metric

b. Recognition of factors that impact a decision

c. Change in roles

d. Change in values.

Source 7: New Knowledge

Characteristics of Knowledge based innovation

     This when the entrepreneur develops new information thru research, can be technical or social.

     Examples:

           Sources of light

Change from whale blubber to keroseneLonger lasting, lower cost, more ecological friendly

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Can you define a New Knowledge theory or invention that has revolutionized your daily life?What new knowledge was necessary to create that new invention?

ComputersMedicinesAgriculture

Innovation is a sequence of structured applications of new knowledge.

Where does the new Knowledge come from?

Convergences

Most innovation is the convergence of multiply ideas or aspects of new knowledge, not all are scientific or technical.Many require the convergent of an invention, major mathematical discovery, new logic, concepts of programs and feedbackNewspapers Independence of paper while gaining advertising Low costEntrepreneurial Banking

Comte de Saint-Simon developed theory of using capital to increase economic development.Jacob and Isaac Pereire opened Credit Mobilier, failed two years later as they did not understand banking, only how to raise money.JP Morgan used the new technology created by Saint-Simon combined with London banking principles and was successful.

What knowledge-based innovation requires

1. Careful analysis of what factors are necessary and what factors are not yet available and whether the missing factors can be attained. whether knowledge itself or social economic or perceptual factors.

2. A clear focus on the strategic position.

1. Develop a complete system

2. Have a market focus, don't sell the product sell identify or create the need.

3. Occupy a strategic position, creation of a core competency

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3. Innovator needs to learn and practice entrepreneurial management.Edison vs Tesla.

Tesla held over 100 patents, invented radio but died penniless.The unique risks

1. Science based and technology based innovators have time working against them

1. Technology is ever changing, so if you wait you could become obsolete before you begin.

2. Because the window is much more crowded, any one knowledge based innovator has far less chance of survival.

1. Once the new technology has been revealed then more entities will want to move into that area. Therefore there is a window of a few years where you need to get established.

The Shakeout

The shakeout sets in as soon as the window closes.This relates to those companies that survive the initial startup of the innovation.There is only one way to survive during the shakeout and that is - Entrepreneurial Management

The Receptive GambleThere is always the likelihood that your product will not be received at the level you wish.

The Bright Idea

Most frequent innovationsBut they are the most risky and least successfulOnly one in 500 makes any money above its out of pocket costs.The key is to keep innovating. The ideas the better the odds, do you believe this?Drucker says that this is not the case.Can you think of a reason that the more ideas the better the odds?

Learning

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You gain more experience on how to gauge the marketTo recognize a good idea from a bad one.You can not win if you do not play.Assumes that you have unlimited time and money.Druckers assumption is that the. Bright Idea is not based on a systematic approach.What about the investor that passed on the three pronged spacer for pizza. I am sure that was a Bright Idea.

Friday 10 & Sat 11 - Session 6

Work in your groups

Identify one example for each of the 3 external sources

You have 20 minutes to identify and discuss your reasons for each source.

Be prepared to discuss the analysis as a group, identify the members

Provide me with your written analysis with the names of each group member.

Sat 10 & 11 - Session 7

Principles of InnovationThe Do's

1. Analysis of opportunities : thinking through the sources of innovative opportunities.

2. Innovation is both conceptual and perceptual

1. Go out to look, to ask, to listen

2. Analyze the numbers

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3. What does this innovation have to reflect so that people who have to use it will want to use it and see in it their opportunity?

3. Innovation, to be successful, has to be simple and it has to be focused.

1. Complicated innovations lead people to pass it up by not seeing how it helps them

2. It need to obvious in its use

4. Effective innovations start small

1. trying to revolutionizing an industry will likely fail, unless you have lots of money and time.

2. Requires little money, few people and only a small a limited market

5. A successful innovation aims at being a leader in the market

1. This could be a leader in a niche

The Don'ts1. Try not to be clever

1. Use is by ordinary people, so keep it simple

2. Do not diversify: stay focused

3. Do not try to innovate for the future; innovate for the present

1. You do not understand what the future environment will be so stay current

Three conditions1. Innovation is work

1. Requires knowledge

2. Requires ingenuity

2. To succeed, innovators must build on their strengths

1. Look at opportunities over a wide range

2. Which of these opportunities fits me, my company, requires what we are good at

3. Innovation is an effect in both the economy and society

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1. It impacts customers, teachers, farmers, eye surgeons, etc

The conservative InnovatorSome say that entrepreneurs are risk takersDrucker notes that successful entrepreneurs define risk and seek to minimize it.They systematically analyze the sources of innovative opportunities, then pinpoint the opportunity and exploit it.Entrepreneurs are not risk focused they are opportunity focused

WHAT DOES THIS MEAN?

Entrepreneurship in big businessThere is the perception that big business cannot innovate.

Too bureaucratic Too many egos Structure causes reaction to changes to be too slow

If there is difficulty in big business innovating it is because they do not have the proper mindset.Innovation is not something that just happens, it must be worked at and sought out.The aspect that stifles innovation in a big company is that those that have success are not seeking change. Innovation requires change. For an entrepreneurial mindset to work it must see change as an opportunity.

Entrepreneurial Management requires policies and procedures in 4 major areas.

1. The organization must be made receptive to innovation and willing to perceive change as an opportunity rather than a threat.

2. Systematic measurement or at least appraisal of a company's performance as an entrepreneur and innovator

3. Entrepreneurial management requires specific practices pertaining to organizational structure, to staffing and managing and to compensation, incentives and rewards.

4. There are some things not to do.

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Entrepreneurial Policies

How do we make the organization receptive to innovation(change)?1. Need to make innovation seen by the manager as a benefit to them.

• This innovation is the best for the company and the avenue to job security.

2. Define the importance of the need for innovation and the timeframe. 3. Development of an innovation plan with specific objectives is necessary.

1. Remember unexpected failures, track outcomes, maybe useful for another application

2. Provides a guidance only3. Does not indicate the method of innovation

Policies to foster innovation1. Drucker notes that a company should hold a review of all processes,

products and personnel as to their necessity towards the future of this business.

• Question: would we go into this business using the processes, resources (material and people), the distribution and this technology if we were to start from the beginning.

• Question: where are our areas of non-value.

• The solution may not be a complete revamping but it defines areas that need improvement.

• There must be a willingness to recognize when a past process or product or resource is not successful.

• Tradition is not always a good indicator of future success.

• Why would you not stay with what has been successful in the past?

• This is the first step in the recognition for the need of innovation.2. Recognize that all products, services, markets, distribution channels,

processes and technologies have a limited life expectancy.

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• Development of a "Business Xray" that measures the contributions of these aspects in their contributions to company goals and objectives.

3. Placement of products, services, distribution channels on a life cycle. Determine how long they maybe in each stage and what can the company realistically do to maintain the contribution to company objectives.

4. Development of a systematic abandonment of products, services, channels that are not assisting in corporate goals.

5. Development of an entrepreneurial plan, that determines how many people are needed, with what abilities and capacities. Supply them with the tools needed, the money, the information and provide clear and unambiguous deadlines.

Session 8

List what do you think prevents innovation?

Generate a list of policies which would foster an entrepreneurial mindset.

Entrepreneurial Practices1. Focusing managerial vision on opportunity

• Managers should focus on opportunities rather than solely on resolving problems.

• This leads to innovation by exploring ways to optimize existing products, services, processes.

• More time and emphasis should be placed on and exposure to innovative opportunities.

• Current methods cause managers to be short sighted. “Unable to see the forest for the trees”.

2. Hold a two day "show and tell" on how some managers are implementing innovation.

• What did you do that was successful?

• How did you find the opportunity?

• What did you learn?

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• What entrepreneurial and innovative plans do you have on hand now.

• These session shows that it can be done, energizes others, shows benefits.

• There will be the natural tendency of some to say that it will not work for them as their departments are different.

3. A member of top management meeting informally with Junior staff from Research, engineering, manufacturing, marketing and accounting and other departments to listen, not talk, about opportunities.

• What are their ideas on opportunities?

• Where do they see threats?

• What would you like to try to design or develop?

• What questions do you have about? Company policies, direction, objectives, position in the industry.

• Hold meetings every four to six months.

• Purpose is to remove a layer of management bias, give boost to junior employees, dispelling any rumors.

• Ducker notes that someone who makes a recommendation should be ready to create a position paper describing what should be done and how. Including money and resources to turn into reality.

Thurs (10 & 11) Session 9

Measuring Innovative PerformanceSteps

1. Create feedback on results to expectations for each innovative process.

(link to process and process building block model)

• To do this we must have identified a metric.

• Also, we must understand the level of good performance.

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• The metric and level of performance must be linked to a company goal, which helps define the metric and level.

• When do we appraise the project? how frequent?

• Who will do the appraisal?

• If this is an innovation on an existing product or process, then what is the current metric and is it appropriate?

• The results will aid not only in the current project but help in establishing future projects regarding when and how to appraise for success. Not too early or too late.

• How do we communicate feedback? To which stakeholders?

2. Institute a systematic review of innovative efforts all together.

• Review which projects have worked and which have not.

• This review could be an annual or semiannual event.

• Attended by project managers and champions.

• This is necessary as studies have shown that those who originate change will continue to apply resources to a failing project with the expectation that they can turn it around (sunk cost). They think the future will be different that the past efforts. They also do not want to be wrong.

3. Judging the company's total innovative performance against the company's innovative objectives, against its performance and standing in the market, and against its performance as a business altogether.

• Is the change going in the right direction?

• Have the objectives of the company changed?

• Has the market changed?

StructuresHow to create a structure that supports innovation?

1. Separate the new from the existing units.

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• The new innovation needs to be given the time and effort to make it flourish.

• In an existing unit the principle product or service seems to take precedent as it is currently a greater contributor to the company bottom line.

• Creation of a small focused group is a better structure for nurturing innovative products.

• Work best for larger and strategic projects which have a potential for significant impact on the future of the company.

2. There needs to be someone in top management who has responsibility for these innovative groups.

• Making sure they have the necessary resources to give the innovation a proper chance.

• In essence, innovative group needs a champion.

• These innovation groups should not be thru traditional line management.

• For reasons discussed: focus too narrow, too many near term projects

• This upper manager need not spend all their time, but need to be responsible for success or failure.

• Maybe have this innovative group be a separate company. Such as the Skunkworks

3. Keep innovation projects separate from standard work, so that traditional metrics are not used.

• Such as IRR

• Application of traditional overhead costs

• Innovation projects need development of different policies and procedures

• Remember the entrepreneurial policies we discussed.

• Investment in new innovation that does not return immediate revenue will skew the traditional cost metrics in a traditional organization.

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• Traditional overhead will burden the cost structure of the new venture,

• Need an ABC approach.

4. Tie compensation to success in implementing success

• This does not mean that you penalize for failure.

• But success will result in promotion, increased salary, etc; if you do well you will lead that division of the new product.

• Need to define appropriately what are the expectations throughout the stages of development.

• Simply breaking even or a 10% return is not considered a success.

• How will the innovation impact the company’s future?

Staffing

It is not necessary to seek out only those who have bright ideas.Seek out someone who has the behaviors, policies and practices that will work towards nurturing an idea.It is not based on personalities, focus on skills and attributes.Most people who define themselves as entrepreneurs do not do well in a big business environment.

Too much bureaucracy

Not enough broad latitude to explore projects

Staffing is hard work, requires: the application of good management practices, getting the right people into the right positions, using the right processes, necessary resources to develop the right products or services.

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you need to define the positions and skills needed

One needs to consider personalities as the culture of the organization must fit that of innovation.

The DON'Ts

1. Do not mix managerial units and entrepreneurial ones2. Innovative efforts that take the existing business out of its own field

are rarely successful

• Core competency

• Some diversification is good3. Almost always futile to avoid making one's own business

entrepreneurial by "buying in".

• Within 1-2 years the buying company must assign managers from their company.

• People from the acquired company may not like the new policies or culture.

Question: What are the characteristics of an entrepreneur? (5 min group) What should we look for in the people that will participate in our innovation projects?

Can we create a job description?

Thurs (10 & 11) Session 10Entrepreneurship in the Service Institution

“Non-for profits” need innovation even more than “profit oriented” companies.The changing market impacts them more and the lack of a profit metric leaves them with measuring success via size and growth.Many seem to follow a tradition focused approach.

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Change is forced on them by outside forces Voters

Clients

Politicians

Economy

Perception of need based on an agenda

Typically, the recognition of innovation is the result of a drastic failure.

Three main reasons why the existing enterprise presents so much more of an obstacle to innovation in the public service institutions than in a typical business.

1. The public sector is based on a budget rather than being paid out its results.

• Revenue is spent by someone other than the one who generated it.

• Taxpayers, donors or overhead support functions

• Activities are deemed necessary based on tradition2. Dependent on a multitude of constituents

• Public enterprise has multiple stakeholders which are seen as equally important

• Private enterprises have only one, the customer.

• Once a program is established its constituents cannot be abolished

3. They perceive their mission as a moral one which does good.

• This moral mission places their efforts are perceived to be beyond simple economic metrics.

• Since each project does some good towards its constituents, how do you measure the level of goodness?

• Children vs senior citizen programs

• Health care vs jobs programs

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Focus is to maximize vs optimize.

• 100% vs 80% goal;      All clients are of equal valueMost innovation in private sector comes from new ventures.

Entrepreneurial Policies for Public Sector Companies

1. Need a clear definition of its mission.

• What is it trying to do?

• Why does it exist?

• Objectives not programs2. Realistic statement of goals

• Needs to be obtainable

• Not world peace3. Failure to achieve objectives should be considered an indication that

the objective is wrong.4. Build into policies the constant search for innovative opportunity.

The need to InnovateWithout innovation, these institutions will lose their ability to meet the needs of their constituents. They are too big to fail as they are integral in the running of our government and impact on our lives.

The New VentureFor existing businesses, the innovative focus is on entrepreneurship.For new ventures, the innovative focus is on Management.

A new venture needs to become a viable, operating, organized presence; not just another good idea.Being a manager is more than being the boss

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Edison had 4 companies that failed for not developing a management team.He was a “one-man” show.

Entrepreneurial Management in the New Venture has 4 requirements.

1. A focus on the market needs.2. Financial foresight, and planning for cash flow and capital needs.3. Building a top management team long before the new venture actually

needs one.1. Ben and Jerry story

4. The founding entrepreneur must make a decision in respect to their own role, area of work, and relationships.1. Microsoft

The need for market focus

• This relates to the need for the innovator to recognize and consider applications and markets beyond what the original intent of the product and/ or service.

• Failure to make this recognition and willingness to pursue it will result in competitors entering the market and gaining the majority of the market share.

• To develop the market focus, the innovator must do the following

• Seek out the unexpected applications and markets. (if intended for Industrial then what about Commercial and vice versa.)

• Make small revisions to accommodate (too much and you will loose focus).

• Find customers to tryout this new application.

• Get outside and explore the opportunities, do not wait for the analytical and market research to tell you. (especially if you can Fail Fast, Fail Cheap).

• Do not think you know better than the customer.

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• Do not reform but satisfy customers.

Financial Foresight

• How can you plan for success and or failure?

• Lack of cash

• Inability to raise capital needed for expansion

• Loss of control of expenses, inventories and receivables

• The focus is on revenue and profit.

• Focus should be on having enough capital.

• What is the difference between revenue and profit?

• Taking a large order but not having the capacity which causes a use of cash.

• The lack of cash can result in not being able to pay your suppliers, utilities, payroll.

• Getting orders that have long lead times for receivables. (60-90 days by big companies)

• Using overtime and expedited delivery can reduce the intended profit.

• There is intended profit and then there is actual profit

• Need cash flow analysis, forecasts and cash management

• Entrepreneurship demands financial management.

• Need 12 month forecast of cash needs, when and purpose.

• When the company grows by 40-50% the company needs a new capital structure.

• Needs to find larger sources of capital

• With fast growth needs more refined means of controlling cash, inventories, receivables, manufacturing costs, admin costs

Building a Management Team

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Why would a successful business that has been lead by its founders begin to fail once it begins growing?

• Founders typically wish to be involved in all aspects of the business, it is their baby.

• This is fine when there are but a few employees, but when the employees increase and the customer base increases due to increased sales it may not be appropriate.

• As companies grow there is a need to step back from the day to day and begin developing a more strategic plan. Where is the company going?

• There is a need for a focus on standardization of product and procedures.

• Yet there still needs to be someone to focus on the various aspects of creating and delivering the product or service, this requires a management team. Division if labor.

When do you form a Management Team?

• The team needs to be formed prior the need

• It will take time to form the team and time for the culture to accept this new form

• Change is not done immediately, also the search may be extensive.

How do you form the Management team?

1. Identify the key areas upon which your company survives and succeeds.1. Money and people are common

2. What are the activities am I doing well? Answered by all. 3. Which activity should each of us take on as our first and primary

responsibility, based on individual strengths?4. Which individual fits which key activity?5. Set goals and objectives for each area.

1. What can this enterprise expect from me?2. What should we hold you accountable for?

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3. What are you trying to accomplish and by what time?

Where can the founder contribute best?

• How does the founder fit into this management team?

• May not be their skill area

• Do they adapt or sell?

• What is the founder good at?

• What do I really want to do?

• Do my skills and my wants match the skill requirements of the company, as it moves into this new phase?

The need for outside help

Friday (10 & 11) Session 11

Go to Need, Team and Assess Risk paper

Friday (10 & 11) Session 12

Entrepreneurial strategiesFour strategies1. Fastest with the mostest

2. Hitting them where they ain't

3. Finding and occupying a specialized ecological niche

4. Changing the economic characteristics of a product, market to industry.

These are not mutually exclusive and are combined into a single strategyUse depends on the innovation type.Each has its own limitations and risk

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Fustest with the mostest It focuses on attaining a permanent leadership position within the

market. It relates to being the first to market with the best product/service.

o This is like trying to jump on a moving bicycle coming when you are coming at a 90 degree angle.

If successful then you are there when the demand first realizes what it needs.

Timing is everything You can maintain your monopoly thru patents, even if you have

creative imitators.o Apple and Samsung

You do not need to be the largest company, only the first and the leader.

This can have the high risk:o Assumes you see a market where others do not, even the

customers.o May not always result in the highest payoff.

If you are wrong, it can draw large sums of capital in the development of a market that is unwanted.

What does this strategy contain?1. An ambitious aim2. Creating a new market or industry3. Creating a highly unconventional process4. Requires thought and careful analysis5. Exploitation of the right economic and political conditions6. Once the new market has been established the innovator must

remain focused to retain the leadership role.

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7. Prices must be cut to retain leadership thru value and to reduce the opportunity for competitors.a) If you keep prices high, then the more opportunity there is for

competitors to enter and succeed in your marketb) People will only pay just so much for a name. They pay for

perceived value which relates to prices.

Hit them where they ain't

Creative imitationRelates to revising an existing product or market in such a way that better meets the needs and desires of the market. This is what happens when you define a market but fail to retain the leadership noted in Fustest with the Mostest.His strategy is less risky than Fustest with the Mostest because someone else has established the market. This strategy establishes how to meet its needs, The issue with this strategy is that the market need is an ever moving target, as such your strategy must be to recognize this movement and provide what it wants.

Requires accurate sensors Requires an entrepreneurial mindset to see the opportunity.

Using this strategy, the innovator perfects and positions the product.So the innovation could be in the distribution rather than the product features.

Focus on the supply chain

This strategy is total market focused and market drivenNeeds a growing market as brand loyalty may prevent existing customers from moving from the original innovator.

You have to convenience the customer why they need to leave the leader.

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Entrepreneurial Judo

Take advantage of their weakness by recognition of their habits.There are 5 common bad habits that enable newcomers to use entrepreneurial judo.1. Not invented here: relates to companies not taking advantage of an

opportunity because they did not think of it. Transistor2. Focus your attention only on the "cream" of the market. Not paying

attention to the less profitable segments of the market. Xerox3. Quality defined as a level of complexity or what the supplier puts into the

product Should be based on what the customer perceives as quality relative to

value. Value added

4. Delusion of a premium price: just because something is expensive does not mean it has quality or value. It opens up competitors to enter the market as they can offer a

product for less and are willing to accept a slightly lower margin.

5. Maximization versus optimization Trying to satisfy every customer using the same product with slight

revisions The end result is to gain the market, but at a higher price and higher

complexity 1. Complexity leads to more cost in the creation

1. Fast food restaurants Customers are paying for features that it does not need.

1. Cable TV in US The solution is to identify market segments and then create products

that are optimal for that segment, not for each unique customer. Features in one segment will not be important in another

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The issue is if you miss a significant segment then competitors will use the same “Hit Them Where They Ain’t “principles against you.

The key in entrepreneurial judo is to establish yourself in one aspect of the market then expand to related aspects of the market.Three areas where the entrepreneurial judo will likely succeed

1. Where the market leaders refuse to take advantage of a market segment.2. Where the originators are selling to the high margin segment at a

premium price3. When the market structure changes fast

Starting with entrepreneurial judo

1. Analysis of the industry2. Analysis of the producers and suppliers3. Analysis of their habits4. Review of their policies5. Review of market gaps

These are all principles found in developing a Business Model.Has similarities of Fustest with Mostest and Hit them where they ain't

Ecological niches This strategy differs from the others as it seeks control rather than market leadership.Monopoly in a small areaMaking yourself immune to competition, the others are focused on competitionTo be anonymous yet essential to the process.Three ecological niche strategies1. Toll gate2. Speciality skill

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3. Speciality market

Toll gate strategy

The product or service must be essential to the processThe consequences of not using it would be significantly higher than the cost of the use.The market is limited, thus entry into the market requires cutting costs but due to the size of the market the volume does not make up for the lower price.There is a virtual monopoly on the marketRelates to a number of chemical companies

Risk Market size is fixed Tied directly to the industry it serves. Future innovation may result in the complete elimination of the market. Attempts to diversify seldom work, can lead to recognition and competition.

Do not vertically integrateASUS – mother boards, but did vertically integrate

The Speciality Skill

The innovator creates a product or service that is essential to the processIt is developed at the beginning of the host product, so timing of essentialIt is not just a little better it is the standard by which all others are measured.Requires a significant search for the opportunity.Example: could be a knowledge of an area or access that others do not.

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This specialty skill is a barrier to entry for possible competitors1. In the early stages of a new market or industry there is an opportunity to

search systematically for the specialty skill opportunity2. The niche requires a skill to be both unique and different3. A business occupying a specialty skill niche must constantly work on

improving their skillLimitations1. The focus is so narrow that related opportunities may be missed2. Usually dependent on somebody else to bring the product or service to

market, as it is typically a component in the product or process.3. The possibility that the specialty stops being unique and is universal.

1. Limited in scope and in time

The specialty marketThe difference to a specialty niche is that the niche is part of another product whereas the specialty market is the final product itself.Typically, recognizing and entering a new market first and establishing yourself as the standard. The market is too small for more than 1 leader.Same requirements as the specialty nicheSame limitations

Examples:Say you want to open a travel agency that specializes in tours to North Korea or into outer space. (Virgin Galactic)

Changing values and characteristicsFour different ways. Of creating a customer.1. By creating utility2. By creating pricing3. By adaptation to the customer's social and economic reality4. By delivering what represents true value to the customer

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Creating customer utilityRecognition of and satisfaction of what the customer truly wants.

PricingPrice the action not just the itemRazorInitial item is priced low but recurring wear or consumables are priced higher.Pricing by copies made not the copier

The customer's reality1. Customers are rational in that they consider the constraints and factors

which go into the buying process.2. These constraints and factors are the buyers reality.3. For a company to sell to a buyer they must understand these constraints

and factors.4. These could be limitations of money, space, knowledge, technology and

more5. Examples

1. Diapers in japan2. Milk in Africa3. Computers in DR4. Expensive items to middle class.

Delivering value to the customer1. Recognition of what is important to the customer2. Identification and communication of the value the supplier provides to the

customer3. This advantage or value must be viewed from the consumer’s perspective

not that of the supplier.4. Sometimes this is brooding the definition of what is to be provided.

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5. This may seem to go against the niche philosophy, but remember that one of the disadvantages is that you might not see opportunities if you are too focused1. Also the niche philosophy relies on no competition due to the market

size or a specialized skill.2. Also, there is a need to remain current on what the customers’ need.

6. So is price the only measure of value.1. Value is what it does for you, not what it costs2. Perceived value is what it does for you at a specific costs.

7. Value or is it utility, what is the difference?8. Goldratt writes in his book "The Goal" about a customer who was asking

for 1000 units of an item to be delivered within half the normal time of 4 weeks. Goldratt notes that the customer has an immediate need for 250 units. So a solution is to provide 250 per week for 4 weeks than 1000 in 2 weeks. Why?1. Inventory costs, just-in time, lower costs for both2. This is innovation.

Friday (11) and Sat (10) - Session 13

Measuring Financial Metrics

Landon Morris (2008) - How to Measure Innovation Process

Innovation is to create business valueMethods of Innovation

Develop ideas Refine to useful form Bring to fruition to achieve profit In operations to achieve increasing efficiencies

Metrics are meaningful but can be misleadingROI – Restraint on InnovationBased on near term gainsHP only looks at innovations where the potential is greater than $50 Million.How do you know

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Stages of Innovation

Strategic thinking

Linkage between strategy and innovation

o Strategy provides a direction for where the company wants to goo Provides a set of goals and requirementso Focuses the innovative researcho Innovation outside of target market may not be useful

Needs significant infrastructure to bring to market No expertise in market demand or needs.

Potential Qualitative Metrics

o Are we targeting the right parts of our company?o Can we change as fast as our markets demand?o Are we flexible enough?o Is our strategic clear enough to translate into innovation imitative?o How well do our strategies match the way the market is evolving?o Do we have an effective innovation dashboard?o Are we measuring innovation adequately?

Quantitative Metrics

o Time senior managers invest in innovation?o Time required for development of strategic concept to operational

implementation?o Money invested in innovation?o Money invested in each type of innovation?o Growth expected from the innovation process in % of revenue & total $

Portfolio Management and Metrics

Diversification of risk while offering good upside potential

o Focus on success of all innovation projects, not just oneo Market is difficult to predicto Cover various options of potential market direction/needs

Metrics should focus on goals, examining performance of each innovation and applicability to meet the demand and competition.

Qualitative Metrics

How does our portfolio compare with what we think our competitors are planning?

Do we have the right balance of incremental and breakthrough projects?

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Are we introducing breakthrough at a sufficient rate to keep ahead of change? What are our learning brands?

o Used to push the envelope of market need. Are we developing new brands at an adequate rate? Are our metrics evoking the innovation behavior we want? Are our metrics aligning with our reward systems?

Quantitative

Ratio of capital invested in early stages vs return earned in sales stage. Actual portfolio composition in the sales stage compared with composition in

Planning stage. Expected metrics vs actual performance achieved.

Research

Exposes the unknown, unmet need Development of new technology Uncover new market opportunities. Ideas must be discovered, not given. Output is conceptual models of emerging technology, society changes, and customer values

3 Poles1. Technology (explicit and tacit)2. Society (ways of evolving)3. Users

1. Wants, needs, motivation, beliefs, attitudes

Qualitative

How well do we understand the tacit dimensions of our customer’s experiences? How well do we understand the implications and applications of new technologies? How well do we understand the emerging future? How good have our past predictions been at anticipating change? Is our research helping to target the right innovation opportunities?

Quantitative

Number of customer groups we have examined.

Applications of research in new products, services and processes.

Breadth of participation from throughout our organization in the research process.

Time invested in research

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Money invested in research.

Ideation

Explore all the knowledge and discoveries that our research has exposed.

Both existing and future products, processes and services.

It is the “what if” phase

Use info and ideas to create models of the world to determine if our innovations will thrive.

Ideas can come from both inside and outside.

Output: concepts that we carry forward to further development.

Qualitative

Do we have a broad range of models of technology possibilities, tacit knowledge models and societal trends?

How good are we at creating an open sandbox that can accommodate a wide range of possible concepts and ideas?

Are we encouraging people sufficiently to share their ideas?

Quantitative

Number of ideas developed

Number of ideas contributed by our staff.

Number of ideas introduced

Percentage of ideas from outside.

Number of people inside the organization who are participating in the ideation process.

Number of people outside the organization who are participating in the ideation process.

Number of ideas collected in the ‘idea gathering ‘system.

Number of collected ideas that were developed further

Number of collected ideas that were implemented.

Insight

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Insight is an active concept where through our research and ideations we gain an understanding of what is feasible.

Insight is where we see how technology, customer understanding and market knowledge are used to develop/support our innovation.

Output: taking concepts and reviewing in light of technology and customer needs.

Qualitative

Are we getting enough solid insight/concepts? Are the insights we are developing across a broad enough range of business?

Quantitative

Unsuccessful technology and customer mash ups attempted. Successful technology and customer mash ups achieved.

Targeting

Types of innovations

IncrementalBreakthroughBusiness modelNew venture

Insights developed to see business potential, so need to find which type of innovation to strive for.

Need to consider portfolio developedDo we have the right mix of each type?Review current portfolio to ensure accuracy of classifications.

Qualitative

Is our innovation portfolio balanced correctly? Are we using the right management processes for the different types of innovations

that we are working on?

Quantitative Percentage of investment in non-core innovation projects. Total funds invested in non-core innovation projects. Senior management time invested in growth innovation.

Innovation Development

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Engage in extensive engineering, lab testing, build prototypes, test assumptions and talk to customers with real products in hand.

Take concepts and make them real

Create business models & business plans

Ideas to business value

Project management skills are required here.

Output: product that is ready for the market.

Qualitative

Are the right people involved in the innovation process? Do we have enough failures to assure that we’re pushing the envelope sufficiently?

Quantitative

Prototyping speed Number of prototypes per new product Average time it takes to get from stage 1 to stage 5. Number of patents applied for. Number of patents granted Percentage of ideas that are funded for development. Percentage of ideas that are killed.

Market Development

The product is ready for the market; but is the market ready for the Product? There is still a need to refine where in the market the products meet specific needs. How to communicate the capability of product to market segment? How to get the product to the customer via the right outlet?

Qualitative

How well are we balancing our attempts to reach existing versus new customers? How well do we really understand our customer? Are we positioned properly for changes in the attitudes, beliefs, ideas, etc of our

customers

Quantitative

Return on marketing investment

Number of new customers added

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Growth rate of customer base

Sales

Product has been introduced to market Determine the level of acceptance by the market. Qualitative

How well does our process match our customers’ needs?

Quantitative

Now we can talk about ROI. Gross sales revenue Gross sales margin expected results compared with actual results. Percentage of projects are terminated at each stage. Successful results per type of innovation. Costs savings achieved in the organization due to innovation efforts. Number of new customers. Percentage of sales from new products/services? Average age of products/services. Number of new products/services launched. % of revenue in core categories from new products/services. % of revenue in new categories from new products and services. Percentage of profits from new products/services. Percentage of new customers from new products/services Time to market from research through to sales. Customer satisfaction with new products/services.

Saturday (10 & 11) Session 14

Managing Change

Saturday (10 & 11) Session 15

Final review

Saturday (10 & 11) Session 16

Final Project

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